Some states put freeze on labour laws to get business going

Undertaking a radical set of politically controversial economic reform measures, the Bharatiya Janata Party (BJP)-ruled Uttar Pradesh (UP) and Madhya Pradesh (MP), two states with substantial workforces, have frozen major labour laws, except basic ones, in the hope that businesses will recoup from the blow of the Covid-19 pandemic and create more jobs on a net basis.

The changes give industries more flexibility in hiring and firing employees, determining their wages, and reduce their liabilities in terms of providing employee benefits. Some economists welcomed the move for clearing structural bottlenecks, possibly leading to greater investment, creating employment opportunities for migrant workers returning home, and positioning India to be able to take advantage of disruptions in global supply chains. The move, however, also sparked intense criticism from the Opposition, particularly left parties, trade unions including those affiliated to the Rashtriya Swayamsevak Sangh, and civil society activists for undermining worker rights, removing decades-old protective measures and slowly dismantle the welfare architecture.

To be sure, 90% of India’s workforce, which is employed in the informal sector, won’t be affected by these changes. These apply to those who are in the organised workforce and registered firms.

While the Centre has attempted a degree of changes in labour laws, there have been no moves with as wide ranging an impact as those brought about in UP and MP.

UP suspended key labour laws for three years on May 6 through an ordinance, even as MP announced on May 7 it was taking a similar course to put all labour laws on hold, barring some provisions of the Factories Act, 1948, for the next 1,000 days. The move comes after the BJP held consultations with stakeholders back in April.

The UP government passed the Uttar Pradesh Temporary Exemption from Certain Labour Laws Ordinance, 2020, that exempts businesses, manufacturing mostly, for three years from a gamut of labour laws barring four: the Building and Other Construction Workers Act; Workmen Compensation Act; Bonded Labour System (Abolition) Act; and section 5 of the Payment of Wages Act, which mandates employers to pay timely wages, and the Maternity Benefits Act.

This means that a broad range of laws will not apply. These include the Factories Act, which mandates work-hours provisions. In UP, this stood at eight hour daily shifts and 48 hours a week. Employers need not abide by it anymore. The Industrial Disputes Act, 1947 too now remains suspended in UP and Madhya Pradesh. In UP, the Act in the state covers 12 sectors that account for four-fifths of manufacturing output. The law requires 30- to 90-day notice period before retrenching “workmen”, which is a class of mainly floor workers. In the case of manufacturing units, plantations, and mines with 100 or more workmen, lay-offs also required government approval. These approvals will no longer be required.

The moves by the two heartland states could be a model for other BJP-ruled states, as thousands of migrant workers head back to home states, many on foot, creating a burdening surplus labour force. Gujarat and Uttarakhand are likely to follow suit, an official said.

“In order to revive economy, a total of 3000 hectares of land in the industrial estates of the (state) Gujarat will be made available from the state’s land bank and also different desk-nodal officers will be assisting incoming industries from other countries. New industries will be exempted from labour laws other than the Minimum Wages Act, Industrial Safety and Health Act, Labour Compensation Act for 1,200 days from the start of production in the state,” a Gujarat government official said.

Uttarakhand labour minister Harak Singh Rawat said his state too was contemplating “similar moves” to give exemptions to industry to help them deal with losses.

The moves come in the backdrop of consultations undertaken by the BJP last month. Between April 3 and 10, the BJP held discussions with four groups of stakeholders on the economy and reforms. “There are many bottlenecks we need to remove. Cost of acquiring land, and the legal and procedural delays are issues. Similarly, we need reforms in the labour sector,” Gopal Agarwal, the party’s spokesperson on economic issues said.

The move has divided economists as well as the political spectrum.

On one side are those who believe that archaic labour laws had greatly crippled India’s economic story. make it virtually impossible to fire employees, letting inefficient firms survive at the cost efficient ones. Stringent labour laws that apply to firms employing over 100 employees act as an incentive for smaller firms to stay small so they can escape the rules. According to the World Bank, with less restrictive laws, India could approximately add on an annual basis “2.8 million more good quality formal sector jobs”. According to a recent State Bank of India Research, the country’s labour productivity was also significantly lower than its global peers. “Even in the next decade, i.e., by 2021 it is estimated that India’s output per worker will rise to just $6,414 compared to China’s $16,698,” it said.

The changes give markets a much freer hand to regulate labour demand and supply, and enhance productivity and size. They, according to one official requesting anonymity, aim to increase competitiveness of firms and improve exports, while increasing labour demand.

“All along we have argued for labour reforms. We know existing laws have certainly not helped the economy. We also easily assume that existing laws are good for workers and protect them. There is no way there can be business as usual. We will have to see what are the outcomes after a year or so,” said NR Bhanumurthy of the New Delhi-based National Institute of Public Finance and Policy. Bhanumurthy said the caution he would like to apply is not to hop from “one extreme to another”.

The criticism comes from those who believe that it is precisely this other extreme that has been adopted.

The core concern is that the changes dilute protections, such as floor wages and work shifts. This effectively brings the “north American hire-and-fire model to the Indian hinterland economy”, said economist KR Shyam Sundar of the Xavier Labour Relations Institute, Jamshedpur.

The government has approached the problem from the wrong end, Shyam Sundar said. “Labour law changes giving flexibility of labour to employers will be meaningless unless supply-side measures are designed, such as wage subsidies, cheaper capital and more access to markets because of piled-up inventory due to the lockdown.” These changes will expose workers to livelihood vulnerabilities, he said.

Seven left parties, led by the Communist Party of India (Marxist) general secretary, Sitaram Yechury, have written. a letter President Ram Nath Kovind for the latter’s urgent intervention on this issue to stop “such naked savagery against the working class and the working people”.

Workers are angry and trade unions have criticised the moves. “This is the worst time to make amendments to labour laws,” said CK Saji Narayana, president of the Bharatiya Mazdoor Sangh, which is affiliated to the Rashtriya Swayamsevak Sangh, the BJP’s ideological parent. General secretary of the left-leaning CITU Tapan Sen said the government had “pounced upon the working class”.

The country however has been easing many labour rules over time. In 2014, Prime Minister Narendra Modi took steps to restrict power of federal labour inspectors by introducing random inspections assignments to them and setting time limits for reports. Some businesses were allowed to self-audit too. Rajasthan, under a BJP government, also pushed reforms in labour laws. The government’s ambitious plan to take the 40 different central labour laws and 100 state laws and merge them into four codes is still not complete. Of these four codes, the code on wages has been cleared by Parliament. Three codes—on occupational safety and health, industrial relations and social security -- are yet to be cleared.

According to experts, India will have to balance the need for businesses to grow along with maintaining labour safety nets.

Bibhas Saha of the Durham University Business School argued that labour law reforms, a necessity, have been a long time coming. He however said job security needs to be replaced with the concept of income security. This implies the state’s provisioning of benefits such as unemployment allowances.

(with Inputs from Neeraj Santoshi from Dehra Dun and Jaykishan Sharma in Jaipur).