Mindless relaxation of labour laws will only hurt India’s lockdown-hit economy more

Tough road ahead.
Tough road ahead.
Image: REUTERS/Amit Dave
We may earn a commission from links on this page.

Governments and policymakers across the world are doling out stimulus packages and loosening their purse strings to restart economic activity stalled by the coronavirus pandemic. In India, the focus of many state governments last week was on relaxing labour laws.

This, it is hoped, will incentivise small businesses and large manufacturers to trace a V-shaped recovery.

However, such a move, even if it delivers results in the short-term, is myopic in nature. The lack of sufficient safeguards against exploitation is bound to be detrimental to workers, who are among the weakest sections of the society.

The “reforms”

Here is a summary of various changes introduced by states:

Labour laws: The northern state of Uttar Pradesh has suspended all but four labour laws for three years.

The only labour laws now applicable in the state are the Building and Other Construction Workers Act 1996, which regulates the employment conditions of construction workers; the Workmen Compensation Act 1923 that provides for compensation in the event of injury or accident; the Bonded Labour System (Abolition) Act 1976, which prevents physical and economic exploitation of workers; and Section 5 of the Payment of Wages Act, 1936 that extrapolates provisions relating to wages.

This implies that laws such as the Factories Act (which deals with working hours) and the Industrial Disputes Act (which dealt with notice periods before retrenchments) need not be heeded by employers.

Gujarat, too, has done the same by suspending all but three labour laws.

Licences: Madhya Pradesh has abolished the necessity of multiple registers and returns for getting a business permit, meaning only one register, and a return will be sufficient. The state has also made provisions that ensure licences will be issued within 24 hours and renewals will now be given for a decade instead of one year. Kerala and Maharashtra, too, have simplified the returns and application procedure for permits.

Working hours: States such as Madhya Pradesh, Gujarat, Rajasthan, Himachal Pradesh, and Punjab have increased the working shifts in factories from eight to 12 hours with extended provisions for overtime.

Inspection: Madhya Pradesh has removed the requirement for inspections at factories that employ less than 50 labourers. Inspection of small and medium enterprises (SMEs) can now only be done with the prior approval of a labour commissioner or if there is a complaint.

To be sure, not all of these reforms have a negative connotation. In the short-term, they may help improve India’s place in the World Bank’s ease-of-doing-business ranking, for instance. It may even bring about an earlier-than-expected economic recovery.

Yet, there may be five outcomes of these expedited reforms which can offset short-term gains:

The crisis

Brewing labour tension: The suspension of labour laws creates a hire-and-fire model for availing a workforce. This only adds to the growing problem of seasonal employment as there is no job security.

Lower consumption: In the backdrop of seasonal employment, more workers will face eroding wages or less work, which will further push them off the cliff of poverty. This will, eventually, come back to bite businesses as lower wages would lead to a decrease in rural consumption—a double-edged sword.

Child labour: A sizeable part of the reforms involves doing away with inspections by labour commissioners. Such a situation creates a regulatory black hole where employers can get away by hiring cheap child labour.

Counterfeiting: As licences become easier to obtain, with little verification, there would be a surge in the manufacturing of illegal goods or counterfeit merchandise. There could also be a rise in business activities undertaken by fly-by-night operators.

Inflation: With the government focussing on restarting manufacturing and small businesses, there may be a forceful shift of the workforce from agriculture to manufacturing. This may deplete the hands available in rural areas during the harvest season. This change may push up the prices of agri-produce due to loss of crops or disruption in supply chains.

No doubt the business landscape of India is in dire need of reforms, even more so in the aftermath of the pandemic. And the overall sentiment seems to be to propel the Indian economy even at the cost of labourers’ welfare.

Nonetheless, the pertinent question is: Was labour the obstacle to the growth of the Indian economy all this while?

We may not have answers to these questions until the scenario plays out, but what has been established is that labourers bore the brunt of the pandemic and now the economy relies on them to bring it to speed: a tough bargain.

We welcome your comments at