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Labour Reforms and Issues: A Key to Inclusive

Growth (Part 1)

This is an important issue which will be covered in two parts, namely:

- Labour Reforms and Issues: A Key to Inclusive Growth (Part 1)

- Labour Reforms and Issues: Skilling the Youth (Part 2)

A brief history of labour in India:

Historically, and even in the present day, India has been an agrarian economy. But, with the

passage of time, the share of people employed in the agriculture sector has varied owing to

changes in the socio-politico and economic spheres. For example, with the arrival of the

Mughals and the establishment of the imperial karkhanas, a fresh impetus was given to the

manufacturing sector. The traditional handicrafts industry in India thrived until the arrival of

the British- a moment that marked the steady ruination of the handicrafts industry.

In fact, according to Angus Maddison, a famous British economic historian, in 1000 AD,

China and India together contributed 50.5% of world GDP (GDP being computed in 1990

dollars and in purchasing power parity (PPP) terms). By 1600, the same share had gone up to

51.4%, with China accounting for 29% and India 22.4% of world GDP. A hundred years later,

China s GDP had fallen but India s went up to 24.4% of world output. By 1820, however,

India s share had fallen to 16.1%. By 1870, it went down to 12.2%. International Monetary

Fund (IMF) projections indicate that India s share of world GDP would be 6.1% in 2015.

1) Colonial Impact on Indian Industry and Labour:

Around the 18th Century a number of significant events took place in the world. One such

event was the Industrial Revolution which took place in England. The European and the

British traders initially came to India for trading purposes. The Industrial Revolution in

Britain led to the increase in demand for raw materials for the factories there. At the same

time, they also required a market to sell their finished goods.

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The 19th century witnessed a rapid expansion of world trade. One of the important

developments was the migration of labour from China and India. In India, the indentured

workers came from present day regions of eastern Uttar Pradesh, Bihar, Central India, and

parts of Tamil Nadu. The domestic industry had declined and people migrated as indentured

labour to places like Caribbean islands, Mauritius, Fiji, Sri Lanka, Malaya and tea plantations

of Assam. The indentured labourers were subjected to extremely cruel living conditions. In

the 19th century, the value of British exports to India was much higher than the British

imports from India. Britain maintained a trade surplus with India which helped it balance out

its trade deficits with other countries.

India from being an exporter of clothes became an exporter of raw cotton and an importer of

British clothes. This reversal made a huge impact on the Indian handloom weaving industry

leading to its virtual collapse. It also created unemployment for a large community of

weavers. Many of them migrated to rural areas to work on their lands as agricultural

laborers. This in turn put increased pressure on the rural economy and livelihood. This

process of uneven competition faced by the Indian handloom industry was later dubbed by

the Indian nationalist leaders as de-industrialisation.

Commercialization of Agriculture: 1) The British forced the commercialization of agriculture

with the growing of various cash crops and the raw materials for the industries in the Britain.

With the strong political control, the British were able to monopolize the trade with India.

2) A major economic impact of the British policies in India was the introduction of a large

number of commercial crops such as tea, coffee, indigo, opium, cotton, jute, sugarcane and

oilseed.

3) Commercialization of agriculture further enhanced the speed of transfer of ownership of

land thereby increasing the number of landless laborers. It also brought in a large number of

merchants, traders and middlemen who further exploited the situation.

Features of Indian Labour Market: The Present Day

a) Fragmented Labour Market:

• The Indian labour market is segmented. It has a labour aristocracy of unionised

workers who are highly paid and highly protected, along with an overwhelming mass

of unorganised workers, many of whom are unable in practice to exercise even legal

rights. The high protection given to organised workers creates labour rigidities that

discourage employment and encourage capital-intensive modes of production.

• The world of work is segmented along the line of caste, religion, gender etc.

This leads to several problems like labour immobility for different groups, in

particular women, huge differential wage discrimination etc.

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b) Informalization of labour:

• Informalization of labour in organized sector- declining quality of jobs in the formal

sector with the category of contract work growing much faster than permanent

employment.

• In Indian labour market presents a dichotomy where 92 percent of the workforce is in

informal employment and less than 10 percent is in the formal employment.

• Most of the employment generated has been informal and insecure.

• Majority share of the workforce are outside the scope of the any labour legislations

and social security schemes which sets out the parameters of worker's rights.

• In 1999 - 2000 the share of informal sector workers in the so called organised sector

is 37.8 percent and increased to 54.5 percent in 2011 -12.

• Even within the organized sector, the employment is increasingly being offered in

contractual rather than permanent positions. To illustrate, the percentage share of

contract workers in the organized manufacturing sector has increased from 13% in

1995, to 34% in 2011.

• There has been increasing informalization of the workforce, the India Labour

and Employment Report 2014

c) Dependence on agriculture

Another important feature of India's labour domain is the overwhelming dependence

on Agriculture which accounts for close to 50 percent of the workforce.

d) Service Sector Centric growth: The growth pattern is centered on the expansion on

service sector.

Major Issues and Challenges:

1) Quantity of employment available:

o There is a huge magnitude of unemployed people in the country. Further,

another important feature of lndia's labour domain is the overwhelming

dependence on agriculture which accounts for close to 50 per cent of the total

workforce.

o Significantly as per the recent estimates agriculture contributes only

approximately one sixth of the GDP of the country. This overcrowding of the

workforce in agriculture and its 'underemployment' is structured by the high

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presence of wage labourers and declining number of people who report

themselves as 'cultivators'.

o There is an urgent and a pressing need to increase the employment share of

the manufacturing sector. This is because in the post 1991 era, with the

deregulation of the economy, there has been an era of jobless growth, and

there has been a huge share towards the contribution of GDP by the services

sector. Futher, the manufacturing sector is more employment intensive, but

the general trend in the Indian economy since Independence shows a shift

from agriculture to services, bypassing manufacture.

o As per the same ILO report, 2.4 million unemployed persons will be added to

the global workforce in the next two years and India is projected to account for

17.6 million or nearly 60 percent of all unemployed youth in South Asia by

2017.

2) Attracting Foreign Direct Investments: Labour market in India remains

lukewarm when it comes to attracting foreign direct investments especially in

labour-intensive sectors such as leather goods, textiles (apparel, accessories, etc.),

gems and jewellry, sports goods, weapons and ammunitions, furniture, rubber

products, fabricated metal products etc.

3) Informal Labour market in India:

In the Indian labour market, 92 per cent of the workforce is in informal

employment and less than 10 per cent is in formal employment. Historically as

well, India had a large informal workforce even before the onset of the

liberalisation and globalization in the early nineties.

4) Inspector raj- the difficulty of doing business

One such issue is the existence of a host of obsolete rules and regulations

For example: Lack of computerised records in some states, laws limiting female

participation in the night shift etc.

This results in a major problem: the inspector raj —a problem which mainly

small enterprises face in dealing with an army of inspectors.

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It is this prevailing lack of adequate accountability mechanisms have led to an

arbitrary labour administration which is otherwise called Inspector Raj.

This further compounded the challenges of labour management as these practices

often led to nexus between the management and the administrators leading to

neglect of labour welfare.

5) Weak labour union s

A brief note on AITUC:

All India Trade Union Congress (AITUC) was founded in 1920 with Lala Lajpat Rai as its

first president. Upto 1945 Congressmen, Socialists, Communists worked in the AITUC which

was the central trade union organisation of workers of India. Subsequently the trade union

movement got split on political lines.

· The membership of the AITUC is 3.6 million. The unions affiliated to AITUC are from

textile, engineering, coal, steel, road transport, electricity board and of unorganised sector

such as beedi, construction and head-load workers, anganwadi, local bodies and handloom.

Recently a number of agriculture workers' unions have affiliated themselves to AITUC.

· The first session of the AITUC was held under the presidentship of Lala Lajpat Rai.

Reasons attributed for weak labour unions:

Declining population of labour covered under labour union s-declining

role of collective bargaining and trade unions, especially political unionism.

The percentage of organized sector workers who are unionized had fallen

from 45% in the late 1970s to 30% a decade later.

Poor enforcement of laws like the Factories Act and IDA that were

designed to help workers.

Due to the growing indifference of ruling parties, state governments and

even the courts to the problems of workers. Mechanisms for workplace

arbitration are largely dysfunctional. Legal remedies for unfair dismissal

can take years on end

6) Unskilled labour

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Perhaps a feature of the labour market most relevant to the wider labour

reform process is the abysmally low skill base of India s labour force.

If one primary aim of labour reforms is to push up the share of

manufacturing employment in total employment from the current level of

12% to 25% in the next decade, the existence of a skilled labour force is

crucial to the achievement of this goal.

The skill base of the workforce measured by vocational training (formal or

informal) continues to be one of the lowest in the world, with only 2%

receiving formal and 8% informal vocational training. Comparable data of

countries like China, South Korea and Germany ranges from 50 to 75%.

7) Low women participation rates and Gender-based discrimination

• Third worrying feature of the labour market is the low level of labour force

participation rates (LFPR), particularly among women. While male LFPR has

stagnated at 55% for the last three decades, overall female LFPR has declined in

recent years.

• India has one of the lowest work force participation rates (WPR) of women, which is

even lower than many countries in Sub-Saharan Africa and the Middle East and is

drastically lower than the participation rates for men (ILO, 2016). Only a very few

countries -including Iran, Pakistan and Saudi Arabia - do worse than India when it

comes to women's participation in the workforce.

• Apart from lack of employment opportunities, many women cannot participate in full

time employment given the larger social expectation on women to undertake house

hold domestic work.

• There has been a sharp decline in women's workforce participation rate from 28.2 per

cent in 2004/05 to 21. 7 per cent in 2011/12, which reflects an ongoing crisis. With

this decline, India's ranking in terms of female participation rate declined from 68th

out of 83 countries in 2010 to 84th out of 87 countries in 2012.

• There is a very strong need to increase the participation of women in the labour

market, not only to ensure better use of the available productive potential and hence

raise growth prospects, but also as a significant antipoverty tool.

• Moreover the wage differential phenomenon which exists also hampers the women to

enter into the workforce. For example, even after many years of passing of Equal

Remuneration Act, 1974 wage gap between women and men remains a reality

affecting women of all ages, classes, communities and regions.

8) Issue of Jobless growth in India:

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Background: In India, the growth pattern over the last few decades surfaced from a

service sector-led expansion (post the 1991 LPG reforms), where both employment

and wages saw a rise. While service sector-led growth contributed greatly to rising

GDP levels, it still employs less than 30% of the total Indian population. The source of

most employment for Indian people still lies in the agriculture sector, which employs

almost 45% of the Indian population (with a 15% contribution to GDP).

• It is important to note that in India, the labour- intensive manufacturing sector did not

become the engine of growth in India. What was instead witnessed was that the

knowledge-intensive services sector which along with some segments of capital

intensive manufacturing was the engines of growth in India. But these sectors by their

nature were not employment-intensive.

• The nature of Indian manufacturing (particularly in heavy-industrial base in steel,

cement etc.) right from the period of the early 2000s moved towards capital-intensive

methods to expand production and productivity levels. Thus, it primarily absorbed

only skilled people in the labor force. So, while economic growth and production

output increased, employment levels did not.

Recent Developments:

• The NITI Aayog has recently dismissed concerns over jobless growth. The Aayog is of

the opinion that the real problem is underemployment rather than unemployment.

• Further, the government has set up a high-level task force headed by NITI Aayog Vice-

Chairman Arvind Panagariya to obtain reliable data on employment trends to aid

policymaking.

The Way Forward:

• India should aim at growth that is driven both by

a) improvements in productivity and

b) modernisation of its labour force

• Ironically, achieving both those objectives will first require labour reforms — ones

that can both boost labour mobility within the formal sector and bring down the

barriers businesses face in hiring labour.

• But labour reforms alone won t work unless these are combined with an intent to

boost government spending on asset and job-creating areas such as infrastructure,

which in turn inspires private investment

A look at the Indian workforce: Is it really inclusive?

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Lack of workforce diversity:

• In 2012, a Harvard study found that at every level, more women were rated by their

peers, their bosses, their direct reports, and their other associates as better overall

leaders than their male counterparts.

• Studies around the world have shown that companies that have a greater number of

women on their senior management are able to tap into a fuller spectrum of creativity

and innovation.

• As corporates realize the need to hire women at all management levels, it is a

challenge to retain them in the workforce, because they face the dual burden of

managing households and careers. This prevents women in our country from

breaking the proverbial glass-ceiling (an invisible barrier that prevents women from

reaching their full potential as far as career growth is concerned)

• Hiring and retaining women employees requires a sensitized workplace.

• Security and safety issues of women, lead to social immobility. However, some recent

initiatives to address this problem have been taken, which are a good step forward.

2013: Prevention of sexual harassment at the workplace

There have been various positive developments ever since the Sexual Harassment of

Women at workplace act (prevention , prohibition and Redressal act ) was passed in

2013.

These include: a) Employers accountability: Employers have been made responsible

and accountable to provide a safe working environment b) Following the act, in many

companies, an Internal Complaints Committee (ICC) has been setup to help women c)

Deterrence: The act has proven to be a deterrence to a certain extent

However, there are areas which need to be still addressed for example: a) Most

women remain unaware: Most women are still unaware of the act and the Vishakha

guidelines b) Social Stigma: Filing complaints can still be a cause for social stigma c)

Lack of Implementation: Some employers have not implemented the act. In fact,

Employers are either unaware of the law's provisions or have implemented them

partially and even those that do set up internal panels have poorly trained members.

According to a survey conducted by the Indian Bar Association in 2017 of 6,047

respondents, 70 per cent women said they did not report sexual harassment by

superiors because they feared the repercussions.

Enabling the differently abled: Sugamya Bharat

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Prime Minister, Narendra Modi, launched an initiative called Sugamya Bharat Abhiyan

(also called Accessible India Campaign) in 2015. It was launched especially at

International Day of Persons with Disabilities which is annually being celebrated all

over the world on 3rd December. This is an active effort made by the Indian

government to make India more friendly and accessible for differently abled people.

The sole objective of this abhiyan is to empower disabled people all across the

country for their career growth and economic growth.

Note to Students: Kindly read the objectives and the action plan of Sugamya Bharat

Abhiyan.

The main target of this campaign is to build-up friendly environment,

information and communication eco-system, and transportation eco-system.

In order to spread awareness among people, it will make use of information

technologies, social media and other online tools.

Initiatives like these would create an enabling ecosystem that can empower

them to seek jobs.

Taking a look at the three major labour law s:

• Contract labour (Regulation and abolition) Act, 1979

• The Apprentices act, 1961

• Industrial dispute act 1947

Contract Labour (Regulation and abolition) Act, 1979

• The Contract Labour Act seeks to abolish contractual employment in activities and

processes which are identified as core or perennial activities of the concerns.

• Too rigid an application of this provision can prevent outsourcing which is becoming

an increasingly common practice. An option would be to define the concept of core

activities more narrowly and simultaneously to improve the working conditions of

contract employees.

• Section 10 provided the government the discretion of prohibiting contract labour in

selected areas. Contract labour allows flexibility and permits outsourcing.

• However, a few court judgements have affected this flexibility. In 1960 and again in

1972, the Supreme Court ruled that if work performed by contract labour was

essential to the main activity of the industry, contract labour should be

abolished. Work should be done by regular workmen and contract labour should be

absorbed by the principal employer.

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• In 1976, the central government issued a notification that in establishments run by it,

contract labour should not be used for sweeping, cleaning, dusting and watching of

buildings. But the 1970 act was still not clear on whether contract labour should be

absorbed after the abolition. However, in a recent judgement, the Supreme Court has

ruled that contract labour must be absorbed.

• Jane Cox, a labour rights lawyer, said real reform would abolish the

contract labour system. Contract workers have no security and get a fraction of the

wages and benefits of permanent labour. Permanency encourages efficiency, she

said.

Way Forward: Reform of Contract labour laws firstly needs a clearly defined

criteria for pointing out which activities are ”core” which shall be kept out of

the perview of contract labour.

The Apprentices act, 1961

• The Apprentices Act is an innovation and stands in the intersection of education and

employability.

Problem Areas:-

• Currently the apprenticeship regime is tightly regulated- limited number of activities

are covered under it & non-compliance with law attracts severe punishment.

• "the apprenticeship regime in India manages to train 282,000 apprentices... against

490,000 apprenticeship seats located in the Central and state-sector establishments".

• While India has 300,000 apprentices, Germany has more than 3 million. By amending

the Act, the country can include 10-12 million young people in the programme. Even if

a company does not absorb all the apprentices, it will at least produce job-ready

individuals which can be absorbed by others,

Recent Development:-

• Recently, an amendment to Apprenticeship Act allows the employers to recruit a large

number of apprentices for extended periods and to fix the hours of work and leave as

per their convenience.

Industrial dispute act 1947

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• Clearly India needs to reduce rigidity in its labour laws, of which, Chapter V-B of IDA

is one instance.

• This obliges any company with over 100 workers to get permission from the

government before retrenching (dispensing with the services of) any employee, and

this permission is rarely given.

• In Bangladesh, a worker can be retrenched after giving one month s notice to the

worker. This helps explain how Bangladesh, once a negligible exporter of garments,

has now overtaken India as a garment exporter

• It may be possible to segregate the layoff, retrenchment and closure provisions,

providing some flexibility. The IDA was tightened over a period of time and its

tightening offers insights into how it can be progressively relaxed too.

A look at the Rajasthan Model

• In Rajasthan, a key change in the Industrial Disputes Act involves raising the ceiling

for lay off, retrenchment and closure of establishment from the earlier 100 to

now 300 workers.

• To be formally recognized, unions will now have to demonstrate a membership

of 30% of the workers instead of 15% as earlier.

• In the Factories Act, the exemption from coverage by labour legislation has been

raised from 10 to 20 workers in case of units using power and from 20 to 40 workers

in the units not using power.

• Establishments employing up to 50 contract workers (existing number was 20) will

now no longer be covered under the provisions of the Contract Labour (Regulation

and Abolition) Act, and nor will the principal employer be held responsible for

violations by the contractor.

Launch of labour schemes:

1) Deen Dayal Upadhyaya Shramaev Jayate Karyakram

A) New inspection scheme

Aimed to take away discretionary powers of inspectors

Inspector to get auto-generated list about inspection location

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Inspectors have to file report within 72 hours, upload the reports online within 72

hrs.

B) Unified labour portal (named Shram Suvidha)

Compliance sheet reduced from 80 pages to a single sheet

A common window for online registration of units, reporting of inspections,

submission of annual returns and redressal of grievances

A unique labour identification number or UIN will be allotted to each employer

after registration.

C) Universal Account Number (UAN) facility for 2 million EPFO subscribers for

portability of PF funds on switching jobs

D) Apprentice Protsahan Yojana

Union labour ministry to contribute 50% of stipend cost to train youths during

first two years of training programme

282,000 apprentices undergoing training under on-going government scheme;

aim to raise this to 23 million

2) National Apprenticeship Promotion Scheme

To encourage employers to take in apprentices the National Apprenticeship

Promotion Scheme was launched wherein the government provides

reimbursement of 25 per cent of prescribed stipend subject to a maximum of Rs.

1500/-per month per apprentice to all apprentices to employers and also sharing

of the cost of basic training in respect of fresher apprentices (who come directly

for apprenticeship training without formal training) limited to Rs. 7500/- per

apprentice for a maximum duration of 500 hours/3 months.

Note to Students:

[A more detailed discussion on apprenticeship and on apprenticeship related schemes

would follow in the second publication of this two-part volume on labour reforms.]

A look at Social Sector schemes:

1. Atal Pension Yojana

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The Atal Pension Yojana will provide pensions to workers in the unorganised

sector who are not covered by other pension or provident fund schemes.

Workers will get a minimum payout of Rs 1,000 per month and a maximum of Rs

5,000 per month at the age of 60 years, depending on how much money they put

into the scheme over 20 years.

2. Pradhan Manti Suraksha Bima Yojana

The Pradhan Mantri Suraksha Bima Yojana provides accident and disability cover

upto Rs. 2 lakh at an annual premium of Rs.12 and the Pradhan Mantri Jeevan Jyoti

Bima Yojana provides life insurance cover of Rs.2 lakh at an annual premium of

Rs.330.

3. Pradhan Mantri Jeevan Jyoti Bima Yojana

The Pradhan Mantri Jeevan Jyoti Bima Yojana provides life insurance cover of Rs.2

lakh at an annual premium of Rs.330.

4. Pradhan Mantri Rozgar Protsahan Yojana

Under the Pradhan Mantri Rozgar Protsahan Yojana, the Government provides the

8.33 per cent of employer contribution to the Employees' Provident Fund and in the

case of textile sector the entire 12 per cent employer contribution of the employer

would be paid by the government for all the new accounts opened after April, 2016.

This is to encourage small firms to take in more workers and provide them social

security benefits.

5. Some other initiatives include:

a) The recent amendment in the Maternity benefits Act makes the increase in the

women participation in the organised sector.

b) The compulsory provision of crèche facilities in the organisations which have more

than 50 employees is a welcoming step in promoting workforce.

c) The recent amendment to Apprenticeship Act allows the employers to recruit a

large number of apprentices for extended periods and to fix the hours of work and

leave as per their convenience.

d) Growing concerns around the safety of women is also a clear deterrent to women's

employment. The ban on night shift for women is under review by central

government as part of amendments in the Factories Act 1948.

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The Way Forward

• The employment strategy must seek to achieve two things-

1. First, create productive employment opportunities to absorb the annual addition

of 10 million or more to the labour force and

2. To improve the quality of employment in several sectors such that real wages

rise through improved productivity.

• In line with the recommendations of Task Force on Employment Opportunities, the

four components of an employment strategy should be divided into:

A. Addressing Demand Side Constraints

- Accelerating the rate of growth of the economy;

- Special emphasis on relatively more labour intensive sectors and inducing a

faster growth of such sectors;

B. Addressing Supply Side Constraints

- Improving the labour skills endowment in general, paying particular attention

to identifying specific skill gaps and taking effective steps to fill them; and

- Improving the functioning of the labour markets through introducing

such labour reforms as may be necessary without eroding the

core labour standards.

• It is pertinent to mention that the first two components are aimed at generating

demand for labour, the third has to do with improving the supply and the last relates

to regulating the labour market to match the supply with demand.

• Labour reforms in true sense will take place when the labour market is full of highly

skilled people ready to add to the value to manufacturing and service delivery without

fear of being exploited at the hands of the employers.

• Labour reforms have often been viewed as changes in the labour laws to make it easy

for the entrepreneurs and industrialists to run their businesses without the pain of

compliance and fear of punitive action by the state.

• However, this has limited appeal as labour reforms essentially call for overhaul of

labour market rather than making piecemeal changes in the labour laws or expanding

the social security measures in a sporadic manner.

Interestingly, it is the most opportune time for labour reforms in India for two reasons:

1) China is fast losing its advantage as manufacturing hub as labour cost has trebled

there in last one decade and second the Government of India is truly committed to

'Make in India' and attracting the investors and large businesses to set up their

manufacturing bases in the country.

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2) Success of 'Make in India' will depend on how soon and how fast labour reforms are

taken further. To add to this, even for India to derive maximum advantage from its

demographic dividend, labour reforms would be critical.

Concluding Remarks:

It is imperative that labour laws are progressive, while bureaucratic control is

substituted by transparent governance and self-reporting and disclosure as well as

voluntary adoption of labour standards take over the flawed system of factory

inspections and compliances.

Globalization and liberalization unleashed in 1991 allowed international players in

Indian market thereby fundamentally changing the business and trade ecosystem. It is

essential to have labour laws in sync with emerging trends such as casualization of

labour, third-party employment, etc. At the same time, it is equally important to

ensure that basic rights of the workers are protected and labour standards are

implemented across industries and formal as well as informal sectors.

While the legislative and schematic initiatives are bound to bring in more informal

workers under the social security cover efforts also need to be taken to ensure that

the new jobs created are of decent nature.

Approach to Civil Service

GS-1

a) Role of women, Women in the labour force, Feminization of labour

GS-2

b) Government policies and interventions for development in various sectors and issues

arising out of their design and implementation.

c) Welfare schemes for vulnerable sections of the population by the Centre and States

and the performance of these schemes

GS-3

a) Changes in industrial policy

b) Labour Reforms

Practice questions

a) Labour reforms are critical for India to derive maximum advantage from its

demographic dividend. Discuss. (250 words)

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b) The sluggish pace of Labour reforms are a critical limitation upon the manufacturing

sector of economy, Comment. How can these limitations be addressed? (250 words)

c) Reconciling worker s interest with that of the key business houses is critical to the

success of Make in India . What are the possible ways of achieving this? (250 words)