Labour Reforms Must Mean Economic Development

Labour Reforms Must Mean Economic Development

I would like to begin this address by thanking CII for inviting me to deliver the Keynote address on ‘Labour Reforms at Policy Level.’ I have been blogging about various issues before us on the industrial relations scenario. I reckon this is a unique opportunity to me to present my views to this august gathering of HR professionals, and I am grateful to CII for inviting me.

Labour Law reforms is a subject on which much has been already written and every authority has expressed his or her views. Everybody is asking for radical reforms in labour law. There is a belief that it is the biggest stumbling block for getting the foreign investment. Radical views are expressed on this subject by the employers as well as some trade unions. The media is not left behind. We get carried away by the onslaught of their views. For such situations, the eminent jurist Nani Palkhivala serves a cautionary note; he said, “If you have imbibed the ability to think clearly, you will adopt an attitude of reserve towards ideologies that are popular and fashionable. It is true that in a democracy the majority view should prevail. But never make the mistake of thinking that the validity of a proposition depends on the number of people who believe in it.”[1]

Let us keep this refrain in mind while we initiate the discussion on labour law reforms. There are conflicting priorities on this subject. The issue therefore is what should be our approach to such reforms. Let me highlight some of them to begin the discussion. The deliberations in this conference will of course add more dimensions to our understanding of the issues and concerns.

Economic Growth vs Economic Development

The first and fundamental issue is what do we want – do we want economic growth or economic development? Our answer to this question will guide our actions.

The measure for economic growth is GDP. The measure for economic development is HDI or Human Development Index. Against this backdrop let us understand the context.

Make in India is a double edged sword

The Government of India has launched ‘Make in India.’ Make in India must finally deliver a better life or well-being to people, it must satisfy aspirations of people otherwise we must regard Make in India initiative as a failure.[2]

In order to fulfil this objective, the Government of India must get foreign direct investment so that more employment can be created. But the FDI comes if you are competitive. Under these circumstances the Governments come under pressure to lower labour standards as well as wages so that the investments are attractive, which in turn defeats the entire purpose which is to improve standard of living and well-being of people. This is accusation of trade unions against the Government. For example, the Government has allowed the garment industry to appoint employees on fixed term basis, effectively making them temporary hands. They are allowed voluntary coverage of provident fund, sacrificing social security benefit.

This is the dilemma of Make in India. We have to make this country attractive for FDI and yet avoid lowering of labour standards and wages. This is the tight rope walking. Make in India is a double edged sword.

Loss of jobs and Low HDI raises deep concerns

The news in the last six months point out that organisations are reducing manpower. While some like SnapDeal may be retrenching staff due to business reasons, there are others like L&T [it has reduced 14000 staff] and Raymonds [they will use robots to reduce 10000 jobs in three years] which are adopting digitisation or using robots to reduce manpower. The statement of CFO of L&T is important for our purpose. He said, “We have adopted various initiatives to be competitive. We have tried to introduce digitisation whenever necessary, so in case if we needed 10 people for a job we tried to bring it down to five.”[3] So we face the threat of job losses due to technology.

On the other hand, India ranks 130th among 188 countries if we consider Human Development Index. To understand our position in perspective we note that the five countries ahead of us are Nicaragua, Morocco, Namibia, Guatemala and Tajikistan! Although India has reportedly moved up five places, there is a long way to go.

Why are we discussing this issue of economic growth versus economic development? Let us look at the discussion in the Press and the media. They are talking endlessly about getting foreign investment and also about the GDP growth. The figures about which state is attracting how much foreign investment are regularly published.

Real wages stagnant, forget living wage

There is hardly any talk about the fact that real wages of the workers have not recorded any increase. It is relegated to scholarly journals on industrial relations. India’s real wage growth was 1% in 1999-2007, while labour productivity rose by 5%. At the same time the divide between the least paid and the highest paid has widened so much that it is clear that the benefits of globalisation have not reached the lowest paid employee.

Economists tell us that absolute poverty is alleviated by rapid economic growth. They also tell us that rapid economic growth widens the income inequality, and, here comes the twist in the tale, such a widening of income or wealth distribution is a necessary condition for rapid economic growth!

In the corporate sector such income inequality is shockingly high today. The pay of a CEO is often at least 400 times that of the employee on the lowest rung of the hierarchy. The trouble is that while corporate world often thinks about what quality of life is to be offered to the CEO, it never asks the same question to itself about its lowest paid employee.

There is a lot of talk about what the minimum wage should be. Unfortunately there is no talk about what the living wage[4] should be. I had the opportunity to discuss labour issues with some academicians in UK. Living wage is monetised in UK exactly in pounds. [We were told that living wage was a dream and that it will never be realised in our college.] In the UK, the garments industry on paper supports the principle of a living wage. Most high street fashion brands have the commitment to pay a living wage written into their ethical codes. Can our Government get our employers to commit to paying living wage?

If you go to Asia Floor Wage Alliance (AFWA)[5] you will find that they have calculated the living wage for garment producing countries, including India. Living Wage for India in 2015 was calculated at Rs 18,727 pm. The minimum wage was 62% of the living wage. We have a situation where minimum wage is not being paid at many establishments, much less the living wage.

Sacrificing safety and security

Let me now turn to the safety and other concerns at work. Regulations for these are stipulated in the Factories Act. We are aware that Rajasthan has amended the Factories Act and Maharashtra Government[6] has followed its footsteps. There is a strong feeling that this model will be followed because the President’s assent was granted to Rajasthan amendment. So the floodgates are opened. What are the implications? Let me quote from the story ‘Class Concerns’[7] carried by Frontline in September 2014.

“If the amendments to the Factories Act passed by the Rajasthan government are incorporated into the Central legislation as well, out of the 1,75,710 factories employing 1,34,29,956 workers (of whom 36,10,056 are contract workers), 1,25,301 factories, that is, 71.3 per cent of the factories employing less than 50 workers, would go out of the ambit of the Factories Act. (The figures are based on the report of the Annual Survey of Industries, 2011-12, published by the Ministry of Statistics and Programme Implementation in March 2014.) This would happen if the threshold limit of workers employed by the factories covered by the Act was raised from the present 20 to 40.”

This picture of wages and service conditions including safety is disturbing. We have to think of quality of life and living standard. The job scenario is not rosy too.

We have to take a call. Economic growth or economic development? My call is both, with clear emphasis on the economic development.

Speed of Change vs Public Reasoning

I like one quality of our prime minister’s leadership – he moves fast, and he is decisive. We may not always agree with him. High on his agenda now is reforming labour laws.

There is also urgency about bringing about the change in labour laws. It is argued that this is the single biggest hurdle in getting foreign investments. Trade unions are also alleging that there is no discussion on amendments and some point out that putting proposals on website is no way to discuss or debate labour matters. Speed is important and consensus is getting sacrificed.

Let us get one fact first, and I would like to quote Arun Maira. ‘Labour laws are not the principal constraint, or even amongst the top three or four constraints on the growth of India’s manufacturing sector. Many surveys in the past few years, conducted by several industry associations, consulting organizations, and government commissions have revealed this. The principal constraint, for both large and small enterprises, is the quality of the business regulatory environment.’[8]

I have quoted this to put things in perspective on labour law reforms. We all accept that our labour laws are archaic and certainly deserve change. Labour laws touch every working person’s life. Moreover decisions regarding labour laws seem irreversible. One of the issue is to allow an employer to exit. This is not possible or easy because the Government may or may not grant the permission to close down a unit. Let us reflect on our experience. In 1976- a special chapter (Chapter V-B of The Industrial Disputes Act) was introduced which made compulsory prior approval of the appropriate government necessary in the case of lay-offs, retrenchment and closure in industrial establishments employing more than 300 workers. In 1982- lowered the limit of the employment size to 100. The Government granted or refused permission not on merit of the case but on political considerations. Usually it refused permission although we see some leniency of late.

The Government wants to increase the qualifying number to 500 workers[9], but it is finding the task almost impossible. The unions, including Bharatiya Mazdoor Sangh [BMS], which is seen as the labour wing of the ruling party BJP, have protested against increasing the qualifying number.

CITU says “if the threshold limit of units employing up to 100 workers was raised to 300, and if they are not required to take permission for retrenchment/lay-off under the Industrial Disputes Act (IDA), more than 80 per cent of the factories and their workers would come under the “hire and fire” regime of the employers.”

The plight of contract labour is well known to us. Changes in law are not expected to support them. There is a fear that this Government might rush to place new labour laws for parliamentary approval without adequate discussion.

The French Connection

We ought to learn from the French experience. The French Government implemented labour law reforms last year. There was bitter opposition. It finally decided to ram through the contested reform without parliamentary support. There appears to be a very similar feeling in the making in India although there will be big hurdles here unlike France.

That brings us to another dilemma of policy making: Do we want to bring about changes in Labour Laws expeditiously or are we willing to wait for the time required by public reasoning?

Democracy, as we all know, is ‘government by discussion.’ Since the labour laws affect every working man’s life, and they are also a concern for the entrepreneurs, it is important that we rely more on public reasoning or debates on this issue.

Unfortunately, the public discussion on this subject of labour law reforms is woefully inadequate. The quality of public discussion is yet another matter of concern. Yet, I would say that unless there are discussions at regional, state and national level, it will not be possible to evolve a solution which is at least broadly acceptable.

There is another aspect. When a law is made after enough public discussion, accommodating concerns of the stakeholders, it appears fair and just. That is how it should be.

We need speed of action, we have to act quickly to adopt new labour laws. And we need public reasoning and acceptance. My submission is that we need both, but we need enough of public reasoning to make a fair law and to gain acceptance.

Law Making vs Attitude Shaping

Will law making bring a positive change in the industrial relations scene is an issue we ought to debate. All of us have seen a general disregard for law if not contempt.       Even traffic rules are observed only in the breach in our cities. Taking liberty with law is almost a way of life here.

In the industry, the rampant misuse of contract labour and trainees is a matter of great concern. There are units in auto industry in the State of Tamil Nadu which are run exclusively with contract labour. Add to this the NEEM or National Employability Enhancement Mission has drafted a scheme which allows if not encourages employers to exploit labour with impunity. So far many unscrupulous employers had taken lead in running their enterprises with contract labour and trainees, but now I find that some companies held in high esteem by people for following good HR practices are also adopting these objectionable methods.

We have reached a stage where people are implementing only that part of law which is convenient to them. This disease has reached chronic stage. The attitude that we can take liberty with law is dangerous, it is cancerous. There is no doubt that we need to change our archaic labour laws. But if we do not change our attitude towards implementation of laws, we will gain nothing.

Passing new laws without ensuring rigour of implementation is an exercise in vain. The Government’s partner in enforcing law has always been the trade unions. But trade unions are a spent force!

So we have a deadly combination – a society that breaks its own laws, and weak trade unions which are unable to guard interests of workers. We have to think of making laws that find good acceptance and we have to ensure rigorous implementation. To ensure implementation of law in a society where the password is ‘Jara adjust kar lo’ is a huge issue.

Summing up…

Ladies and Gentlemen we have to appreciate that the labour laws have to promote good relations. We need a law on industrial disputes, and we also need a law which will promote industrial relations. The solution is found only in industrial democracy. In a society where employer-employee relations has not shrugged off the feudal mind-set, where loss of job at the lowest level is still equated with economic death, where the quality of life leaves much to be desired, we have extreme conflicting priorities. I propose to you that a studied response with public debate at various level can only show us the way forward. I hope and wish this conference will lead to such a response.

With these words, I close this keynote address and thank you for your attention.


Vivek S Patwardhan

[Keynote address delivered at CII Conference on “Labour Reforms: Agenda, Accomplishments & Aftermath” at Chennai on March 3, 2017]

[1] Nani Palkhivala: The Treason of the Intellectual, p 20 We The People, Strand Book Stall 1984

[2] I argued this in ‘Make in India: HR Must Focus on Quality Of Employment’ [My speech at IMC]

[3] L&T lays off 14,000 employees, calls it a strategic decision The Hindu [Mumbai] Nov 23, 2016

[4] Living wages has been defined differently by different people in different countries. The best definition is given by Justice Higgins which reads “Living wage is a wage sufficient to ensure the workman food, shelter, clothing, frugal comfort, provision for evil days etc. as regard for the skill of an artisan, if he is one”. According to Fair Wages Committee Report: “The living wage should enable the male earner to provide himself and his family not merely the basic essentials of food, clothing and shelter but a measure of frugal comfort including education for the children, protection against ill-health, requirement of essential social needs and measures of insurance against old age.” Thus living wages means the provision for the bare necessities plus certain amenities considered necessary for the wellbeing of the workers in terms of his social status.

[5] See website

[6] Maharashtra Government has amended the Factories Act similar to Rajasthan amendments and enforced it wef Feb. 1, 2016

[7] Class Concerns

[8] Arun Maira: ‘Rethinking Labour Law Reforms’ Indian Journal of Industrial Relations July 2014 p 25

[9] The Labour Ministry has proposed that factories with up to 500 workers be allowed to lay off workers or shut shop without seeking government permission, in a bid to give firms flexibility in hiring and firing employees.