The government’s recent moves to incorporate a degree of flexibility into the regulations governing India’s labour market are welcome and long-expected steps. Few other reforms have been considered by generations of economists as being as important for improving India’s growth potential as have labour reforms. The recent codes, including the Industrial Relations Code, 2020 — which was notified on September 29 — are therefore being seen as a major step forward, even if they do not necessarily go far enough. While not introducing real flexibility to the market, the codes have sought to formalise and expand the paradigm of contract employment
for a fixed term that had already developed de facto in response to India’s labour market inflexibility. This is a sensible middle step towards proper flexibility.
Yet concerns continue to be aired about fixed-term contract employment, particularly in the context of an amendment to the law which ensures that companies would be permitted to convert current permanent employees into fixed-term contract employees. This is being seen by some as a step backwards in the quest to provide Indians with decent work. This is, however, the wrong way of looking at it. The correct way is to note that it will, in fact, ensure the continuance in employment
of those who currently are permanent employees since it will significantly improve the ability of their employers to increase competitiveness, raise capital, and expand operations.
There remains a concern that fixed-term contract employment
is somehow inferior to the existing forms of permanent employment. In terms of security of tenure, this is perhaps true. But this absolute permanence of tenure is part of the reason why the penetration of formal, decent employment in India remains so tragically low. Certainly, by the standards of actually existing conditions in the workforce, the envisaged fixed-term employment contracts could surely be described as decent work. As long as statutory payments of all kinds are guaranteed; there is complete transparency in the contract; and the wage code is adhered to, there is every reason to suppose that fixed-term contracts will meet commonly accepted standards for decent employment. The crucial value addition is that such flexibility will also allow for greater competitiveness and thus more jobs will be created. This will especially be the case if this labour market transformation continues, and is conducted alongside a spreading of skilling programmes and support for internal mobility in the country.
The broader bargain between government and labour must be this: That greater flexibility should be permitted, alongside a supporting ecosystem that can provide recourse if contracts are violated — as the private sector might well do. That companies themselves and not contractors can directly enter into these contracts speaks of the possibility that mechanisms for such recourse could be efficiently designed. Workers should be provided with every opportunity to create skills, to shop those skills around, to plan their careers, to be provided with statutory saving and other social security coverages, and to have support systems — whether unions or some other form of representation or recourse — in place that will ensure contracts are adhered to by powerful companies. Thus, it will be important to ensure that violations are settled in a reasonable time frame. This would bring India into the mainstream of liberal democracies and allow for its pitiful record in creating decent jobs to improve over time.