Time to end employer criminalisation

News: The recent budget has prioritized Ease of Doing Business (EODB) 2.0.

The article says that criminalization of employers has affected productivity of Indian economy, hence there is need to relook the jail provisions and simplify the laws.

Why there is need to reconsider employer criminalization?

One, the excessive criminalisation of employers has painful consequences for corruption, formal jobs, and justice.

For instance, excessive and arbitrary power combined with the power of putting people in jail, breeds corruption.

Unreasonable or unfair policies combine with discretionary and weakly checked power to impose huge financial, social, or bodily damage increases corruption.

Two, the PM’s in his last Independence Day speech has emphasized upon lower regulatory cholesterol which means less state interference.

What is the situation wrt penal provisions against employers in India?

Employers and entrepreneurs face imprisonment risks across 1,536 laws in seven categories — labour, secretarial, environment health and safety, finance and taxation, industry-specific, commercial, and general.

Eight hundred and forty-three laws have 26,134 criminal provisions, 67% have more than five jail provisions and one law has 700 ways to end up in jail.

On what grounds, criminalization of employers can be removed?

First, India is poor not because of shortage of land, labour, or capital. It is because there is no effective employer rule of law regime which tackles information asymmetry, market power, negative externalities and creates public good.

Jail threats discourage entrepreneurship, and that’s why firms prefer to remain small. Hence, Government must support the entrepreneurship that creates formal jobs.

Second, there should be a smaller number of laws which are tightly enforced rather than a greater number of laws with poor enforcement.

It does not empower the powerless. For instance, adding 300 plus jail provisions every year for 70 years in labour laws has not protected workers.

John Ruskin has also suggested punishment is the last and least effective instrument for the prevention of crime.

Third, excessive criminalization increased in the mid-1960s due to weak state capacity. But it proved counterproductive.

State capacity diminished faster because jail provisions lack transparent enforcement and conviction rates declined because of higher usage of “beyond reasonable doubt” thresholds.

Thus, voluntary quashing became a weapon for corruption.

What is the way forward?

First, the central government is reducing compliances and has asked state governments to rationalize them. Also, parliament must demand higher conviction rates from economic investigative agencies, so the law can move from anticipating future criminals to actually putting real criminals in jail.

Second, there is need to reduce employer jail provisions to expand good job creation. The jail provisions affect negative liberty of employers that breed corruption, sabotage formal job creation, and poison justice.

Source: This post is based on the article “Time to end employer criminalisation” published in Indian Express on 11^th Feb 2022.