Change archaic labour laws to boost economy

Action plan

The fact that recent World Bank studies have rated India as the most rigid country in the matter of labour laws certainly does not augur well for industries, both domestic and multinational that propose to set up shop here. While liberalisation of the economy has been welcomed with open arms, with an all out effort to bring in foreign investment, the laws which could scuttle such efforts continue to remain.

Though recognition is there from the government on the need for flexibility in the labour market, the inadequate social security and unemployment insurance services in the country have prevented enacting legislations, permitting termination of labour services based on performance. Indeed, there have been structural reforms in labour laws designed to benefit workers. Yet, amendments to enable industry to move to a high trajectory of growth leading to a higher employment potential is unfortunately not forthcoming.

In India, economic growth is directly linked with industrial growth. Industrial growth is invariably dependent on the relationship existing with the labour force. A suffocating set of labour laws that are tuned to benefit solely the labour force rather than the interests of the industry is bound to throw up road blocks that can impact steady growth. Indian labour laws presently remain defensive, governing minute activities, incorporating cumbersome procedures that serve to impair the smooth working of the industry. 

Interestingly, the oldest Indian Labour laws, enacted under the British rule, continue to govern the industry that now faces a global scenario. Some of these laws and provisions are so archaic, they bear no relevance to the present day world. There is no attempt to change these laws to suit the new industries, particularly in the banking & financial sectors and the IT industry.

Industrialists have so far been vociferous in their call for labour reforms and a re-look at such archaic laws that not only bear no relevance in a global scenario, but fail to serve the requirements of emerging industries in the IT and ITES sector. While accelerated growth in such industries is deeply impacted by such laws, it also dilutes foreign investment by forcing multinational companies to do a rethinking on investment.

Besides serving as a source of irritant for the setting up of new industries, these antiquated laws also slow down the pace at which new skills can be formed and prevent industries from moving on to a cost cutting mode in times of recession.

Sadly, a point that is missed here is the fact that, pertinent amendments to obsolete laws could in the long run increase the number of legitimately hired workforce, permitting better working conditions, welfare, safety as well as training opportunities that would ultimately help create a more productive workforce. 

Essentially, structural changes to labour laws rely on four important stake holders, viz, the trade unions, industry, national and regional political parties and eventually the government. Currently, given the diametrically opposite interests of the industry and trade unions, any proposed change in an outdated law is met with stiff resistance from the unions.

Trade unions typically battle for job security and any move to dilute this can lead to unrest. With trade unions forming the backbone of any election scene, it is but inevitable for any elected government or political party to indulge in humouring this vote bank rather than push for reforms to boost industry.

The question then arises, is the industry in the country to remain under the stranglehold of laws that have now not only become irrelevant but they also impede growth. Is accelerated growth which can translate as more employment opportunities and better working and training conditions for the same labour that these laws are trying to protect, to be sacrificed because of a lack of will to push for reforms?

A quick look at some of the key labour laws and issues governing the country would make the dire nature of legislative scenario, clearly evident.

Industrial Dispute Act

The Industrial Dispute Act, 1947 is all pervasive, governing literally all issues concerning disputes in an industry. Thus, strikes, lock-outs, lay-offs, retrenchment and any dispute concerning labour come under its purview. The provision under Chapter V-B of the Act makes it mandatory for any industry employing more than 100 workers to seek permission before lay-off, retrenchment as well as closure.

It is to be noted here that this figure of 100 was stipulated in the year 1947, at a time when the labour size of individual industries were relatively small. Only select industries came under the control of the Act. The scene is totally different now. The figure of 100 is too small a number and hence makes the Act too pervasive, causing unnecessary delays, driving up the cost of industrial houses that are relatively insignificant in size.

There is thus an urgent need to take a serious look at this figure, whereby the limit could be raised to over a 1000 employees. This would enable industrial houses to increase the size while retaining their flexibility. Besides reducing the number of legal battles, such a reform would ensure effective management. The current opposition from trade unions to such a revision needs to be overlooked as the resistance stems from a mistaken impression of increased job losses.

Besides the Chapter V-B, Section 9-A of the Act too needs rethinking and amendment. Presently, under Section 9-A of the Act, any decision, however minor, that might impact the labour in the industry, requires 21 days advance notification to the government. In the present fast paced world where timely decisions prove crucial in determining the survival of industry, 21 days notification is not only outdated, it can in a crisis situation lead to an industry’s collapse. 

Contract Labour regulation

The Contract Labour Regulation and Abolition, CLRA Act 1970 is another classic example of an obsolete legislation governing industrial bodies. Under this Act, the industry has to apply for a licence to hire labour. Besides, records have to be meticulously maintained in hard copy under the Act, failure of which amounts to a criminal offence.

This Act bore relevance at a time when contract labour was a small number, confined to ports, mines and plantations. With the current trend of outsourcing pervading the global market and having more than a significant presence in Indian industry, contract labour is a massive body, too extensive to allow such records in hard copies or applications for licences.

Social Security

Yet another issue affecting the smooth working of industry is the social security laws in practice. Our present social security laws require a part of the salary to be deposited in the provident fund, with an equal contribution from the employer. While the concept in essence ensures a certain level of financial security to the employee, the portion of the employer’s contribution to the pension fund does raise many questions.

Currently, 12% of the employee’s remuneration is contributed to provident fund. An equal amount is contributed by the employer, of which 3.67% goes into the provident fund and the remaining 8.33% is deposited into the public pension fund. Though the amount deposited into the public pension fund does have a ceiling of Rs 541, this sum can prove to be large in a lower income bracket.

At the end of the tenure of a lower income employee, this pension fund accumulates to a sizeable amount, providing a secure retirement benefit. However, the manner in which these funds are used by the government and their accessibility to the employee at the time of retirement continues to be debatable.

For instance, the 8th Valuation Report of 2004 estimated the shortfall of funds at the end of the year to be over Rs 22000 crores. Besides lack of sufficient information on the nature of utilisation of the funds, it is unclear as to how such a shortfall would be made good. Interestingly, over the years, this figure has been on the rise. 

To make matters worse, a sizeable number of employees have either no clue as to how to claim the amount due to them or give up their claim given the laborious and time consuming procedures involved. 

If industry in the country is to grow at an unhindered pace, it is critical that such obsolete laws are reviewed and amended to reflect the needs of a changing world. Precious time and money could then be saved and diverted to productive avenues which will not only increase revenue but also employment.

(The writer is Head Regulatory, TeamLease Services)