Opinion

Labour reforms and the rise of jobs

Bhupender Yadav | Updated on: Jun 23, 2022
The labour codes will provide workers a secure and enabling environment

The labour codes will provide workers a secure and enabling environment | Photo Credit: DEBASISH BHADURI

States that deregulated their labour markets have seen a positive impact on overall growth and formal employment

On June 14, Prime Minister Narendra Modi directed recruitment of 10 lakh people in ‘mission mode’ over the next one-and-a-half years across various government departments and ministries. The hiring of 10 lakh people will not only help the government meet its stated targets but also strengthen the march towards a fully Atmanirbhar Bharat. The announcement is a continuation of the Modi government to make India a global powerhouse by tapping its full potential. 

Over the last eight years, the government under Modi has worked to create employment opportunities in the formal and the informal sectors. Schemes such as MUDRA Yojana, Svanidhi Yojana, Garib Kalyan Rozgar Abhiyaan and MGNREGA 2.0 are aimed at harnessing the potential of the working population.

While employment opportunities have been created on the one hand to keep India’s growth momentum on, efforts are on, on the other hand, to ensure the growth is human-centric and so the government decided to address the long pending demand for labour reforms.

The subject of India’s labour market reforms has acquired new vigour and significance as many States have undertaken substantive legislative and administrative reforms in their respective labour and industrial relations arena. The objectives of these reforms, as envisioned by PM Modi, have been to progressively deregulate the labour market as it is widely perceived that India’s labour regulatory framework has been rigid and hindered the growth of output, investment and employment expansion. From workers’ perspective, the reforms were meant to improve ‘ease of living’ and to reap the demographic dividend by promoting inclusive growth and social protection coverage.

Some of the legislative reforms undertaken by a few States in the last few years include increase in the threshold of workers from 100 to 300 under the Industrial Disputes Act, 1947; from 10 to 20 workers (with power) and 20 to 40 (without power) under the Factories Act, 1948; from 20 to 50 workers under the Contract Labour (Regulation and Abolition) Act, 1970, and introduction of Fixed Term Employment (as widely prevalent in many developed and emerging economies) in sectors like textile and apparel, etc.

Similarly, to ease the administrative regulations and delays, single-window clearance, self-certification of compliance by enterprises, online filing for Registration and Returns, transparent inspection system, etc., have also been undertaken by some States.

The topic of labour reform measures, especially the legislative ones aimed at promoting flexibility, has often been a subject of discussion. The researchers supporting reforms say the existing labour regulations are complex, cumbersome and restrain enterprises from successfully operating in a competitive business environment. The  Economic Survey (2018-19), which studied the impact of labour reforms undertaken by Rajasthan, showed that the post-reform period saw higher growth rate in the number of factories employing more than 100 employees, increase in the average number of workers per factory, increase in the total output and output per factory, and increase in the total wages and wages per factory, increase in the compound annual growth rate (CAGR) compared to the pre-reform years.

Some, however, doubt the rationale of the labour reforms and question the methodology and findings of such studies and reform outcomes.

Findings of study

A study by the VV Giri National Labour Institute recently to understand the effect of labour reforms undertaken by some States on economic and labour market parameters — based on secondary household datasets of NSSO-EUS and PLFS and annual enterprise survey of ASI — showed that deregulation of labour markets have had a positive impact on the overall growth and employment. Some of the key findings are as follows:

There has been a shift in employment pattern from the traditional agricultural and allied sector to the more lucrative services sector including construction. This has significant implications in improving the wages and income of the workers through formalisation, apart from enhancing enterprise productivity and competitiveness. The shift towards regular salaried work in the non-agricultural sector has been observed with an increase of 31.5 million between 2011-12 and 2018-19 compared with 19.22 million between 2004-05 and 2011-12.

On the organised manufacturing front, the employment increased at a faster pace (1.7 million) in the post-reform period (between 2014-15 and 2017-18) compared to the pre-reform period (between 2010-11 and 2014-15), where it increased by one million.

The average plant size in the organised manufacturing sector has increased over time. In the case of some States like Rajasthan, Tamil Nadu and Andhra Pradesh, the increase in the share of employment in the plant size comprising 300 or more employees during 2010-11 to 2017-18 has been more than the national average of 5.2 per cent.

The increase in Rajasthan has been a significant 10.3 per cent from 40.9 per cent in 2010-11 to 51.2 per cent in 2017-18, followed by Tamil Nadu (8 percentage point increase) and Andhra Pradesh (7.1 percentage point increase).

As of 2017-18, over 50 per cent of the employment in the manufacturing sector in all the States was in plants with 300 or more employees. This indicates that the firms are moving towards achieving economies of scale, thus making the enterprises and products competitive. Some States like Rajasthan, Tamil Nadu and Andhra Pradesh have attracted a significant number of new firms after the reforms.

Between 2004-05 and 2018-19, the total number of self-employed declined by 8.6 million and casual workers, by 14.8 million. Over the same period, the total number of regular wage salaried workers increased by 50.3 million. Out of the 50.3 million, 32 million increase happened during 2011-12 to 2018-19. This increase in the regular salaried work, which is considered a better form of employment, as it offers a stable income — both in absolute and relative terms — apart from access to some of the social security benefits, can be seen as a positive development.

The four big employers associations — Assocham, CII, FICCI and PHDCCI — reported that manufacturing and its various sub-sectors like garments, apparel, logistics, electronics, food and beverages, machinery and equipment metal products benefited the most from the reform measures related to increase in thresholds under IDA and FA including the plantation and construction sectors.

They also said that the introduction of Fixed Term Employment has led to the creation of new employment opportunities and formalisation of the workforce, thus negating the popular narrative that its introduction will result in more informality. The industry also feels that FTE has improved productivity, competitiveness and sustainability of enterprises by attracting niche skills for the required time period thus enabling them to complete even the stalled projects, with strict timelines and budget

The industry says that the self-certification scheme has led to increased trust between the employers and labour administration/government machinery. The introduction of the Shram Suvidha portal of transparent inspection system, reducing the human biases/interference and the online filing of registration, licence and returns, has been hailed by the industry associations.

This proves that reforms in the labour legislative and administrative architecture can have significant positive impact on growth of enterprises and the welfare of workers in the country.

To bring about labour reforms which will benefit both the workers and the employers, the Ministry of Labour and Employment had successfully undertaken the task of simplifying, rationalising and amalgamating the existing 29 labour laws into four Codes — the Code on Wages, 2019; the Code on Industrial Relations, 2020; the Code on Occupational Safety, Health and Working Conditions, 2020 and the Code on Social Security, 2020 — after extensive consultations with all stakeholders and social partners.

The related rules have also been published and circulated to the States to undertake a similar exercise. Implementation of the labour codes and rules has the potential to accelerate India’s journey to lead the world’s strongest economies. It promises to provide the new and old workers of India a safe, secure and enabling work environment.

The writer is Union Minister for Labour & Employment; and Environment, Forest and Climate Change

Published on June 23, 2022
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