After Atma Nirbhar Bharat stimulus package our government has embarked on two major reforms in agriculture and labour laws. These policy reforms are market orientated, bringing efficiency, transparency and easy of compliances in both the segments.
There is hue and cry about agriculture reforms in certain
sections. But little is being discussed about labour laws reform, which are to
be notified in April 2021. As these are also very important, a larger debate is
welcome at this juncture.
India had 67
percent of population in the working age (15-64 years) in 2019 according to the
World Bank. This high ratio of working to non-working age population, gives us
an opportunity to reap the demographic dividend, if we are able to gainfully
employ this population. The window is small and closing fast because of falling
fertility rates in India. If we as a country miss this opportunity, we will be
old before we get rich. With this and the fact that employment is poverty
alleviating in mind, Modi government is in overdrive to set an enabling
environment.
Indian labour
laws are considered complex and restrictive. One of its defining
characteristics is job security of workers covered under it. Complexity also
implies huge compliance burden for the companies. As a consequence of this, the
labour to capital ratio is low despite the fact that India is a labour abundant
and capital scarce country. Rigidities in the labour market have also ensured
that the employment elasticity of Indian economy has remained low. Therefore
GDP growth does not lead to commensurate employment generation.
Unemployment
problem is challenging in India because it emerges from structural rigidities
of our labour market. Therefore,
amending and consolidating 29 central labour laws into four codes figured
prominently on the agenda. The four codes cover, i. wages, ii.
industrial relations, iii. occupational safety, health and working
conditions and iv. social
security. The code on minimum wages was made into law in 2019 and the remaining
three in September, 2020.
A disturbing feature of Indian labour sector is its
very high degree of informality. 93 percent of India’s
labour force works informally. About 80 percent of it works in the unorganised
sector and the remaining is employed informally in the organized sector of the
economy. Therefore a lot of focus in these codes has been to promote formal
employment. The
definition of ‘employees’ in the code on social security has been expanded to include
workers employed through contractors, self employed migrant workers, additional
categories of platform workers etc. It also provides for a registration of
unorganised workers, gig workers and platform workers and says that the Central
government will set up a social security fund for such workers. These
provisions together with measures like making appointment letters compulsory
and allowing business enterprises to hire workers directly on contract are
aimed at reducing informality.
One of the most significant changes brought through
the new industrial relations code is the introduction of fixed term contracts.
The first time fixed term contracts were introduced was in 2016 but it was only
for the apparel industry. Though in 2018 it was allowed for other industries as
well, the effect was limited because this new form of employment was introduced
through changes in rules made under the Standing Orders Act which applies only
to industrial establishments with 100 or more workers. In the absence of such an
enabling provision, companies were forced to hire workers informally. Thus,
this change is expected to boost employment in industries that experience
seasonality in production. Workers will be eligible for all statutory benefits available to a
permanent worker proportionately, according to the period of service rendered
by them and the minimum qualifying period would not apply to them.
Focus of the current codes on self certification,
reduced compliance and simplification will lead to a lower cost of doing
business. Closure, lay-offs and retrenchment in factories employing up to 300
workers would now not need prior approval of the concerned Government. This,
coupled with the fact that even the Standing Orders has been made applicable to
establishments with over 300 workers means that smaller companies would not be
hobbled by regulatory cholesterol. Not only this, the code on occupational
safety, health and working conditions has increased the threshold of its applicability
to 20 workers where the manufacturing
process is carried out using power and 40 workers without using power. Government
rightly believes that when enterprises grow up to a certain size only then they
would be in a position to bear higher compliance burden. The
biggest beneficiary of the new codes would be the Micro, Small and Medium
Enterprise (MSME) Sector. This sector produces 40 percent of India’s GDP and
employs a higher number of people per unit of invested capital.
With other supportive measures like production linked
incentives, globally competitive corporate tax rate and balanced free trade
agreements, we can safely say that the Central government has almost solved the
jigsaw puzzle that Indian manufacturing sector had become and with the coming Budget
2021 and the years that follow, would see exponential growth in manufacturing
and employment.
Economic reforms require expending political capital
by the governments, as the benefits of reforms are spread thin and apparent
only with a time lag and seemingly adverse impact on certain stakeholder are
felt immediately. Therefore, India has not seen many major reforms since 1991
and even then important areas like land, labour and agriculture were left out
of agenda. The biggest take away from these codes and the recent reforms in the
agricultural sector, is a confirmation that a reformist government is at the
helm of affairs that will get Indian economy rid of its socialist vestiges. That,
for me, is a very reassuring feeling.
Gopal Krishna
Agarwal
National
Spokesperson Of BJP
9810019753
gopalagarwal@hotmail.com
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