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Labour reforms are one of the priority issues that the United Progressive Alliance (UPA) government led by Dr. Manmohan Singh is addressing to meet the challenges of globalisation. Listing its priority in the Common National Minimum Programme, the UPA said that “some changes in labour laws may be required but such changes must fully protect the interests of workers and families and must take place after full consultation with trade unions.” Reiterating its firm commitment to the “welfare and well-being of all workers, particularly those in the unorganised sector who constitute 93 per cent of our work force”, the NCPM said that the social security net would be expanded.
Labour Laws
There are around 154 labour laws meant to ensure welfare of workers. Majority of these laws affect the workers in the organized sector who constitute around three crore workers out of the total workforce of about 40 crore. The previous NDA government appointed a Labour Commission under the former Labour Minister Shri Ravinder Verma, the second since independence, which submitted an exhaustive report on labour reforms about three years ago. However, consensus eluded the efforts made by the previous government in effecting l
abour reforms.
Demand for Labour Reforms
The employers (industrialists) have been vehemently pressing for labour reforms on the plea that these are necessary for making Indian industry globally competitive and for attracting more of foreign direct investment (FDI). The existing laws, it is contended by employers, slow down growth and job creation. They say that under the existing labour laws the churning of new skills is slower; companies lose cost cutting flexibility and ability to bounce out of recession quickly. The employers further contend that Labour Market will become more flexible with the amendments; more workers can be hired legitimately and can ask for better benefits including better work conditions, safety standards, welfare measures and health benefits.
The Trade Unions oppose the Employers’ demand saying that any loosening of government control over the industry by way of labour reforms would throw workers out of job safety net. They want among other things strengthening of social security for the workers, extension of social security benefits to workers in the unorganized sector, and participation of workers in the management.
Constraints for Labour Reforms
There is an urgent need to revisit our labour policies and other labour related issues, if India as a country has to remain competitive and in fact has to assume its legitimate share in global economy, given the country’s size and resources. But one of the major constraints in making our labour laws flexible has been absence of an adequate and broad based safety net for the country’s workforce.
India has two main social security schemes for workers in operation since 1950s in the organised sector. These are Employees Provident Fund Scheme and Employees State Insurance Scheme. The former provides social security cover like provident fund, pension on superannuation etc. to about four crore employees while the later caters to the medical care needs of around eighty lakh employees and their families. In addition to these two schemes, some Welfare Funds are in operation catering to the social security needs of specific group of workers particularly in the unorganised sector.
Despite being among the largest social security schemes in the world, the two main schemes mentioned above cater to not more than 8 to 9 per cent of the country’s total work force. Secondly, these schemes don’t have built-in mechanisms to neutralize/compensate for the adverse fall out of globalisation like closures, retrenchments etc.
The closure of Industrial Units and bankruptcies are normal feature in the developed economies all over the world. The workers of such units do not feel adverse impact as they are covered by well-established social security system. Developing economies, with their limited investible resources and relatively limited or alternate employment opportunities, however, cannot afford their productive assets and labour force turning non-operational.
Reforms with a Human Face
It is in this scenario that the Government is opposed to automatic hire and fire approach. The Prime Minister, Dr. Manmohan Singh, soon after assuming office, announced the Government’s firm commitment to reforms with a human face. He said, “While recognising the need for increased flexibility in labour markets, one cannot glibly talk of an uncritical endorsement of the hire and fire approach, more so, since the institutions of social security, particularly unemployment insurance, are not well developed in our country. Even then, living as we are in a world characterized by considerable uncertainty and fluctuations in demand as well as fast changing technological conditions, there must be an honest, objective assessment of the employment impact of our economic policies including labour laws. Structural reforms in a democracy, to be durable, must involve consultation with all stakeholders, particularly the workers and trade unions. Our government is committed to reforms with a human face. The working classes of our country have my assurance that we shall never pursue a path, which affects adversely the interests of the workers and the toiling masses of our country.”
Impact of Globalization
With the initiation of economic reforms, Indian economy is undergoing unprecedented change. Integrating the Indian economy with that of the World’s, the industry has been exposed to global competition. In order to remain buoyant most of the companies want to reduce costs by way of upgrading technology and reducing workforce. But under the Industrial Disputes Act, 1947 downsizing cannot be resorted to without Government permission. The Act is applicable to establishments employing one hundred workers or more. The experience shows that permission to close down have not been coming readily. As a result of compulsion of situation many such establishments have either introduced voluntary retirement schemes for downsizing or have closed down and vanished from the scene without paying compensation, dues etc. to workers.
The Second Labour Commission has reported that a large number of workers have lost their jobs as a result of VRS, retrenchment and closures both in the organised and unorganised sectors. The exact number is not known as no data on this has been compiled by any State Government.
Cover During Unemployment
The advocates of ‘hire and fire’ also want to bring about a fundamental change in the nature or perception of employment. They want employment to be on the basis of contracts for stipulated periods – a total departure from the current system in vogue in most kinds of employments.
Most of the developed countries where the majority of jobs are contracts have elaborate and effective system of social security. Even in China, to quote an instance, there are stringent laws on social security system that takes care of worker’s income and requirements at least for two or three years of transition or unemployment. In India, we don’t have such provisions. The Labour Ministry made a small beginning in this regard recently by launching Rajiv Gandhi Shramik Kalyan Yojana for providing unemployment allowance to workers for a maximum period of six months during involuntary unemployment. The Scheme covers about 80 lakh workers who are members of the Employees’ State Insurance Scheme. It is a small beginning and much more needs to be done in this regard.
It is in this context the Labour Minister, Shri Chandrasekhar Rao while holding consultation on Labour Reforms with stake holders urged the employers to share greater responsibility for providing financial compensation to the workers who might face greater uncertainty while making labour laws and regulations flexible. Shri Rao said, “To my mind, the labour reforms not merely mean changing some laws but they should encompass modifications in labour policies and programmes for the welfare of labour and enforcement of labour laws including their fine tuning.”
At the same time the establishments will have to be provided with some freedom to restructure to be viable and the non-viable establishments, as an economic consequence of competition may have to be permitted to close down after giving away proper compensation to workers. The Second Labour Commission has recommended under the Chapter V B of the ID Act the eligibility ceiling should be raised for establishments employing 100 workers to 300 workers in the organised sector.
The Labour Ministry has indicated readiness to raise exemption limit for establishments seeking government permission for retrenchment/lay off from employing 100 employees to 300 employees under the ID Act. At the same time the Ministry has strongly favoured to substantially increase in the retrenchment benefits of workers raising the compensation from 15 days of wages for each year of service to 60 days of wages.
Indian establishments have to compete and thrive in global markets. The workers have equal stake in this process are to be treated as partners. This requires a new mindset and a new work culture. The beginning has already been made. A comparison of industrial relations in the pre and post reform decades reveals a substantial decrease in the loss of man days. During 1981-90, pre-reform decade 402.1 million man days were lost which considerably declined to 210 million man days during 1991-2000, post-reform decade. The trade unions now generally desist from giving a call for strike and prefer to resolve the major disputes through negotiations. The nature of disputes or demands is also changing.
We are at the threshold of a new era of industrial relations in which Labour Reforms should provide further impetus to promoting the new work culture wherein workers feel economically secure and employers not burdened with the proverbial ‘inspector raj’. The other focus of reforms has to be on upgradation of skills of workers in order to meet the demands of innovative technologies and creation of quality jobs. And the most important of all is the extension of social security net to million of workers in the unorganised sector. Without that labour reforms would be meaningless.
*Information Officer, PIB, Delhi
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