A laboured reform

The Rajasthan Government has mooted State-level amendments to three major Central labour legislations to allow firms greater flexibility in making lay-offs, hiring contract workers and regulating working hours in factory establishments. The Vasundhara Raje administration is said to have proposed relaxing the applicability of the Industrial Disputes Act to establishments employing up to 300 workers (as against the existing limit of 100), while similarly raising these to 50 (from 20) and 20 (from 10) vis-à-vis the Contractor Labour Act and Factories Act respectively. While labour is a Concurrent List subject on which states can enact legislations, in this case all the three laws have been made by Parliament. So even if the Rajasthan Assembly were to pass amendments to the legislations specific to the State, they would require the Centre’s assent under Article 254 (2) of the Constitution.

It is possible that the Rajasthan Government’s initiative already has the tacit backing of Prime Minister Narendra Modi, who has canvassed for reform initiatives to be taken at the state level. While Vasundhara Raje’s move is pro-industry, such reforms are not ipso facto anti-labour as it is often interpreted. It is a sad but undeniable fact that our current labour laws fall between two stools — failing to be either employment-friendly or to effectively protect worker interests. The requirement in the Industrial Disputes Act that no factory employing more than 100 workers can resort to lay-offs without “prior permission of the appropriate government” — which is seldom granted — leaves companies with no incentive to maintain anybody on regular muster rolls. Instead, they find it expedient to limit the permanent workforce to below 100 and meet any additional labour requirements by hiring through contractors depending on the ebb and flow of the business cycle. Those taken on contract are paid less for doing the same work, denied provident fund and other benefits, and can be fired without advance notice or compensation.

The Rajasthan Government’s planned labour law amendments could embolden companies to hire workers more freely, without being constrained by the requirement of seeking official permission for retrenchments. While this is a step forward, it still falls well short of addressing the real issue. What India needs is a modern labour law framework that induces firms to keep all workers engaged in core operations on their direct rolls, entitling them to uniform work-linked wages, provident fund, annual leave and other benefits. But this can happen only if it is combined with the flexibility to undertake lay-offs, subject to reasonable notice and payment of minimum termination benefits based on length of employment. It is for the Centre to introduce such genuinely pro-employment legislation; the new government has the required numbers to do this. The biggest casualty in the absence of this long-delayed reform has been India’s manufacturing sector.

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