In 2021, will India see a rise in job creation under relaxed labour laws?

With India “likely to have entered a technical recession” for the first time in its history due to the pandemic, and millions of informal workers remaining out of work, states relaxed labour laws and parliament passed three labour codes that would arguably spur job creation and investment.

India’s lockdown, announced on March 24 and extended thrice, was among the strictest in the world, grinding economic activity to a halt and rendering millions of migrant and informal workers jobless overnight. In April alone, 122 million lost their jobs, a 30% fall in employment compared to 2019-’20, according to an estimate by the Centre for Monitoring Indian Economy. Although unemployment reduced from July to September, “it appears that the recovery phase is over and a decline is setting in again”, noted a Centre for Monitoring Indian Economy report in December.

“This crisis is not just a ‘supply’ shock but also a ‘demand’ shock to the economy,” said Santosh Mehrotra, an economics professor and chairperson, Centre for Informal Sector and Labour Studies at Jawaharlal Nehru University. Even before the health crisis hit, India’s unemployment was at a 45-year high.

We take a look at what transpired on the jobs and labour fronts in 2020 and what experts have to say as we step into 2021.

Increase in informality

“The Covid-19 impact is biased against informality,” noted a World Bank report in October. “Informal sector workers have suffered the largest declines in employment, and most of the households who have fallen into poverty during the pandemic are dependent on informal workers.” Many of the workers, both in formal and informal sectors, may be self-employed but at reduced wages, it added.

Further, pandemic-related job loss also pushed more people into the informal sector, experts told IndiaSpend. “The unemployment rate declined but the decline in open unemployment rate masks the problem of underemployment,” said Radhicka Kapoor, an economist and senior fellow at Indian Council for Research on International Economic Relations. As lockdown restrictions eased, casual and self-employed workers were able to resume work, she added.

Informality has been endemic to India’s growth story: of around 61 million jobs created over 22 years after liberalisation in 1991, 92% were informal jobs. The pandemic dealt a particularly severe blow to informal workers: more than 75% lost their livelihood during the lockdown, found a survey of more than 11,000 informal workers by the NGO ActionAid. As many as 12 million people in India might have been pushed into poverty as a result of the pandemic (based on India’s 2011-’12 poverty estimates), noted a World Bank report in April.

The organised sector has also been impacted, though in the initial phase of the lockdown it did better than the informal sector. The manufacturing sector has posted profits despite the crisis. “This is because they cut staff and reduced wages of the remaining employees leading to lowered input costs,” said Mehrotra. A direct consequence of this would be greater inequality and poverty and a “sharp increase in informality”, he added.

Firms in the formal sector are hardly hiring, said Kapoor. “Several of those rendered jobless in the formal sector, who cannot afford to remain unemployed, will try to seek or create work in the informal sector because there is no unemployment insurance or income support from the government,” Kapoor added.

No universal social security yet

In a year that saw unprecedented unemployment and migrant worker distress, Parliament passed three labour bills – industrial relations, occupational safety, health and working conditions, and social security – in September, arguably to modernise and simplify existing labour regulations. The code on wages had been passed in 2019. The new labour codes amalgamate 29 central labour laws into four codes, which the Ministry of Labour and Employment claim are a “game-changer”.

Labour unions had protested in January against the “anti-worker” industrial relations code that would allegedly allow employers to hire and fire workers more easily. They argued it contained no safeguards and made it harder for workers to negotiate better terms and wages, IndiaSpend reported.

The code on wages that consolidated and codified four major wage-related legislations, too, allegedly diluted or removed critical provisions for wage protection, marking the end of pro-worker legislations, trade unions, workers’ organisations and experts told IndiaSpend.

“The labour codes are a mixed bag,” KR Shyam Sundar, professor of human resource management at the Xavier School of Management told IndiaSpend – good for employers, but not workers. They make it possible for employers to obtain more hours of work, hire and fire more easily, lower their social security liability, and utilise flexible employment options while making it difficult for workers to undertake legal strikes. But they do not address worker issues like workers’ safety and universal social security to the unorganised workers, Sundar added.

The labour codes are likely to reduce the overall job security as firms replace permanent workers with fixed-term workers [employed for a fixed duration of time with similar benefits as permanent workers], said Amit Basole, associate professor of economics, School of Arts and Sciences at the Azim Premji University. “The social security code is a missed opportunity to put in place a universal unorganised sector social security system while the industrial relations code enables the direct hiring of fixed-term workers without touching the third party contract labour system,” he added.

Considering how the pandemic had exposed the vulnerability of workers, there should have been a revision in the social security code for a universal social protection law, said Kapoor. “Many people are in low paying jobs which do not allow people to contribute to welfare schemes voluntarily,” she said.

Recently, Karnataka’s Department of Factories, Boilers, Industrial Safety and Health, in its preliminary report, allegedly found violations of labour laws at Wistron, a cellphone manufacturing plant in Kolar. In December, workers turned violent at the electronic goods manufacturing plant in Kolar, allegedly due to salary delays, lack of overtime payments and long work hours.

Improve definitional clarity on workers

The code on social security recognises gig and platform workers, such as food delivery and cab aggregators. The code mentions the creation of social security funds for unorganised, gig and platform workers and also talks about the role of aggregators, states and the Centre in contributing to welfare schemes for such workers.

Many gig workers put in long work hours and get inadequate job benefits. Cab aggregators and food delivery applications such as Swiggy, Zomato, Uber and Ola were ranked the lowest on fair pay, fair conditions, fair contracts, fair management, and fair representation scores, according to Fairwork India Ratings 2020 on the labour standards in the platform economy.

The definitions in the code are confusing and do not clearly define platform, gig and casual worker, said Kapoor. The growth of the platform economy has blurred further the lines between self-employment and dependent employment, with disguised employment relationships and dependent self-employment on the rise. “Although the code says that firms need to contribute a share of revenues for gig workers’ welfare, the problem that needs to be addressed first is vis-à-vis the identification of the gig worker,” she added.

“Gig and platform economy workers figure only in the social security code and not in others. If they are workers, then they should figure in all the codes,” said Sundar of Xavier School of Management.

‘Relaxing labour laws will not attract investment’

State governments across the country relaxed labour laws in an attempt to restart industrial activity in May and June. At least 12 states – Assam, Goa, Gujarat, Haryana, Himachal Pradesh, Karnataka, Madhya Pradesh, Odisha, Punjab, Rajasthan, Uttarakhand and Uttar Pradesh – increased maximum daily and weekly hours, according to a note by research organisation PRS Legislative.

The labour ministry proposed to increase the daily limit on working hours from 10.5 hours to 12 hours, including one hour of rest, in the draft rules of Code on Occupational Safety, Health and Working Conditions, but added that no worker would be allowed to work for more than 48 hours a week. The International Labour Organization expressed deep concern over the development.

Three states – Uttar Pradesh, Rajasthan and Karnataka – eventually withdrew the labour law after protests from unions and activists. “The state-level laws have exploited the pandemic and the problems created by the standard operating procedures issued for the resumption of work as a legitimate ground for increasing the hours of work,” said Sundar.

The move to relax labour laws was premised on labour laws restricting the growth of industries when there were other bottlenecks such as infrastructure and logistics, said Kapoor. In 2015-’16, employees’ wages formed just 10.7% of the cost of production, she said, compared to total domestic input (such as raw material and electricity) whose share was 63.7%. “Yet, the role of labour has received far greater attention in the discourse compared to that of access to raw materials,” Kapoor added.

The draft rules have “cleverly extended the potential hours of work by tinkering with the spread over time and not the hours of work”, said Sundar. This does not technically violate the ILO convention of not exceeding eight hours in a day and forty-eight hours in a week, he added.

Lack of migrant data

After admitting in parliament that it did not have data on the number of migrant workers who had lost their job or had died on their way home during the lockdown, the government set up an expert group that would gather migrant data and suggest ways to improve their work conditions and job opportunities.

Estimates of temporary labour migration in the country vary from 15 million to 100 million migrant workers, “a variance that indicates the ambiguity of the phenomenon”, according to a December 2020 policy document on internal migration.

One of the reasons migrant workers are ignored by policymakers is that circular migrants work at the bottom of the economy, have few rights and entitlements, and are “treated as irritants or nowhere citizens”, said Ravi Srivastava, director of the Centre for Employment Studies at the Institute for Human Development. “Virtually nothing has been provided by the Centre against the jobs lost by the informal workers and the circular migrants,” he said.

The government needs to initiate annual surveys to collect data and create a robust statistical system for construction and the services sector which would account for a good proportion of migrant workers, added Sundar. A national database of migrant workers should be collated to ensure relief reaches the intended beneficiaries if there is ever a repeat of a Covid-19-like pandemic, suggested a Standing Committee on Home Affairs in December.

Wages may continue to fall

India’s rate of job creation has been falling since 2012, estimated Mehrotra of JNU. As a result, real wages have fallen or stagnated over the following seven years for all workers in both rural and urban areas, he said.

This trend has already worsened in 2020 and would continue to deteriorate in 2021, because the number of new jobs being created in the non-farm sector would continue to experience even slower growth than pre-2019. “Real wages will continue to decline further constraining aggregate demand,” he added.

As with other aspects of employment, the wage problem predates the pandemic. India had one of the lowest rises in real wage growth compared to its neighbours between 2015 and 2018, according to the ILO’s Global Wage Report 2020-21 – it recorded no growth in 2018 (the only country to do so) and a high of 2.8% in 2015, while 2019 data are not yet available.

The lockdown cost casual workers as well as regular and salaried employees an estimated Rs 33,800 crore (in 2017-’18 prices) in monthly wages, found an analysis by the Indira Gandhi Institute of Development Research. Casual workers lost 23.4%, and regular and salaried waged employees 16.8%, in total wage earnings.

The Centre had announced in 2019 that the national minimum wage (which no state government can further reduce) would be set at Rs 178 under the Act, which was only Rs 2 more than the amount declared in 2017, even though an expert committee had earlier recommended fixing the national minimum wages at Rs 375 per day irrespective of sector, skill, occupation and rural/urban location.

“The wage rules do not outline the exact criteria and methods for fixation of floor wage rates by the Central government, except for stating some broad components such as food, clothing, housing and any other factors,” said an ILO discussion paper.

“The problem lies in implementation,” said Kapoor, “The code on wages extends minimum wages to the unorganised sector but how are we going to ensure it is enforced?” Also, India does not have a single minimum wage; every state has multiple minimum wages across sectors and skill levels.

The Centre decides on minimum wages of certain jobs including the railways, mines and ports, while states decide wages for sectors under their purview. Minimum wages thus fixed vary widely from state to state – the minimum wage for unskilled workers in Andhra Pradesh was Rs 69.3 per day while that in Haryana and Punjab was more than Rs 300 per day, according to a government response in parliament in December 2018.

Expand the rural jobs programme

More than 9.7 million households that needed work under the rural jobs programme, Mahatma Gandhi National Rural Employment Guarantee Scheme were unable to do so at some point in the year, noted a recent report by Peoples’ Action for Employment Guarantee, an advocacy group. One in four households in Jharkhand and Uttar Pradesh faced this problem.

MGNREGS is an economic lifeline for the rural poor, and has been especially vital in this pandemic year – it employed 67.1 million households in 2020 (as of December 23) compared to 54.8 million in 2019, but not only did it fail to meet demand, its chronic problems such as delayed payments and inadequate days of work persisted.

“There is a need for an expansion of work [under MGNREGA], number of days [of work provided], and increase in wages,” said Kapoor, noting that MGNREGS and the public distribution system of foodgrain for the poor have been indispensable safety nets during the pandemic.

It is important to raise programme wages to equal state agriculture minimum wages, remove payment delays and meet demand fully, added Basole of Azim Premji University. Although each household is entitled to 100 days of work, on average, a household has worked 42.6 days in 2020-’21 compared to 48.4 last year, as per the government’s data accessed on December 23.

Way forward

As voices arguing for an urban version of MGNREGS to ensure job security for the urban poor grew more forceful this year, states including Odisha, Himachal Pradesh, Jharkhand and Kerala launched urban jobs programmes. “A centrally-funded programme that covers the wages of different kinds of workers would allow the Urban Local Bodies to fulfil tasks they are mandated to perform but are failing to, because of a shortage of financial and human capacity,” recommended 2019 State of Working Report

While agreeing to a need for an urban employment programme, Mehrotra added that the government needs to borrow more considering India would not reach 2019-’20 per capita income levels until 2022-’23.

A clear focus on and better policies for labour-intensive sectors are a must to achieve a “job-rich recovery”, suggested Kapoor. “The narrative of jobless growth has existed for a very long time in India and that tells us that growth alone is not enough to create jobs.”

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