Snatching decline from the jaws of growth

If enforced, the law of Standing Orders will bureaucratise India's most dynamic sector

India’s information technology (IT) capital has been in the newspapers for the wrong reasons. Shortages of drinking water dominated the headlines, and there are signs of labour unrest in the IT/IT-enabled services (ITeS) sector. A new workers’ union called Karnataka State IT/ITeS Employees Union (KITU) has demanded that the state government do away with the longstanding exemption, given to IT/ITeS establishments, from the Industrial Employment (Standing Orders) Act, 1946. Karnataka has nearly 2 million workers engaged in the IT/ITeS sector, and it seems that about 10,000 are members of KITU.
 

The union said that the exemption allowed employers to flout labour regulations with impunity: Employers enforce long working hours, fail to provide mechanisms to safely report grievances (including sexual harassment), and engage in unfair practices to terminate workers. The law under debate does not itself offer any distinct labour protections and is only intended to improve transparency and workers’ understanding of rights guaranteed to them in other laws. In Karnataka, establishments with 50 or more workers must codify and disclose the conditions of services to workers in ‘Standing Orders’ certified by the government. That sounds like a desirable thing.
 

But this law also enables workers’ representatives to seek that employers go above and beyond legal requirements and effectively cast these conditions of service into stone. Establishments are forced to consult with worker representatives before adoption of Standing Orders. In cases of disagreements, the employer must engage in a tripartite discussion with the workers’ representatives and the government. What is an employer-employee relationship is then snarled up with two more actors, the union and the government.

The contents of certified Standing Orders cannot be changed for six months without the consent of worker representatives. Employers face significant pressure from worker representatives to adopt conditions of employment that are not mandated under any law. To illustrate, KITU has recently adopted a resolution to advocate the ‘right to disconnect’: The right to ignore all communications from colleagues and superiors “after hours”.
 

While we can appreciate the objectives of worker representatives seeking greater power, this has consequences for economic dynamism. It is not an accident that Indian export dynamism has failed in most areas. Expressed in inflation-adjusted dollars, goods exports from India grew at a compound rate of 1.2 per cent per year for the 2012-2022 period (i.e. doubling every 56 years). In this same period, services exports grew at a compound rate of 5.7 per cent (i.e. doubling every 12 years). Has traditional Indian labour law hamstrung goods exports while services exports were given the opportunity to grow? What glory would Indian garment makers achieve if they were given the privileges of Indian software makers?
 

As an example, consider the right to disconnect. India’s IT/ITeS sector serves clients in all time zones. It is difficult for Indian IT/ITeS establishments to maintain their global competitiveness if workers refuse to take calls from teammates abroad or customers abroad. In the present fluid and flexible approach, managers and workers find middle roads that make sense, where certain individuals take on a greater burden of interruptions in the Indian night. Such pragmatic problem solving would be hindered by “the tripartite mechanism”, i.e. with the union and the government being in the picture alongside the firm and the worker.
 

Are unions and State required to protect the helpless worker? There is now, in many sectors, a class of well-educated workers in India, who are competent to take care of their own interests. When an employer behaves in certain ways, such workers can and do choose to leave. Well-educated workers now have choices in a deep and liquid labour market. Wages go up and down reflecting supply and demand. A worker who wants the right to disconnect outside of office hours will find an employer who offers that at a commensurately lower price. These private bargains do not require the insertion of state coercion intermediated by a union.
 

When Standing Orders were dispensed with for IT companies, the Prevention of Sexual Harassment at the Workplace (PoSH) law and the Industrial Disputes Act provisions were reiterated as conditions for special treatment. IT/ITeS establishments were required to institute committees to deal with sexual harassment cases and other grievances and required to report on cases of dismissals to the labour department. The new union, KITU, alleges that many IT/ITeS establishments fail to comply with these conditions. There is merit in improved state government monitoring of the state of compliance with these requirements, possibly with greater public disclosure which could help workers make better decisions when choosing to work for a given firm.
 

What is at stake in these questions is the IT/ITeS sector in Karnataka, the heart of the state’s economy. But even more, the policy conditions for services exports from India are of great importance for India's future. Services exports were a full $325 billion in 2022-23 and can reasonably double every decade. That is, an additional export revenue of $325 billion can come into Indian hands over the coming decade, if the State makes the right calls. These are very large numbers compared with the size of the Indian economy. If this sector is not nurtured, the economic future of India could be at risk.
 

And finally, we should think beyond IT/ITeS. What is so special about IT/ITeS that the difficulties of labour law were resolved for this sector in a way that was not done for other sectors? Could there be more sectors in India, other than just IT/ITeS and other business services, where these remarkable achievements of the IT/ITeS sector might be replicated? In fact, the exemptions given to the sector should act as a clarion call for similar flexibility to manufacturing and other services as unimaginative labour regulations have long been cited as a binding constraint to the growth of firms and to employment opportunities.
 

When determining the structure of labour law, governments like Karnataka need to shift gears from the name of the industry to worker agency. Perhaps the structure of labour law could involve the identical exemption for any firm where over 85 per cent of the employees are college graduates.

The writer is an honorary senior fellow at the Isaac Centre for Public Policy and a former civil servant