Baba’s Explainer – Labour Reforms

  • IASbaba
  • August 23, 2022
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Governance, Social Issues
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  • Fundamental Rights
  • Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
State of Working India

India’s “tryst with destiny” was to provide “poorna swaraj” (i.e., full freedom) to all its citizens: political freedom, social freedom, and economic freedom.

India’s gravest socio-economic problem is the difficulty a vast majority of citizens have in earning good livelihoods.

  • Their problem is not just employment. It is the poor quality of employment: insufficient and uncertain incomes, and poor working conditions, wherever they are employed — in factories, farms, service establishments, or homes.
  • The dominant ‘theory-in-use’ to increase employment is to improve the ease of doing business, with the expectation that investments in businesses will improve citizens’ ease of earning good livelihoods.
  • In this theory, large and formal enterprises create good jobs, and labour laws must be ‘flexible” to attract investments. Investors say the laws protect labour too much.

Over the last eight years, the government has worked to create employment opportunities in the formal and informal sectors. Schemes such as MUDRA Yojana, Svanidhi Yojana, Garib Kalyan Rozgar Abhiyaan and MGNREGA 2.0 are aimed at harnessing the potential of the working population. But much work is still required.

What is the Framework Regarding Labours in India?
  • In India, labour is a subject in the Concurrent List, so both the Parliament and the state legislatures can enact laws on it.
  • Before the new labour codes were passed, there were more than 40 central laws and more than 100 state laws on labour and related matters.
  • The Second National Commission on Labour (2002) recommended that the central labour laws should be integrated into groups like: Industrial relations, Wages, Social security, Safety, Welfare and working conditions.
  • The Commission suggested simplification of the labour codes for the sake of transparency and uniformity.
What are the new labour codes?

In 2019-20, the Parliament enacted 4 labour codes to consolidate these multiple laws:

  1. Code on Wages, 2019
  • Universal minimum wage across employments in organized and unorganized sector.
  • Mandates the Central Government to fix floor wage and that the minimum rates of wages fixed by the appropriate Governments shall not be less than the floor wage.
  • The Code prohibits gender discrimination in matters related to wages and recruitment of employees for the same work or work of similar nature done by an employee. Every employee, drawing wages not exceeding a monthly amount as notified by the Central or State Government, and having put in at least 30 days of work in an accounting year, will be entitled to an annual bonus at the rate of 8.33% of wages earned or Rs. 100, whichever is higher.
  1. Industrial Relations Code, 2020
  • New conditions for legal strike – no person employed in an industrial establishment shall go on strike without a 60-day notice and during the pendency of proceedings before a Tribunal and sixty days after the conclusion of such proceedings. Earlier such restrictions applied only to public utility services.
  • Raised the threshold for requirement of a standing order — rules of conduct for workmen employed in industrial establishments — from the existing 100 to 300 workers
  • Reskilling Fund – To set up a re-skilling fund for training of retrenched workers with contribution of the employer of an amount equal to 15 days last drawn by the worker.
  1. Social Security Code, 2020
  • National Social Security Board which shall recommend to the central government for formulating suitable schemes for different sections of unorganised workers, gig workers and platform workers
  • No more ambiguities: The bill has defined various terms like “career centre”, “aggregator”, “gig worker”, “platform worker”, “wage ceiling” , etc.
  • Social security for gig workers: Also, aggregators employing gig workers will have to contribute 1-2 per cent of their annual turnover for social security of workers
  1. Occupational Safety, Health, and Working Conditions Code, 2020
  • To employ women in all establishments for all types of work. They can also work at night, that is, beyond 7 PM and before 6 AM subject to the conditions relating to safety, holiday, working hours and their consent
  • To Promote Formalisation: Issuing of appointment letter mandatorily by the employer of an establishment to promote formalisation in employment
  • Inclusion of inter-state migrant workers in the definition of worker: Inter-state migrant workers are defined as the worker who has come on his own from one state and obtained employment in another state, earning up to Rs 18,000 a month.
  • The proposed definition makes a distinction from the present definition of only contractual employment.
  • Portability Benefits: An Inter-State Migrant Worker has been provided with the portability to avail benefits in the destination State in respect of ration and availing benefits of building and other construction worker cess. However, the Code has dropped the earlier provision for temporary accommodation for workers near worksites.
  • It has though proposed a journey allowance — a lump sum amount of fare to be paid by the employer for to and fro journey of the worker to his/her native place from the place of his/her employment
What are the Benefits of Labour Codes?
  • Eases Procedures: The Codes are for simplification, and rationalisation. Provision of one licence/one registration and one return will save time, resources and efforts of the establishment.
  • Reduction in cost of compliance: Web-based electronic labour inspectors/facilitators shall, before initiation of prosecution proceedings, give an opportunity to the employer to comply with the provisions of the Codes.
  • Legitimisation of fixed-term employment enables transparency: Clear role definitions in contract labour, clear criteria of eligibility of contractors, national licensing of contractors help create a win-win tripartite employment relationship.
  • Benefits for incumbent job seekers: Some of the overarching benefits include the attempt to encompass a large cross-section of workforce, beyond those in the organised sector, and provide them with protection under the labour laws through outreach schemes, specifically for the informal and unorganised sectors.
  • Benefits for Gig workers: Acknowledgement of gig work and gig platforms and the provisions to safeguard those who pick up gig assignments shall encourage many workers and aspirants to consider it as an alternate option for livelihood given the uncertainty around us.
  • Safeguards Contractual Job: The change in the provision of contract labour where contract labourers need to be paid on a par with anyone doing the same job in a regular role makes it a win-win proposition for anyone opting for a contractual job.
  • Boosts Investor Sentiment: All these simplification of rules facilitates improvement in the ease of doing business, which further helps in attracting foreign investment
What are the concerns Related to the Current Labour Reforms?
  • Dilutes rights of Workers: Workers in small establishments (with up to 300 workers) will have their rights watered down with no protection of trade unions, labour laws.
  • Workers safety safeguards diluted: The new rules will enable companies to introduce arbitrary service conditions for workers.
  • Corporate Friendly: The new rules provides more flexibility to employers for hiring and firing workers without government permission
  • Restricts Freedom of Speech: Restrictions on strikes and demonstrations is akin to assault on the freedom of industrial actions.
  • Ambiguity about reskilling Fund: The Code lacks clarity on the substantive and procedural aspects of reskilling Fund which will fizzle out like the National Renewal Fund in the 1990s
  • Women’s Safety: Allowing women to work during night time inspite of various safeguards imposed may increase their vulnerability to sexual abuse.

The V.V. Giri National Labour Institute’s interim report, “Impact Assessment Study of the Labour Reforms undertaken by the States”, provides insights into the impacts of the reforms so far.

  • The report has focused on the reform of the Industrial Disputes Act, which is to raise the limits of applicability of laws relating to terms of service and modes of dispute resolution (roles of unions) to 300 people.
  • There has been a shift in employment pattern from the traditional agricultural and allied sector to the more lucrative services sector including construction. This has significant implications in improving the wages and income of the workers through formalisation, apart from enhancing enterprise productivity and competitiveness.
  • An enterprise must have a growing market for its products, and many things must be put together to produce for the market — capital, machinery, materials, land, etc. not just labour. Therefore, it must be worthwhile to employ more people before firing them.
  • Reforms of labour laws have had little effect on increasing employment in large enterprises either.
  • The report saysemployment in formal enterprises is becoming more informal.
  • The introduction of Fixed Term Employment has led to the creation of new employment opportunities and formalisation of the workforce, thus negating the popular narrative that its introduction will result in more informality. The industry also feels that FTE has improved productivity, competitiveness and sustainability of enterprises by attracting niche skills for the required time period thus enabling them to complete even the stalled projects, with strict timelines and budget.
  • The self-certification scheme has led to increased trust between the employers and labour administration/government machinery. The introduction of the Shram Suvidha portal of transparent inspection system, reducing the human biases/interference and the online filing of registration, licence and returns, has been hailed by the industry associations. This proves that reforms in the labour legislative and administrative architecture can have significant positive impact on growth of enterprises and the welfare of workers in the country.
  • Large investors can afford to use more capital and are also employing increasing numbers of people on short-term contracts, while perversely demanding more flexibility in laws.

The question the report leaves unanswered is whether the reforms have benefited workers. After all, the primary purpose of labour laws is to protect the rights of workers, not promote the interests of investors.

What should be the Way Forward?

The gap between where our economy is and where it needs to be is increasing. Between 1980 and 1990, every 1% of GDP growth generated roughly two lakh new jobs; between 1990 to 2000, it decreased to one lakh jobs per percent growth; and from 2000 to 2010, it fell to half a lakh only.

  • Fundamental reforms are required in the theory of economic growth: more GDP does not automatically produce more incomes at the bottom.
    • The paradigm driving employment and labour policies must also change to enable the generation of better-quality livelihoods for Indian citizens, now and in the future.
    • To achieve this, fundamental reform is required in the ways policies are made. If the benefit of reforms is supposed to be the improvement of ease of earning, better livelihoods for all citizens and with more dignity, whether they are farmers, factory workers, or service employees, they must be listened to most of all, within their enterprises, and in the process of shaping policies.
  • Gender-focused labour reforms demanded: Policymakers should take a holistic and integrated approach to improve women’s labour force participation and their overall labour market outcomes by
    • Enhancing access to timely and impactful skill development
    • Adequate maternity benefits and entitlements
    • Access to affordable childcare facilities, household infrastructure and provision of other family-friendly policies to reduce the burden of unpaid care work
    • Safe and convenient transportation and public infrastructure.
    • Providing access to better-paid formal jobs
    • Support for women-led entrepreneurship opportunities
    • Investing in public services and women-friendly public spaces
    • Addressing discriminatory employment practices.
    • Imparting necessary vocational and technical skills
    • Invest in robust data and evidence systems to better measure and count women’s unpaid work
    • Design gender-smart policies and programmes for women’s economic empowerment and overall well-being.
  • Reforms in hazardous industries need to be more proactive – While the dead end up in statistical records, on the ground there is only short-term action: registration of cases, arrests, identification of causes, token inspections, issuance of warnings and safety advisories. The causes are well documented – Unlicensed units that have mushroomed, the illegal sub-leasing of contracts by licensed units, sub-leasing of works to several persons, untrained workers and the piece-rate system.
    • Periodic inspections at factories, sustained crackdown and stringent penal action against violators are non-negotiable.
    • For this, Central and State governments must provide the needed manpower for enforcement agencies as the industry has grown manifold.
    • A sustained political push for labour reforms and technological innovations within the industry is also essential.
Periodic Labour Force Survey

The annual report of the Periodic Labour Force Survey for July 2020 to June 2021 was released by NSO –

  • The unemployment rate of 4.2 per cent in 2020-21, the lowest since the first PLFS showed an unemployment rate of 6.1 per cent in 2017-18.
  • According to the report, the labour force participation rate (LFPR), or those working or seeking or available for work in the labour force, was the highest in four years at 39.3 per cent in 2020-21, as was the worker population ratio (WPR) at 36.3 per cent.
  • The unemployment rate was higher for males in rural areas than females.
  • In rural areas, the unemployment rate was 3.9 per cent in 2020-21, while that for females was 2.1 per cent.
  • In urban areas, the unemployment rate for females was 8.6 per cent, while that for males was 6.1 per cent.
  • While the overall employment situation showed improvement, the rise was seen in low-quality, unpaid work.
  • Employment in the unpaid self-employed category continued to show an increase in 2020-21 by rising to 17.3 per cent from 15.9 per cent in 2019-20.
  • Rural unpaid employment also showed increase to 21.3 per cent in 2020-21 from 20.0 per cent in the previous year, while that for urban areas increased to 6.3 per cent from 5.7 per cent.
  • The data shows that the share of the labour force engaged in agriculture continued to show a rise in 2020-21, increasing to 46.5 per cent from 45.6 per cent in 2019-20 and 42.5 per cent in 2018-19 — a reversal of the decades-long decline in the labour force participation in agriculture.
  • The increase in share of agricultural employment was seen more for urban areas than rural areas.
  • In urban areas, male employment in agriculture increased to 5.3 per cent in 2020-21 from 5.0 per cent in 2019-20, while that for females increased to 10.4 per cent in 2020-21 from 8.2 per cent.
  • In rural areas, both males and females recorded a slight moderation in agricultural employment to 53.8 per cent and 75.4 per cent, respectively, from 55.4 per cent and 75.7 per cent in the previous year.

Periodic Labour Force Survey

  • The NSO launched the Periodic Labour Force Survey (PLFS) in April 2017.
  • The objective of PLFS is primarily twofold:
  • To estimate the key employment and unemployment indicatorsnamely Worker Population Ratio, Labour Force Participation Rate, Unemployment Rate in the short time interval of three months for the urban areas only in the Current Weekly Status (CWS)
  • To estimate employment and unemployment indicators in both usual Status and CWS in both rural and urban areas annually.

Key Terms

  • Unemployment Rate (UR):
    • It is defined as the percentage of persons unemployed among the persons in the labour force.
  • Labour Force Participation Rate (LFPR):
    • It is defined as the percentage of persons in the labour force (i.e. working or seeking or available for work) in the population.
  • Worker Population Ratio (WPR):
    • It is defined as the percentage of employed persons in the population.

National Statistical Office

  • It is the central statistical agency of the Government mandated under the Statistical Services Act 1980 under the Ministry of Statistics and Programme Implementation.
  • It is responsible for the development of arrangements for providing statistical information services to meet the needs of the Government and other users for information on which to base policy, planning, monitoring and management decisions.
Global Employment Trends for Youth 2022 report by International Labour Organisation.
  • It finds that the pandemic has worsened the numerous labour market challenges facing those aged between 15 and 24 years.
  • Youngsters in this age group experienced a much higher percentage loss in employment than adults since early 2020.
  • The total global number of unemployed youth is estimated to reach 73 million in 2022, a slight improvement from 2021 (75 million), but still six million above the pre-pandemic level of 2019.
  • The situation is particularly severe for very young people aged 15-20 years.

Key findings related to India

  • In India, the youth employment participation rate declined by 0.9 percentage points over the first nine months of 2021 relative to its value in 2020, while it increased by 2 percentage points for adults over the same time period.
  • In India, the school closures lasted 18 months and among the 24 crore school-going children, only 8% of such children in rural areas and 23% in urban areas had adequate access to online education.
  • Given the deeply unequal access to online resources in developing countries, children from socio-economically disadvantaged families, which are the large majority, had almost no access to education
  • It said school closures not only prevented new learning, but also led to the phenomenon of “learning regression”, that is, children forgetting what they had learned earlier.
  • In India, 92% of children on average lost at least one foundational ability in language and 82% lost at least one foundational ability in mathematics.
  • The report appreciated the MGNREGA and said it has played an important role in providing paid employment, particularly for women, also in carbon sequestration because of the Act’s focus on natural resources, such as land, water and trees, which provide adaptation benefits.
  • It added that India has a very low youth female labour market participation and Indian young women experienced larger relative employment losses than young men in 2021 and 2022.
  • In general, the high youth employment losses in India drive up the global average employment losses.
  • Young Indian men account for 16% of young men in the global labour market, while the corresponding share for young Indian women is just 5%.

It highlighted Quality education and training opportunities are required to create decent jobs, especially in green, blue and digital economies, and to set economies on the path towards greater sustainability, inclusiveness and resilience.


India’s gig economy

India’s unique jobs crisis

Mains Practice Question –Bring out the significance of labour reforms for sustained economic growth and employment generation.

Note: Write answers to this question in the comment section.

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