Mainstream, VOL LIII, No 16, April 11, 2015
Will the Recent Changes in Labour Laws usher in ‘Acche Din’ for the Working Class?
Sunday 12 April 2015
by Anamitra Roychowdhury
The clear continuity in economic policies between the United Progressive Alliance (UPA) Government and the National Democratic Alliance (NDA) Government is discernible to any observer of the Indian economy. Finance Ministers (FM) of both the governments being deficit hawks walk the path of strict fiscal consolidation. For example, the UPA FM, P. Chidambaram, in his Interim Budget set the target of Fiscal Deficit at 4.1 per cent of the Gross Domestic Product (GDP) in 2014-15; this target has actually been achieved by the present FM of the NDA Government. (See the Budget speech of 2015-16; http://indiabudget.nic.in/bspeecha.asp) In fact, in order to meet the fiscal deficit target for 2014-15, the Modi Government implemented a savage cut in social sector spending—curtailing the actual expenditure on health and education by Rs 6691 crores and Rs 12,266 crores respectively (Revised Estimate), than what was allocated in the full Budget of 2014-15. (See Expenditure Budget, Volume 1; http://indiabudget.nic.in/ub2015-16/eb/stat02.pdf) Similarly, deregulation of petrol prices by the UPA Government has been carried forward by the present government in the form of complete withdrawal of subsidy for determining diesel prices. Their attitude towards the material condition of the working class is no different. This is clearly reflected in their labour policies, which we shall discuss here in the context of the recently changed labour laws brought about by the Union Government.
The UPA Government unveiled a National Manufacturing Policy in 2011, where it envisaged creating 100 million jobs in the manufacturing sector along with increasing the sector’s share in the Gross Domestic Product to 25 per cent by 2022 (from its current level of 15 per cent). One of the major policy instruments through which this was sought to be achieved is by changing the labour laws. The Modi Government, in order to ensure its “Make in India” campaign a success, has proposed far-reaching amendments to the Factories Act, 1948; Apprentices Act, 1961; and Labour Laws (Exemption from Furnishing Returns and Maintaining Registers by Certain Establish-ments) Act, 1988. The Factories Act, 1948 has been introduced in the Lok Sabha for discussion. As regards the amendment Bills pertaining to the next two Acts, these have indeed been passed in the Rajya Sabha and are only awaiting the consent of the President for turning into law. Let us see the likely impact of these changes on the constituency of labour.
Factories Act, 1948
In the proposed amendment to the Factories Act the eligibility of paid leave for workers has been reduced from 240 days to 90 days; also establishments liable to provide restrooms or shelters has been reduced from 150 workers to 75 workers. These are positive developments. Similarly, the Bill enhances safety measures for workers exposed to hazardous processes and increased penalties for contravention of certain offences. But the moot question is: how far will these provisions be implemented, when the inspection standards relating to labour and industrial regulations in the factory sector are recorded to be abysmal? There is evidence of a sharp drop in inspection rates in the factories in the recent past. (Table 1)
Moreover, the Bill also allows women workers to work in night shifts (7 pm-6 am), of course with proper safety measures. Now, whether adequate safety measures are adopted or not remains to be seen. However, it would certainly help firms in cutting down on wage cost through substitution of men by women workers, since women workers’ wage is typically half of their male counterparts even in the organised manufacturing sector. (Table 2) A third major change has been the increase in the limit of overtime work across the board. Overtime limit for shift workers has been raised from 50 to 100 hours per quarter (that is, per three months period). The same has been raised for typical workers from 75 to 115 hours per quarter (and up to 125 hours per quarter for public utilities). This move would definitely elongate working hours (thereby thwarting fresh job creation) and further help firms in depressing labour costs as ‘overtime wages’ would not include allowances which are complimentary in nature (otherwise to be paid to new workers) such as house rent allowance, transport and small family allowance.
Apprentices Act, 1961
There is a view that the employability of the youth can be increased by imparting a proper set of skills, normally demanded by the industry. Consequently, apprentices are provided on-the-job training for imparting requisite skills to match the requirements of the industry. On the basis of the argument that the vast magnitude of open involuntary youth unemployment and under-employment in India is primarily due to skill mismatch and the Apprentice Training Scheme (ATS) is not performing satisfactorily (typically around 30 per cent of sanctioned apprentices seats remain vacant), far-reaching changes have been introduced in the Apprentices Act. However, if skill mismatch was the main problem then we would have seen tightness in some segments (typically requiring unskilled labour) of the labour market, of which there is no evidence.
In the amended Apprentices Act the definition of workers has been changed to include workers employed through a contractor (contractual workers). Earlier workers with only regular contracts (regular workers) were considered for determining the number of workers in an enterprise. However, this restricted the number of apprentices an enterprise could appoint, as it has to maintain a fixed worker-to-apprentice ratio prescribed by the government. Thus, by making the definition of workers more inclusive would help firms in increasing the number of apprentices they can hire.1 Moreover, to ensure that the firms do not face any difficulty in hiring someone for apprenticeship training the eligibility qualification for undergoing appren-ticeship training has been broadened to include students from non-engineering back-ground. In fact, to provide further flexibility to employers with respect to the areas of deployment of apprentices — new categories of economic activity (to be solely decided by employers under the name of “optional trade”) have been allowed to use apprentices.
Further, until now daily (and weekly) hours of work an apprentice has to put in an enterprise was decided according to the norms prescribed by the Central Apprenticeship Council. In the recent amendment, employers have been given the power to unilaterally decide on the daily (and weekly) working hours of an apprentice. Thus, working hours of apprentices would now depend on the vagaries of the employers. Similarly, under the existing rules although there was no obligation on employers to offer job to an apprentice successfully completing training; however, there was an option that if such an agreement was mentioned in the contract of an apprentice at the time of joining training, then the firm was bound to offer employment (in fact this is a strategy to attract and retain apprentices) at remunerations effectively decided by the Apprenticeship Adviser (appointed by the government). This has been drastically changed with the employers now being given full freedom to formulate their own policies regarding recruitment of apprentices. This move is clearly going to increase the discretionary power of employers in recruiting apprentices.
However, the most important change in the current amendment is with respect to the penalty meted out to firms failing to comply with the provisions of the Act. Earlier offending employers, either failing to employ the minimum number of apprentices prescribed in the Act (which of course vary across firms) or not complying with the terms and conditions mentioned in the contract of an apprentice (including employing the apprentice overtime without prior approval or to any work unconnected with training, among others), were liable to pay monetary penalty or/and jailed. With the current amendment any employer contravening the Act is only liable to pay monetary penalty and cannot be put behind the bar under any circumstances.All these changes are unambiguously in favour of employers.
The Labour Laws Act, 1988
This piece of legislation was first proposed to be amended by the UPA Government. Towards that a Bill was introduced under the name of the Labour Laws (Exemption from Furnishing Returns and Maintaining Registers by Certain Establishments) Amendment and Miscellaneous Provisions Bill, 2005 in Parliament. The Bill was referred to the Standing Committee on Labour (SCL), which advised its withdrawal observing that the proposed amendments were overwhel-mingly in favour of employers. It was reintroduced in 2011 with some changes but met the same fate with the SCL noting: “The Committee strongly feel that the amendments proposed need to be revisited to secure the rights and welfare of labour.” (21st SCL Report, 15th Lok Sabha) Notwithstanding the reser-vation of successive Standing Committees, the 2011 Amendment Bill was tabled by the Modi Government and now has been passed in the Rajya Sabha. The question arises: how does it affect the working class?
In order to answer this we need to understand the changes that have been introduced. The Labour Laws Act, 1988 in its original form exempted “very small establishments” (emp-loying up to nine workers) and “small estab-lishments” (employing 10 to 19 workers) from maintaining registers and filing returns individually/separately for nine labour laws (about meeting the prescribed norms/standards), if these establishments provided a consolidated account for the same. The basic reason for such exemption is to facilitate business by curtailing the transaction/compliance costs.
Now the recent amendment has changed the definition of “small establishments” and allowed consolidated submission of returns for seven additional labour legislations. The threshold for determining “small establishments” has been increased from 19 to 40 workers. This is clearly a business-friendly move since a larger set of firms would now come under the Act; additionally, they would now be exempted from separately furnishing information for sixteen labour laws (as against nine) subsumed under the Act.2
In fact, the Ministry of Labour and Employ-ment noted the consequence of increasing the workers’ threshold in defining “small establishments” as follows — “If the number is 40, then almost the entire MSME [Micro, Small and Medium Enterprises] sector is covered. The purpose was to reduce the administrative cost of compliance of labour laws” (21st SCL Report 15th Lok Sabha); and provided the following justification for such a move: “What we found in the field was that because the number was 19 [workers], many industries that were employing more than 19 but were showing only 19 so that they can take the advantage of this Bill.” (Ibid.) Therefore, the Ministry admits violation of the law at present and proposes to tackle it by broadening the definition of “small establishments”.
The question that arises is: do we have adequate enforce-ment machinery to counter future violations? The Ministry does not think so. “It is mandatory for the [small] establish-ments to compile information for filing returns and maintaining registers. However, all establishments cannot be inspected given their large numbers vis-a-vis labour inspection machinery. This may lead to laxity in maintenance of records and furnishing them on demand.” (Ibid.)
Precisely due to this reason the Standing Committee (15th Lok Sabha) recommended withdrawal of the Bill by observing the following: “The Committee find that there is shortage of man-power for regular monitoring of the implementation of labour laws. During their study visits to some establishments across the country, the Committee observed that there was acute shortage of human resources with the Labour Commissioner entrusted with the responsibility of enforcing the plethora of labour laws. The Committee are of the considered view that strengthening of enforcement machinery is an imperative need of the hour and therefore the field staff needs to be augmented urgently and adequately so as to facilitate regular inspection of the establishments and strict enforcement of labour laws ... The Committee are apprehensive that there would be total mess as hundreds of new establishments [following the rise in workers’ threshold] would come under the ambit of the Bill, if enacted.” (Ibid.)
From the foregoing discussion it is clear that the recent amendment, without addressing the concern raised by the Committee, would potentially lead to pervasive violation of labour laws—compromising workers’ welfare due to the weak enforcement machinery.
From the above analysis it is clear that the recent labour law changes at the level of the Union Government are overwhelmingly in favour of the employers and detrimental to the cause of the working class. These changes are primarily aimed at improving India’s rank in the “Ease of Doing Business” index, which actually slipped from 140 to 142 in 2014-15 (out of 189 countries). Narendra Modi, by his own admission, noted that the “ease of business is the first and foremost requirement if Make in India has to be made successful”. (October 17, 2014, The Indian Express) It appears then that the Modi Government is more concerned with improving India’s “doing business” ranking, even at the cost of diluting the worker’s rights and deteriorating his/her material well-being.
Sood, Atul, Paritosh Nath and Sangeeta Ghosh (2014), “Deregulating Capital, Regulating Labour: The Dynamics in the Manufacturing Sector in India”, Economic and Political Weekly,Vol. XLIX, No. 26, June 28.
1. Typically, for the same work apprentices are paid less than workers. For example, the Inter-Ministerial Group constituted to finalise the recommendation of changes in the Apprentices Act, 1961 proposed that the stipend to apprentices should be 70 per cent of minimum wages of semi-skilled workers in the first year (50 per cent of which would be subsidized by the government). It should be 80 per cent and 90 per cent of minimum wages of semi-skilled workers in the second and third year, respectively. It is easy to see that by increasing the number of apprentices, firms can cut down on labour cost.
2. The sixteen labour laws for which consolidated returns is granted is available in the 21st SCL Report, 15th Lok Sabha (http://www.prsindia.org/uploads/media/Labour per cent 20Laws/SCR per cent 20Labour per cent 20Laws per cent 20Bill per cent 202011.pdf), accessed on March 20, 2014.
The author is an Assistant Professor, St. Stephen’s College, University of Delhi. She can be contacted at e-mail: email@example.com