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Finding a middle ground on labour reform

An approach that makes small tweaks rather than fails on big promises is the need of the hour says a study.

Nikhil Inamdar  |  Mumbai 

Nikhil Inamdar

Even as Rajasthan Chief Minister Vasundhara Raje Scindia scarcely made a first move to initiate one of BJP's key election manifesto promises - a review of India's archaic labour laws, reports indicate that trade unions across party lines have opposed her bid already. The Indian Express reported on Sunday that Raje's cabinet ministers had cleared amendments to The Industrial Disputes Act, The Factories Act and The Contract Labour Act - 3 among 47 central and 200 state laws regulating labour in India. Central trade unions are likely to galvanize protest against such attempts which AITUC leader Gurudas Dasgupta has strongly condemned according to the Times of India.

ALSO READ: Trade unions oppose Rajasthan's labour reforms

This is an issue that has pitched industry against unions for decades now, with the former pointing to extant restrictions in labour regulation as among the key reasons why India's manufacturing sector has failed to take off. Unions on the other hand have alleged that provisions laid out in laws like The Industrial Disputes Act are absolutely essential to safeguard workers' rights and restrict the growing use of contract labour.

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But since over 92% of Indians work in the informal economy, the real emphasis of the debate around labour regulation should be expanded beyond the 7-9% who are formally employed, to bringing the majority under a system that is both flexible for industry, but also provides an adequate safety net for workers, say experts. Without this, a meaningful turnaround in India's manufacturing sector will be difficult, if not impossible.

The BJP is evidently not going to have it easy as it takes all these counter narratives into consideration and gets to work on what are perhaps the most politically thorny set of reforms, historically mired in delay for the lack of a broad consensus for the last 6 decades. In the face of such polarity, a 2013 study by Hemal Shah, a Scholar at the Takshashila Foundation titled -Towards greater labour market flexibility: Issues and Options - provides for good reading about using a workable approach to find a common meeting ground among labour representatives, government and employers.

Shah's valid contention is that policy makers for long have suggested drastic measures to make labour markets more flexible, and these have been met with staunch resistance from those that have a vested interest in keeping them rigid, leading to a prolonged impasse. If a breakthrough is to be achieved, a middle ground must be found and low hanging fruits picked so as to accomplish at least marginal progress.

While not a "laundry list", Shah suggests a number of policy considerations to break the stalemate once and for all. Among them are moving legislation from Concurrent to State List to ensure that "labour laws and regulatory practices are made compatible with economic and social structures prevailing in the States". This she says would give the states flexibility to experiment with legislation and compete with other states spurring positive outcomes.

Segregation and unbundling of the layoff, retrenchment and closure provisions in the Industrial Dispute Act and an increase in compensation/ severance packages to reduce long dispute settlements are among other prescriptions stipulated. Shah also calls for the recognition of unions comprising of similar industry units to reduce multiplicity and unnecessary trade unionism rather than stopping engagement with them altogether.

Meanwhile scaling up security for informal sector workers to reduce trade union resistance to reforms in the formal economy is the primary message of her study Shah says, insisting that the real challenge lies not merely in amending existing laws but moving the narrative away from the miniscule 7% who will be affected by the changes in them.

"It is time we start a nuanced discussion on how to develop the labour market: to think about small reforms, which are compatible with the current political economy, and include the informal sector in the reforms dialogue" she adds, concluding that 60 years of reforms concentration only in the formal sector has not yielded any meaningful results which calls for an approach that works on small tweaks rather than fails on big promises.

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First Published: Wed, June 11 2014. 10:59 IST