The decisions by the Uttar Pradesh and Madhya Pradesh state governments to do away with or amend several key labour laws has once again revived the age-old labour versus capital debate.

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Labour unions and academicians have slammed the move, saying it would put too much power in the hands of the management, leading to exploitation of workers. The industry feels the move is justified, given that many small and mid-sized firms are struggling for survival in a post-COVID world. Some employers’ organisations had a discussion with the Union Labour Minister over webinar a few days back, and among other requests, sought longer workdays and suspension of labour rights for two to three years.

As labour unions and industry trade charges, it would be worth revisiting some of the arguments made in the chapter on small enterprises, in the Economic Surveys of 2019 and 2020.

Titled “Nourishing Dwarfs to become Giants: Reorienting policies for MSME Growth”, the chapter calls for overhauling labour laws for small enterprises in India. It argues that governments—Centre and the states--should look to promote young and infant enterprises instead of pumping resources into inefficient “dwarf” units, which continue to remain small just because it suits those businesses.

The chapter makes the case that deregulated and flexible labour laws are the way forward to boost productivity, create jobs, and promote investments in MSMEs.

Labour Law exemption: The MP and UP solution

In contrast to the Economic Survey prescription of deregulation of labour laws to promote enterprises, Uttar Pradesh and Madhya Pradesh seem to have taken a different approach to the issue. Both states have exempted industrial units from most labour laws, hoping it will attract investments in a difficult business environment.

While the exact contours of the decisions are not yet known, a press release shared by the UP government says that baring four labour legislations, all other labour laws have been suspended for 3 years in the state.

Madhya Pradesh Chief Minister Shivraj Singh Chauhan also told the media that the state has decided to exempt new industrial units from many key labour regulations for a period of up to 1000 days.

Both Uttar Pradesh and Madhya Pradesh have taken the ordinance route to exempt labour laws, but the details of the new rules will be known when both the states notify them. Going by the press statements by both the governments, if a blanket exemption to state and Central labour laws are given, then many basic and critical labour related rights, including International Labour Organisation-mandated ones, would be violated.

For example, it won't be mandatory for enterprise owners in UP and MP to provide toilets, first aid boxes, canteens, creches, weekly holidays, drinking water, advance payments, or follow cleanliness norms in their premises.

PROBLEM OF THE DWARF

The Economic Surveys of 2019 and 2020 argue that “restrictive labour regulations” incentivise factories and enterprises to remain small. As per both these documents, ‘dwarfs’ or micro, small, medium enterprises (MSMEs) with less than 100 employees and older than 10 years account for half of the organised manufacturing sector, but their contribution to the net value addition of goods and services was just 7.6 percent.

“Dwarfs that remain small despite becoming older remain the lowest contributors to employment and productivity in the economy,” the 2019 Survey says.

An analysis by the Chief Economic Advisor and his team shows that there are size- based limitations in at least eight labour legislations, which are applicable to firms only if they cross a certain threshold with respect to the number of employees.

“Thus, such labour legislation creates perverse incentives for firms to remain small,” the 2019 Economic Survey says.

The Rajasthan solution

The Economic Survey documents of 2019 and 2020 say that flexible and deregulated labour laws are the way forward, as such policy regimes incentivise small firms to expand and improve productivity.

The 2019 Economic survey describes labour deregulation carried out by Rajasthan in 2014 as a model, and advises policymakers at the Centre and the states to ease laws.

In 2014, Rajasthan amended the Industrial Disputes Act 1947, factories Act 1948, Contract Labour Regulation and Amendment Act 1970 and Apprentices Act 1961.

Under the Industrial Disputes Act amendments, a trade union would be recognised only if its members accounted for 30 percent of the total workforce in a factory based in Rajasthan as against the earlier norm of 15 percent. To shut down units or retrench workers, state government permission would be needed only if the unit employed more than 300 people as against the earlier norm of 100.

The Factories Act amendments mandated that a court cannot take cognisance of violation of norms under the legislation in Rajasthan unless there was a written permission from the government. The Contract Labour Regulation and Abolition Act was made applicable to units with more than 50 workers, as against the earlier rule of 20 workers. The Apprentices Act changes made it mandatory for the Rajasthan State Government to part fund apprentice training.

According to the 2019 Economic Survey, these changes had far-reaching impact on the enterprises based in Rajasthan. Post-reforms, the output of firms in Rajasthan spiked to 12 percent as against the pre-reform figure of 3.13 percent. In the rest of India in the same period, output of factors rose 5.71 percent from 4.8 percent. Moreover, the number of workers per factory post reforms stood at 4.17 percent vs an all India average of 2.6 percent in the same period.

“Deregulating labour law restrictions can create significantly more jobs, as seen by the recent changes in Rajasthan when compared to the rest of the states,” the 2019 Survey says, recommending other state governments to follow the Rajasthan model.

The survey document also refers to deregulation of labour laws in Gujarat, which has traditionally nurtured MSMEs. “The state has also passed other regulations that improve ease of doing business, including reduction in compliance burden, transparent and timely processing of approval and renewal of applications, and reduction in stipulated timelines for granting and renewal of manufacturing sale licences, amongst others”.

First Published:May 9, 2020 8:30 PM IST