Govt must implement Labour Codes immediately to drive sustained reforms

Industry needs to deal with workers differently. Each worker will not just be a cog in the wheel but an active participant taking responsibility for a flexible and malleable production process

Why is wage growth in India not higher than what it is? Whether a worker in an organised-sector industrial establishment or an informal-sector labourer, wages are barely growing enough to keep pace with inflation. Unfortunately, few researchers have tried to unpack this issue, and the widespread consensus is that poor skilling is responsible for this. And poor skilling, it is widely believed, is due to inadequate basic education and the bad delivery of skilling services. While all of these may be true, they surely cannot be the only issue. First, not all states have poor-quality basic education. Kerala, Tamil Nadu, and Himachal Pradesh are some well-known examples but not the only ones. Moreover, even in other states across India there are many schools, both in the private and public domain, where basic education is fairly good. Further, if a person has good basic education, a few months would be adequate for learning most manufacturing-sector skills. In other words, skilling and education are a constraint but not the critical ones. There is something else that is holding Indian manufacturing back.

 

Labour laws are another challenge, and two broad categories of criticism are levelled against them. The first points fingers at the laws and Indian industry not providing workers adequate benefits, safety, security, or support. The second is about the archaic nature of labour laws, inflexible unions, and obstructive labour departments, and that it is better for industry to remain in the informal sector or hire temporary workers. 

But I would introduce a far more important element that the operational labour laws are not built for. The manufacturing environment has changed dramatically since the time — early and mid-20th century — when most labour laws were designed. And this change is not going to stop at just-in-time manufacturing or high-precision production, robotic manufacturing, etc. To give just one example, just as in the case of quick commerce, we now are seeing the emergence of quick response manufacturing (QRM), which produces customised products in small batch runs. Manufacturing in the new economy needs flexible production processes to satisfy rapidly changing demand. At the same time large factories of today are no longer a few hundred workers but many thousands (some even run into 200,000-300,000). Shopfloor management is, therefore, becoming far more complex. Workers will be required to switch tasks, move between production lines, and even change their work schedule as demand conditions alter. Worker monitoring too is changing, and the identification of effort and output is steadily moving away from a collective level to the level of the individual worker, thereby enabling task and reward allocation on a personalised basis. 

 

Industry needs to deal with workers differently. Each worker will not just be a cog in the wheel but an active participant taking responsibility for a flexible and malleable, even unpredictable, production process. The role of unions will, of course, need to change from that of a protector to that of an enabler. Industrial relations of the future will be nothing like those operating currently.

 

Just as industry needs to empower the worker better, unions too need to work towards greater worker freedoms and answerability. And most importantly, the laws governing the work environment will need to move in accordance with that. In the world that we are now in, change needs to be built into the very DNA of the labour-law regime and this change will not be a single stroke but a fluid and natural process of ongoing improvement. But all of that will remain a distant dream if India does not change the way it operates. Take the Labour Codes, for example. Unfortunately it is not clear why those, cleared by Parliament, have not been implemented almost five years later.

 

For those not in the know, the Union government presented four Labour Codes — on wages, social security, industrial relations, and safety and working conditions — between 2019 and 2020. These replace 29 laws under a simplified and unified framework. But though passed, the government has desisted from enforcing them, probably due to opposition from industry and unions.

 

The fact that a unified frame has been created is by far the most important thing and gives cause for hope. For, they bring in a coherence that will enable greater cooperative solutions between governments, unions, and industry in the years to come. Beyond that as well, the Codes are an improvement over the past. For one, they are more inclusive. For gig and platform workers, women, those in the informal sector, migrant workers, etc, coverage has become more explicit for different elements like social-security benefits, minimum wages, and workplace safety. Some in industry may, therefore, not like it, but the fact is, a good labour law regime has to cover everyone — de jure and de facto. At the same time, simplified compliance, digital mechanisms for the ease of doing business, and reduction in criminal penalties have been brought in. This would be more facilitative for industry and some unions may not like it. At the same time the threshold for greater flexibility over worker rationalisation has been increased from 100 to 300, but no one needs to be worked up about it. The fact is many states — Gujarat, Jharkhand, Madhya Pradesh, Rajasthan, Haryana, Andhra Pradesh, Maharashtra, and Assam  — are following the 300 cutoff. In that sense at national level, the Code is only replicating what is done in major manufacturing states. 

The point being made here is that the process of change has to begin. Industry or unions may not like some elements but that is only natural. And therefore, the government should announce an ongoing organic process of consultation on further improvements after these Codes are implemented.  And with that unions and industry need to work with the government on further reforms. These would include items like flexibility in task and location allocation to workers, a variable reward mechanism rather than a straitjacketed bonus system, greater protection of workers’ consumption if not the job, greater industry accountability over skill enhancement in the workspace, and, as think tank Prosperiti has shown, even changing the working-hour regime and overtime regulation, These are critical for the new economy.  

Yes, the Codes are not perfect and there is much that can be improved upon. But not enabling change is harmful for India’s youth, manufacturing-sector growth, India’s economic security, and our global manufacturing aspirations. At the cost of repetition, the government must implement the Labour Codes immediately, unions must support them, industry must respect them, and all must agree to work to improve upon them on an ongoing basis.

 

The author heads CSEP Research Foundation.