Shyamal Majumdar: Shift action on labour reforms to states

As changing the central laws might be daunting, the Modi government should just nudge other states to emulate the model set by Rajasthan and Madhya Pradesh

Like many of his colleagues in the government, Bandaru Dattatreya, minister of state (independent charge) for labour and employment, would like to forget the year gone by. For, 2015 was a disappointment, much of it spent on showdown with labour unions over the government's proposal on labour reforms. The only tangible progress was in providing a labour identification number (LIN) to employers as well as a universal account number (UAN) to employees. More than 950,000 establishments were given LIN and 45 million employees (under the Employees' Provident Fund Organisation) were issued UAN, which would facilitate portability of provident fund accounts. Besides, the ministry introduced two Bills in the Lok Sabha - the Child Labour (Prohibition and Regulation) Bill and the Payment of Bonus Bill, which sought to enhance the pay eligibility limit of an employee for bonus to Rs 21,000 a month from Rs 10,000, and enhance the monthly bonus calculation ceiling to Rs 7,000 a month from the existing Rs 3,500 a month.

In comparison, 2014 was much better, the highlight of which was the Apprentices Act amendment, laying the foundation to increase skilled labour, ease rules for employers to recruit apprentices and allow them to undertake demand-driven courses. The amendments also dropped a provision in the existing law for the arrest of employers for not adhering to the provisions and allowing companies to add new trades including information technology-enabled services in the scheme of apprenticeship without the Centre's approval.

Will Dattatreya be able to break the 2015 jinx in the new year? Going by the hardening stand of labour unions - they have already announced their plan to go on a nationwide strike early in 2016 - it looks a formidable challenge indeed. But just in case the government finds a solution to end the stalemate, the minister can legitimately claim a big role in increasing the percentage of India's labour force in the manufacturing sector. At the moment, it is just around 11 per cent compared to China's 40 per cent.

No one can, however, accuse the labour ministry of not trying to usher in big-ticket labour reforms. In fact, the government has drawn up plans to launch the biggest overhaul of labour laws in decades, including the integration of as many as 44 existing central laws into four labour codes - Industrial Relations, Wages, Social Security and Safety Codes to ease hire-and-fire rules (employers with up to 300 workers would not require government permission for retrenchment, lay-off and closure), make it tougher for workers to form unions and also increase by three times the severance package to protect employee interest. Besides, the Small Factories Bill proposes to keep units employing less than 40 workers out of the purview of 14 labour laws and the draft code on wages promises a mandatory national minimum wage under which skilled workers in developed states stand to earn a minimum of Rs 20,000 a month.

Will the Modi government have the political courage to bring in such sweeping changes in labour laws in 2016? Going by the fate of quite a few other Bills, a short answer to that question is "unlikely". Dattatreya would thus do well to create the ground for introduction of such Bills through constant engagement with trade unions and political parties. He may raise two points during his discussions. One, have employees been protected because of the Industrial Disputes Act? The answer is an obvious no. Since 1991, many industries have shut shop but in many cases, no labour retrenchment has taken place. This was made possible by effecting closures in other ways. For example, employers themselves have been found to provoke violence or strikes and make sure they shut down. Two, the net effect of such rigid labour laws has been simple: According to the International Labour Organization, the proportion of people employed in informal employment in non-agriculture is over 80 per cent, which is much higher than that of China (over 30 per cent). This means that a vast majority of the workers employed in India are actually not covered by any labour rights.

The best option for the Modi government is this: As changing the relevant central laws might be daunting, New Delhi should just nudge other states to emulate the model set by Rajasthan and Madhya Pradesh. In any case, the best innovation of this government has been to shift the action to states and these two states ushered in sweeping labour reforms by using Article 254 (2) of the Constitution that allows them to diverge their laws from national norms.