India’s vast open spaces often seem to dominate its economy and polity. However, by the early twentieth century, as Rajnarayan Chandavarkar notes, industrial labour had acquired “significance out of proportion to its weak effect on the Indian economy”. By 1931, over 4 million workers were employed in perennial and seasonal factories. By the 1980s, with a spike in labour unions and industrial disputes, India’s labour unions held sway. The 1974 railway strike by 1.7 million workers, over 20 days, demanded higher wages and better working conditions. Off late, labour regulation in India acquired an anti-growth perception. Labour reforms, often cited, are now supposed to unlock double-digit growth.

A Demographic Boom

Over 25% of the world’s workers are Indian. With an average age of 29, India’s population is undergoing a demographic boom, with 300 million youth on course to enter the labour force by 2025. India’s total labour force in FY14 was estimated to be about 490 million, about 40 per cent of the total population, with 93% working in unorganised enterprises that range from a local vegetable vendor to a diamond merchant. By 2020, with the global economy running short of 56 million youth, India, with a youth surplus of 47 million could fill the gap.
However, this is not yet a land of opportunity. Over the last decade, the compound annual growth rate (CAGR) of employment has slowed to 0.5%, with 13.9m jobs created in 2012, compared to a 14.9m increase in the labour force. Informal employment increased by 9.5 million over the past decade, with a 15.2m increase in the informal organised employment and a 5.8m decrease in the informal unorganised employment. India’s employment regime is undergoing structural changes.

The primary Indian policy challenge is to increase the employability of India’s labour force. Shifting labour from agriculture to non-agricultural occupations (with a projected 120 million skilled labour requirement) is essential. A plan to encourage jobs growth and social security is very much needed.

Low Wages, Limited Security

Average daily wage rates remain quite low, in rural and urban India. The average daily wage rate in September 2014 for ploughing was just Rs 267.70 for men and 187.17 for women. Any sowing work by children would induce a further 124.17 per day. A fisherman earns just between Rs 268 – Rs 311 a day, depending on his catch, while animal husbandry workers range around Rs 150.

Rurban jobs don’t offer much better. Electricians and construction workers average around 367.16 and 274.06 respectively, while non-agricultural labourers as a whole average Rs 237.20. An entry level worker in cotton textile mills in Vadodara can aspire to Rs6488.09 per month, with his fortunes improving to Rs 7558.52 in Kolkata and Rs9769.20 in Chennai. Consumer inflation eats at this, with agricultural and industrial labourers affected by a doubling of consumer price index numbers (332 in 2004 to 764 in 2014).

Women, in particular, have difficulties participating in the industrial labour force. The Maternity Benefit Act (1961), regulating the payment of maternity benefits to women employees, is parsimoniously utilised, with just 2,441 women claiming maternity benefits in 84,956 factories in 2012. Only 3289 factories in India provide a crèche facility, with just 58 in Gujarat, while Tamil Nadu dominates with 2389.

Labour suffers from a social security deficit. Railway and mine workers have faced 1082 and 32 accidents respectively, mostly fatal, while their dependents receive an average compensation of 2.6 and 9 lakhs rupees respectively. Around 93% of the casual workers and 66% of salaried employees have no written contracts. Just 22.7% of workers have reported receiving paid leave. Social security coverage and awareness in India is negligible, with 41.1% of salaried and 76.7% of contract workers ineligible, while over 12% are unaware of such benefits.

Low Productivity, Ineffective Inspections

Greater well-meaning regulation providing a higher barrier to business entry can lead to lower labour force participation and low labour productivity (Djankov/Botero/Shliefer, 2003).
Consider labour inspections. In 2012, India’s labour department inspected 1.4 million shops and commercial establishments, launching 89,520 prosecutions and recovering INR 9.3 crores. Chandigarh in particular, with 56,103 commercial establishments prosecuted 26,841 of them while recovering just 40.4 lakhs.

Industrial scale enterprises have it worse. The Industrial Employment (Standing Orders) Act (1946) applies to every industrial unit/undertaking with more than 100 workers, regulating the conditions of recruitment, discharge, disciplinary action, leave, holidays etc of workers employed in such establishments. Between January and September 2014, over 105 industrial disputes led to work-stoppages, with 360,535 workers involved and 17,88,613 man-days lost.

Laborious Reformation

India’s labour law regime has always been at loggerheads with the industrial development and the ease of doing business. Over the past year, the government has attempted to reconcile this by amending the Apprentice Act (1961), making it more responsive to industry and youth, and substituting complex inspection regimes with technology friendly portals. ShramSuvidha, a unified labour portal scheme, has been launched to provide timely redressal of grievances and facilitate self-certification by industry, instead of 16 separate forms. This also induces a seemingly transparent labour inspection regime, with inspection reports uploaded within 72 hours.

A focus on cutting down red tape, by amending nearly 40 Central and 150 State labour laws, is now being launched, with significant consequences for hiring & firing laws. Draft proposals for exempting small-scale industries, employing up to 40 workers, from 14 basic laws including the Factories Act, the Industrial Disputes Act and the Maternity Benefits Act are being considered. The Factories Amendment Bill (2014) will amend the Factories Act to reduce its working condition coverage to factories with more than 20 workers (if without power). Rajasthan’s relaxation of the applicability of the Industrial Disputes Act to establishments with 300 workers or more will allow employers to carry out workforce optimisation.

An Outcome Based Approach

An outcome based approach is a must in labour reforms. Linking labour reforms to the ease of doing business, helping entrepreneurs set up businesses and build going concerns, will enable the utilisation of our human resources in productive asset making. A “fertile habitat for jobs creation” has to be fostered, by linking such reforms to worker benefits, while easing the compliance burden on small and medium enterprises.
Rationalising labour law is very much needed. Defining minimum wages, linked to inflation, is an initial step. Minimum wages ought to be revised annually, with minimum wage boards reconstituted in time. Penalties for violation of minimum wage provisions need to be dramatically raised.

According to the National Skill Development Corporation (NSDC), India’s economy will require 120 million skilled people in the non-farm sector. Amendments to the Apprenticeship Act are welcome in this regard, but care must be taken to ensure that skill development periods are not unnecessarily elongated, restricting employees to 70% of minimum wages. With no labour laws applying to apprentices, care must be taken to ensure that they are not transformed into contract labour. MGNREGA should be restructured and linked to apprenticeship programs in industry and agriculture.

Women require labour law legislation too. Female employees of government schemes like Indira Kranti Patham or Anganwadi Worker remain out of the purview of current labour laws. The Integrated Child Development Service (ICDS) workforce lacks any retirement benefits, while being provided the responsibility of mitigating malnutrition. Scheme-based workers should be treated as regular employees and offered decent wages and social security benefits.
While factory inspectors are bedevilled, inspection rates of registered factories have declined over the past three decades (63% in 1986 to 18% in 2011). Implementation of the Minimum Wages Act (1948) is carried out by just 3,171 inspectors, covering 7.7m establishments; 2,428 per inspector. Centralising this inspection regime would create a labour inspection system that could be externally influenced, with significant control over visit timings. Care must be taken to provide autonomy to our labour regime, while not falling foul of ILO Labour Inspector Convention 81. Penalties for violations should be raised beyond an average of Rs 1000.

Amendments to the Contract Labour (Regulation & Abolition) Act, which remove the Rs 500/ contractor ceiling, replacing it with a wage consistent with inflation , are needed. Contract labourers should be treated as workmen, covered under the Workmen’s Compensation Act (1923), for accidents arising during employment. Limited social security benefits resulting from the Employees State Insurance Act (1948) and Maternity Benefits Act (1961), of which contracted labourers are bereft, should be expanded in their coverage.

Retrenchments are always socially difficult experiences. However, India’s current labour policy provides little incentive for industrial employers to hire; by limiting the workforce to below 100, contractual labour, without social security benefits or termination protection is instead encouraged. This paradoxical policy needs to be restructured, through a modern labour law framework that encourages employers to keep more workers in formal roles, with work-linked wages and social security benefits. Flexibility to undertake lay-offs, given adequate benefits and a reasonable notice period, is needed. India’s urbanisation needs to uplift the cause of its businesses and its workers both. In social security and labour flexibility, the answer lies.