Reckless waiver of labour laws will be counter-productive for the Indian economy

All in the name of revival.
All in the name of revival.
Image: REUTERS/Anushree Fadnavis
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The outbreak of Covid-19 has not just created a public health crisis but also unleashed an unprecedented humanitarian tragedy as a result of the nationwide lockdown. With more than 90% of Indian workers engaged in precarious work, millions of workers have been left without work, food or shelter as shown in the surveys of the Stranded Workers Action Network.

The mass exodus of migrant labourers from big cities to their homes in the hinterland, often at considerable risk to themselves, exemplifies the catastrophic impact that the lockdown has had on the subsistence of workers.

Another dimension of this exodus is its likely impact on the availability of labour after the relaxation of the lockdown. It appears that several state governments have chosen to address this problem by rolling back many of the existing labour laws. While several states have already announced measures to relax some of their labour laws, the government of Uttar Pradesh has taken the most dramatic step by proposing an ordinance that seeks to exempt firms from almost all labour laws. It is hoped that by enhancing labour flexibility, these changes would enable businesses to recoup from the impact of the lockdown and also attract investment.

While some easing of rigid labour laws in India has long been overdue, a note of caution must be sounded on the proposed ordinance of the Uttar Pradesh government. There can be very little doubt that many of the labour law provisions in India are excessively intrusive, effectively help neither the workers nor the employers, and instead have strengthened license-inspector-raj and rent-seeking.

Further, labour regulation in India has also been plagued by the paradox of over-regulation (with more than 40 central labour statutes and many state-level statutes) accompanied by under-regulation in as much as 90% of labour force falls outside the coverage of formal labour laws. Therefore, rationalisation of existing laws is imperative, for the sake of both labour flexibility for employers and universal legal protection for workers.

At the same time, there is a need for more clear-sighted thinking on some of the lazy assumptions and sweeping generalisations that have been a part of the case for labour reforms.

Labour flexibility

First of all, available empirical evidence does not support the claim that rigid labour regulations are the primary driver of the overwhelming informality of the labour force. Indeed, the International Labour Organisation in its Report on Decent Work and Informal Economy had noted that labour regulations are only one of the many determinants of informalisation of the workforce.

Changes in patterns of production, advances in information and communication technology, as well as global competition have also catalysed the growing informalisation of work.

The Working Group of Experts of the Commission on the Legal Empowerment of the Poor set up by the United Nations Development Programme found scant conclusive evidence (pdf) of the oft-presumed causal relationship between rigid labour market regulatory frameworks and informality.

Indeed, several countries, which are part of the Europ-led Organisation for Economic Co-operation and Development and have significantly more liberal labour regulation, have also witnessed massive informalisation of work in the last three decades.

Scepticism over the claims of a radical turn-around in formalisation of workers and generation of employment due to labour flexibility is also merited by the experience of several Indian states that have experimented with the liberalisation of labour laws in the past.

A study of four states (pdf): Rajasthan, Uttar Pradesh, Andhra Pradesh, and Madhya Pradesh, by the VV Giri National Labour Institute found that “amendments in labour laws neither succeeded in attracting big investments, boost to industrialisation or job creation.” Regression analysis studies of Indian experience have shown that (pdf) “growth in labour market flexibility does not have any statistically significant influence on employment growth.”

Indeed, it has also been argued that the reality of under-enforcement of labour laws means that “Indian labour market is quite flexible” in actual practice despite the normative rigidity. This report from Rajasthan documented how employers experienced very little difficulty in firing workers, and the primary constraints were in the form of credit limits and infrastructure deficit. This is not to altogether discount the role of regulatory rigidity as a barrier to employment generation and formalisation. However, there is a need for a more realistic appreciation of the potential impact of labour flexibility in political decision-making, especially in times of an unprecedented public health crisis.

Labour rights

Most critically, there is a difference between eliminating the most intrusive and rigid labour norms and using a sledgehammer to suspend the entire edifice of labour laws, most of which flow from the Constitution as well as India’s international legal obligations.

The supreme court of India has recognised that the mandate to pay the minimum wages stems from Article 23 of the constitution and non-payment of minimum wages, therefore, amounts to forced labour.

The obligation to provide decent, safe and secure conditions of work has also been acknowledged as a part of the fundamental right to live with dignity under Article 21. The right to unionisation and social security also constitute international human rights under the International Covenant on Economic, Social and Cultural Rights. Abrogation of almost the entirety of the existing labour laws would arguably mean an abdication of this constitutional and human rights mandate.

Even though poorly implemented, protections enshrined in labour statutes serve as powerful aspiration and bargaining tool for workers, trade unions and activists. Dismantling of all the labour laws across the board would leave millions of workers acutely vulnerable, given the systematic asymmetry of bargaining power between workers and employers.

India certainly needs rationalisation of existing labour laws. The consolidation of existing labour laws into 4 Codes: the code on wages, the code on industrial relations, the code on occupational safety and health and the code on social security, a process begun by the Narendra Modi-led government is a step in that direction.

Indeed, the code of wages has already been passed by parliament. Admittedly, the specific content of some of the Codes, especially those on dilution of collective bargaining, require greater scrutiny. Perhaps, there is also a need for broader political engagement on the Codes so that a reasonable compromise can be evolved between different sectional interest groups.

However, the need for carefully tailored labour reforms must not be conflated with complete deregulation. Indeed, a wholesale repudiation of labour laws as proposed by the Uttar Pradesh ordinance may, instead of boosting investment, lead to a slippery slope of labour unrest and state repression. As journalist TN Ninan warns us, suspension of labour laws may end up “inviting new anarchies on top of that wrought by Covid-19”.

This story originally appeared on Scroll.in. We welcome your comments at ideas.india@qz.com.