Mahatma Gandhionce said:

“When I despair, I remember that all through history, the way of truth and love has always won. There have been tyrants and murderers and for a time they seem invincible but in the end, they always fall—think of it—always.”

As always, the Mahatma was right. Labour reform was almost a political untouchable for decades; so the progress made in 2014 seems unbelievable.

The central government amended the Apprentices Act, revamped the labour inspector regime, gave employers and employees unique numbers, and is moving to online compliance. More importantly, its willingness to use Section 254 (2) of the Constitution (this allows states to diverge their labour laws from the national norm) ensures that there is no such thing as an Indian labour market: There are, however, local ones. An economic wasteland like Uttar Pradesh has very different labour dynamics from, say, Karnataka. Rajasthan pioneered this route and now seven more states are following. This is wonderful because competition is a killer app. And 29 CMs matter more for job creation than one PM.

Informal employment is the slavery of the 21st century, yet India’s labour laws declare war on formal employment; 100 percent of net job creation in the last 20 years has happened informally. Our labour law regime has poisonous consequences: Poor productivity, poor working conditions, lower taxes, small firm size (85 percent of manufacturing comes from firms with less than 50 employees) and informal firms (60 million enterprises translate to only 7,500 companies with a paid up capital of more than Rs 10 crore).

Anybody who believes that massive job creation will happen without radical surgery to our labour law agenda is delusional. But it’s also unwise to equate labour law reform with Chapter 5B of the Industrial Disputes Act (the so-called hire-and fire-clause), given the many other reforms that are less radioactive.

Fixing our employment contract—the corporate equivalent of marriage without divorce—is important, but the realities of our political economy need distinguishing between the recipe and list of ingredients. Reforms should be sequenced into five buckets: Plumbing, definitions and consolidation, benefits, trade unions, and the employment contract.

The plumbing agenda is about making compliance for employers frictionless; the first step is single interface with a single number. This should be followed by collapsing the 44 central labour laws into the five clusters identified by the second Labour Commission. Fixing benefits is about cost, competition, and affordability. Fixing trade union law is about making trade unions more representative; the politicisation of trade unions and criminalisation of politics is a toxic combination. The last phase is amending Chapter VB of the Industrial Disputes Act to give flexibility to employers in managing their fixed costs because 300 secure jobs are better than 400 shaky ones.

Leave a Reply

Share This

Copy Link to Clipboard