Labour Issues and Long Pending Reforms | IASTarget IAS Target

Labour Issues and Long Pending Reforms

22 Feb 2020

Category : Economical Issue

Topic: Labour Issues and Long Pending Reforms

Labour has been one of the most critical factors for manufacturing industries as well as services sectors. Cost of production, geographical location of industries and even survival of the enterprises heavily rely on the labour. Labour, today is considered as a backbone of development of any third world countries. However, if a country is democratic, liberal and respects universal adult franchise, labours, which are in majority numbers get voice and have right to freedom of speech and expression. These countries can’t ignore interest of labour in favour of industry and capital, even at the early stage of their development.
However, developed countries on the other hand extended liberal policies towards workmen only after long period of industrial development. During this period capitalists of the country amassed wealth and in latter period, mainly after numerous labour movements, workers getting voting rights and activism of ILO, western governments took up responsibility of wealth redistribution. But at the same time exert pressure on developing countries for flexible labour reform so that they can exploit labour in 3rd world countries and take benefit of low wages to keep low price and create wealth but maintain low wages. They also lobby for reforms so that any attempt of labour union thwarted and hire and fire. So we see disparity in the approach of capitalist countries for the labour right in their countries and 3rd world countries.

India, like any other developing country has been taking dual responsibility:

  • wealth creation
  • redistribution

For wealth creation, India needs huge investment and development of its manufacturing industries. However, investment whether domestic or foreign will come, given there is low cost advantage. Generally, in the initial phase this low cost advantage is derived through relative lower wages of workers as there is surplus labour. As a result industries start mushrooming and results in the shortage of adequate skilled labour. The body of legislation that shapes the industrial and labour environment in India is huge.

Here is some sample:

  • Minimum Wages Act, 1948;
  • Trade Unions Act, 1926;
  • Contract Labour Act, 1970;
  • Weekly Holidays Act, 1942;
  • Beedi and Cigar Workers Act, 1966.
Despite low wages, India is not a global manufacturing hub, even while being one of the fastest growing service sectors in the world. India’s service sector has grown at an annual rate of 9% since 2001, and contributed 64% of the GDP in 2015-16. The industrial sector, meanwhile, only recorded a negligible increase and contributes nearly half at 20% of GDP.

Issues of labour market in India:

Surplus Labour Force Labour market in India is suffering from surplus labour force. A huge number of labourers are rendered surplus due to lack of adequate demand arising out of both primary, secondary and tertiary sector. Due to high rate of growth of population, a huge number of labour forces is continuously being added with the existing labour force leading to a huge surplus in the labour market.
Unskilled Labour Another major problem of labour market in India is that there is a growing number of unskilled labourers in the country. In the absence of adequate vocational institutes, skill formation among the labour force in the country is very slow. This huge number of unskilled labourers find it difficult to become self-employed and thus create a huge army of unemployed in the country.
Lack of Absorption of Skilled Labour In India the absorption rate of skilled labour force is also very poor. A huge number of technically educated youths after completing their technical education like engineering, vocational courses etc. are finding it difficult to get themselves absorbed in the secondary sector, leading to a huge problem educated unemployment in India.
Imperfections Labour market in India is also suffering from some imperfections such as lack of adequate information regarding jobs, lack of suitable agency for the proper utilisation of labour force, child labour practices, lack of proper manpower planning etc. Such imperfections have been resulting in various hurdles in the path of absorption of labour force smoothly.
Work Culture Work culture among the Indian labour force is not at all good. Whatever work force is absorbed in various productive sectors it is not adhered to healthy work culture. This has been resulting in lesser economic surplus in the production system which restricts indirectly its absorption capacity in future.
Militant Unionism Labour market in India is also facing the problem of militant unionism. In some productive sectors and that too in some particular states, trade unions are not adhering to healthy practices. This has led to militancy in the union structure and its activities, which is detrimental for the greater interest of the nation.
Unemployment Labour market is also facing a serious problem of unemployment. A huge number of work forces of our country remain partially or wholly unemployed throughout the year or some part of the season. This has led to the problems like disguised unemployment, seasonal unemployment, general unemployment and educated unemployment. In the absence of adequate growth of employment avenues, unemployment problem in the country is gradually becoming much more alarming day by day. Moreover, due to the policy of downsizing followed both in public and private sector and also in government administration and services sector, the problem of unemployment is becoming much more acute. This has also been putting much pressure on the labour market of the country.
Lack of Labour Reforms Labour market in India is also suffering from lack of adequate labour reforms provision. Economic reforms introduced in the country during the 1990s have changed economic scenario of the country. But the country is lagging behind in adopting necessary labour reforms which are rational and important under the present context. Labour is a subject in concurrent list of the Constitution of India. Thus both centre and states can enact laws on labour matters. There are about 45 central government laws and more than 100 state statutes, sometimes overlapping or contradicting
Archaic laws In the pre-independence period, British colonialists in India suppressed labour rights, trade unions and the freedom of association among workers. As a result, labour activism became a part of the Indian freedom struggle. In 1950, the newly framed Constitution of India looked to undo these wrongs by including fundamental labour rights, along with complex labour laws. These laws made hiring additional workers increasingly difficult. Despite several decades of economic progress, these laws have not been amended or reformed in order to foster a friendlier climate for business.
Politics In Kerala alone, for example, there were nearly 363 hartals between 2005 and 2012, causing loss of so many working days. In addition, in the 1970s and 1980s, Indian politics was dominated by socialists who created the impression that profit making by private enterprises is undesirable. Policymakers also further strengthened India’s complicated labour laws
Rigidity India has one of the most rigid labour regulatory frameworks in the world. Example- Industrial Disputes Act of 1947 stipulates that a firm with 100 employees or more cannot close down without government permission. Such laws curtail the growth of a firm by forcing it to hire fewer workers and remain small
Cost of compliance There are also high costs involved in complying with several labour laws under the Factories Act, firms with 10 or more workers and firms which use electric power are required to keep records and file regular reports on matters such as overtime work, wages, attendance, sick leave and worker fines.

Labour Reforms

  • Social Safety Net for workers:
    In order to enable capacity building of workers so that they could withstand any recession or retrenchment, they need to be provided some social security by means such as Insurance Pensions, provident funds etc. Government ought to increase its presence in this area, particularly in case of start-up and small-scale industry. Because these units have low financial capacity to provide for these expenses. Their growth too is extremely important for Industry.
  • Disinvestment and FDI:
    Trade unions time and again have resented privatization. Government has been ideal employer in pre liberalization era. PSE’s one of the main objectives was to provide employment even at cost of economy but this very policy was result of demise of PSEs. Same is true for FDI.
  • India’s Demographic Dividend:
    India is expected to generate 51 million jobs till 2019, it is imperative to streamline all laws, to facilitate manufacturing sector in India so as economy could absorb new human resource inflow. Further, there’s expected increase in productivity of agriculture sector, which will result substantial shift to industry

Last decade’s much resented jobless growth was due to its service sector source. Within service sector it was based on services such as Finance, real estate, business etc. These services have least employment elasticity. For example 1% increase in Finance Services amount to far less than 1% increase in employment. On the other hand manufacture sector have tendency to shift to capital intensive technology which replaces labour with capital. Confusing labour laws just speeds up this replacement. Construction sector have highest employment elasticity (more than 1).
The Ministry of Labour and Employment has proposed four legislations as part of its steps for simplification, amalgamation and rationalisation of 44 labour laws – codes in the areas of wages, industrial relations, social security and occupational safety, health and working conditions.

Feature of labour code proposed by labour ministry

  • It will cover every working person whether he/she belongs to the organised sector or the unorganised sector in the country under it.
  • Thus, for the first time, agricultural workers along with self-employed people will be covered under the social security cover. Even factories employing single worker will have to contribute towards social security benefits.
  • It will cover any factory, mine, shop, plantation, charitable organisations and all establishments or households employing casual, fixed-term, part-time, informal, apprentice, domestic and home-based workers.
  • If such establishments or factories fail to contribute towards the social security schemes of the workers, they will be liable to pay compensation.
  • It even covers households employing domestic help and they will also have contribute towards schemes, including gratuity for the worker and provident fund.
  • It proposes, National Social Security Council (NSSC), chaired by the Prime Minister to streamline and make policy on social security schemes related to all the Ministries.
  • NSSC’s other members will include Union Finance Minister, Labour Minister, Health and Family Welfare Minister along with employer and employees’ representatives.
  • It will co-ordinate between central and State governments, monitor the implementation of social security schemes, regulate funds collected under various social security schemes, among others.
  • Recently Govt. unveiled a new roadmap, including measures to end ‘Inspector Raj’ with a system that is expected to sharply curb the element of discretion with labour inspectors and a single window compliance process for companies on labour-related issues.
  • Govt. also unveiled nearly half-a-dozen schemes, including a Shram Suvidha Portal where employers can submit a single compliance report for 16 labour laws, a new web-based labour inspection system, unique account numbers for members of the EPFO, a revamped Rashtriya Swasthya Bima Yojana as well as a new skill development and apprenticeship scheme.
  • Sharply streamlined the cumbersome compliance process, manufacturers can now register online at the Shram Suvidha portal and file a self-certified single compliance report for 16 Central labour laws.
  • In return, labour inspections by four central agencies — EPFO, Employees’ State Insurance Corporation, Central Labour Commissioner and Director General of Mines’ Safety — will be based on a computerised list of units that are picked up from this database.

Critical view of the Proposed labour code

No clear definition of workers Although the code acknowledges nine different definitions of workers, it refers to workers in an undifferentiated way in the main sections. The working class is a complex mix of a vast spectrum of cohorts in India such as domestic worker, contract workers, workers from the unorganised and organised sectors or from those in the formal and informal economy. The impetus on simplification of the code has eclipsed the vast diversity and the socio-cultural constructs of workers in India.
A reform without stakeholder consensus The haste for amalgamation is almost dismissive of the participation of workers. The ritual of soliciting public comments is technically adhered to by the ministry, through the English version of the code which is made available solely on its website. Hence, both the medium and the method of soliciting comments will exclude majority of the workers from expressing their views.
Elimination trade union importance The most regressive dimension in the code is undoing the role of trade unions that has been a part of the constitutional scheme of things in the post-independence era in the form of tripartite negotiations for workers rights. the code introduces the idea of social security organisations consisting of the National Social Security Council of India (national council), central board and state board as the policy and regulatory bodies for the welfare of workers, none of which envisages any role for the trade unions.
Discriminating against and disentitling the poor This was expressed so far by way of targeting for population control, is proposed to be made a legal clause, subtly through the code. The two-child norm, under section 55.1, is made a legal eligibility criterion for availing benefits under the Maternity Benefits Act, 1961, which has hitherto been universal. The clause appears to be pro-women in prohibiting employing women just before and after the delivery. However, section 55, which states that a woman who has “actually worked in an establishment for a period of not less than 80 days in the 12 months immediately preceding the date of her expected delivery” is eligible for maternity benefits, is a potent exclusionary clause for many women who may not have regular employment as is commonly the case. Hence, although superficially the language of the code states that “all women” will be entitled to maternity benefits, in practice such a criterion renders a large number of women, especially the most vulnerable sections, ineligible to avail maternity benefits.
Greater role for non-state intermediary agencies (suspicion of privatisation) The code requires every employer, employee and each employer-employee relationship to be registered. The process of such registration is fraught with confusions and vagueness. In the case of those workers in the unorganised sector or informal economy with multiple employers (as in the case of agricultural labourers or domestic workers), there is no provision for self-declaration by workers. The humongous task of recasting the welfare services coupled with the silence on the mechanics that is required along with provisions for intermediary agencies can only raise the suspicion of this code being a ploy for the larger agenda of the government, i.e. promotion of private business.
Flawed presumptions The code rests on some underlying presumptions which may be seriously contested, especially in the context of there being a large spectrum of workers in the unorganised sector. The following are a few of such presumptions.
  • That all capable citizens (workers) have regular remunerative work, at least paying them minimum monthly income;
  • That all workers are individually able to negotiate for their entitlements without any assistance;
  • That all workers are homogenous and there is no recognisable differentiation among and between workers in different sectors such as formal-informal sectors or organised-unorganised workers.

Way ahead:

  • Legislative reforms such as those taken up recently by central government and states such as Rajasthan, Gujarat, MP are very much needed
  • Empowering women to enter the workplace and providing them additional support
  • Physically challenged- Increasing current 3% reservation in governmental and government-funded jobs. Also ensuring that workplaces are disabled-friendly
  • Karnataka granted exemptions to IT industries from the Industrial Employment (Standing Orders) Act of 1946. It undermines the employer’s autonomy in determining the terms of employment, working hours, leave grant and similar matters
  • Providing social security to workers in the informal sector would also pave the way for a more satisfied and productive workforce
  • Training and skilling- India has a demographic advantage but in order to utilize this dividend, India needs to invest heavily in training its talent
  • India’s supply of labour presently outnumbers industry’s demand for them. As a result, the government and manufacturing firms need to invest in training and skilling

The guiding principle for India’s labour policy reformers should not merely be ring fencing jobs but safeguarding workers through social assistance, re-employment support (such as that which is provided in several Western nations) and skill building, and supporting employers in employee training and development. Labour issue is more complex in India and many times govt try to reform but all time faced resistances from the labour union. Currently proposed reformed will help to address the labour issue and providing them social security, help in creating congenial environment for attracting investment and job creation. but still some issues that create uneasiness among labour class and criticised by opposition group. so govt need to bring all stakeholder into confidence and make consensus before finalising reforms on labour issue that is long pending.