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Are Modi's labour reforms strong enough to uplift the poor?

By Sourish Mohan Mitra
November 11, 2014 16:18 IST
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The Modi government's rapid approval of labour law amendments by the Rajasthan Assembly and the Shramev Jayate Yojna proposals suggest a strong commitment to reform. But is this enough?

Image: A labourer shows his hands smeared with what he says are chemicals. Photographs: Adnan Abidi/Reuters

Labour reform, often discussed and debated but rarely acted upon, has been an area of focus for the Narendra Modi government.

It has already demonstrated its commitment to this after the home and labour ministries cleared the Rajasthan Legislative Assembly's sweeping amendments to three central labour laws in a matter of months.

The amendments received presidential assent late last week.

The Vasundhara Raje government's initiatives mark a critical step forward in labour law reforms.

But Modi had also taken the plunge last month by unveiling a host of reforms through the Shramev Jayate Yojana.

One key reform is computerisation of the inspection process, thereby ending discretionary visits by inspectors derogatorily termed as "inspector raj".

Image: Vasundhara Raje Scindia, the chief minister of Rajasthan took critical steps to reform labour laws. Photograph: Courtesy, Vasundhara Raje's Twitter page

Another much-needed requirement, a unified labour portal, Shram Suvidha Portal, for complying with four central government organisations (Employees' Provident Fund Organisation, Employees' State Insurance Corporation, Directorate General of Mines Safety and chief labour commissioner), has also been promised.

The proposed Apprentice Protsahan Yojana will entail a 50 per cent contribution from the central labour ministry towards the stipend cost for training youths during first two years. Will these steps be sufficient and truly lead to labour reforms?

The answer lies in first understanding the complex web of central labour Acts, central rules, state amendments to these laws, state Acts, state rules, central and state labour department notifications, orders and so on. The Constitution of India places the subject of labour in the Concurrent List, giving both the Centre and the State the power to legislate on it.

Historically, labour legislations are generally enacted at the Central level consisting of the Central Act and Central Rules framed under the Act.

States can either amend the Central statutes or have the liberty to enact their own laws.

The applicability of various labour laws differs.

Image: The government will amend the existing labour laws. Photograph: Reuters

For example, the Factories Act, 1948 is applicable to a factory with 10 or more workers, the Payment of Gratuity Act, 1972 is applicable to establishments with 10 or more employees, the Employees' Provident Fund and Miscellaneous Provisions Act, 1952 (EPF Act) is applicable to establishments with 20 or more employees, the Minimum Wages Act, 1948 is applicable to all establishments and so on.  

Further, in some statutes there are additional application criteria, for instance, the EPF Act is applicable to employees whose salary is Rs 15,000 or less and the Payment of Bonus Act, 1965 is applicable to employees whose salary is Rs 10,000 or less. The terms "employees" and "salary" are misnomers.

The words used in most labour laws are "workman" and "wages".

What constitutes workman and wages are not uniform either. Although most labour laws apply to workmen, through innovative interpretations and prevailing practices, non-workmen or the managerial category of employees also get covered.

If we add up the numerous labour laws, we will end up with multiple definitions for the same term. Now add to that state amendments (most states have made changes to suit local requirements).

Image: The Indian government wants to strengthen Indian labour laws. Photograph: Amit Dave/Reuters

And these are only definitions.

There are several mandatory compliance requirements under each statute - from registration once the statute becomes applicable, periodic filings (monthly, quarterly and annually), annual reporting, maintenance of registers, filing of endless forms, payments and statutory deductions.

Can you now imagine the time, cost and effort that a company is required to invest to follow all applicable laws? In this context, the Rajasthan government has shown the way.

The sweeping amendments to central laws such as the Factories Act, Industrial Disputes Act, Apprenticeship Act and Contract Labour (Regulation & Abolition) Act passed by its legislative Assembly, have increased the minimum employee thresholds for the applicability of these statutes, given more freedom to employers to retrench staff up to 300 (up from 100) without prior government permission, and raised the requirement for the formation of trade unions to 30 per cent (up from 15) of the total workers as members.

Since these are amendments to central laws, the process involved approval by the central labour and home ministries before being sent to the President.

It goes without saying that new or improved labour laws are critical. Having advised numerous foreign corporations on setting up shop in India, I believe one of the recurring concerns is complicated compliances under multiple labour laws.

So kudos to Modi for having launched the long-awaited labour reforms. But these are baby steps in the long journey.

Many more bold steps are required - such as introducing uniformity in legislation and reducing multiple laws. Further, officers need to be trained to ensure that the spirit of the law is effectively enforced. If Modi can indeed achieve this, it will be nothing short of a revolution. 


(Sourish Mohan Mitra is Principal Consultant with PricewaterhouseCoopers. These views are personal)

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