Industry needs more labour reforms than what govt is doing
Although the government has been talking of changing labour laws to make them more flexible, and some amendments are awaiting Parliament approval, little has really happened in the last four years. In this context, Tuesday’s amendment to the Industrial Establishment (Standing Order) 1946, which allows companies, across sectors, to hire workers for on a fixed-term basis is a step forward, but it is likely to have limited impact; earlier, only apparel manufacturers were allowed this option.
To what extent industry is enthused by the new rule and how much more hiring will take place, remains to be seen. In the case of the apparel sector, which employs large numbers, the results haven’t been too encouraging. Since the rules were relaxed in October 2016, around 655 units have taken advantage of them, creating approximately 1.55 lakh fixed period jobs. It must be mentioned, however, that the sector has gone through a bit of a rough patch. First, there was demonetisation which hurt businesses largely dealing in cash. Subsequently, the big delay in export refunds, post the rollout of the GST in July 2017, hurt exporters’ cash flows. Nonetheless, the fixed-term employment rule will be beneficial to export-oriented units, which require extra hands in certain seasons. However, the fact that apparel manufacturers weren’t really able to take better advantage of the benefits of fixed period hiring indicates there is more to reviving the economy than simply loosening labour laws or, to be precise, just a couple of them. To address the problem of a job shortage, industry needs certainty and comfort across several areas—the policy and regulatory framework, infrastructure facilities, input linkages, interest rates and flexible labour laws.
Given how the trade unions are opposing any relaxations in labour laws and with elections about a year away, it looks unlikely the government will take any hard decisions or move aggressively on any labour reform. Although there has been a lot of discussion on the Labour Code on Industrial Relations Bill, there has been very little progress. The idea is to allow companies that employ more than 300 persons to shut down or retrench workers without government approval; currently, only companies that employ up to 100 people are permitted to do this. The consensus view, however, is that 300 workers is a small number and the law should actually be extended to cover businesses employing up to 1,000 person. The unions are pushing for changes that will make minimum wages a statutory right—part of the Code on Wages, 2017, which has been introduced in the Lok Sabha. While the government might attempt to push this through since there is unlikely to be any opposition in a pre-election year, that might make things worse with industry clamping down altogether on permanent hires.