What Modi Govt Really Wants To Achieve Through Labour Reforms

The big question is: will workers actually gain from these new labour reforms or is this an eyewash?

4 min read

The pink papers have something to celebrate about Modi 2.0. The labour law reforms, largely worked out by team Modi in its first avatar, are all ready to be tabled in Parliament. 44 different laws are going to be merged into four omni-laws that will regulate the relationship between workers and their employers.

The reforms are meant to be business-friendly, by making it easier for employers to sack workers when things aren’t going well. Right now, anyone who employs more than 100 people needs permission from authorities to sack people. The new law is going to raise that threshold to 300 employees.


New Labour Laws Which Will Be ‘Good For Business’

Employers can also ask workers to do up to 100 hours of overtime per quarter. That works out to a 10-hour work day and a 60-hour work-week. This militates against what unions have been fighting for across the world – an 8-hour work day and a 40-hour work week – which leaves enough time for workers to lead a normal life with their families.

As a trade-off, the new labour laws will enforce a more stringent minimum wage standard and bring workers in the unorganised sector under the wage act. But workers will find it very tough to organise and agitate against unfair employers.

Unions will need to give a six-week notice before going on a strike, and in case it is deemed illegal, each member would face a Rs 50,000 fine or even imprisonment.

Mind you, all this is not only supposed to be good for businesses, but also for workers. The argument goes that India’s corporate sector is tied down by rigid labour laws which discourage investment, as employers are unable to fire workers even when they are making losses. Reforms that allow entrepreneurs to fire also encourage them to hire. This leads to more robust job market, and even if workers are sacked from one company, they can easily get hired somewhere else.

But, as economists CP Chandrashekhar and Jayati Ghosh had demonstrated several years ago, this claim is simply absurd. In 2011-12, wages to workers accounted for just 2.1 percent of the total costs incurred by factories in the organised sector. So, even if half of them were to be fired at ease, it will only reduce costs by 1 percent or so.

The ‘Hire & Fire’ Policy at India Inc

In reality, India Inc already operates on a hire-and-fire basis. Between 2000-01 and 2015-16, 44 percent of new employees were hired on contract. That means, their employers weren’t tied down by any tedious labour laws. Add to that the fact that right now one in two workers are hired through third-parties, and the companies they are working in, have no legal obligations towards them. We all have experienced this in our workplaces.

Increasingly, a big chunk of non-core work is being outsourced. Anonymous cleaners, electricians, maintenance crew, IT services teams move from one office to another on a rotating basis, where their rosters are fixed by third-party service providers. Even core functions are farmed out on contracts.

So, these ‘revolutionary’ labour law reforms are unlikely to make any significant impact on the ease of doing business.

India’s entrepreneurs already hire-and-fire people, depend heavily on contract workers, have a very low wage-bill, and wield a lot of power over increasingly weakened labour unions.


Are Labour Reforms An ‘Image-Building’ Exercise?

The reason to push these labour reforms onto the headlines has more to do with the image that Modi 2.0 wants to project. In the past few weeks there has been bad news on the GDP. Former Chief Economic Advisor Arvind Subramanian’s revelations about how the growth numbers have been fudged in India has made matters worse. On top of that, much of the commentary on Modi’s remarkable victory has focused on how the big government helped him get the poor voter.

The talk of labour reforms is meant to bring the focus back on one part of the contradictory group of brands that make up PM Modi.

If Pradhan Mantri Ujjwala Yojana makes him pro-poor, and PM Kisan makes him pro-farmer, then labour reform boosts his pro-corporate image.

Big corporates understand that labour reforms make no real difference to their business, but they see it as the government’s commitment to uphold their interests now that the business of elections is done and dusted for the next five years.


A Signal To Big Corporates & Investors

It is also a signal to the international investor community, who have been worried by the rise of extreme nationalism in India. The Modi government is telling them that it is largely committed to what international finance believes is good economics – low interest rates, low inflation, fiscal prudence and labour-market reforms.

Ironically, the RSS’s own labour union, the Bharatiya Mazdoor Sangh, has reacted negatively to these reforms.

The BMS, which is India’s largest trade union, has officially opposed three of the four new labour codes. After all its constituency consists of 2-3 crore workers in the organised sector.

For the Modi government however, organised workers are too small a group to matter electorally. India Inc is a different kettle of fish altogether. It might not count in numbers, but it packs a lot of heft when it comes to financing political campaigns. And, even the biggest mandate can go awry if India’s big corporates stop backing you.

(Aunindyo Chakravarty was Senior Managing Editor of NDTV's Hindi and Business news channels. He now anchors Simple Samachar on NDTV India. He tweets @AunindyoC. This is an opinion piece. The views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)

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