Wednesday, June 7, 2023
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HomeOpinionModi govt’s labour reform was long awaited, but it alone can’t change...

Modi govt’s labour reform was long awaited, but it alone can’t change face of industry

Land, transport, electricity costs need to be reduced; arbitrary interpretation of tax and other laws needs to stop. Failure to do so will have opposite effect.

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For close to three decades, those wanting economic reform (i.e. greater market orientation) have called for changes in India’s multiple, archaic, rigid, and procedure-bound labour laws. Yashwant Sinha proposed some changes when he was finance minister in the Vajpayee government about two decades ago. Following widespread criticism, he had to retrace his steps. And ever since the Modi government assumed office with a comfortable majority in the Lok Sabha, the charge has been that it has not changed the country’s labour laws. The standard argument through three decades has been that the failure to bring about changes has come in the way of labour-intensive industries flourishing in India, as they have done in other Asian countries.

Now comes the test. The labour laws have finally been changed along the lines that most people (other than trade unions) have wanted. Twenty-nine central laws have been crunched into four “codes”: One on wages passed last year, and three enacted last month on working conditions, social security, and industrial relations. In their totality, the codes give much greater freedom to businesses when it comes to taking on and shedding employees, while putting trade unions to test about their representational claims, and making both strikes and lock-outs more difficult. Those employing fewer than 300 workers don’t even have to issue what are called standing orders, which specify conduct norms for workmen.

Going further, enormous freedom has been given to governments to exempt industries from the coverage of the codes, and to define the limits within which they will operate. In a sense, Parliament has given governments carte blanche to do as they will. Watch how Uttar Pradesh recently tried to exempt employers from all but a few labour laws — by an ordinance. In turn, the central government has announced a national “floor wage” (below which “minimum wages” cannot go) of Rs 178 per day, which works out to Rs 4,628 monthly, assuming 26 working days. Fortunately, most state minimum wages are already well above this absurd level.

Also read: Modi govt on right path on agriculture and labour reforms but at wrong speed


Before coming to whether the new codes will pass the test by delivering additional employment, it must be recognised that they do simplify matters by reducing the number of operative laws and acknowledging contemporary realities. They de-criminalise many actions (like not maintaining a register) and allow compounding fines to be paid instead. They also expand the scope of the codes to include fixed-term employees, contract labour, gig workers in the informal sector, migrant labour, and “platform” workers (such as drivers who have signed up at app-based taxi companies). So, there is much to be said in favour of the changes.

Still, the real test will be growth in employment, in particular an increase in employment in the organised sector, where productivity tends to be better and wages therefore higher. The core objective is large-scale factory employment that turns out wage goods like shoes and clothes, as also the local assembly of a range of electronic goods like mobile phones, to be followed by backward integration into components, for the domestic and export markets.

The game is to profit when China is exiting some of these activities, or when companies are exiting China for wage-cost and other reasons. So far, Vietnam, Bangladesh and others have taken up the slack. India too wants to be a player, and is raising tariffs and imposing other import curbs in the drive to promote manufacturing activity.

If it works, everyone can celebrate. If not, it will be because labour law changes are a necessary but not sufficient condition for achieving the intended objectives. Co-terminous changes are required to reduce the cost of factory land, transport, and electricity for industrial consumers (through ending cross-subsidies — a touchy issue), while stopping the arbitrary interpretation of tax and other laws and maintaining an appropriate exchange value for the rupee. Failure to do all this will have the opposite of the intended effect. Instead of increasing higher-productivity work and raising wage levels, workers’ earnings in existing jobs will get pushed down. The risk should not be minimised when the economy has shifted to a slower track and investment in new capacity has dried up. So, fingers crossed.

By Special Arrangement with Business Standard.

Also read: ‘Suit-boot ki sarkar’ jibe slowed reforms in Modi govt. That must not repeat with farm Bills


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  1. Nobody talks about the justice system. That also acts as a brake on economic growth.
    To enforce business contracts we need court cases to proceed fast and judgements delivered quickly.

  2. First we require national wage policy. To avoid migration of labour fo availing the opportunity cost. The basic salary should be fixed as common all over India with DA and other allowances as per location of city, municipality, corporations, and villages. To avoid transport cost residing homes should be provided alongsiide industrial complexes. The employers and govt executives resonosible for implementing the labour laaws if violated the labour laws they should be imediately dismissed from serivce. The labour cases should be finalised within te labour court / State/ National Tribunals. it should not be allowed to go to HIgh or Supreme Court. BY Constitutional research and reforms advocate. Author of Book Appointmet and Removal of Judges- Indian Context. The need to revamp the Indian Constitution. The Judicial training needs and empopwerment of women in judiciary, which are available throuigh Amazon and Flipkart marketing at low prices immediately

    • Most labour work is done informally
      The minimum wages is difficult to enforce in this informal sector. Law of supply and demand works here.
      In developed countries even for a plumber repair ing your house you have to pay as per law. Punishment is strict.

      In a formal factory setup, minimum wages can be enforced by the labour ministry. Here our government employees and labour ministry are corrupted and overlook violations of law. Government employees are quite smart they know how not to get caught.

      It is easy to make laws in our country, but hard to enforce.

  3. “Yeh dil maange more” …..waiting for Godot

    It does not have to be that way…

    Just saying

  4. Yes, wise guy Ninan, Govt knows that. And is doing what it can as fast as it can. (Another hack here argues we are going too fast!!)
    These so-called experts (a.k.a journalists) all this while were shouting ad nauseam that we need labour reforms. When we get the reforms – okay, good, but that’s not good enough! Why? Coz’ you see we are journalists and we need a paycheck every week – so we got to write something! Never mind what we write is crap.

  5. Can anyone answer my problem? A person is employed at the age of 23. For 20 years he slogs for the company. By this time his pay increases because of seniority. His work does not increase proportionately because the company did not progress proportionately. One fine day at the age of 43 the company dismissed him and took a trainee in his place at one fourth pay. To do the same work. This is a true story. Happened where i worked. In one of the top companies in India. 25 engineers were removed. Trainees were taken. Okay engineers can adapt to different work. What if 25 workers were removed. To he ll with their families. To he ll with their children.

      • Easier said than done.
        But where is the demand. Indian customers do not empty their pockets easily. Business ideas can succeed only if there is a market for it.

    • There are only two ways….
      1. Total state control with curtailed freedom: like the Communist China, what it was. But finally to compete with the World they too have to resort to Capitalistic ideas (Jack Ma and his breed)
      2. Create more jobs . For this more investments are required to promote more businesses and industries. Banks or the Government cannot bring in the required investments. One source is Foreign investments – they have limitations of policy etc… The other source is local, from within the country. For this, The Nation has to first create indigenous billionaires, millionaire an HNIs. They will invest, creating more jobs and in the process keep the interest rates and inflation subdued.

      The state can also alleviate the pain by giving unemployment doles….(for this each Indian will have to have a unique identity and possibly a bank account)

      Businesses and Industries can’t be expected to guarantee employment to all Indians. Wealth can’t be created that way. Without wealth there can’t be investments. Without investments there can’t be jobs…..The vicious circle!!!!

      • Make it easy to start small businesses.
        Businesses should be spending their time on quality, customer service, innovation and competition. They should not be spending time and money on dealing with unnecessary government regulations.

        Stop crony capitalism of the large and established industrialists. It stifles innovation and competition from small businesses.

      • Chinese are too far ahead of us in the business game. They have world class indigenously developed products exported worldwide.

        Even before mainland China liberalised in 1979, the Han race had successfully created a flourishing business environment in HongKong Taiwan and Singapore.

    • The changed labour laws will affect permanently employed blue collar workers in smaller factories now.

      In white collar jobs in private sector there was no protection anyway. Per HR records, employee resigned but actually the boss would have asked the employee to leave. White collar employees cave in and offer resignation letter because they don’t want their relieving letter to indicate they were “fired” !

    • Most Indian office workers in private sector
      are interested in career progression. Promotions entail salary increases but productivity of senior employees does not increase at same rate. Senior employees are a good target for cost cutting. What’s more senior employees have to train junior employees and then after the junior has picked up the skills, the senior can be terminated. The only way for the senior to survive is by picking up business skills.

      For labour workers there is no career progression. At the maximum they can hope to become a supervisor.

  6. Yet another Great article from the author. What worries me is that the other reforms like land, electricity are very touchy issues with considerable power to the states. Given the way the rightly formulated farm issues are being opposed, I think the govt and specifically Modi-Shah need to use their mind to create consensus on these issues. As much as i don’t like wasting time on consensus, this is the only way we can ensure legitimacy and commitment of the entire pol spectrum to these reforms and only then will they be implemented well. Telangana has already opposed Electricity Amendment Act. Let’s see. But our democracy has to deliver. Let’s see if our leaders have it in them.

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