Opinion Comment

Reforming labour laws, creating livelihoods

Mukul G. Asher

The Hindu
INCENTIVISING MANUFACTURING: Encouraging the manufacturing sector through initiatives like 'Make in India' is essential to
generate productive employment. File photo from October 2011 shows workers fixing accessories at the Maruti plant in Manesar. Photo:
Shanker Chakravarty

A consensus on the outcome-based approach adopted by the Modi government to labour reforms is emerging. As the benefits become
apparent, more reforms would become feasible

Prime Minister Narendra Modis government has exhibited competence in formulating economic reform measures that
are small but likely to have substantial positive impact on reviving growth, generating productive livelihoods, and
addressing price rise. The government has tended not to view reforms in a particular scheme or a programme narrowly
but has tried linking them with other schemes and programs which could positively impact the desired outcomes and
create an environment of trust among the various stakeholders.
These welcome initiatives are also evident in the governments moves to make labour markets more flexible to address
employability gaps effectively. The government is explicitly linking labour reforms to improvement in ease of doing
business setting up the business, operating it as a going concern, and exit norms so that the available human and
material assets can be put to more productive use.
This is evident in the phrase used by the Rajasthan Chief Minister Vasundhara Raje to explain the governments labour
reform proposals creating a fertile habitat for jobs creation.
The labour reforms are also, rightly, linked to improving worker benefits like providing for a minimum pension
under Employees Pension Scheme; making Provident and Pension Funds portable; and increasing the maximum work
hours. There is also stress on easing the compliance burden for small and medium businesses, like by permitting selfcertification in some areas; restricting the powers given to labour inspectors, and by modernising labour laws. Also,
various initiatives to increase the skilled manpower include the amendment to the Apprenticeship Act, 1961 which was
passed by the Lok Sabha in August this year but is pending before the Rajya Sabha and steps to modernise the
governance of the Industrial Training Institutes (ITIs).

Reforming labour
laws to bring about
moves such as
permitting women
to work in night
shifts would

Rethinking MGNREGA (Mahatma Gandhi National Rural Employment Guarantee

Act) to provide skills and create productive assets and perhaps linking it to
apprenticeship programs in industry, plantations, and agriculture is also consistent
with labour reforms, which encourages labour mobility.
The above approach builds support for the reform process, enhances trust in the
government; and develops capacities and consensus for far deeper and wider
reforms. It is also consistent with modern growth theory and evidence, and with
sound public management principles.
The approach also enables the Union government to experiment with the concept of
cooperative federalism where outcomes rather than narrow partisan political
considerations govern Union-State relations. The decision to let the States retain

improve gender
equality

revenue from proposed e-auctioning of coal blocks is consistent with this.

Demographically favourable

India is in a demographically favourable phase. This implies that the ratio of working
age population to total population ratio is on the increase, leading to a need to provide productive livelihoods to the
increasing number of young entering the workforce and also to those who are unemployed or under-employed.
Indias total labour force in 2011-12 is estimated to be about 480 million, only about 40 per cent of the total population.
In particular, the participation of women is quite low at about one-third of the working age population that in the 1559 years category while for men it is around four-fifth. Thus, reforming labour laws to bring about moves such as
permitting women to work in night shifts, as has been proposed, would improve gender equality and, potentially, the
economic growth.
Shifting labour from agriculture to non- agricultural occupations is essential and so is encouraging manufacturing
through initiatives such as Make in India. Indias employment elasticity was negative for the years 2009-10 and in
2011-12. This cannot be allowed to continue if the countrys economic progress is to be sustained and a certain social
cohesion maintained.
Under the current constitutional provisions, labour is a subject in the Concurrent List. Individual States can amend
labour laws. The Union governments role is to forward them to the President. If the President assents, the States are
free to implement the amended laws. This is the avenue States such as Rajasthan and Madhya Pradesh are likely to
pursue to implement labour reforms. Uttar Pradesh, Himachal Pradesh, and Haryana, are reportedly considering
labour reforms to attract investments. Also, with a BJP government having been elected in Maharashtra an
important State in terms of the economy as Mumbai is the financial and commercial Centre of the country labour
reforms are also likely to be initiated there.
This avenue of State initiation-Central consent-presidential acceptance permits initiation of context-specific labour
reforms and allows experimentation and flexibility, making the costs of policy reversal less severe. It also encourages
much needed accountability on the part of State governments in terms of livelihood outcomes.
As the BJP gets entrusted with the responsibility of governing more States, potential for constructive competition
among States to produce the economic, social, and political environments necessary to generate productive livelihood
increases. This will also help facilitate the passage of Union governments labour reform legislation in the Rajya Sabha.
Constitutional amendment
An alternative avenue is to amend the Constitution so that labour primarily becomes a State subject. This merits
further research and debate.
A consensus on the outcome-oriented approach adopted by the Modi-led government to labour reforms is emerging. As
the benefits, particularly to workers and to businesses, become apparent, greater reforms are likely to become feasible.
Here it is essential not to let the best be the enemy of the good, and to keep focus on the 500 million workers in the
labour force not on just the workers who are members of trade unions and on ease of doing business, particularly
for small and medium businesses.
(Mukul G. Asher is Councillor at the Takshashila Institution and a Professorial Fellow at the Lee Kuan Yew School of
Public Policy at the National University of Singapore.)
Keywords: Narendra Modi, labour laws, Modi government, Provident and Pension Funds, Employees Pension
Fund, Mahatma Gandhi National Rural Employment Guarantee Act, Industrial Training Institutes
View Comments (4)