Not banning outside membership reflects little appetite for reform
By dropping the provision, in the proposed labour law rationalisation, that would have barred outsiders from becoming the member of a trade union at a particular company, the government has signalled that it isn’t ready to walk its talk on labour law reform. For five years now, the ruling party has been talking of rationalising the existing 44 labour laws into four labour codes, which would make the rules more industry-friendly, and thus benefit labour by spurring job creation. But, it seems like the government doesn’t have the will to confront the powerful trade unions. First, instead of relaxing retrenchment rules, it has maintained the status quo. Now, while the Code on Industrial Relations brings down the number of outsider-office-bearers in a trade union to one-third of the total number of office bearers (or five, whichever is lower) from the one-half rule earlier, the union can still be formed if just 10% or 100 employees of a company are members, while the rest are outsiders.
While trade unions were seen as the only way to ensure labour protection in the past, the reality is that companies also need flexibility since, in the absence of this, the company itself may have to shut down. Also, tough and influential trade unions have held companies/units hostage and, in the government sector, have even held up reforms. While a tough stance, like that taken by Telangana CM K Chandrashekar Rao in the matter of the strike by the state transport corporation employees, is what is needed, what happens routinely is the opposite—governments, companies yield to unions. Indeed, the reason why the shift from EPFO to NPS hasn’t happened in the way the government envisioned it is because powerful trade unions prevailed upon the government not to implement this reform.
Allowing majority outside membership has meant that labour unions in the private sector have been hijacked by political parties whose workers sign up en masse as union members. This means unions have prioritised political and electoral interests over that of workers. A 2015 analysis by Icrier professor Anwarul Hoda shows that owing to stifling regulations, the share of contractual jobs across manufacturing increased by 15 percentage points within a decade. By FY12, contractual work occupied one-third of total employment in the organised manufacturing sector, even when the share of jobs in large firms increased. A more recent Icrier study found the percentage of contract workers in total employment increased sharply from 15.5% in FY01 to 27.9% in FY16. Despite contract wages rising faster than regular ones, companies preferred contractual workers to keep costs down and restrict the bargaining powers of trade unions. With legacy labour laws being one of the key reasons why large firms have not come up in desired numbers in the recent decades, the government would do well to revisit its stance over the union membership question as well as other labour matters needing reforms. Restricted labour laws are also a key reason why, for instance, India has not been able to capture a large share of the readymade garment export markets and lost out to countries like Vietnam and Bangladesh.