By relaxing labour laws, are we competing with authoritarian markets like China?

At least 10 states, including industrialised Gujarat and Haryana, have relaxed labour laws. While this has caused consternation among trade unions including the Centre for Indian Trade Unions, the question is how does this work? How will it impact employers and employees? Are these moves anti-labour? And finally, will industry come in and invest because of this? We speak to two guests, KR Shyam Sunder, professor of Human Resources at the business school XLRI, Jamshedpur, and Rituparna Chakraborty, co-founder and executive vice-president at TeamLease, India’s largest staffing services company.

Edited excerpts:

How do you interpret these moves?
SS: I have not recovered from the shock of having received and read these extraordinary labour law changes, which I should suppose even the employers did not dream of. Nor must they have asked for these changes, so it is a bounty by the state governments? The Madhya Pradesh government is a little more thorough and slightly conservative, whereas the Uttar Pradesh government has made such sweeping changes by exempting all but three labour laws, which are under the state’s sphere. And these, according to me, will neither help the employers nor the workers.

There are three planks on which these ordinances and changes have been made: the so-called Covid-induced labour shortages; the market space vacated by China, which it is hoped will be occupied by firms in India and create employment; and labour welfare. But they are not going to result in achieving these professed goals for three reasons.

One is that, when the labour rights and dispute settlement mechanisms or bipartite consultation conduits or committees may not actually materialise, how could workers or employers imagine a resolution of industrial disputes?

Secondly, is capital looking for low labour standards? I do not think so. The research conducted by the [International Labour Organisation] says that good capital chases high labour standards. And thirdly, are we competing with low-cost and highly authoritarian labour market contexts as in China? We have a pluralistic democratic and socialist economy in India still. So on the one hand, the labour rights will be at risk and on the other hand, employee dissatisfaction may not be effectively addressed as all these routes may probably be shut. So in that sense, it will affect labour productivity and economic efficiency.

It is a very simple industrial relations logic that a content workforce will be more productive and by exempting all these clauses, the onus is put on the employers. The employers who are good, will continue to be good, but it will also lead to undesirable practices in the labour market, which will have adverse consequences that I talked about.

How will things exactly pan out?
RC: I think everything we have been doing to murder the virus, has been murdering the economy. That probably is the right sequence, but it is not going to be easy in any case. Hereon, all I can say is survival is equivalent to growth now. For everyone, survival is the most important element and in that light, employers, today, need that breather to be able to get back into economic activity. And I think it has long-term implications because without employers there are no employees, finally.

All states are talking about a 1,000-day breather – or three years, effectively. When you suspend laws for three years, what happens after three years? And does a three-year period enough of a breather for employers?
RC: These are essentially state-level changes. But I do believe that the central government needs to bring in certain changes too. The ones that will be impactful are all under the Central Act. So it does not end with what the state governments are currently doing.

What is important is...people are worried about the protection of workers. We have to understand that large parts of India today are not touched by the labour laws in any case. Which means it is the formal sector that will feel the impact of these changes. And if I were to look at the ground reality, over the last few years, the performance in terms of compliance and adherence, in the formal sectors have improved significantly year on year. Which means the need or attempt to exploit has gone down. We have seen an attempt towards formalising the workforce, which means we are all moving in the right direction and hence, the concern that it would lead to exploitation is misplaced.

If [lifting of labour restrictions] leads to the revival of the economic activity, and we are able to get back jobs and create more jobs, it is a win-win for everyone. I have a difference of view whether it should be 1,000 days or not. I am not somebody who is propagating that we should not have any labour laws. I think we need labour laws. But what our view is that, we should take a two-quarter approach towards this and then evaluate what our next steps should be, because the next two quarters are going to be very critical for business. And we are evaluating normalcy...

You and your colleagues have been advocating reframing labour laws and doing away with labour laws. Is this something, to use the professor’s words, going beyond what anyone could have imagined?
RC: Can I correct you: As a company, we have never propagated doing away with labour laws.

Not doing away, reframing...This is doing away.
RC: Yes...There are 27,000 compliances under labour laws today. There are 440 Acts between central and state governments and there are about 1,400 filings. Our recommendation is that after normalcy is restored, there should be a labour commission assigned the job of coming up with a single labour court, which is easy for employers to understand, interpret and hence comply with.

Finally, in India, we need to decriminalise entrepreneurship. At the moment, you can be jailed if you break any law in default situations. You cannot survive in an economy like India with those kinds of laws. So we are never recommending that we should do away with labour laws. We need labour laws. What we need is a reasonable touch to it, which actually encourages job creation rather than just job preservation.

What about the outcomes? I think this was aimed at achieving one or two outcomes. One was India’s own industrial decline, particularly, in the last couple of years and reviving that or building it. The second is to attract investments from, potentially the businesses fleeing China. So, do you feel these moves address that objective?
RC: People feel that there is a window of opportunity to take away some business from China and attract it to India. And it is a great sign that states are now clamouring, are competing with each other to be able to get a chunk of that share, of that opportunity. It will have a positive outcome for the country.

It is quite surprising to see UP come out with aggression... Again, I am not getting into the specifics of which Act, what should have been there, not there. It is just the signal that it gives, and this is what I infer from it.

As labour, they should be protected, their rights should be protected, which is what the Building and Other Construction Workers Act, Workmen’s Compensation Act, Bonded Labour Act, Section 5 of Payment of Wages Act aim to ensure. So between wages and security, these seem to cover things. Is it time to have fewer laws and are these the right ones to start with?
SS: Well I would certainly look for some empirical data to confirm what Rituparna has said, that labour law compliance has become better over the years. It required intervention of the Supreme Court from 2009-’10 onwards to nudge the states to form even Construction Workers Welfare Boards and to spend the Rs 55,000 crore or so on the items that is legislated for. This is the condition of compliance with regard to Building and Other Construction Workers Act. What about the Minimum Wages Act? Even the government has gone on record to say that the Minimum Wages Act is the least implemented Act and the exemption by the [Uttar Pradesh] government will also concern the Minimum Wages Act. The Act only talks about timely payment, it does not talk about the statutory requirement of payment of wages.

This economic revival, is it largely hinging on rigid labour laws or supply-side measures in terms of wage subsidy, easy credits, access to market and opening of trade? Labour laws on a scale of 1-10 – will any employer put it among the top five irritants? No.

Conceptually, what are the three things that you feel are the most critical when it comes to protecting workers, employers and their relationship?
SS: Ideally, a conducive industrial relations atmosphere on the shop floor or in any business activity will require labour-management cooperation. That will mean two things – employer’s responsibility, self-governance and labour rights. If these are assured, workers will feel responsive to the employers, to the legal environment. Now all of a sudden, you just wash away labour laws and introduce what I call labour market anarchy, is this the thing that employers want?

I can understand there are some irritants in terms of freedom to hire and fire, and contract labour flexibility. Fine, make those changes. Occupying China is a very, very mischievous and misleading argument. Because China thrives on an authoritarian labour market, of course with a little bit or quite a bit of social security. But these things do not obtain in India. So I do not think labour laws are irritants in any sense and that given the Covid-19 situation, these two governments and the Gujarat government should think it suitable to introduce the reforms that even the industry has not asked for during Covid-19 times.

What happens in states that have not given labour law exemptions?
RC: First and foremost, I am very keen to look at the exact changes made because most of the information available is through media reports and findings. I think it is important to go through the fine print behind what exactly is in the notification. The real-time situation in the labour market is such that employers are extremely distressed today. What we are witnessing today is a solvency problem, not just a liquidity problem – zero revenues but full costs.

With due regard to Prof Shyam Sunder, when I see some of the formalisation data and patterns, when I see the registrations are increasing in [Employee Provident Fund Organisation] coverage and so on, it gives me some belief that there has been a positive movement towards improvement in the way organisations are viewing labour and they do believe that being on the wrong side of the law does have impact on their long-term goodwill, their image as an employer, and it is not a path worth going down.

But in difficult times – and I am specifically emphasising this is an emergency, what is happening today is unprecedented – if we are not doing whatever we can to help employers today, tomorrow they will just give up because they do not have an option to survive. If employers do not survive, I do not know which labour relation, which employer-employee relation we will be talking about. Because that is not what the intended outcome is, we have to finally survive and anything that we can do for the next couple of quarters or year to survive should be the primary focus.

I do agree that labour [law changes] may not be the only way to bring us out of the desperate times we are in; there are a lot of other fiscal announcements that we could expect from the government, but labour does remain an important consideration because it is an asset which you do carry.

So, this is a desperate time. All states are in any case saying that there is a sunset clause, which means things will revert to usual after 1,000 days. Is this something that will help because if companies are not solvent, they are not able to raise money, they are not able to take loans, obviously there is a huge demand shock. What other choice do they have?
SS: India has ratified the [International Labour Organisation] Convention on Tripartite Consultation, C-144, which provides for social dialogue and the state and central governments of India is bound by the ratification. Have the Madhya Pradesh government, Uttar Pradesh government or any other government consulted the trade unions and called the employers before issuing these ordinances? Why cannot the state leave the matters at the firm level, at the industry level, at the sectoral level for the social partners to engage in constructive dialogue? There could be concession bargaining, we have seen it in the 2009-10 financial crisis. So this unilateralism and sweeping changes on the pretext of Covid-19 stressful situation do not wash.

I mean representations from industry bodies must have piled up with all kinds of ministries. Instead of looking at the supply-side measures, you are looking at a tepid labour law, which is otherwise not implemented. Good companies will implement...There are procedural irritants that Rituparna talked about but to throw the baby out with the bathwater, that is what UP and MP are doing. This to me will lead again to a stress and labour market anarchy. Economic logic simply says, highly satisfied workers will be most productive.

RC: In today’s time, a job is better than no job. Anything that we can do to ensure employees today have a job is the necessity of the day. And if [labour law changes] lead to more job creation, why not? Next two quarters are going to be very critical for our survival.

This article first appeared on IndiaSpend, a data-driven and public-interest journalism non-profit.