Revamping the Labour Laws in India

In the last few months, we have seen "labour codes" getting quite a few mentions in print media and social media. Many might be left wondering what they are and what their significance is.

Since 2015, the Modi government has been trying to rationalise and simplify the labour laws so as to make it easier for the industry, as a whole, to do business. It was, however, in its second term that the BJP led government has been able to take some strides in this area. In fact, in her first Union Budget as an FM in 2019, Nirmala Sitharaman had talked about this intention of the government: "This will ensure that the process of registration and filing of returns will get standardised and streamlined. With various labour related definitions getting standardised, it is expected that there shall be less dispute."

The government is trying to consolidate the existing 44 labour laws into four new codes, thereby making it easier for businesses to understand, manage and comply. These include the governance of wages, industrial relations, social security provisions and working conditions.

Less laws and more clarity might help us achieve more compliance and a greater number of benefits actually being delivered.

The Code on Wages aims to regulate the wage and bonus payments in all employments where any industry, trade, business or manufacture is carried out. On the other hand, The Code on Occupational Safety, Health and Working Conditions (OSHW), seeks to regulate health and safety conditions of workers in establishments with 10 or more workers, and in all mines and docks. The Industrial Relations Code, the third code to have gotten approval from the Cabinet, is used to define, regulate and monitor trade unions, negotiating union, lay-off and retrenchment and industrial disputes. The fourth code, the Code on Social Security, simplifies the laws related to social security of workers, which encompasses income security as well as access to healthcare. This would help govern provident funds, pensions, leave encashment and medical benefit and aims to cover all workers, including part-time, casual, fixed-term, domestic, and home-based ones.

While the Code on Wages was passed by Rajya Sabha on the 2nd of August, 2019 and is now an act, the other three have been referred to the Standing Committee on Labour by the Lok Sabha, and the former is expected to revert on the same by February or March of this year.

Let's understand why the government wants to deal with the labour situation and set this right, as soon as possible.

Unemployment in October 2019, according to the Centre for Monitoring Indian Economy, touched 8.5%, which is a three year high. This has definitely led to a lower consumer demand, and might be consequently affecting the growth rate of GDP, which is slated to drop down to 5% in FY20, according to the World Bank. Although India is ranked 63rd in the Ease of Doing Business Ranking, it ranks a dismal 136th when ranked by Starting a Business, which again, is one of the parameters taken into consideration while evaluating the overall ranking. This is disappointing for a country which has ambition to become a 5 trillion economy in the near future.

Many experts have attributed the rising unemployment to the restrictive and inflexible labour laws, and they feel that labour laws that favour both the employers and employees would make it easier for the former to set up shop, thereby leading to job creation.

A few amongst the existing labour laws even date back to the 1950s. Thus, the government is trying to make the labour laws less complex, more streamlined and much more relevant to today's day and age, which has been highlighted by the fact that they have included the informal economy too. The government hopes that fixing the labour scenario would greatly impact the whole economic condition in the country.

There has been a minimum wage law in place in India, since 1948. However, the poor structure of the law and oversight meant that there was less impetus to actually implement it.

One example of complexity is the difference in minimum wage in mineworkers involved in crushing stones; the ones who work with soft soil are eligible to a minimum wage of Rs 376 per day, while for the ones working with hard soil, the minimum wage is Rs. 750. According to the government's Periodic Labour Force Survey 2017-18, 45 percent of employees in the formal sector are paid less than the minimum wage. The new Code on Wages Bill 2019, aims to remedy this by rationalising the many different minimum wages that are present for various sectors, thereby reducing the costs for employers to comply with wage rules.

Another repulsive phenomenon that everyone is expecting would be done away with because of this structure is the "Inspector Raj", in which government inspectors harass businesses and solicit bribes in exchange for the right licences and documentation.

However, in this new arrangement, the visits won't be restricted to only one inspector; they will be assigned to inspectors at random. Businesses can also self-report the info in an online portal and upload relevant documents in there, in order to further ease the compliance burden and decrease the bureaucratic influence. The Code on OSHW also requires just one registration, instead of around ten, which would definitely be a big help for the employers. This is also slated to be incorporated in the other two labour law codes. This code covers all organisations employing at least ten members, thus bringing the IT sector under its purview. Under this code, which would reduce the number of law provisions from 622 to 154, to run projects involving contract workers, the company has to get a licence with five years' validity.

At present, separate licences are required for each work order, but now, a security deposit and specifying the number of contract workers would be enough to procure the licence. To hire more contract workers, though, the licence needs to be renewed.

A trade union is a negotiating union in a company, if and only if it represents 75% of the employees of the company. As several unions are active, getting a 75% majority is difficult in which case, a negotiating council will be constituted for negotiation, according to the bill. The Code on Industry Relations mentions that trade unions can be registered only if there are at least 10% or 100, whichever is less, members. Also, the concept of "strike", a commonly used tactic of trade unions, has been amended to be "mass casual leave". A 14 day notice is also to be served before a strike or lockout. These measures have, however, drawn the ire of the trade unions and a few opposition parties.

The Code on IR also mentions that an employer with at least 100 employees would need government approval to layoff employees. However, the threshold of 100 is flexible and the government can reduce or increase it. States like Andhra Pradesh, Assam, Haryana, Jharkhand, Madhya Pradesh, Rajasthan, Uttarakhand and Uttar Pradesh, where the threshold has been enhanced from 100 to 300 by state amendments, have been incorporated in the Code. Also, the termination of service of a worker on completion of tenure in a fixed-term employment will not be considered as retrenchment. A re-skilling fund is to be set up for the retrenched employees, and the employer needs to contribute 15 days' wages to this fund. The retrenched worker is also supposed to be compensated with the 15 days' wages, within 45 days of employment. This would help to engage or disengage employees when required.

The Code on Wages, on the other hand, aims to do away with "type of employment" as a criterion, with the minimum being based on geography and skills, which helps rationalise the methodology to fix wages, thereby leading to better living conditions for the large workforce. It is hoped that this would ensure 'Right to Sustenance’ for every worker and the government intends to increase the number to 100% of the workforce from the present 40%, for whom there will be protection of minimum wage.

However, it is to be seen how the minimum wage can be enforced as the employers are the ones with all the cards, the employees might not be successful in persuading them to comply. Sharmila Kantha, a principal consultant at the Confederation of Indian Industry suggests a digital method to track and ensure compliance, however noting that "with many informal workers engaged in multiple jobs and with multiple employers and self-employment in any given week, it will be difficult."

She suggests "A smart card system could help keep track of wage payments, if state governments ensure its roll-out."

K R Shyam Sundar, a professor at the Xavier School of Management (XLRI) in Jamshedpur, told Al Jazeera: "If you reflect on what has constrained economic activity in the country, there are other bottlenecks that are more severe than trade unions and inspector harassment. Labour regulations are never the top concern of business owners."

He adds : “The moment you provide flexibility for the applicability, then it leaves the matter to the discretion to the appropriate government (states or Centre). Then the clause can be misused. Any discretion in law leads to uncertainty, lack of clarity, discriminatory implementation, and provides scope for unnecessary usage. The government should be clear whether to increase the threshold or retain the threshold and face the consequences. This is a kind of appeasement to both sides, which will not actually provide relief to either of them."

A few people even feel that while a stable labour situation is of paramount importance and the simplification of labour laws is a much needed initiative, the government also needs to focus on adequate financing and state-of-the-art power supplies and infrastructure which are needed to make the manufacturing processes much more efficient and effective, to reap the best results out of this endeavour.

Mr M S Unnikrishnan of the CII is, on the other hand, quite enthused by the reforms that the government is trying to bring about and quips : “The original laws were made at a time when one would join and retire from the same company. Earlier, there were so many interpretations, and simplifying so many laws into four Codes is a good thing. There is no intention of industry to exploit labour, but one cannot run the company to create employment — it has to be commercially viable. Today we are competing with global players so there should be a level playing field. We want to protect employment as much as possible, when there is commercial viability. There is no unending amount of money available with anyone of us to continue to employ labour when business is not viable."