-By Payal Jain
India has over the years enacted a variety of legislations meant to protect labour ranging from laws that set a minimum wage rate to laws that abolish child labour and bonded labour to laws preventing retrenchment and layoffs.
The traditional view regarding these labour laws is that they promote labour welfare but more often than not, this is not the case. Another side to the not so rosy story is that they make the Indian economy highly inflexible.
Minimum wage laws, for instance have the worst impact on unskilled and low-skilled workers. Economists have always opposed any artificial measure to increase wage rates about the equilibrium level as they hurt the labour in the long run by reducing its demand. As cost to company rises due to minimum wage laws, the first ones to lose their jobs are usually the unskilled workers. Hence, the law does more harm to the interests of those very workers which they aim to protect.
Examining the case of the retrenchment laws, any firm employing more than a 100 workers has to take prior permission to close down or retrench labour. Any firm during its expansionary stage will not only have to consider the costs of hiring new labour but also the costs of retrenching such labour. And as the popular argument goes, necessary adjustments and desirable activities do not take place because of this. When companies encounter adverse business conditions, these laws prevent them from reducing labour costs to redeploy resources elsewhere.
In recent years, this has resulted in a stupendous growth in the informal sector and casualization of workforce. The phenomenon of casualization of workforce is seen as an indicator of deteriorating job quality of the urban workforce. Casual workers are not only paid less but the disparity in wages between contract labourers and permanent ones could run as high as 50%. On top of it, they are often the first to bear the brunt of a slowdown. Not surprisingly, greater casualization of workers is fuelling labour discontent across the country. The recent violence at Maruti Suzukis Manesar plant in Haryana and previously in several other automobile companies is directly related to hiring of contract labour rather than permanent ones. There is a pay disparity and contract workers are not generally entitled to retirement and other benefits.
More and more companies are now creating non-traditional employment structures to circumvent labour laws and regulations. New employment categories such as part-time, casual and contract labour have come in vogue to overcome stringent rules and regulations that come attached with permanent contracts.
Experts stress that the trend of hiring workers on contract rather than taking them in as permanent employees gives company managements the right to hire and fire on issues of performance or in times of recession, something not easy in case of permanent employees under Indian laws
The reason for growth in contract labour is clearly a post-liberalization phenomenon. Globalization has brought changes in the employment structure throughout the world. It is argued that the need to effectively compete in a globalized market requires operational flexibility whether it is related to capital, labour or rules. These variables must enhance and not impede business growth in a dynamic work environment. Labour especially in a stringent regulatory framework can not only deter foreign investors but may put domestic companies at a disadvantage. Thus, reform in labour laws is the need of the hour
Even World Bank Reports have on various occasions pointed out towards the need to reform Indian Labour Laws as they result in lower output and growth in the manufacturing sector.
Indias labour laws intended for the benefit of the poor and downtrodden labour class who are more often subjected to the tyranny of the capitalists do more harm than good for the benefactors of such laws.
All this makes me wonder about the flawed economics in our laws. Is this just a political gimmick by our legislators to gather votes?
The objective of this article is not to seek elimination of legislation from the labour market but to emphasize on the need for its reforms. A flexible labour market may in fact be a catalyst to attain a mega high Indian growth story.
Indian labour market is at the crossroads. It should either reform or fall into greater abyss. At present, it is swerving between two extremes. While one extreme is defined by rigid labour laws backed by stringent regulatory framework and militant trade unionism, the other is characterized by a vast informal sector. The latter is governed by vaguely defined multiple set of laws promising a lot but giving little organized access to safety measures.