Labour rules of states encourage inspector raj

Source- The post is based on the article “Labour rules of states encourage inspector raj” published in “The Indian Express” on 11th May 2023.

Syllabus: GS3- Indian economy and employment

Relevance– Labour reforms

News– The article explains the recent labour reforms introduced by central government and their impacts. It also explains the employment needs and structure of India economy.

What are estimates related to employment need of Indian population?

As per Planning Commission estimates, India needs to create 10 million or 12 million jobs every year. But these are dated figures. It does not take into consideration the impacts of slowing rate of population growth

The answer depends on the timeline, assumptions about future fertility and views on work participation rates. A rough range might be 5-8 million.

If the economy grows at 6.5%, there must be employment growth unless labour productivity increases at 6.5%.

There are legitimate concerns about not enough jobs, the quality of jobs being created, voluntary opting out of the labour force by both males and females.

What are some facts about employment elasticity of the economy?

Employment is inadequately measured in an informal economy. So, employment elasticity of growth ought to be higher. But, despite India’s demographic dividend, employment elasticity is not higher.

The composition of growth matters and employment elasticity varies across sectors. It will be considerably higher in construction than in manufacturing. Modern manufacturing can be technology and capital-intensive.

There are several reasons behind the high capital intensity of production. There is an extent to which capital and labour are substitutes. The choice depends on relative prices.

In a relatively labour-surplus economy, labour costs should be lower and labour costs do not mean wage costs alone. There are also skill and productivity issues.

What are some facts about recent labour reforms by Indian government?

The Central Government has codified 29 laws into four Codes. These Codes are on wages, social security, occupational safety, health and working conditions and industrial relations.

They certainly don’t cover every statute on labour and employment. They cover only those administered by the ministry, unlike labour law reforms in a country like Bangladesh.

This standardisation and simplification break down the unorganised versus organised divide. It strengthens protection for the unorganised and make organised labour markets more flexible. Such reforms are desirable.

Do these labour codes stimulate employment?

Even before these Codes, some states introduced labour reforms. The effects of such changes are conditional and qualified.

Taken in isolation, these changes have minimal effect. But they matter at the margin. Combined with other reforms, they lead to job growth.

Labour conditions vary across states. So, labour is in the Concurrent List of constitution, not in the Union List or State List. Hence, after those codes are framed, states need to publish rules. All states haven’t done that. It has nullified the intent behind the Codes.

Most states have published rules under wages, a few under industrial relations and social security, and least under occupational safety.

Non-transparent rules on occupational safety, health and working conditions facilitate corruption and the inspector raj, in the functioning stage of an enterprise.