India's laws governing labour are among the most constraining and long-lasting of the legacies of the Licence Raj. According to a World Bank study, they are the most restrictive in the world. They were progressively strengthened until the 1980s, but efforts to repeal them since liberalisation started in 1991 have run up against a wall of political opposition. It was hoped that the Narendra Modi-led National Democratic Alliance, because of its clear majority in the Lok Sabha, might move on these politically difficult reforms - but, until now, the Centre has not shown any great enthusiasm for them. This may just be on the cusp of changing, depending on the Cabinet's approach to the three amendments that have been sent to it for approval by the Union labour ministry. These three are not the most problematic of labour laws - the Factories Act and the Industrial Disputes Act. However, even a draft law to replace the latter has been released for public discussion by the ministry. Certainly, there is visible effort from the labour ministry. Now, this needs to be backed by political will by the Cabinet, the prime minister and his floor managers in Parliament.
Examining the three suggested changes submitted to the Cabinet is instructive. The three Bills would amend the law governing child labour; the law governing employee provident funds, or forced saving; and finally, a new Bill that would serve to govern the nature of employment at small factories - those employing less than 40 people. The child labour law rationalises certain provisions of the existing law, making compliance easier. The existing provident fund regime, many have argued, penalises those who choose formal over informal income at low wage levels. The mandated employee contribution can serve as a severe disincentive. If the aim of the government should be to increase the share of formal employment in the country, then reform of the provident fund system is an important initial step. Finally, a separate law governing small factories might help ensure that what the prime minister has called "inspector raj" does not unduly affect entrepreneurs. It is important to note, however, that this is not enough. India has a reasonable number of small factories. What it does not have is enough small factories that grow large. Industrial growth is penalised in this country by a sudden exponential increase in paperwork. Thus, the proposed amendments to the overall Industrial Disputes Act are important, as they seek, among other things, to raise the floor for government interference in a decision on retrenchment to factories with more than 300 workers instead of 100. This amendment should move swiftly to the Cabinet, too.
The Cabinet must approve these changes to labour law. However, making them law will require parliamentary approval. In other words, the government will have to work hard to avoid the current logjam, especially in the Rajya Sabha. It will have to reach out to the opposition, particularly the Congress, and allow shared credit for passing these laws. It is to be noted that the Congress is not implacably opposed to labour law reform; when in power in Haryana, it began the process of relaxing norms there, and its Himachal Pradesh government began the same process recently. Its 2014 manifesto promised labour law reform, and so did its vice-president, Rahul Gandhi, while on that campaign. The government and the opposition are technically on the same page. This should energise efforts to pass these changes.