India’s archaic and restrictive labour laws have long been a drag on its economy, preventing it from reaching its full potential. Reform is overdue, but has not been at the top of the current National Democratic Alliance’s policy agenda. The Union Ministry of Labour and Employment has now decided to issue a draft notification that returns to an earlier proposal to allow businesses to offer fixed-term contracts to workers. In other words, an establishment could sign on employees for a specified duration under the assumption that their employment will be ended once the project that they are hired for is finished. This was permitted last December in the footwear, leather and accessories sector. It is now being considered for expansion to all sectors.
There are good reasons why short-term employment may address some of the problems faced by companies, especially those that wish to expand or invest in new plants. Currently, any investment or expansion decision is complicated by the fact that new employees are technically for life. Under India’s draconian labour law, a company cannot fire workers without government permission — by far the most constraining such regulation anywhere in the world. Thus, if an electronics manufacturer observes that there is demand for a particular product, it cannot immediately set up a new production line without also considering what will happen to the bottom line if and when demand for that product declines or vanishes completely — hardly an unusual feature in the fast-moving markets of today. In a system in which short-term contracts can be handed out, this problem may be partially ameliorated.
However, it should be clear that this is not a sufficient solution to India’s labour woes. For one, there are weighty legal questions here: The status of contract labour, or what happens to such workers when their contracts run out, has been the subject of frequent, and sometimes somewhat contradictory, judicial interventions. Even if such legal barriers can be overcome — and many supporters of the notion of short-term employment insist this is possible — other questions remain. The tension that builds up in workplaces where some of the workers are normal, permanent workers and others are temporary — and thus treated very differently — is bad for business and for public order. An overuse of contract labour prevents the development of a healthy relationship between workers and management, or of a functional and effective union system. Most importantly, it does not appear to provide either policy stability to employers or actual stability to employees, and leaves the industrial sector struggling against absurd labour regulations.
There is no shortcut to labour law reform. Neither leaving it to the states — the original plan — nor attempting to create an alternative regime for fixed-term employment can take the place of genuine reform of the Centre’s regulations governing retrenchment. The government, if it cares about high growth, must invest political capital in devising, passing and implementing a fair, flexible and equitable reform of existing central labour law.