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UP-MP labour reform: Wooing investors post-lockdown or taking advantage of Covid crisis?

The Yogi Adityanath-led Uttar Pradesh government passed an ordinance Friday exempting businesses from all labour laws except three for the next three years.

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The Yogi Adityanath-led Uttar Pradesh government passed an ordinance Friday exempting businesses from all labour laws except three for the next three years. Madhya Pradesh Chief Minister Shivraj Singh Chouhan had announced Thursday that the state would exempt new manufacturing units from all but some provisions of the Factories Act, 1948, for the next 1,000 days. The reforms are intended to boost industrial activity and address rising unemployment of migrant workers.

ThePrint asks: UP-MP labour reform: Wooing investors post-lockdown or taking advantage of Covid crisis?

Covid crisis is a chance to make radical changes to labour and land laws, red tape. It’s good to see UP and MP taking lead

DK Joshi
Chief economist, Crisil

Every economic crisis presents an opportunity to reform boldly.

The Uttar Pradesh and Madhya Pradesh governments are the first to grab it and initiate labour reforms that were fiendishly difficult in the past. This will enhance their investment attractiveness by an order of magnitude. The 1991 balance of payment crisis led to economic reforms that opened the investment floodgates and propelled India into a higher growth trajectory.

The Covid-19 pandemic is deadly in more ways than one, compared with the 1991 crisis or even the financial crisis of 2008-09, so it will require extraordinary policy support to get the economy through – way more than what has been committed till now.

India also has a chance to ramp up its manufacturing sector substantially as the case for companies and supply chains to move out of China strengthens. It has to play its cards well because the positives of being a consumption-driven economy with a large domestic market, young population and abundant labour supply at reasonable cost may not be enough to make this happen. The current pandemic offers a chance to make radical changes to labour and land laws, and regulations and red-tape. It’s good to see the states taking lead. But this will have to be complemented by significant engagement with countries and companies planning to diversify out of China.

UP and MP are now more attractive to investors. They have sent strong signal to other states

Gurcharan Das
Author & former CEO of Procter & Gamble India

It takes a crisis to introduce economic reform and Covid is an excellent opportunity to make our economy globally competitive in the long-term. UP and MP have made their states more attractive to investors and sent a strong signal to other states to follow.

India’s archaic labour laws are a key reason why it’s not a successful exporting nation. Sensible countries, like those in Scandinavia, give employers the freedom to hire and lay-off workers based on market dynamics. They protect workers who lose jobs through a well-designed safety net of unemployment insurance and re-training.

India’s labour laws do the opposite — they protect jobs, not workers and don’t allow employers flexibility to lay-off workers in a downturn. Thus, Indian companies avoid hiring permanent employees and 90 per cent of India’s workers have ended up in the informal sector without any safety net.

This is one of the reasons why the manufacturing sector has not become an engine of mass employment in India as it has in the Far East. The plight of daily wage migrant workers during the Covid crisis has outraged the nation’s conscience. While reforming its senseless labour laws, India needs to establish a labour welfare fund (with contributions from employers and government) to finance transitory unemployment and re-training. By doing both, India will become a competitive export hub, creating many formal jobs, and also protect the interests of the unemployed and those in the informal sector.

The timing, manner, and efficacy of these reforms make them more about taking advantage of Covid crisis

Nilotpal Kumar
Associate Professor, Azim Premji University

The reforms mooted by the Madhya Pradesh and Uttar Pradesh governments are wide-ranging in their scope and they will have severe consequences on labour welfare. They appear to be aimed less at wooing investors and more at taking advantage of the opening in policy ‘agendas’ created by the Covid-19 crisis. There are three reasons for this apprehension.

One, is the timing of these reforms. The two governments have been struggling to contain the spread of the coronavirus pandemic even as they are fledgling in moving migrant workers back home in their states. It is unclear if these states are in a genuine post-lockdown situation.

Two, the manner in which these reforms have been introduced is undemocratic. The UP government has issued an ordinance to bring in the reforms. In a democratic polity, any reform of such consequences — such as exempting new industrial units from registering child workers in MP — merits consultations in public, particularly with immediate stakeholders or their representatives. The reforms have not come through any such process, although this has been an unfortunate pattern since 1991.

Three, the efficacy of these reforms in achieving their policy goals is doubtful. If the basic guarantee of occupational safety is taken away, as the case is for both MP and UP, potential workers may dread joining or resuming work even more. The assumption that a dilution of labour laws, which have been implemented half-heartedly anyways, will woo investors once the lockdown ends is also open to question empirically.

Industries will now better adapt to the changing Covid scenario, which has disrupted the space for innovative solutions

Chandrajit Banerjee
Director General, CII

The moves taken by Uttar Pradesh and Madhya Pradesh to initiate labour reforms are bold and will help make India a more attractive investment destination. The Narendra Modi government initiating codification of 44 labour laws into four codes is also a major step towards Ease of Doing Business.

Labour reforms have been a long-standing issue that didn’t receive the required attention because it has been tough to reach a consensus. The Adityanath government’s decision to abolish all prevailing laws except those that protect the social security and well-being of women, is indeed a milestone. Industries will now have more flexibility to adapt to the changing Covid scenario, which has so far disrupted the space for innovative solutions.

Manpower shortage has been a major obstacle for companies as more and more migrant workers return to their hometowns. There is a need for greater flexibility at this juncture, which the MP and UP governments have responded to. That said, one of the most critical constituents of the economic activity is the wellbeing and security of the workforce that enables higher productivity and success.

Other states should also take up labour reforms not only for short-term benefit of restarting the economic activity but also to attract foreign investments in the future.

Rarely are investors attracted by simpler labour laws. FDIs will suddenly not flood UP and MP

Santosh Mehrotra
Professor of Economics and Chairperson, Centre for Informal Sector and Labour Studies, JNU

This is an ‘attempt’ at wooing investors in the case of Uttar Pradesh, where all labour laws (except three on construction workers, bonded labour and wage payment) stand suspended for three years. In Madhya Pradesh, the suspension is less drastic at face value.

But rarely are investors attracted by easier labour laws. World Bank surveys have revealed that labour law is only the fifth-biggest problem employers face. Also, MP and UP are historically poorly governed states with poorer infrastructure and human capital.

There are 35 central labour laws, plus over 100 state laws on labour, most of which have been poorly implemented by state governments, partly because the total number of labour inspectors in India may not exceed 6000. In the unorganised sector, they are either not applicable or ignored. The actions of Madhya Pradesh and Uttar Pradesh are not thought through, and risk being challenged in courts.

FDIs will suddenly not flood into Uttar Pradesh and Madhya Pradesh merely because of labour law relaxation. If domestic investment was growing slowly pre-Covid, then with the post-Covid collapse in demand, don’t expect sudden growth.

State governments will face severe shortage in revenue post-lockdown. Migrant workers have returned to MP and UP from Kerala, Delhi, Gujarat, and Maharashtra. So, allowing longer hours with overtime may enable some to find work.

Also read: Yogi govt law on intentional infectors: Is criminalising the right way to fight Covid?

By Pia Krishnankutty, journalist at ThePrint

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  1. Gone through all the 5 notes posted by the learneds above .
    I think ,the existing basket of labour laws
    passed 70–100 years back ,require to be rechecked and rennovated in view of the current needs of the nation .
    I do not think ,the govts of Up–MP have discussed the matter properly and amicably along with the trade unions ,legal experts and /or compiled with the regulations issued from time to time by the ILO etc.
    I doubt the steps of both the states ,it might be proved to be an oppertunistic under the situation ….who cares for the crores of jobless on the roads in the country ?
    -–– S.R.Saras ,a researcher & writer

  2. The change in laws is to help existing businesses to fire existing employees without consequences, court cases. Uttar Pradesh and Madhya Pradesh already know that due to economic slowdown no company in the world has money to invest as the market is shrinking daily. The American and European MNC’s exiting China will return to home countries instead of investing money in a country with unskilled workers and impossible land acquisition laws.

  3. Personally I have never been a fan of labour laws. Which law has stood in the way of 114 million jobs being lost since the lockdown was decreed. Consider Amazon, which has been hiring people and the almost Dickensian way it treats its employees. In the post Covid 19 world, India will have to get real about the economy and some of the tough decisions that will be required to breathe life into it. Of course, as far as Yogiji’s Uttar Pradesh is concerned, it will require more than a tweaking of labour laws to attract a flood of new investment.

    • It’s not about up..
      Its about noida..
      Which doesn’t need any tweaking… Already companies r lining up to invest there

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