The major shift to newer forms of work like gig work, contractual work, etc have made it even more important to reform the archaic labor laws.
Labor laws are the only aspect of Indian economy that hasn’t seen any fundamental change ever since the country gained independence in 1947, so much so that even economic reforms of 1991, that completely transformed the country’s economy, left the laws related to labor unchanged.
In a bid to change these archaic laws and to bring in much required labor reforms, the government has recently passed 4 Codes related to such reforms.
India has been several times criticized for being over protective of its labor. It is said that this over protectiveness has been hindering the country’s growth by reducing the its economic competitiveness.
Considering this and even newer economic challenges posed by the pandemic to the economy, the reforms have been well timed and can help the country sail through these uncertain times.
What is wrong with the Indian labor laws?
Overprotection of the labor force: The country faces twin challenges related to protection of its workforce. On the one hand, the formal sector is criticized for being overly protective of the employees and on the other hand, the informal sector practically enjoys no protection whatsoever.
Multiplicity of laws: Since Labor is a subject of the Concurrent list in the Indian constitution, both Centre and states can legislate on it, which has led to there being a plethora of laws. The multiplicity of laws have proved to be a nightmare for all the stakeholders in the economy.
Frequent strikes in industries- Some blame the trade unions for obstructing industrial activity by announcing frequent lockouts and strikes and thus hampering economic growth.
Highlights of the Codes
- Uniformity and simplicity in laws- All the existing laws have been subsumed in 4 Codes which will be applicable throughout the country
- National minimum wage- Floor wage set by the Centre below which no state can keep it minimum wage rate
- Greater labor market flexibility- Provides for Fixed term employment for all industries
- Discipline in labor- Several disincentives for trade unions to go on strikes have been included
- Protection to contractual workers- Will get many of the benefits which were till now enjoyed only by the permanent employees
- Protection of workers from occupational health hazards
How will the reforms benefit the country?
Greater labor market flexibility and discipline in labor- will be created by the introduction of the Code on Industrial Relations Bill which has made it easier for employers to retrench workers thereby disincentivizing unnecessary strikes and lockouts.
Protection to vulnerable sections of the workforce- like women employees, contractual workers, those working in hazardous factories, etc by introduction of national minimum wage, mandatory annual health check ups and by extending social security benefits to all categories of workers.
Formalization of jobs- The reforms can also lead to more formalization of jobs, something employers have been hesitant to do till now due to high cost of formalization. Formalization of jobs is important as it helps in bringing more employees under the social security net and as well as increase tax revenues for the government.
Job creation and economic growth- The move has the potential to accelerate job growth as well as to attract greater foreign and private investments.
Ease of doing business: Simplification of laws into 4 simple codes will help reduce the number of licences, registrations, permissions and renewals for companies and will greatly improve Ease of Doing Business in India.
Opportune moment for the country
These much needed labor reforms can make India an attractive market especially when companies are leaving their bases in China. But to make sure that the companies shift to India instead of other countries, certain changes need to be made. The reforms should be allowed to be tweaked by states according to their respective regional requirements. Reforms in other areas like land acquisition, tax rationalization and reducing transport and electricity costs are also required.
This is an opportune moment for India which can be used to not just reemploy the millions of people who got unemployed during the pandemic but also to further accelerate job growth. If implemented properly, the reforms can help reshape India’s growth trajectory.
Komal is an English literature student with a keen interest in economic developments and politics amongst others. She is a part of Research & Content team at HrNxt.com