Hard truths about India’s labour reforms

For Mains

India’s gravest socio-economic problem is the difficulty a vast majority of citizens have in earning good livelihoods.
The problem is not just employment but the quality of employment i.e., insufficient and uncertain incomes, and poor working conditions.
The current theory is that by improving the ease of doing business we can improve citizens’ ease of earning good livelihoods.
However, investors say the laws protect labour too much and hence recent governments have initiated their reforms of labour laws.

Labour is a concurrent subject, hence Union Government encouraged States to implement changes. Following which many states started implementing reforms.
“Impact Assessment Study of the Labour Reforms undertaken by the States” by V.V. Giri National Labour Institute spanning 2004-05 to 2018-19 focused on the reform of the Industrial Disputes Act.
The report reminds readers that labour laws are only one factor affecting business investment decisions.
Investors do not go out to hire people just because it has become easy to fire them.
An enterprise must have a growing market for its products, and many things must be put together to produce for the market — capital, machinery, materials, land, etc. not just labour.
The report says that the effects of labour reforms cannot be revealed immediately: they will take time.
Therefore, it is telling that Rajasthan, the first State to implement the reforms, seems to have benefited the least from them.
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 the emphasis was on administrative reforms).
However, it increased less, from 55.3% to 56.3%, in 2017-18, when some States made the bolder reforms favourable for employers.

This happened because labour reforms that increase the threshold of application of the Industrial Disputes Act are conceptually flawed. They cannot induce creation of large enterprises to whom the laws will continue to apply.
Employment in formal enterprises is becoming more informal. Large investors can afford to use more capital and are also employing increasing numbers of people on short-term contracts, while at the same time demanding more flexibility in laws.

Along with the right to be heard and dignity at work, the grant of paid leave, a written contract, and some “social securities” are the minimal “essentials” all employers must provide to all those who work for them, whether in small enterprises or domestic help.
Increasing the threshold of the laws dilutes the rights of association and representation of workers in small enterprises.
Between 1980 and 1990, every 1% of GDP growth generated roughly two lakh new jobs; between 1990 to 2000, it decreased to one lakh jobs per per cent growth; and from 2000 to 2010, it fell to half a lakh only.

Fundamental reforms are required in the theory of economic growth. It must be understood that more GDP does not automatically produce more incomes at the bottom.
The paradigm driving employment and labour policies must also change to enable the generation of better-quality livelihoods for Indian citizens, now and in the future.

Source: THE HINDU