[Reader-list] Labour’s love’s lost

[Asit Das]

Labour’s love’s lost

   - T.T. Ram Mohan   the hindu date 12th september2016
   <http://www.thehindu.com/profile/author/t.t.-ram-mohan/>


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   T.T. Ram Mohan

The proposed labour reforms seek to weaken worker protection at a time when
the Indian economy is not creating enough jobs, and the right kind of jobs

On September 2, 10 trade unions in India organised what was said to be one
of the largest labour strikes in history. An estimated 120 million workers
took part. The unions were protesting against the government’s
unwillingness to grant a 12-point charter of demands they had put forward.
A year ago, unions had signalled their discontent by having a similar
nation-wide strike.

This year, one of the principal demands of the unions was an increase in
the daily minimum wage for unskilled workers from Rs.246 to Rs.692. They
rejected an increase in the wage to Rs.350 offered by the government. Some
of their other major concerns were: proposed changes in labour laws;
growing casualisation of labour; privatisation; and greater opening up to
foreign direct investment (FDI).

*Future tense, present imperfect*

Labour is restive today. It is apprehensive about what the future bodes for
itself. But it’s not as if labour militancy has gone up in recent years. On
the contrary, man-days lost due to industrial disputes (lockouts and
strikes) came down from 23.7 million in 2001 to 13 million in 2012 before
rising to 19 million in 2013. These figures are considerably lower than
those in the 1970s and 1980s.

However, there is little doubt that organised labour in India, as in the
rest of the world, sees itself as a loser in the changes unleashed by
liberalisation and globalisation. It fears that if the government goes
ahead with some of its proposed “reforms”, its losses will begin to mount.

Indian businesspeople as well as many economists have long clamoured for
greater “flexibility” in labour laws, a euphemism for freedom to hire and
fire. The Industrial Relations Code Bill, 2016, which is said to favour
such flexibility, is due to be tabled in Parliament in the near future. It
is bound to evoke a strong reaction from unions as well as Opposition
parties.

Several economists say that rigid labour laws are the reason India has not
generated enough jobs in the formal sector — only about 10 per cent of jobs
are in the organised sector and the remaining 90 per cent in the
unorganised sector. As large firms do not have the confidence that they can
shed workers in adverse conditions, they do not wish to enter
labour-intensive, low-skilled sectors. This is the reason India has not
been able to replicate the Chinese success in labour-intensive
manufacturing.

This argument may have well been overtaken by events in the global economy.
Many other low-cost economies have already positioned themselves in these
sectors. Automation in the West means that the window of opportunity in
these sectors is fast closing. The idea that reforming labour laws will
trigger a huge expansion in low-skilled manufacturing is thus highly
suspect in today’s changed situation.

*The experience so far*

Moreover, the academic literature on the subject is not unambiguously in
favour of easing labour laws as a means for hiring more labour. Dismissal
laws in France are more stringent than in India, but that did not come in
the way of France’s prospering for over a century. China itself has made
its labour laws more stringent so that they are comparable to those in
India (except in special economic zones).

Indeed, some of the literature suggests that giving workers greater
protection helps increase productivity by giving workers more incentives to
invest in firm-specific skills. Along with collective bargaining, worker
protection leads to more egalitarian outcomes in society. There is also
evidence that the bias against workers in Indian industry may have more to
do with tax incentives for capital than with restrictive labour laws.

A second issue that agitates unions is the growing trend towards
casualisation of labour. This was one of the reasons for labour unrest at
Maruti’s plant at Manesar in Haryana last year.

Companies find it expedient to employ labour on contract. They can then
leave the job of managing regulations and inspectors to the contract labour
firms. They can also stay small and escape various labour regulations. Most
importantly, contract labour tends to be cheaper in general; at Maruti’s
Manesar plant, contract workers earned less than half the wages of
permanent workers.

Contract labour is a serious assault on workers’ rights. The Supreme Court
has made strong observations on companies’ resort to contract labour in
order to avoid statutory obligations. *The Economic Survey* (2015-16)
believes that contract labour is merely a corporate response to “regulatory
cholesterol”. However, reducing worker protection in the organised sector
may not be the answer — many firms would still prefer the contract option
simply because it’s cheaper. Rather, we must extend worker protection and
benefits to contract labour as well.

Privatisation and FDI are other areas of concern for organised labour. It
is not that we have seen major initiatives to sell off PSUs. But there are
clear attempts to further shrink the role of the public sector. Public
sector banks (PSB), for instance, have been starved of capital and many
banks are today without chairmen and managing directors. Moves have also
been initiated to merge PSBs. Unions see these moves as impacting jobs in
the formal sector adversely.

In principle, FDI should mean more investment and more job creation.
However, in a situation where domestic firms have weakened by inadequate
growth, FDI is seen as displacing jobs in domestic firms.

*It’s the jobs*

The proposed labour reforms seek to weaken worker protection at a time when
the Indian economy is not creating enough jobs and the right kind of jobs.
The rate of growth of employment slumped from 2.8 per cent in 2000-05 to 0.
5 per cent in 2011-12. In the same period, the labour force grew at 2.9 per
cent and 0.4 per cent, respectively. In the organised sector, the share of
informal employment rose from 48 per cent in 2004-05 to 54.6 per cent in
2011-12.

Job creation in the private sector is depressed by the low rate of
investment. Investment itself is constrained by numerous factors: high
levels of debt, high interest rates, a deceleration in corporate loans
growth in PSBs, etc. In these conditions, a focus on weakening dismissal
laws in the organised sector as the key to job creation is misplaced.

The International Monetary Fund’s *World Economic Outlook* (April 2016)
lends support to this view. It cites studies that have shown that weakening
dismissal conditions under adverse economic conditions tends to reduce
employment. The IMF argues that if such changes to labour laws are to be
carried out, there must be offsetting fiscal expansion that helps raise
demand for labour. India is in no position to meet this condition as we are
still in the process of fiscal consolidation.

There is a time for undertaking certain structural reforms and there is a
time for not doing so. Focussing on changes to labour laws at the present
time, far from fostering job creation, is likely to be counterproductive
and can only result in greater labour unrest.

T.T. Ram Mohan is a professor at IIM Ahmedabad. E-mail: ttr at iima.ac.in