A nationwide roll-out of labour reforms is no doubt a priority of the ruling dispensation to improve working conditions, and attract investments to spur employment creation and overall growth. But it is still a work in progress. Around 29 central laws were subsumed into four codes — on wages; social security; occupational safety, health, and working conditions; and industrial relations — and passed in Parliament between August 2019 and September 2020, but they have not yet been notified. As labour is a concurrent subject, this obviously depends on all 36 states and Union Territories (UTs) publishing their draft rules on the four codes. They were expected to publish by end-March but a few have not done so. However, despite the delay in officially notifying the four codes the good news is that many states are pushing through reforms in the spirit of these codes to position themselves as investment-friendly destinations, according to a leading daily.
These labour reforms address long-standing demands of industry for greater flexibility to adjust the workforce with the ups and downs of the business cycle. Whether these changes are acceptable to the trade unions is of course a different matter as they consider less restrictive regulations as only an unbridled licence to hire and fire! For starters, 19 states and UTs have increased the threshold of the number of workers from 100 to 300 for prior approval of appropriate government before retrenchments, layoffs, or closure of establishments. This has indeed been a demand of industry for two decades. Rajasthan and Gujarat have in fact pushed the envelope in this regard much before the four codes were passed in Parliament. Rajasthan also raised thresholds for the Factories and Contract Labour Acts which were adopted by many other states. Fixed employment has been permitted in 25 states to enable easier hiring to cope with seasonal requirements.
As the latest Economic Survey rightly noted, the various states can learn from each other’s experiences in labour reform and save discovery time. For instance, until the early 2000s, all states prohibited women from working night shifts. But later, Andhra Pradesh, Karnataka, and Haryana began deregulating women’s opportunities by moving to a permission-based system and then to a condition-based system. At present, 31 states and UTs permit women to work in night shifts. Some states have also completely deregulated women’s participation in the information technology industry, which certainly can be emulated by other states. An amazing factoid is that 40% of all women employed in factories in the country are in Tamil Nadu. In this regard, a task force led by the cabinet secretary, TV Somanathan, is putting together a set of best practices that various states can follow. Labour regulations are obviously an important element of these practices.
The upshot is that labour reform must be implemented on a priority basis all over the country. The central government must persuade the laggard states and UTs that haven’t so far drafted the rules on the codes to cooperate, if necessary through incentives. Impact assessments of labour reforms by the VV Giri National Labour Institute and Indian Institute of Public Administration have shown that average plant sizes went up and so did formal employment in manufacturing. Labour reforms help in reviving investments by industry as they provide greater flexibility to employers to cope with the fluctuating fortunes of their business while protecting the interests of workers.