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Indian Labour Market in Flux: Law Reforms To Provide Flexibility To Employers or Welfare of the Workers or Both? Part 1

Indian Labour Market in Flux: Law Reforms To Provide Flexibility To Employers or Welfare of the Workers or Both? Part 1

Part One of a Two-Part Series

The pandemic followed by a series of lockdowns, rising unemployment rates and newly improvised three labour codes have created havoc in the Indian labour market. From 1st June, the national lockdown imposed by the Union Government was lifted and the economy opened up. However, states with the highest Corona cases were allowed to continue enforcing the lockdown. In the month of March 2020, the national-level unemployment rate as per CMIE was 8.75% which drastically rose to 23.52% in April and has fallen to 6.67% in September.

In 2019, the Ministry of Labour and Employment introduced four Bills on four labour codes to consolidate 29 central laws. These Codes regulate (i) wages, (ii) industrial relations (IR), (iii) social security (SS), and (iv) occupational safety, health and working conditions (OSHWC). While the Code on Wages, 2019 has been passed by Parliament, bills on the other three areas were referred to the Standing Committee on Labour. The Government has replaced these bills with new ones in September 2020.

“The government is aiming to implement all the four labour codes in one go by December this year and complete the final stretch of labour sector reforms”, Santosh Gangwar, the Union Minister of Labour and Employment.

The Government aims to catapult India to among the top 10 countries in the World Bank’s ease of doing business rankings with the comprehensive labour reforms. As per the ‘Doing Business’ 2020 report, India had jumped 14 places to the 63rd position from 79th position in the ease of doing business rankings in five years (2014-19). This higher ranking would boost investment and job creation in the country.

Commenting on labour reforms KE Raghunathan, Convenor of CIA (Consortium of Indian Association), said, “The COVID-19 situation has made both the life of the employer and employee difficult. If the government statistics say over 21 million job losses during April to August then the figure of employers who lost enterprises is yet to be ascertained. We estimate them to be around 30 percent of over 65 million enterprises.”

He further stated, “Under these circumstances, these new (labour) codes are bound to make new enterprises investor friendly, increase ease of doing business and make it attractive to invite foreign entities which want to come out of China”.

However, these labour codes have been heavily criticised by experts in India due to lacunas present in them.

In the IR Code Bill, 2020, the government has proposed to introduce more conditions restricting the rights of workers to strike, alongside an increase in the threshold relating to layoffs and retrenchment in industrial establishments having 300 workers from 100 workers or more at present — steps that are likely to provide more flexibility to employers for hiring and firing workers without government permission.

While industry has welcomed the labour law reforms that would make hiring and firing easy, a section of experts has argued that it will make the future uncertain for the employees.

OSHWC Code 2020 protects less than 0.7% of factory workers. The new code defines “factory” as a manufacturing unit where 20 or more workers are working with the aid of power and 40 or more without the aid of power. Further, Clause 127 says the government can exclude protection to workers in any establishment or factory which does not provide minimum health and safety standards.

For the first time, a fixed-term employee (FTE) working for a certain period on a contract has been given the right of social security like a regular employee. Under the new regime of FTE, permanent employment can potentially be turned into FTE at any time and fired at will. Initially, contract-based working started in Europe in 2000 and it’s currently prevalent in many countries such as New Zealand, Singapore, and Hong Kong, the top three ranking countries in the Ease of Doing Business Index 2020.

The FTEs will cause damage to the 6% of workers in the organised sector in India as 94% of workers are involved in the unorganised sector with neither job nor social security.

Economist Radhicka Kapoor of the Indian Council for Research on International Economic Relations (ICRIER) welcomes it for providing flexibility to industry (de jure, not de facto), especially in view of the pandemic-induced economic crisis, but she also warns against using it to circumvent the hiring of permanent workers.

The Second National Commission on Labour, 2002 suggests that the size of employment is a matter which can be best decided by the employer himself or herself keeping in view various circumstances.

It understands the two sides of this issue, firstly, firms should be given the freedom to choose the level of employee required, the ambit of upgrading technology, instil global competitiveness, and exit the market if required. However, employment security and welfare of the labour also need to be ensured as it will impact not only the labour’s family but the society as a whole. Therefore, it recommends that a balance should be struck between the two.

The situation can be materially different and easier if India has a viable and adequate system of social security including unemployment allowances and transitional facilities. It means to provide flexibility to the employers, and security to the worker and the Government of India (GoI) with all four codes trying to strike the same balance.

Taking into consideration the welfare of the workers, the GoI has been introducing various measures of social security for all Indians, especially the poor and the under-privileged; three ambitious Jan Suraksha Schemes or Social Security Schemes pertaining to insurance and pension sectors were announced by the government in the Budget for 2015-16. The schemes were launched on 9th May 2015, for providing life & accident risk insurance and social security at a very affordable cost namely (a) Pradhan Mantri Suraksha Bima Yojana and (b) Pradhan Mantri Jeevan Jyoti Yojana and (c) Atal Pension Yojana.

Social security not only protects the employee but also his entire family by providing benefits in financial security and health care. Social security guarantees at least long term sustenance to the families in case when their earning member dies, retires or suffers from any disability.

Further, the GoI introduced Code on Social Security, 2019, to provide social security to the unorganised sector workers which are 437 million or 94 percent of the total workforce of 465 million in India. For the same, the Ministry has suggested that the coverage of Employees’ State Insurance Corporation (ESIC) will extend to the entire country and will be expanded all over India which will enhance coverage for the existing 3.49 crore families to 10 crore families.

The ESIC provides unemployment allowance to the insured persons (IP) through two schemes namely Rajiv Gandhi Shramik Kalyan Yojana (works only when a factory is closed) and Atal Beemit Vyakti Kalyan Yojana. Nevertheless, due to its operational inefficiency, ESI was not able to cover the organised sector workers which are just 6 percent or 28 million of the total workforce of 465 million in 68 years of ESIC operations. Therefore, the reach of these above-mentioned and new schemes needs to be widened extensively.

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