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Mainstream, VOL LVIII No 22, New Delhi, May 16, 2020

A good crisis and exemption from labour laws: Miseries of Indian working class | Kingshuk Sarkar

Sunday 17 May 2020

by Kingshuk Sarkar*

States are providing industries exemptions from the application of labour laws and also extending the period of working hours. The apparent reason is that this will boost investment and employment. Are there any credible evidences to support this presumption particularly when the entire economy and working class in in dire straits? Or this good crisis is a pretext to implement a pre-designed agenda? 

Keywords: Labour Law, Labour Reform, Labour Flexibility, Labour Market, Labour Administration

In the midst of the COVID-19 pandemic, few state governments have announced exemption for industries and business from the operation of major labour laws for the coming three years. It seems a good crisis is an opportunity to fulfil unfinished agenda. The apparent logic behind such exemptions is that this will boost investment, productivity and improve economic activities. However, how exemption of labour laws is going to boost investment and economic activities is not explained anywhere or supported by objective studies.

The Uttar Pradesh government has approved an ordinance exempting businesses from the purview of almost all labour laws for the next three years in a bid to provide a boost to investment in the state on the aftermath of coronavirus pandemic adversely affecting economy all over the world. The ordinance will become law only after it receives the president’s assent.

“The horticultural and economical activities in the states have been severely affected and slowed down due to the outbreak of COVID-19. This is because businesses and economic activities came to a halt more or less due to the national lockdown,” a press statement issued by the state government said. The decision was taken in a meeting of the state cabinet, chaired by Chief Minister on 6th May 2020. This is the apparent justification provided by the state government.

The statement said that the government has cleared the ‘Uttar Pradesh Temporary Exemption from Certain Labour Laws Ordinance, 2020’ to exempt all establishments, factories and businesses from the purview of all, but four labour laws and one provision of another Act, for a period of three years.

Only the Building and Other Construction Workers Act, 1996; Workmen Compensation Act, 1923; Bonded Labour System (Abolition) Act, 1976; and Section 5 of the Payment of Wages Act, 1936 (the right to receive timely wages), will apply in the state, according to the statement. It also said the provisions related to children and women in the labour laws would continue. But those provisions were not specified. Such provisions are scattered across different labour laws.

Except those mentioned, other labour laws will become defunct. Those include laws related to minimum wage, settling industrial disputes, occupational safety, health and working conditions of workers, and those related to trade unions, contract workers, and migrant labourers. This will apply to both the existing businesses and the new factories being set up in the state.

‘The idea is that in the present circumstances where we need to provide employment to workers who have migrated back to the state and to protect the existing employment, some flexibility has to be given to business and industry,’ Uttar Pradesh chief secretary told the press.

Madhya Pradesh Chief Minister announced on 7th May 2020 that the state government would exempt new manufacturing units from all, but some provisions, in the Factories Act, 1948 for the next 1000 days (or over two-and-a-half years). The labour law changes in MP, which needs the sanction of the central government, will allow more factories to operate without following safety and health norms and give a free hand to new companies to engage labourers without necessarily complying with the existing labour laws. Daily working hours has also been increased from eight hours to twelve hours. Further, it has exempted new factories under the Factories Act, 1948 from inspection and permitted the flexibility to conduct third party inspections at will. Some other states including Rajasthan, Haryana, Himachal Pradesh and Punjab have extended working hours in manufacturing units to twelve hours from eight hours.

It is the worst possible time to announce such exemptions. The entire working class are undergoing unprecedented crisis because of nationwide lockdown. Economic activities have stopped, workers are losing jobs and facing starvation. Large number of migrant workers are forced to take long walk back to their native places. Government’s directive to employers to pay wages and not to retrench workers during the period of lockdown are being observed more in breach than in compliance.

The issue of labour law amendment is not something new. It is in the public domain for last two decades. Labour is in the concurrent list. Therefore, such amendments take place at both levels. Broadly, such amendments are given the name of labour reforms. Now labour reforms have tried out at both centre and state levels. Not much could be achieved at the centre. Tripartite consultation and social dialogue saved the day for the workers to some extent. Not much could be amended at the centre. Labour laws are being rationalized and all the laws are being categorized into four Codes. One such Code, namely, Code on Wages had already been passed in parliament and now it is a piece of legislation. Three other Codes are in the pipeline and are being discussed at different levels. However, at the fundamental level, not any significant changes happened. Earlier independent acts are now chapters in a broader categorization.

But many states did effect significant changes in the labour laws at their levels. Such states include Uttar Pradesh, Madhya Pradesh, Rajasthan, Gujarat, Haryana, Andhra Pradesh, Telengana etc. West Bengal did not amend much and but relaxed provisions through administrative orders and through implementation of ‘ease of doing business’ module. Important provisions across labour legislations like threshold with regards to closure, lay-off, retrenchment, provisions regarding strikes and lock-out, working hours, compounding of offences, formation of trade unions were amended at the state level. Uttar Pradesh was the first state way back in 2000 to put administrative restrictions on the conduct of inspection. Labour department needs to take prior approval from the district magistrate before inspection being carried out. This is in violation of the convention 81 of the ILO which India is a signatory. It contravenes basic norms of inspection laid down in Convention 81.

The present exemptions are given on the pretext that this would boost investment and employment. The underlying assumption is that labour laws are rigid and acts as a restrictive instrument. It prevents flexibility particularly with respect to engagement of labour. It is alleged that it prevents realization of economies of scale as employers are forced to keep the size of their operations small to avoid implications of certain labour laws. Employers desire to have flexibility and determination of compensation (wages and salaries) based on market norms. Investment follows where labour is cheap and flexible. By providing exemption, states want to show themselves as cheap labour destinations. But such policies are very short-sighted. Investment is a functions of many other things. Industrial infrastructures are very poor in these states. Only making labour cheap and flexible will not attract investment.

Actually, Indian labour market is reasonably flexible. In spite of labour laws being there, Indian labour force underwent steady informlization over the years. About 93 per cent of the labour force are in the unorganized sector. Protections under majority of labour laws do not extend to these vast majority of labourers. Labour laws basically offer protection to seven per cent organized sector labour. Informalization is an outcome of the effort of the employers to bypass the applicability of the majority of labour laws. There has been significant informalization of even organized labour. This shows that actually labour market is very flexible.

Further, there is no empirical evidence or objective study to show that protection under labour laws adversely affect industrial profitability or dampen economic activities. But a narrative has been cultivated in the public domain that labour laws have hindering impact on industrial growth. But this narrative has no objective basis. The fact remains that even though labour laws are there, they are very poorly implemented. In recent times priority of the labour administration is to provide social security to vast number of unorganized sector workers. Implementation of labour laws have been relegated to the back. Talk of ‘inspection raj’ is actually a misnomer. In fact, the entire inspection procedure is presently being randomized through use of technology. Routine inspections are not entertained and inspections happen only when there is a written complaint. The compliance is based on self-certification on the part of employers.

Given the nature of Indian labour market which is characterized by huge excess supply of labour, strict implementation of labour laws is very difficult. Minimum wages are paid only at fifty percent of cases where it is applicable. Market plays an important role and at best labour laws provide some protection to organized sector only. Organized sector is only a small part of total diaspora. The ongoing corona pandemic further manifested the vulnerability of the Indian labour force particularly the unorganized sector workforce. Most of them were left to fend for themselves and sudden announcement of lockdown further aggravated the problem. The future looks equally bleak as in coming days things may not return to normal in the short run. Employment is supposed to take a significant pushback. Actually, labour market scenario was particularly bad in pre-covid period too.

Under such circumstances, exemption of labour laws would further aggravate the plight of the workers. Basic minimum sustenance in the form of minimum wage would be in jeopardy. Minimum wages would no longer be applicable along with many other provisions. Collective bargaining, right to compensation in case of retrenchment and lay-off, right to form trade unions, protection against unfair labour practices all would be non-existent. These are not only labour rights but basic human rights. These labour laws have linkages to rights enshrined in our constitution. Also certain labour laws are outcome of international convention which India thought right to adopt. Present exemptions are being provided in violation of the Right to Freedom of Association (ILO Convention 87), Right to Collective Bargaining (ILO Convention 98) and also the internationally accepted norm of eight hour working day-espoused by core conventions of ILO. India stands in danger in violating these conventions which she has agreed and signed in the past.

There is a need to reinforce safety provisions and more so after the Visakhapatnam gas plant tragedy on 7th may 2020. For instance, Madhya Pradesh’s amended law has done away with the need of even installing a fire extinguisher if an industrial unit employs less than 50 people. But, in addition to removing some of the regulatory requirements, Madhya Pradesh will let companies hire contract workers for a longer duration, allow them not to recognise trade unions for collective bargaining in a number of sectors such as textiles, cement and auto, and not provide any mechanism for raising industrial disputes for new firms. Even if most of the labour laws don’t apply to unorganized sector, taking those off hurt them in many ways since labour market outcomes are inter-related and subject to cascading effect.

Also extension of working hours by six state governments from eight hours to twelve hours is detrimental to occupational health and safety and welfare of the workers. It is actually tantamount to reducing three shifts to two shifts. This is actually happening for the last few years. Now this crisis is being used to good effect to formalize this practice. This extension of working hours will further robe workers any opportunities to earn overtime wages and even compromise safety considerations too.

This context of exemption is important because states are making these changes with an idea of attracting business that would have otherwise gone to China or elsewhere in other states in India. These states are trying to promote themselves as cheap labour destinations where labour laws are not hindrances anymore. Migrant workers are back at native villages. They may not like to return to their previous work place in immediate future. Under such circumstances, such exemptions reflect the aspirations of these states to assemble sweatshops to produce staffs of everyday use.

Further, timing of the exemption makes for an interesting observation. That state is making good use of a crisis and bringing in something which are difficult to push in normal circumstances. The entire working class are in crisis. Number of migrant workers’ death is almost matching covid death figures. Continuous lockdown (presently in phase 3.0) is causing enormous harm to the economy. Thus relevant stakeholders are not in a position to stage meaningful protests. It seems a pre-drawn agenda which is being fulfilled amidst the present crisis. The timing makes it really out of place. Workers needed hand-holding from the state but even basic minimum legislative protections are also being withdrawn.

Further, there is a lack of appreciation on the part of the state that workers are not mere clogs in the production function. They are consumers too. Their large numbers also make them important component of the aggregate demand segment too. Their marginal propensity being very high, putting money in their hand makes good fiscal sense in the midst of pandemic crisis. But in reality opposite is happening and even basic rights are being curtailed. Labour laws are not inherently rigid or drive away investment. Rather, labour laws as a whole ensure an environment where labour productivity is being achieved at the optimal level. It creates a level playing field between labour and capital by protecting working class from being exploited. Exemption defies that logic and may indirectly encourage exploitation of labour by capital. Only reason that comes to mind is that this crisis provides a pretext to carry out pre-designed reform pending for last two decades.


*(Author: Dr. Kingshuk Sarkar is an independent researcher and works as joint labour commissioner at Govt. of West Bengal. He can be contacted at kingshuk71[at] )

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