Expected Labour Reforms in India

With the elections over, one key question on everyone’s mind is whether the long-awaited Labour Codes will come into force, and when. Here are my thoughts on the subject.

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Labour reforms in India would play a key role in the next phase of our economic growth. While consistency in policy is important, it’s also crucial to acknowledge what laws and policies are archaic and standing in the way of growth. Labour laws in India have long been highly protectionist and unnecessarily complex, and a failure to bring them in line with market realities will eventually harm our growth. Therefore, the first order of priority for the Labour Ministry should be to build consensus around the Labour Codes and implement them.

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While the Labour Codes are not perfect in their current form and have been criticized and appreciated in equal measure, they would be an important first step towards ushering in labour reforms in India.

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The Labour Codes shouldn’t be the be-all and end-all however, and the Labour Ministry should work with various States to implement reforms in this space on an ongoing basis. There is significant room for improvement within the Codes themselves and outside them too. Few examples for improvement I’d recommend would be:

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·??????Omitting archaic and disruptive prior-permission requirements for retrenchments and closures, and replacing them with fair and generous severance obligations. It’s better to accept the reality that businesses can fail and offer impacted workers a fair severance, rather than embroil the employer and workers in needless red tape and litigation, which serves no one except the vested interests of few parties that are often external. A 'job is for life' mentality has no place in a growing economy. Under current laws, workers are entitled to notice pay, leave encashment, gratuity (if eligible) and retrenchment compensation (15 days wages/year of service). This can add up to a reasonable severance specially for tenured employees. However, with increasing costs and the generally low wage scales in India, I’d argue that employers would be willing to pay 30 days/year or even 45 days/year as retrenchment compensation, if that avoids the need to seek prior government permission for termination. Workers too would get a fair severance to tide them over for a reasonable period, rather than expend their time and resources in unending litigation with limited or no income. I am not propounding a blanket 'hire-and-fire' approach without any checks and balances. A ‘reasonable cause’ standard for terminations can and must remain to prevent abuse of such flexibility. Higher severance obligations itself would be a strong deterrent against abuse.

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·??????Removing vague and subjective criteria for how workers are classified today. While high earning airline pilots are considered ‘workmen’, a relatively low-income supervisor of a factory shop floor (who potentially earns a fraction of what the average pilot makes) may not be considered a ‘workman’. The current definition creates such absurd outcomes at present. Ultimately, if the intention is to safeguard economic interests of the most vulnerable workers, a clear wage threshold (which is regularly monitored and revised) should form the basis of defining who is protected by labour legislation and who isn’t – not vague and subjective criteria linked to the work performed.

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While I can create a much longer wish list for changes in Indian employment laws, and the possibility that the Labour Codes may undergo some revisions before implementation can’t be completely ruled out still, I’d strongly recommend that organizations of all sizes and sectors carry out an impact analysis of how the Labour Codes (as presently drafted) will impact their operations and finances, so that they are not caught unawares when these laws are implemented.

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Implementing the Labour Codes would at least be a start towards improving and streamlining labour laws to become enablers of business and job growth, rather than an impediment. It’ll be important for responsible employers to be prepared.