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

Transcription

1 P a g e 1 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 ) 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.

2 P a g e 2 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.

3 P a g e 3 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 the share of informal sector workers in the so called organised sector is 37.8 percent and increased to 54.5 percent in 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 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

4 P a g e 4 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 ) 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.

5 P a g e 5 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

6 P a g e 6 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 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 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:

7 P a g e 7 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?

8 P a g e 8 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 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

9 P a g e 9 Prime Minister, Narendra Modi, launched an initiative called Sugamya Bharat Abhiyan (also called Accessible India Campaign) in It was launched especially at International Day of Persons with Disabilities which is annually being celebrated all over the world on 3 rd 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.

10 P a g e 10 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 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

11 P a g e 11 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

12 P a g e 12 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

13 P a g e 13 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 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 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, 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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15 P a g e 15 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.

16 P a g e 16 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 GS-2 GS-3 a) Role of women, Women in the labour force, Feminization of labour 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 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)

17 P a g e 17 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)