Labour Reform Will Send Strong Signals
Consolidation in the BJP reforms strategy is indicated by a
new assertiveness. This, alongside a corresponding firm handling of
irresponsible opposition moves is starting to pay off.
There is news that the NDA proposes to table five new Labour
laws to reform and consolidate over 40 laws, originally Victorian, probably from
the early Industrial Revolution. These were made more stringent in favour of
workers/labour/employees, under the socialist dispensation, for all the years
since Independence.
Still, since 90% of small Indian enterprise is in the ‘unorganised’
sector, it stayed out of reach of all or most of these complicated laws.
So this move, on the cusp of two years in office, is calculated
to attract big investment from abroad. The government has worked up the dander
to try to run the gauntlet of opposition parties, trade unions, Leftist
intellectuals, taunts of crony capitalism etc..
This set of five bills- codifying and modernising all the
labour related legislation, will mark the very first comprehensive reform of
the mass of outdated and obstructive labour laws that have long been hampering
the growth of medium to large Indian business and industry.
They constitute an Industrial Relations Code Bill, a Wage
Code Bill, a Small Factories Bill, and two amended bills- the Shops &
Establishment Amendments Bill and an Employees’ Provident Fund &
Miscellaneous Provisions Amendment Bill.
This new Labour legislation will be tabled, soon after April
25th ,when the second half of the budget session commences. If
passed, it will considerably boost foreign investor interest in manufacturing
in India, one certain way to deliver on some or all of the millions of new jobs
needed, though the opposition may not agree.
The key difference under the new Labour Laws will be in an
unprecedented flexibility in both hiring and firing. This is in line with competitive international environments, that
are welcoming foreign investment elsewhere. It is also a long-standing demand
of those countries, like Japan, which have already pledged billions of dollars
in investment in India.
Currently, it is almost impossible to terminate the services
of an employee, or stop paying wages and benefits, even if the business is
closed down. The present laws have been
used mostly in a negative manner, by both in-house employee trade unions, and
the broader affiliated trade union universe, at the city, state, and national
levels.
Plans of consolidation, modernisation, mechanisation, are
routinely held up or stymied altogether, by trade unions, who want to be
assured that there will be no job cuts or efficiency/higher performance demands.
And the political establishment has, till now, sided with these self-same bodies,
against the owners of business and industry, both in the private sector and in
the government-owned public sector.
So, few attempts at seeking greater efficiency along with
growth and expansion have been successful. As
a consequence, most factories and even service businesses, employ
contract labour, and even higher ranked personnel, that can indeed be hired and
fired at will, and do not qualify for pensions, provident fund and other
benefits, under the present laws.
Many of the present thicket of laws also contradict each other,
leading to confusion and protracted litigation.
The overall, anti-capitalist mood and socialist hangover
from this history still persists in 2016, but alongside a new found resolve to
achieve high single, if not double-digit GDP growth rates.
This being the only way to dent, and eventually eliminate, India’s
endemic and chronic poverty at the base of its huge population pyramid. And
since high growth rates first entered the equation in the mid-eighties, the
salutary effect on extreme poverty has been well noted. It has affected the
aspirations of the poor voting public who want more, and the political class is
on the spot to deliver or be voted out.
It has lifted the economic circumstances of millions of
Indians, even as the population has grown three-fold since 1947, and stands at
over 1.2 billion currently. So even
those who do not readily agree to the trickle-down effect of GDP growth rates,
end up attributing other reasons for the undeniable phenomenon.
After all, nobody was lifted above the arbitrary and
extremely modest poverty-line before, and this did not happen at all when India
progressed at no more than 3.5% per
annum.
Most of those socialist years till the eighties, had GDP
hovering at a disgraceful 1 to 2 per cent, without adjusting for inflation, which
ran as high as 20-30% per annum, and an occasional year returned even a minus 5.2%
rating!
The BJP, traditionally a party supported by the business
community and the upper castes, has in the 2014 general election, enlarged its
constituency to embrace the rural voter and the poor from other castes, as well
as various other religions/communities beyond its traditional support base,
including some 10% of the Muslims. Its message of ‘Sabka Saath, Sabka Vikaas’
is still resonating with the masses, even though there is some disappointment
with the pace of progress achieved so far.
The new Bankruptcy Law which seeks to empower creditors to
intervene before an enterprise is beyond redemption is also expected to be
passed soon, perhaps along with the GST law. Should all three sets go through,
the knock-on effect on GDP could push it up by 1 to 2 percentage points,
particularly in what is now likely to remain a declining interest cycle and a
time of lower and stable inflation. The strict control of the fiscal and
current account deficits, if not the revenue deficit still, has contributed to
a favourable outlook as well.
In the first part of the budget session concluded in March
there have also been a couple of legislative breakthroughs. The successful
passing of the Real Estate Bill and the Aadhar Bill augur well for the future.
The first law will go a long way to restore both consumer
confidence, professionalise the builder/broker/construction sector, and revive
investment, particularly private equity and foreign investment, in the moribund
residential/commercial building platform that accounts for a fair chunk of GDP,
certainly upwards of 9% inclusive of associated industry and trade, and
provides a great deal of labour employment too.
With plans for housing for all and smart cities this is a
sector to watch and along with infrastructure also on fast track, it could
altogether account for 25% or more of the total before too long.
The second law passed will be far more effective than
heretofore in the targeted delivery of subsidies and compensatory payments, as
it will go directly into millions of Aadhar-linked bank accounts. It has the
secondary effect of consolidating the government’s early programme to empower and bring more and more of the
‘unbanked’ into the system.
For: The Pioneer
(1,107 words)
March 29th 2016
Gautam Mukherjee
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