Suspension of labour laws detrimental to Indian labour market and discouraging for labourers- Dr Arun Singh

As the lockdown 5.0 commences, miseries of Indian labour workforce continue to soar in the form of job loss, reverse migration, suspended labour laws etc.


As the lockdown 5.0 commences, miseries of Indian labour workforce continue to soar in the form of job loss, reverse migration, suspended labour laws etc. In past few weeks, at least ten states namely Uttar Pradesh, Madhya Pradesh, Himachal Pradesh, Haryana, Uttarakhand, Rajasthan, Odisha, Punjab, Assam and Gujarat has amended numerous labour laws for the revival of economy derailed by COVID-19.  

While Uttar Pradesh and Madhya Pradesh have suspended labour laws for 1,095 days, other states extended working hours to 12 hours per day shift along with enforcing other changes. Such changes also exempt employers from various obligations under labour laws, including freedom pertaining to hiring, firing, or license required by contractors.  

Central trade unions consider it as a gross violation of right to freedom of making an association and collective bargaining. At least ten central trade unions approached the International Labour Organisation (ILO) against the suspension of major labour laws. In a recent development, after ILO’s intervention, Modi govt has flagged concerns over changes saying that ‘they are not in sync with the labour law codes proposed by the Centre.’  

The similar sentiment has been circulated in the official statement. In a conversation with SME Futures, Dr Arun Singh, Chief Economist, Dun & Bradstreet discusses the prospective impact of changes in labour laws on Indian Economy.   

Edited Excerpts 

Despite central government’s concerns over changes in labour laws, what does states suspending them means for companies and the Indian economy? 

Despite being one of the highest growing economies in the world, India is ranked 75th out of 140 countries in labour market of Global Competitiveness Index (GCI) in 2018. Countries like Malaysia, Philippines, Thailand, Mongolia, Portugal, Nigeria, and Uganda have secured a higher rank than India in this segment. Labour market reforms have been on the policymaker’s agenda since a long time and it cannot be denied that existing policies require structural changes.  

Nonetheless, changes that are to be levied with an economic condition in the backdrop require careful consideration. Only initiatives that can contribute towards increasing labour productivity should be pursued. Arbitrary decisions can fail to realise economic rationalisation and would only distort labour market. The complete suspension of labour laws would create distortion.    

Migrant workers will be highly discouraged when they reach back to their states that would not provide them with adequate working rights. It should be noted that India ranks 110th in the worker’s right index amongst 140 countries. As workers get displaced and limited reverse migration takes place, states with low availability of required skilled and unskilled workers would experience an upward pressure on wages than others. States with excess workers would find it difficult to provide employment opportunities and might face social disturbances.  

Contrary to the popular perception, India ranks quite high i.e. 14th when it comes to hiring and firing practices as compared to the other 140 countries. It would hence be relevant not to bring about changes in the hiring practices as this would only lead to uncertainty among workers. Besides, we need a structured social benefit programme to implement that practice. Increase in uncertainty would only lead to depressed demand conditions and postponement of consumption which in turn would delay the economic recovery process.  

To make situations worse, the stimulus package announced has not provided cash-in-hand benefits to workers. However, it has tried to create more opportunities for businesses to restart their operations and investment activities. As a part of the government’s stimulus measures, businesses are being provided with funds, and rules have been eased to prevent triggering of insolvency proceedings. This should encourage state governments to not change the labour laws currently as it would create a disadvantage for labourers.    

How would these steps translate for labour workforce in informal sector as 90 per cent of workforce of India is a part of it?  

It should be noted that firms are facing various constraints amidst the ongoing lockdown. When restrictions are withdrawn and economic activity resumes, demand conditions will gradually revive. Thus, any changes in the labour laws that need to be taken by state governments to support businesses should only be temporary and should not exceed beyond FY21. 

It would ensure that once conditions become favourable for businesses, workers are not denied their share of benefits. Moreover, labour laws should not vastly differ among states as that would only lead to uneven recovery across states. Any permanent changes in labour laws should accommodate and reflect the new-normal mode of economic activity which will emerge once the impact of pandemic subsides. 

Should government have opted for other steps rather than changing labour laws to boost economy? 

The central government in its stimulus package announced a series of measures to improve the working condition of labour workforce. The changes in labour laws include timely payment of wages to all workers including unorganised workers, introduction of National Floor Wage and extended coverage of Occupational Safety & Health (OSH) Code. These are expected to benefit the vulnerable section of the workforce who lack decent working conditions, have inadequate earnings, lack adequate social security employment.  

In India, a significant section of the workforce i.e. 58 per cent consists of self-employed or vulnerable workers. 28 per cent of the remaining are casual workers and the rest are salaried. The coverage of ESIC (Employee State Insurance Corporation) to all districts across India and extension of social security measures, even to the gig and platform workers were a much-needed initiative. This is important among several regular wage employees in the non-agriculture sector in India, 49.6 per cent were not eligible for any social security benefit during 2017-18.