A liberal labour market

The government should be commended for pressing ahead with labour reforms. Last week, three Bills comprising three-fourths of a comprehensive labour code were re-introduced in Parliament. The previous versions of the Bills were withdrawn, because according to the government, they were comprehensively changed following the acceptance of several recommendations made by the relevant parliamentary standing committee on labour. The Opposition has raised several objections to the new Bills; the procedural suggestion that they be examined once again by the committee has some merit if they have indeed been substantially changed. Given the importance of changing India’s labour laws, it is important that political buy-in across the spectrum be facilitated, so that the situation with agricultural reforms, which have been subject to poor communication by the government, is not repeated.

The new Codes make certain major changes, particularly to the management and hire of contract workers. The courts have previously ruled that contract workers cannot be hired by companies for their “core” activities. Yet the Code on Industrial Relations Bill, 2020, gets around that by ensuring that direct fixed-term contract employment is permissible. The Code on Occupational Safety, Health, and Working Conditions Bill, 2020, goes further, by allowing certain exemptions to the prevention of the hiring of contract workers in “core” tasks. The likelihood is that this will in effect be a significant liberalisation of the employment of contract workers. Other positive changes are that contract employers will be able to apply for a single, five-year licence rather than relying on a different licence for each work order. Questions about implementation remain: For example, the proposal for an independent authority to determine core activity in a company may introduce an additional unnecessary touchpoint with the associated delays and corruption. It might be possible to simply allow self-certification of “core” activities by companies, alongside fines for mis-specification.

But some problems exist. First, the question of how widely new contract labour regulations will be applicable needs clarity. The threshold has been raised from 20-worker organisations to those with 50. Does this mean a freedom from regulation for those below 50 workers? Further, for a widespread consensus, including among labour, any liberalisation of the labour laws should be accompanied by compensation for retrenchment. This question has not been gone into adequately. A deeper question concerns the continuing discrepancies between the labour codes at the Union level and those now being passed by states. The government has only itself to blame for these confusions because of the delays in introducing these codes, and, as a result, several state governments have moved ahead on reform, albeit in different directions.

It is essential to bring state governments on board to ensure that they modify their statutes to be uniform with the Union’s laws. This will ensure that companies face a similar labour regime all over India. A fragmented set of labour policies will not aid in enhancing the ease of doing business. If they are harmonious all over India, and progressively liberalised further as a political consensus develops, India will take giant strides towards increasing its global competitiveness.


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