Unlocking growth through labour reforms

SIDELINED:“Women have difficulty participating in the industrial labour force.” File photo of women labourers in Bengaluru— PHOTO: AFP

SIDELINED:“Women have difficulty participating in the industrial labour force.” File photo of women labourers in Bengaluru— PHOTO: AFP  

The primary policy challenge is to increase employability and help shift labourfrom agricultural to non-agricultural jobs

Over 25 per cent of the world’s workers are Indian. And 300 million young people are set to enter the labour force by 2025. With an average age of 29, India’s population is in the middle of a demographic boom. By 2020, when the global economy is expected to run short of 56 million young people, India, with a youth surplus of 47 million, could fill the gap. It is in this context that labour reforms are often cited as the way to unlock double-digit growth in India.

Why reforms? Because India still does not use its vast labour force productively or judiciously. In 2014, India’s labour force was estimated to be about 490 million, or 40 per cent of the population, but 93 per cent of this force was in the unorganised sector, ranging from vegetable vending to diamond trading. Over the last decade, the compounded annual growth rate (CAGR) of employment has slowed to 0.5 per cent, with 13.9 million jobs created in 2012 when the labour force increased by 14.9 million.

The primary policy challenge is to increase the employability of our labour force. And to shift labour from agricultural to non-agricultural jobs (where there is a projected need for 120 million skilled hands), along with social security measures.

Low wages, limited security

Average daily wage rates are quite low, in rural and urban areas. The average daily wage rate in September 2014 for ploughing was just Rs.267.70 for men and Rs.187.17 for women. Any sowing work done by children would earn a further Rs.124.17 per day. A fisherman earns between Rs.268 and Rs.311 a day, depending on his catch, while animal husbandry workers earn around Rs.150.

Rurban jobs don’t offer much better. Electricians and construction workers average around Rs.367.16 and Rs.274.06, respectively, while non-agricultural labourers average Rs.237.20. An entry-level worker in cotton textile mills in Vadodara can aspire to Rs.6,488.09 per month, with his fortunes improving to Rs.7,558.52 in Kolkata and Rs.9,769.20 in Chennai. Consumer inflation eats at this, with agricultural and industrial labourers affected by a doubling of the consumer price index (332 in 2004 to 764 in 2014).

Benefits are equally minimal. Women, in particular, have difficulty participating in the industrial labour force. The Maternity Benefit Act (1961) is largely underutilised. In 2012, just 2,441 women claimed maternity benefits across 84,956 factories. Only 3,289 factories provide crèches, with 58 in Gujarat and 2,389 in Tamil Nadu.

Railway and mine workers have faced 1,082 and 32 accidents, respectively, mostly fatal, while their dependents receive an average compensation of Rs.2.6 lakh and Rs.9 lakh, respectively. Around 93 per cent of casual workers and 66 per cent of salaried employees have no written contracts, while only 22.7 per cent have reported receiving paid leave.

Reforms at slow pace

India’s labour law regime has always been at loggerheads with industrial development and the ease of doing business. Over the past year, the government has attempted to reconcile this by amending the Apprentice Act (1961), making it more responsive to industry and youth, and substituting complex inspection regimes with technology friendly portals. ShramSuvidha, a unified labour portal scheme, has been launched to provide timely redress of grievances and facilitate self-certification by industry. This also encourages a more transparent labour inspection regime, with inspection reports uploaded within 72 hours.

A focus on cutting down red tape, by amending nearly 40 Central and 150 State labour laws, has been launched, with significant consequences on hiring and firing. Draft proposals for exempting small-scale industries, employing up to 40 workers, from 14 basic laws, including the Factories Act, the Industrial Disputes Act and the Maternity Benefits Act, are being considered. Rajasthan’s relaxation of the applicability of the Industrial Disputes Act to establishments with 300 workers or more will allow employers to carry out workforce optimisation.

Labour reforms must be linked to the ease of doing business, creating a habitat where jobs can be fostered. Reforms must be linked to worker benefits, while simultaneously easing the compliance burden on small and medium enterprises. The labour law must be rationalised by defining minimum wages and linking them to inflation. Minimum wages ought to be revised annually, with penalties for their violation dramatically raised.

According to the National Skill Development Corporation (NSDC), we need 120 million skilled people in the non-farm sector. Amendments to the Apprenticeship Act are welcome. With no labour laws applying to apprentices, care must be taken to ensure that they are not transformed into contract labour. MGNREGA should be restructured and linked to apprenticeship programmes in industry and agriculture.

Women workers require legislation too. Female employees of government schemes like Indira Kranti Patham or Anganwadi Worker remain out of the purview of laws. Scheme-based workers should be treated as regular employees and offered decent wages and social security. Equally, contract labourers must be protected. They should be covered by the Workmen’s Compensation Act (1923) for accidents, with inflation-linked wages and limited social security benefits from the Employees State Insurance Act (1948) and Maternity Benefits Act (1961) extended to them.

While retrenchments are socially difficult experiences, India’s current labour policy provides little incentive for industrial employers to hire. Instead, to avoid complications, hiring contractual labour without social security benefits or termination protection is encouraged. A modern labour law that encourages employers to keep more workers in formal roles, with work-linked wages and social security benefits is vital. Flexibility to undertake layoffs, ensuring adequate benefits and a reasonable notice period, is needed.

India’s push towards urbanisation and development must address both businesses and workers. The answer lies in formalising labour and supporting it with a modern regulatory framework.

(Feroze Varun Gandhi is a Member of Parliament, representing the Sultanpur constituency for the BJP.)

For urbanisation and development to take place, labour must be formalised in India

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