Economics · Governance · Public Policy

Make In India: The need for appropriate Labour Reforms

The vision for ‘Make in India’ was laid down by Prime Minister Modi, in his Independence day speech in August 2014 and was formally launched in September 2014. The Make in India campaign has been introduced to give a push to India’s manufacturing sector and to create millions of jobs by transforming the country into a manufacturing hub for which the government has identified 25 key sectors including bio technology, wellness and tourism and hospitality. The Indian Manufacturing sector currently contributes 15-16% to GDP (2015) and gives employment to 12% (2014) of the country’s workforce[i]. Through this initiative, the government would like to increase its share in GDP to at least 20%. Since it started there has been a 48 percent increase in FDI equity inflows during October 2014 to April 2015 over the corresponding period last year[ii].  In the advance estimates of GVA released by the government[iii] , the estimated the growth of manufacturing sector is to be 9.5 percent as compared to growth of 5.5 per cent in 2014-15.

But to answer the question as to who exactly is going to make in India, the need for labour reforms stands out as one of the main ingredients needed for this initiative to succeed.

There are many hurdles in the way of a company who wants to make and invest in India which range from inadequate infrastructure, corruption, and uncertain tax laws to strict labour laws. India ranks a dismal 130 out of 184 countries in the ‘ease of doing business’ report by the World Bank Group[iv]. One of the major hurdles to a successful implementation of the Make in India campaign is in the labour sector.

Article 43 of the Constitution which forms a part of the Directive Principles of State Policy mandates that the State shall endeavour to secure, by suitable legislation or economic organisation or in any other way, to all workers, agricultural, industrial or otherwise conditions of work that ensure a decent standard of life and full enjoyment of leisure and social and cultural opportunities and the word ‘socialist’ has been used in the preamble.

To achieve this directive principle of state policy and constitutional objective, India has a developed a complex labour law structure. There are 53 Central Labour Laws in India ranging from colonial era laws to more recent ones[v]. As labour is a subject in the concurrent list, there are more than 100 State enacted laws. There is complexity, overlap and confusion. To simplify the complex labour structure, the government has started acting on the simplification of labour laws by the drafting of specific labour codes for a particular industrial aspect.  Forty four Central Labour laws are being amalgamated and codified into four codes- labour, industrial relations, social security and welfare and safety and working conditions[vi]. The labour code on Wages and on industrial relations have already been drafted and is proposed to be introduced in the second half of the budget session[vii] and propose far reaching changes in the labour- management ties. They tend to increase deregulation and ensure less interference by government.

But there seems to be a huge disparity between the employer unfriendly regime on paper and the employee unfriendly regime in practice. About 92 per cent of India’s labour force is engaged in informal employment and a large majority of them have low earnings with limited or no social protection. Around 30 per cent are casual labourers seeking employment on a daily basis while about 18 per cent of those employed are regular workers, and amongst them less than 8 per cent have regular, full-time employment with social protection[viii]. Even if labour regulations are flouted in the formal sector, redressal takes years and penalties prescribed under Acts are very low.

The latest Indian Economic Survey dedicates a chapter on the structural reforms required in India’s Labour Market. It states that of the 10.5 million new manufacturing jobs created between 1989 and 2010, only 3.7 million—about 35 per cent—were in the formal sector[ix]. Thus more employment and job creation occurs in the informal sector, which is taken to be a sector which has little or no interaction with the government for the purposes of the survey. According to the survey, the two main obstacles for to formal sector job creation are regulation-induced taxes on formal workers and spatial mismatch between workers and jobs[x].

But Industry claims that India’s labour laws are one of the strictest in the world. They tend to restrict industrial growth by curbing management freedom to retrench workers, which actually serves to impede job creation and thus reforms would actually lead to more workers being formalised. It would also increase investment, creating more jobs leading to higher economic growth leading to overall development.

However, diluting the existing provisions for labour welfare, when most of the labour force is not within its ambit anyway, may not be the most appropriate way of creating jobs and upliftment of poor. It is also debatable whether the worsening of conditions of formalised workers would actually benefit the informal sector[xi]. Thus a balance needs to be struck.

There is a need to emphasise more on incentivising the companies to invest in labour, by training and skill building. Doing way with archaic provisions in Apprenticeship Act, Factories Act and simplification of labour laws into different codes is another aspect. But the best solution would be in effective implementation. Even if the existing, restrictive ‘hire and fire’ laws are implemented properly, by prompt permissions given by government for retrenchment and lay off, industry would have a smoother way of functioning and expanding. Moreover categorisation needs to be made within industry itself. For example as a part of the Start Up Initiative, the labour ministry has decided to provided exemptions from inspections under key labour laws to encourage young entrepreneurs[xii] which seems to be a step in the right direction.

Thus even though the ultimate objective of government, management and workers is growth, expansion of industries and creation of more jobs, the procedure to be adopted differs from each perspective. The need of the hour is to find common ground where both management and workers can prosper which can only happen through debate and discussion.

By: Rukmini Mukherjee

References

[i] Confederation of Indian Industry, Manufacturing, available at http://www.cii.in/Sectors.aspx?enc=prvePUj2bdMtgTmvPwvisYH+5EnGjyGXO9hLECvTuNsfVm32+poFSr33jmZ/rN+5

[ii] Department of Industrial Policy and Promotion, “48% growth in FDI equity inflows after MAKE in India”, available at http://dipp.nic.in/English/acts_rules/Press_Release/pressRelease_GrowthFDI_15uly2015.pdf

[iii] Press note on advance estimates of national income 2015-16 and quarterly estimates of gross domestic product for the third quarter (q3) of 2015-16, Central statistics office ministry of statistics & programme implementation government of india, Page 4, available at http://mospi.nic.in/Mospi_New/upload/nad_PR_8feb16.pdf

[iv] World Bank Group, “ Ease of Doing Business India”, 2016, available at http://www.doingbusiness.org/data/exploreeconomies/india/

[v] Srijoni Sen& Faiza Rehman, “ From Chaos to Order: An Approach Paper to Drafting Labour Codes for India”, Vidhi Centre for Legal Policy, March 2015, available at http://static1.squarespace.com/static/551ea026e4b0adba21a8f9df/t/557a75e3e4b002c66e9b807d/1434088931883/Labour+Law_Codification+Approach_Vidhi.pdf

[vi] Special Correspondent,” 44 labour laws to be amalgamated into 4 codes”, The Hindu, October 15, 2015, available at http://www.ihdindia.org/ILERpdf/Highlights%20of%20the%20Report.pdf

[vii] Prashant K. Nanda, “NDA plans new push for labour reforms”, livemint.com, Mar 26 2016, available at http://www.livemint.com/Home-Page/nnOHLRpsWxkGk80J2sHW2L/NDA-plans-new-push-for-labour-reforms.html

[viii] Institute for Human Development, “ India Labour and Employment Report 2014”, Workers in the Era of Gloablisation, available at http://www.ihdindia.org/ILERpdf/Highlights%20of%20the%20Report.pdf

[ix] Economic Survey 2015-16, Volume 1, Chapter 10 “ Structural Changes in India’s Labour Markets”, Page 140, available at http://indiabudget.nic.in/es2015-16/echapvol1-10.pdf

[x] Supra Note 3, Page 151

[xi] Jens Lerche, “Making India? The Labour Law Reforms of Narendra Modi’s Government”, SSAI Panel Discussion: ‘Assessing Modi’s Track Record Eighteen Months On’, November 2015, available at https://www.soas.ac.uk/south-asia-institute/events/file107716.pdf

[xii] Prashant K. Nanda, “Labour ministry moves to ease compliance norms for start-ups”, livemint.com , Jan 27 2016, available at http://www.livemint.com/Companies/jjabFs5ocfySj04C98I2cN/Labour-ministry-moves-to-ease-compliance-norms-for-startups.html

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