India’s labour laws have long been identified as both uniquely stringent and counter-productive. Labour law reform has been argued for by economists repeatedly. Recently, some states have adjusted their labour regulations to varying degrees, including Rajasthan, Haryana, and Madhya Pradesh. Now another state, Maharashtra, has chosen to take a small step forward on relaxing its local labour regulations. It has amended the Contract Labour (Regulation and Abolition) Act, 1970. The CLRA Act is supposed to determine the rules under which contract labour can be employed; the new amendment in Maharashtra raises the threshold of its applicability from 20 to 50 workers. In other words, companies with 49 contract workers in Maharashtra would earlier have been subject to the provisions of the CLRA Act, and now are not. This is a step forward — but a minor one indeed. If anything, it highlights how much still remains to be done with respect to labour law in India.
The website of the Maharashtra state department of labour lists 47 labour laws that govern local enterprises. The Shops and Establishment Act, 1948, is particularly stringent in Maharashtra. Central legislation that is deeply problematic includes, of course, the Industrial Disputes Act, 1947. Just changing the applicability of the CLRA Act doesn’t help much — especially as the regulations on contract labour are widely evaded at the moment anyway. The reasons why labour law must be changed are worth remembering. Their compliance costs are inordinately high. They serve as an incentive for Indian companies to stay small and employ fewer people, so as to avoid coming under the scope of various laws. And they are deeply counter-productive since laws meant to improve the conditions of formal employment wind up shrinking the size of the formal sector and greatly hurt the employment conditions of the overall workforce. Seen from this larger perspective, while Maharashtra’s step forward is a hopeful sign, it is but a drop in the ocean when compared to what is needed.
The question that must again be asked is: Where is the central government? The most problematic labour regulation is at the Centre. The government of Rajasthan developed a legal shortcut some years ago in which it determined that it had the power to amend central legislation when applicable locally. While this method has received presidential assent, it continues to be legally and constitutionally questionable. In essence, the Centre has abdicated its responsibility. The problematic laws are within the Centre’s mandate, and that is where they must be amended. A patchwork of minor changes at the state level will not change the overall regulatory environment in India — and it is the latter that must be altered if “Make in India” is to create the jobs that Prime Minister Narendra Modi has promised. It is true that the NITI Aayog has said that it is working on a rationalised set of labour laws — five, according to recent reports. This is valuable, if belated, work. However, once drafted, the government must recognise that it can no longer leave it to states to make this change. State government are too slow off the mark. The new laws must be passed by Parliament and have an all-India scope.
