Labour Reforms And A Fine Balance

In the last few years, a good income source for columnists was the topic of ‘big bang reforms’. Every now and then, when someone ran out of ideas, they would write about the lack of some amorphous and vaguely defined ‘big bang reforms’.

To be fair, however, there were a few who at least tried to specify that reforms were needed especially in agriculture and labour domains. In a little less than a week, these two questions have largely been settled, as it’s been raining reforms.

The farm bills that free the farmer to access more markets and work with private players have already been spoken about quite a bit.

However, the importance of labour reforms should not be subsumed by the glare of ‘agriculture’s 1991 moment’. They merit a prominent space in our discussions.

The pre-Narendra Modi Indian establishment had a fetish for adding more laws onto already existing laws and more clauses in already existing laws.

That the Modi government actually repealed about a thousand such laws is a refreshing change.

Now, it has gone ahead and done something more reformist — around 44 labour laws have been subsumed into four codes. The Code on Wages, Code on Occupational Safety, Health and Working Conditions, Code on Industrial Relations, and Code on Social Security.

I have often spoken about this in conversations and also written about it sometimes —Modi does not see any domain (except for the political perhaps) as a zero sum game.

You can see that in his recent farm reform bills. Minimum support price (MSP) remains but farmers can now access markets outside mandis too.

Private players can come in and invest in agriculture but there is adequate protection for farmers against any kind of takeover of their lands.

Prices of farm produce, too, used to be seen as a zero sum game where either the consumers could win or the farmers. But by facilitating the removal of middlemen and organic price discovery, there is a possibility that both farmers and consumers can benefit.

Similarly, one can see a fair balance of ease of doing business for industries with an emphasis on protecting worker rights in these codes too.

For example, establishments up to a size of 100 workers needed prior permission of the government before closure or removal of workers.

Like many other things in the compliance space, the threshold of 100 workers meant that there was an incentive to stay small.

The problem of India’s ‘Peter Pan’ establishments is well known — firms just do not grow enough to make an impact. By increasing the threshold to 300 workers, these codes have lightened the compliance burden on a host of firms.

This is not rocket science because the case of Rajasthan’s similar reform of 2014-15 and its impact has been documented even in the Economic Survey 2019-20. But it still needed to be done.

The Economic Survey notes, “following the law change, the number of firms with 100 employees or more have increased at a significantly higher rate in Rajasthan than in the Rest of India.” The total output, number of workers per factory and total output per factory also grew.

So, if some self-appointed arbiter of worker welfare were to come and say Modi harmed worker rights, they had better note that after Rajasthan, 15 other states adopted this step as well.

However, practices such as serving prior notice to workers, compensation of 15 days’ pay per year of service still exist. In fact, an additional monetary benefit of 15 days’ pay is provided for by the new code.

Across all the four codes, a trend of balancing ease of compliance with worker rights can be observed.

For example, while about 13 acts and 600 sections in the existing acts dealing with safety and working conditions have been subsumed into just one code and 143 sections, safeguards for workers have also been strengthened.

Take for example, the workers who worked in plantations with insecticides and pesticides. These activities have now been declared hazardous and have to come with necessary safeguards that such activities entail.

As has been widely reported, the time taken for arbitration proceedings has been included in the conditions for workers before going on a legal strike.

Earlier, this was just limited to the time for conciliation.

On the other hand, gig workers who work for aggregators have also been covered by the Social Security Code which makes their employers contribute a fixed percentage of their annual turnover towards social security.

Migrant workers, too, have been significantly benefited. The earlier setup only recognised contract-based employment while the recent codes expand the ambit to directly employed migrant workers as well. They can also self-declare and obtain benefits entitled to them.

That the government has addressed the state of migrant workers and gig workers — in the news most recently for their troubles during the lockdowns — shows a government that is thinking on its feet about the changing nature of employment and employment generation.