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Labouring for flexibility

Rigid labour laws have had serious implications for industry, which now hopes that Rajasthan's initial steps will be replicated in other states

Indulekha Aravind & Somesh Jha 

In the Budget session of the Rajasthan Assembly starting next week, the Vasundhara Raje-led government in Rajasthan will table amendments to certain labour-related Acts. If passed by the House and approved by the President, employers in Rajasthan will have the right to retrench up to 300 workers without seeking the permission of the government, up from 100 currently. There will also be a three-year limit within which to raise disputes, the percentage of workers needed to register a union will be increased from 15 per cent to 30 per cent and the provisions of the Contract Labour Act will be applicable only to companies with more than 50 workers, as opposed to 20 at present.

Simultaneously, the Union government has also proposed changes to four labour-related laws - Minimum Wages Act, Child Labour (Prohibition & Regulation) Act, Factories Act and Labour Laws (Exemption from Furnishing Returns and Maintaining Registers) Act - and has invited comments about the amendments. This includes standardising minimum wages nationally and doing away with a rule that prohibits women from working in factories at night.

These proposals have, understandably, elicited tremendous interest from industry and other stakeholders, mainly because successive governments have fought shy of undertaking any reforms to labour laws, even when the adjectives most often used to describe these laws are "archaic" and "complex". The initiatives are in keeping with the Bharatiya Janata Party's 2014 election manifesto promise of "promoting a harmonious relationship between labour and the industry, with both playing an important contributory role in economic growth and development". The party would, the manifesto said, "bring together all stakeholders to review our labour laws which are outdated, complicated and even contradictory".

The recognition of the need to strike a balance between the interests of labour and industry, often perceived as contradictory, was echoed by Union Labour Minister Narendra Singh Tomar in an interview to Business Standard last week. "If a state goes ahead with amendments apropos to their local, economic, political and social conditions, then it is a healthy practice… Our effort at the Centre would be to strike a balance between business and labour communities. We will consider the proposed amendments (from Rajasthan) when we receive them," he said.

Raje herself has said that imparting skills to local workers was imperative to enhance employability in the state. "There is a need to create 1.5 million jobs for the youth in our state and the need to take steps in that direction but nothing is possible without developing skills," Raje told Business Standard on Thursday after meeting Tomar to discuss the labour reforms.

India's labour laws have often enough been cited as one of the factors holding back growth, particularly in manufacturing. "The primary criticism usually is that the labour laws have not kept up with the changing profile of the employee as well as the pay scales and working environment in the country," says Nohid Nooreyezdan, senior partner at law firm AZB & Partners. "While it is understandable that laws are required to ensure (the security of) the workmen who are unable to negotiate their service conditions, they currently are very wide in their coverage and even provide protection to employees who are highly qualified and highly paid and do not necessarily need protection from termination and change in service conditions, given their ability to negotiate their terms of contract."

Rigid labour laws have had serious implications for industry. Many sectors that see seasonal swings in sale need flexibility - the workforce can be increased when the demand goes up and reduced when it goes down. In the absence of such flexibility, many sectors like automobiles employ contract workers in large numbers. The rule says that such workers can only be used for non-core work, but this is openly flouted. (The definition of what is core and what isn't is anyway open to interpretation.) This also helps these factories save on costs because contract workers are inexpensive, and the company does not have to pay for their social security. This foments resentment amongst contract workers.

It is worth remembering that contract workers were at the centre of the unrest at Maruti Suzuki's Manesar plant in which one senior executive died in 2012. This inability to trim or expand the workforce has wreaked havoc in labour-intensive sectors like readymade garments. It is cited as the main reason why Bangladesh, which offers full labour flexibility, has gained in the international market at the cost of India.

The sheer number of laws is another source of frustration for businesses. There are over 40 central laws and over 200 state laws. Since employment is a subject in the concurrent list, this effectively means that each state is able to set its own threshold in terms of leave entitlements and notice periods. "It's ludicrously difficult for a company sited in multiple locations to arrive at a uniform set of employment terms for all employees across India - any such document will be non-compliant with some state enactment or the other," points out Siddhartha George, partner at Bangalore-based law firm Poovayya & Co.

Advocating the need for a complete overhaul in labour laws in India, Toyota Kirloskar Motor Vice-Chairman Shekar Vishwanathan echoes this view. "Why can't we have one consolidated labour law, one definition that governs the various provisions?" he asks. Vishwanathan seeks to dispel the notion that industry is clamouring for reforms because it wants to hire and fire employees at will. "We will have invested a lot of time, money and effort to bring those workers to a certain level and we wouldn't want to let them go, except under extreme situations," he stresses.

What industry is seeking is the ability to lay off employees under exceptional circumstances, such as prolonged periods of power outage that would threaten the financial viability of the unit or if the company is not able to generate demand for its products, he adds.

But while agreeing that there is a need to review the laws, unions are protesting against the reforms proposed by Rajasthan. K Padmanabhan, president of the Centre of Indian Trade Unions, associated with the Communist Party of India (Marxist), is critical of the reforms, and terms them a "cover-up". "We have fully opposed the amendments. What does the word 'reform' mean? Labour laws are enacted to safeguard the interest of the workers and the fact is that workers' powers are very limited compared to that of the employers," says Padmanabhan.

Unions also complain that the Rajasthan government has acted unilaterally. "We were told that tripartite consultations would be held but we weren't consulted," says B N Rai, general secretary of the Bharatiya Mazdoor Sangh. "This is not the practice that needs to be adopted by states."

Industry chambers, though, have welcomed the initiative. "These are much-needed reforms in labour laws, especially in the three most critical Acts and will go a long way in providing a major relief to industry, especially the small scale industry," says Chandrajit Banerjee, director general, Confederation of Indian Industry (CII). "These are very much in line with CII's recommendations to the new government and we hope the ambit of such reforms will be expanded in the near future."

To ensure that workers are protected in a country like India with huge income disparities, while at the same time paying heed to industry's need for reform, Nooreyezdan of law firm AZB suggests one way would be to ensure that only employees who really need some protection should be protected. "Employee salaries could be a factor in determining this. Further, the laws could be simplified in terms of the procedural aspects, which would make it simpler for businesses but need not necessarily impact the rights of the employees," he says.

These reforms, though, would hardly be a magic bullet to kickstart growth. For one, as various analysts have pointed out, less than 10 per cent of India's workforce is part of the organised sector. "To escape stringent laws, entrepreneurs keep the scale of their operation small - India's average factory employs 75 people, compared to 191 in China," Tushar Poddar, chief India economist at Goldman Sachs, wrote in a column earlier this year. "They employ largely contractual workers -the labour force has a labour aristocracy that is heavily unionised and protected, consisting of 7 per cent of workers, while 93 per cent of them are informal, with employers having little incentive to invest in their skills or provide insurance."

As it stands, the changes proposed by the Raje government are not exactly revolutionary. "The law isn't actually changing; just its area of application is being reduced," says Poovayya's George. "While I don't doubt these moves will come as a relief for business, I don't think they could accurately be described as game-changers."

However, in a country where any attempt to change labour-related laws is considered anathema, it is small wonder that even these small steps are being hailed by businesses as something akin to the beginning of a new dawn.

First Published: Sat, July 05 2014. 20:40 IST