The Hard Truth About India’s Labor Reforms

Independent India was born 75 years ago on the midnight of 15 August 1947, when India’s first Prime Minister Jawaharlal Nehru unfurled the country’s tricolor flag and announced in Parliament that India had made “an attempt with luck”. . India achieved its independence after a long, remarkably peaceful struggle for independence under the leadership of Mahatma Gandhi.

Gandhi had a vision of a country that was not divided into pieces by religious and communal walls. He envisioned a country in which all Indians, whether rich or poor, would hold their heads high with pride. India’s “effort with luck” was to provide Complete independence(ie, absolute freedom) to all its citizens: political freedom, social freedom and economic freedom.

country’s flaws

The country’s democratic constitution created the largest democracy in the world. Sadly, after 75 years, political freedom and freedom of speech are being curtailed in India. Social equality between castes has not been achieved. The lower caste citizens are still living in great humiliation. Low caste poor women in the villages of India live in extreme poverty. They are among the most oppressed humans on the planet.

While the number of Indian billionaires increased during the COVID-19 pandemic, crores of Indians lost their income during the lockdown in the country during the pandemic. They had to struggle for shelter, food and even drinking water for their families.

The most serious socio-economic problem of India is the difficulty that most citizens face in earning a decent livelihood. Their problem is not just employment. It is the poor quality of employment: inadequate and precarious income, and poor working conditions, wherever they are employed – in factories, farms, service establishments or households.

editorial | The death trap: on labor reforms

The key ‘principle-in-use’ to increase employment is to improve ease of doing business, with the hope that investing in businesses will make it easier for citizens to earn a decent livelihood. In this theory, large and formal enterprises create good jobs, and labor laws should be ‘flexible’ to attract investment. Investors say the laws protect labor too much. The reforms were initiated by the United Progressive Alliance government. His main thrust was to improve governance by simplifying processes and digitization. Those reforms were appreciated by the employers as well as the workers. However, he did not make labor laws more employer-friendly. Therefore, the National Democratic Alliance government became more daring in 2014 and proceeded to reform the content of the laws.

impact of reforms

The government laid out a roadmap for reforms and since labor is a concurrent subject, it encouraged the states to implement the changes. The first in the block was Rajasthan. Other states followed. Economic reform is a learning process. The VV Giri National Labor Institute’s interim report, “Impact Assessment Study of Labor Reforms by States”, provides insight into the impacts of the reforms so far. Labor laws cover many topics – payment of wages, conditions of security, social security, terms of employment and dispute resolution. The government is preparing to introduce proposed national reforms soon to convert all these laws into four codes. The report focused on reform of the Industrial Disputes Act to increase the applicability limit of laws related to conditions of service and method of dispute resolution (role of unions) to 300 people.

The report covers the period from 2004-05 to 2018-19. It focuses on six states that have implemented the reforms: Rajasthan, Maharashtra, Andhra Pradesh, Tamil Nadu, Jharkhand and Uttar Pradesh. The report reminds readers that labor laws are only one factor influencing business investment decisions. Investors don’t go out to hire people just because it has become easier to get them out. An enterprise must have a growing market for its products, and a number of things must be put together to produce the market – capital, machinery, materials, land, etc. Not only labor. Therefore, it should be worthwhile to employ more people before firing.

is that clear

Reading through the report, one conclusion is unmistakable. Reforms in labor laws have had little effect on increasing employment in large enterprises. The report says the effects of labor reforms cannot be disclosed immediately: it will take time. Therefore, it is telling that Rajasthan, the first state to implement the reforms, has benefited the least from them.

The overall story could hardly be better. The share of employment in plants employing more than 300 people increased from 51.1% to 55.3% between 2010-11 to 2014-15 (the period when administrative reforms were emphasized), and then to 55.3% 56.3% in 2017-18, when some states adapted bold reforms for employers. Although overall employment is affected by many factors, the bold reforms after 2014 were designed to promote larger factories.

This hardly happened because the labor reforms that extended the scope of application of the Industrial Disputes Act are conceptually flawed. They cannot induce the creation of large enterprises to which the laws continue to apply. In fact, the report says, employment in formal enterprises is becoming more informal. Larger investors can access more capital and are also employing a growing number of people on short-term contracts, while demanding more flexibility in laws.

The report defines “formal” employment as paid leave, a written contract, and some “Social Security.” An enterprise should not employ more than 300 people before providing these benefits. Along with the right to be heard and dignity at work, these are the minimum “essentials” all employers must provide to everyone who works for them, whether in small enterprises or domestic help. Raising the threshold of laws reduces the rights of workers to union and representation in small enterprises.

The report leaves unanswered whether the reforms have benefited workers. After all, the primary purpose of labor laws is to protect the rights of workers, not to promote the interests of investors. Certainly, the benefits of reforms must also be evaluated from the point of view of workers. It is sad that the report includes a long chapter on the views of employers’ unions about the benefits of the reforms, and nothing about the views of employees and unions. Employers’ unions say the reforms have been beneficial. The question is, for whom is it beneficial?

a wide gap

The findings in the report rise above analysis of numbers and employment trends to revisit the bigger picture. The gap between where our economy is and where it should be is widening. As seen in Praveen Chakraborty’s article, “Whose GDP Is It Anyway?” , Hindu, July 27, 2022), between 1980 and 1990, each 1% of GDP growth created about two million new jobs; Between 1990 and 2000, this decreased to a percentage point increase on one million jobs; And from 2000 to 2010, it came down to only half a lakh. Fundamental reforms are needed in the theory of economic growth: higher GDP does not automatically produce more income below that. And the paradigm driving employment and labor policies must also change to enable Indian citizens to generate better quality livelihoods now and in the future.

To achieve this, there is a need for fundamental reforms in the way policies are formulated. If the benefits of reforms are perceived with ease of earning, better livelihoods and greater respect for all citizens, whether farmers, factory workers, or service workers, shouldn’t they be most listened to. enterprises, and in the process of shaping policies?

Arun Maira is a former member of the Planning Commission and author of ‘Transforming Capitalism: Improving the World for Everyone’.