The Labor Laws problem

By Ishita Gopal

Edited by Liz Maria Kuriakose, Associate Editor, The Indian Economist

Fun fact:  Did you know that you can’t implement 100% of India’s labor laws without violating 10% of them?

Ironic isn’t it? But then what else would you expect of a country with 200 or more laws protecting labor. Or are they?

This subject has always been a political hot potato and maybe that’s why reforms have been so slow (negligent, rather) and we still follow archaic laws implemented by the British, throwing rationalism out of the window.

Today there is a need to make drastic changes in the laws mainly because

a)  A plethora of them exists causing utter confusion and allow firms to circumvent

b) They are outdated. It’s the 21^st century, but the Factories Act doesn’t allow women to work in night shifts.

India is a large country with a large population yet only 7% of it works in the organized sector leaving the remaining 93% to insecure, hostile employment or worse even, no employment at all.

Some analysts argue that it isn’t correct to convert 7% of organized labor into the conditions faced by the remaining 93%.

This is a very simplistic view. If India wants to rope in more people in the organized sector, have a more growth led (than productivity led) advancement and to bring out people from a state of poverty , then it has to organize the laws first, cut them down to a manageable number. The government should be detached from populism and try to do what best suits the public and not the party that’s in power.

Until now, the BJP is doing well in this front and has already taken its first step in dismantling obsolete laws in Rajasthan.

The Left (CPI)  has ,needless to say, opposed these corrections but let’s not forget that this pro- labor party is pro- organized labor ,i.e.,  they don’t represent the 93% that doesn’t have a trade union angle.

We have a hero or a zero policy in the manufacturing sector which is alarming. We’ve been stuck in a rut in terms of growth numbers since 1991. India would have had 35 % more manufacturing growth if we realized that job preservation isn’t a form of job creation. On the contrary, all the security led to 26% unemployment.

Firms with more than 100 workers need permission from the government for laying off workers (Industrial Disputes Act), leaving no room for free contracting. There are, in general, good and bad production cycles. In Economics, we call them, Business Cycles. Thus, when the economy is going through recession or the sale of a certain volatile product is not satisfactory, manufacturing units face problems in downsizing because they do not get a green signal from the government. Sometimes, the firm is forced to run into losses for the sake of the labor vote bank.

This has made manufacturers cautious. They make sure that the number of employees doesn’t exceed 100, preventing benefits of increasing scale of production and reducing costs from accruing to the employers and workers alike.  If there aren’t big firms there won’t be employers willing to employee large number of workers and the circle will go on and unemployment will remain.

 Moreover, the laws on setting up a factory are tedious and the bureaucracies scare half the entrepreneurs away.

China got millions of people out of poverty. They had abounding factories which were easy to set up and therefore, provided employment. That is what we want to replicate without causing a problem of distressed wages, of course.

To free India from this hostile environment for job creation and entrepreneurship we need to continue dismantling the old laws, make labor laws a state subject (the laws that are applicable in West Bengal may not work out for Kerala). The number of trade unions in a factory should be 1 not 150 (as has been observed in many cases) Also, a strike ballot system might help the management to clearly spot the problems faced by the workers and reduce unnecessary attacks on employers.

  India should strive for manufacturing led growth and modifying labor laws is the first step towards that.

 Ishita is a BA( hons) Economics student from Miranda House, Delhi University. She is a multitasker and likes to be involved in all kinds of cultural activities. Besides writing she loves playing Beethoven symphonies, choir practices ,and reading fantasy and fiction.She prefers doing research about a subject by first watching a documentary or two on it, and then reading a lot of articles from different newspapers.  Her dream job is to own a record label while doing freelance writing for a big magazine/newspaper.