Untangling labour laws

The government has hit the ground running on reforming India’s complex labour law system, often seen as a major hurdle in attracting investment in the country. By bringing two key sets of legislation — Code on Wages Bill, 2019, and Code on Occupational Safety Health and Working Conditions, 2019 — within two months of taking charge in its second term, the government has taken determined steps to untangle the cobweb of labour laws. The two Bills put together will lead to a sharp decline in the total number of provisions in labour laws from 747 to 203, as 17 labour laws will be combined into these codes.


One key proposal towards ease of compliance is the plan for single registration, single licence, and single return for establishments (for both industry and the services sector) hiring at least 10 workers anywhere in the country. This will bol­st­er India’s ranking in the World Bank’s Ease of Doing Business, as setting up a business will become easier. Presently, an establishment has to be registered un­d­er eight labour laws, obtain separate licences under four Acts, and file returns for 17 laws.


According to another proposal in the Occupational Safety Health and Working Conditions Bill, companies will be required to acquire single licence for executing multiple projects, involving contract workers for a period of five years. Currently, companies have to obtain separate licences for different projects leading to delays. However, it would be advisable to revisit the proposed clause asking companies to state the number of contract workers they might require over five years. Asking companies to re-apply for the licence for hiring even a single additional worker will defeat the idea of easing compliance.


The fresh draft of the Code on Wages Bill is a welcome move, as the one introduced in 2017 intended to cover the entire workforce under the minimum wage law. The government has addressed fears of state governments by doing away with the proposal to fix separate national minimum wages for different sta­tes. Instead, it will fix a mandatory floor for states “based on minimum basic ne­eds of workers.” This will allow states to fix their own minimum wage levels, whi­le adhering to a floor. The next logical step would be to keep the floor at a reasonable level so that all the states are able to comply without losing competitiveness.


Where the Code has gone wrong is the proposal that the minimum wage will be fixed “primarily” based on skills or geography, or both. Prescribing a minimum wage level for skilled workers would obstruct efficient functioning of markets, as wages must be market-linked beyond a minimum level. Also, while Kerala has 10 different types of minimum wages based on skills, Chandigarh has nine, Bihar and Delhi have six. The Bill may lead to a number of minimum wage variants in a particular state. 


Going forward, the real test will be the Code on Industrial Relations Bill, which will be important for giving businesses more flexibility to retrench workers or shut shop. Greater flexibility to hire more workers and attain economies of scale will help improve India’s competitiveness in the global markets.



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