Editorial Today – Labour Law Reforms

Importance of Industrial sector Extra workers from agriculture sector can mainly be absorbed in industry sectors.

Gross Domestic Product (GDP) Composition by Sector Agriculture,Industry and service.

Percentage share in employment Agriculture,Industry and service.

Analysis 50 per cent of the population contributes only 17 per cent in GDP.

Complexity of labour Laws in India The Article 246 (with 7th schedule) of the Indian constitution puts the issues related to labour and labour welfare under the concurrent list.

Hurdles in labour reforms Many a time labour reform arguments are driven by passion rather than reason.

Relation between labour reforms and industrial growth (Based on survey) Rigid labour laws lead to significant reduction in employment, productivity and growth.

Bad effects of rigid labour laws in India India mostly exports capital-intensive goods.

Some recent labour reforms Universal Account Number scheme (UAN), self certification, etc.

Importance of Industrial sector

Indian economy is classified in three sectors — Agriculture and allied, Industry and Services.
Agriculture sector includes Agriculture (Agriculture proper & Livestock), Forestry & Logging, Fishing and related activities.
Industry includes Manufacturing (Registered & Unregistered), Electricity, Gas, Water supply, and Construction.
Services sector includes Trade, repair, hotels and restaurants, Transport, storage, communication & services related to broadcasting, Financial, real estate etc.

Gross Domestic Product (GDP) Composition by Sector

Services: 65 per cent
Industry: 18 per cent
Agriculture: 17 per cent

Services: 28 per cent
Industry: 22 per cent
Agriculture: 50 per cent

Analysis

It can be seen that 50 per cent of the population (agriculture) contributes only 17 per cent in GDP. It means disguised unemployment is there in this sector. On the other hand even though service contributes 65 per cent toward GDP but it employs only 28 per cent of the worker.
Thus extra workers from agriculture sector can mainly be absorbed in industry sectors. In this sector also manufacturing sector is mainly the labour intensive sector, thus growth of manufacturing sector is essential for providing jobs to the people.
While it is heartening to note that Indian policymakers seem to have realized the importance of manufacturing in providing jobs, it is also equally important to realize that the path leading to higher manufacturing employment has to necessarily cross a difficult bridge called labour reforms.

Complexity of labour Laws in India

The Article 246 (with 7th schedule) of the Indian constitution puts the issues related to labour and labour welfare under the concurrent list.
But exceptional matters related to labour and safety in mines and oilfields and industrial disputes concerning union employees come under Union List.
Historically, labour legislations are generally enacted at the Central level consisting of the Central Act and Central Rules framed under the Act.
States can either amend the Central statutes or have the liberty to enact their own laws.
The applicability of various labour laws differs. For example, the Factories Act, 1948 is applicable to a factory with 10 or more workers, the Payment of Gratuity Act, 1972 is applicable to establishments with 10 or more employees, the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (EPF Act) is applicable to establishments with 20 or more employees, the Minimum Wages Act, 1948 is applicable to all establishments and so on.
Further, in some statutes there are additional application criteria, for instance, the EPF Act is applicable to employees whose salary is Rs 15,000 or less and the Payment of Bonus Act, 1965 is applicable to employees whose salary is Rs 10,000 or less. The terms “employees” and “salary” are misnomers.
The words used in most labour laws are “workman” and “wages”. What constitutes workman and wages are not uniform either. Although most labour laws apply to workmen, through innovative interpretations and prevailing practices, non-workmen or the managerial category of employees also get covered.
If we add up the numerous labour laws, we will end up with multiple definitions for the same term. Now add to that state amendments (most states have made changes to suit local requirements).

Hurdles in labour reforms

Most of the arguments advanced, both in favour of and against labour reforms, are coloured by the ideological worldview or the economic status of the people making the arguments. Many a time, arguments are driven by passion rather than reason. For example, all those who represent workers or subscribe to a leftist worldview believe that labour reforms are likely to have a detrimental impact on employment and hence oppose even simple procedural reforms in this area. On the other hand, industrialists and those subscribing to rightist worldview call for radical labour reforms without appreciating the plausible political consequences and immediate human costs.

Relation between labour reforms and industrial growth (Based on survey)

Rigid labour laws lead to significant reduction in employment, productivity and growth.
There is a strong relationship between labour laws and urban poverty. In other words, rigid labour laws are also associated with increased urban poverty i.e. rigid labour laws ultimately end up hurting the very same constituency that they are supposed to protect. For eg West Bengal, which was the largest producer of manufactured products during 1949, experienced a negative 1.5% growth in manufacturing, whereas Andhra Pradesh experienced a positive growth rate of 6%.It is because West Bengal tightened labour laws, whereas Andhra Pradesh liberalized them.
Negative impact of labour laws is higher in labour intensive firms than capital intensive firms.
Negative impact on growth and productivity is higher for firms in industries that face a lot of volatility. It is because such firms require a lot of flexibility.

Bad effects of rigid labour laws in India

The share of manufacturing in India’s gross domestic product has stagnated between 14% and 18%
India, a country with surplus labour and a large number of unemployed youth mostly exports capital-intensive goods such as petroleum products, gems and jewellery, transport equipment, machinery and instruments, and pharmaceutical products.

Some recent labour reforms

Government launched the Universal Account Number scheme (UAN) for all Provident Fund contributors which will allow portability of PF benefits and online tracking of PF benefits.
The aim of Deen Dayal Upadhyaya Shramev Jayate Karyakram by the Ministry of labour and Employment (MoLE), was to emphasise the dignity of labour, especially that performed by blue-collared workers referring to them as “shram yogi”.
To support the graduates from Industrial Training Institutes (ITIs) across the country, who undergo vocational training after completing class X, the government will reimburse 50 percent of the stipend paid to apprentices during first two years of their training. There are 2.82 lakh apprentices undergoing training against 4.9 lakh seats. The program will aim to increase this to 24 lakhs apprentices.
The government in August had passed the Apprentices (Amendment) Bill 2014 in the Lok Sabha to amend the 1961 Act to freshly regulate the conditions of work of apprentices in a wider number of trades.
An online portal that will allow employers to file returns online for compliance with 16 labour laws and a system under which lots drawn by computers will be used to conduct inspections had been launched. According to government to end the Inspector Raj which was still continuing, the government had decided to bring in a system based on “responsibility and trust.”
With the Ministry of Labour and employment introducing the schemes, they will at present apply only to employees and workers under central agencies and autonomous bodies. Since labour is a concurrent subject, these will apply in States only after they make similar changes to their rules and laws.
A Central Analysis and Intelligence Unit will be set up to analyse data to decide which units to inspect. Labour department staff will need to be trained in new skills for use of computers.