The coming disruption in India’s job market

There is a difference between growth and size. India continues to be one of the fastest growing countries in the world, but it has some way to go before its economy catches up in sheer size with the biggies. Take California, for instance. The state is one of the largest in the US, but is eight times smaller than India in land area and has just 3 per cent of India’s population. Its GDP, however, at a little over $3 trillion, is actually bigger than India’s GDP of around $2.96 trillion.

But there is one area where India is playing catch-up with California. Surprisingly, it is not technology — where hundreds of thousands of clever, highly-skilled Indian Americans have helped California’s ‘Silicon Valley’ become the unquestioned technology capital of the world — but in the area of labour.

Labour laws, to be precise. Last month, California Governor Gavin Newsom signed Assembly Bill 5 into law, which will force companies like Uber and Lyft to reclassify their gig workers as employees, and extend benefits of labour protection like minimum wages, overtime and social security cover. The law redefines who can be classified as a contract worker. From January 1, 2020, Uber’s army of drivers can no longer be considered independent contractors, since the job they do — driving vehicles for hire — falls within the “normal course” of Uber’s business.

India is proposing something similar. It has already passed the Code on Wages, 2019, which amalgamates four separate laws — the Payment of Wages Act, 1936; the Minimum Wages Act, 1948; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976 — into a single law which codifies the powers of the Centre, which can make wage-related decisions for specified industries such as railways, mines and oil fields, etc, while States can set wage levels for other industries. The Code also proposes a uniform floor wage across the country, below which industry/state-specific minimum wages cannot fall.

Addressing the gig economy

Now, a draft Code on Social Security (currently in its third iteration) which proposes to merge as many as eight laws covering social security benefits of workers in different industries with a uniform law. This is actually a long-delayed reform — the Modi government promised, but did not take up labour reforms during its first stint — and will bring a few of India’s many complex and outdated laws somewhat up to date.

But what has set India Inc — particularly India’s new, but booming technology-driven start-ups — buzzing is a proposal which will effectively do what California’s Assembly Bill 5 has done: convert India’s millions of gig workers into “employees” and force gig-worker-based companies like Swiggy and Zomato and Ola and Uber to recognise the millions of their “independent contractors” as workers and extend social security benefits like PF and ESI to them.

Now this is huge. The ramifications extend far beyond just a handful of tech unicorns like Zomato and Ola. Staffing solutions provider Teamlease estimates that as much as 56 per cent of all new jobs will be created in “sharing/gig economy”. Those calls you get pitching insurance policies or credit cards or time-share holidays are not being made by people whom the companies they are working for will classify as their ‘employees’. They are temporary staff, hired for short durations to meet specific business objectives. From mall salesgirls to food delivery agents to software coders, they are all part of India’s booming gig economy, even if they themselves do not recognise that they are part of it.

To a food delivery agent, the job is a temporary one, mostly seen as a stopgap before landing a more secure (read permanent) job. If the new Social Security Code goes through, it will erase many of the differences they see between their current jobs and a “permanent” one — social security (PF) cover, some form of medicare, maybe termination and retiral benefits.

This will, of course, radically disrupt the business models of such companies, which currently claim that they are simple technology platforms enabling independent contractors to deliver services to customers. They will now have to factor in the costs of providing for such social security, which may well end up putting the brakes on their headlong growth.

Changed nature of work

This also raises a fundamental question mark on whether the economy can afford such a disruption at this point. Remember, India is still in the ascending part of its demographic dividend curve, which means that more people are entering the workforce than those leaving it every year.

Our jobs data is woefully inadequate to make any kind of meaningful forecast. But maybe, looking at external examples might help. Brazil is a good fit. It is a large emerging economy, much like India, and has large numbers of young (and poorly skilled) job seekers (again, much like India).

And just like us, they had some of the world’s toughest, most cumbersome labour laws, long seen as impediments to unlocking the full potential of the economy. All that changed in 2017, when Brazil passed Law No. 13,467/2017 to amend the Brazilian Labour Code (Consolidação das Leis do Trabalho – CLT). Its purpose reads almost like the preamble to India’s revised labour code. It aims to lead to the creation of new jobs and reduce unemployment rates (currently over 11 per cent), by axing restrictive rules and recognising the changed nature of work and employer-employee relationships.

It allows for the gig economy and the contractual and temporary nature of present-day employment. It accounts for terminations, which will no longer need to be ratified by unions or the Ministry of Labour. The new Law also establishes the possibility of termination by mutual consent and sets strict conditions for demanding things like equal pay, or benefits and allowances.

Despite initial — and strong — objections from unions, the reform appears to be working for workers as well. Social security cover has been improved and even temporary workers get benefits like (pro-rated) leave, bonus etc.

Make no mistake, the Indian jobs market is set for significant disruption and turmoil. But unless India makes some difficult choices now, the future is only going to get more difficult.