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Several states have undertaken factor market reforms, including labor reforms, to attract companies leaving China. Critics warn against the measure, citing the marginalization of work in the absence of these laws. Mint explains the implications for India’s manufacturing sector.
What is wrong with Indian labor standards?
The general complexities of India’s labor laws are said to have a moderating effect on the ease of doing business. These laws, in an atmosphere of carefree bureaucratic control and corrupt officials, have led to the exploitation of factory owners, which in turn has cost workers’ well-being. The Center had tried to simplify these standards and compile 44 of those laws into four draft labor codes: wages, labor relations, social security and safety, health and working conditions. Since the work is on the concurrent list, state and central governments are competent to enact legislation in this regard.
How have the laws affected the industry?
Current labor standards have often been seen as a key reason for India having a large informal sector and the small overall size of companies. One such rule is the Industrial Disputes Act (IDA) that prevents companies with more than 100 employees from firing people without government permission. This has led most companies to prefer to be small or to rely on the informal sector. Such regulations have often prevented large-scale global corporations from establishing their plants in India. The small size of the companies has also resulted in their not being competitive in various sectors.
Why haven’t these outdated laws been changed?
Bharatiya Mazdoor Sangh, affiliated with Rashtriya Swayamsevak Sangh, and the Left-backed Center of Indian Trade Unions have opposed any change in IDA, thus avoiding a review of the regulatory architecture. Successive central and state governments have failed to address issues with labor laws due to political considerations.
What changes have states proposed now?
States like Uttar Pradesh, Madhya Pradesh and Gujarat have temporarily suspended all labor codes. The only ones that will apply in UP are the Law of Construction Workers and Other Construction Workers, Section 5 of the Law of Payment of Wages, the Law of Workers’ Compensation and the Law of the Work System in conditions servitude (Abolition); 13 laws have been suspended for three years. Gujarat has exempted the new industrial units from all related laws for 1,200 days, except the Minimum Wages Law, the Industrial Safety Rules and the Workers’ Compensation Law.
What is driving foreign companies away from India?
Five areas of concern have prevented foreign companies from investing heavily in India. These are land acquisition problems, labor standards, high levels of taxes, high energy costs, and red tape. The Center reduced corporate taxes and proposed a new draft of the electricity code; states have enacted labor reforms. States’ ability to address land, energy and cost issues would determine how many companies come to India. Manufacturing may take off in India after these reforms.
Karan Bhasin is a Delhi-based policy researcher.
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