Modi's Game-changing Labour Reforms

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Parliament, in its just-concluded monsoon session, passed three labour code bills; the Industrial Relations Code, Social Security Code and the Occupational Safety, Health and Working Conditions Code. The Wage Code Bill, 2019 was passed by Parliament last year. Key provisions like making all categories of workers eligible for minimum wages, as against only 30% of the workforce being eligible at present, are indeed path-breaking. Minimum wages would be extended to the entire services sector, domestic workers, unorganised workers and teachers, among others, to mainstream the informal sector.
Prime Minister Narendra Modi has done what none before him could even dare to attempt--India's labour market reforms will herald the dawn of a new era in making businesses more efficient and competitive, cutting down extra flab and allowing flexibility in hiring and retrenchment, making industrial strikes difficult, removing multiple licensing and paperwork and of course getting rid of disguised unemployment. Disguised unemployment is a scenario where employees are underutilised and therefore underpaid, as there is not enough work that can be allocated to them, for various reasons.
It needs to be mentioned here that the success of any law depends upon the commitment of the executive, facilitative environment and available infrastructure with the implementing agencies. This is true for all laws, including the plethora of labour laws enacted over the past several decades. More importantly, laws and regulations need to change with changing times, to be relevant. Since labour is in the concurrent list, the central and respective state governments have been enacting laws from time to time. With multiple laws in vogue, there was a crying need to simplify the labour laws, to unshackle the private sector and make it competitive, in tune with the global environment. The three Bills passed by Parliament on September 23, 2020, along with the earlier enacted Wage Act, subsume 44 odd central laws enacted during the past several decades.
The Modi government's dynamic labour reforms that replace archaic labour laws have been pending for a long time. The current Bills were referred to the Parliamentary Standing Committee for examination. After holding detailed consultation with all stakeholders, the committee submitted its report to Parliament making several recommendations. The Modi government accepted 174 of the 233 recommendations of the Standing Committee on labour and incorporated them into the three labour codes.
India jumped 14 places to the 63rd position in the ease of doing business (EODB) rankings last year and by 79 positions in five years (2014-19). The COVID-19 situation has made both the life of the employer and employee difficult. Under these circumstances, these new (labour) codes are bound to make new enterprises investor-friendly, increase ease of doing business and make it attractive to invite foreign entities which want to exit from China. A key element of the proposed Social Security Code is to clearly define migrant workers and also enlarge the scope of the current scheme to cover the gig economy and those outside the organised sector while recognising the emergence of online platforms and aggregators that provide access to workers. The Bill has mandated registration of all unorganised and gig and platform workers and provision of insurance, maternity, crèche and old age protection benefits. Industries and workers are two sides of the same coin, and these three Bills have tried to balance the rights and obligations of both employers and employees.
Besides, companies with up to 300 workers are proposed to be allowed to hire and fire workers without seeking prior government permission, as part of the Industrial Relation Code Bill 2020. The earlier threshold was, up to 100 workers. And companies having more than 300 workers need to apply for approval, but if authorities do not respond to their request, and then it will be deemed approved. The most contentious of all the codes, the Code on Industrial Relations, seeks to consolidate and amend laws relating to trade unions, conditions of employment in industrial establishments or undertaking, investigation and settlement of industrial disputes. Interestingly, in the earlier Industrial Disputes Act of 1947, Chapter V-B was introduced by an amendment in 1976, requiring firms employing 300 or more workers, to obtain government permission for layoffs, retrenchments and closures. A further amendment in 1982 (which took effect in 1984) expanded its ambit by reducing the threshold to 100 workers. Meanwhile, during the past few years, 16 states have already increased the threshold for closure, lay off and retrenchment in firms with up to 300 workers.
Again, as per the IR Code, a notice period of 60 days will have to be given by trade unions or employees before going on a strike. During the pendency of proceedings before a Tribunal or National Industrial Tribunal and even 60 days after the conclusion of such proceedings, workers can-not go on a strike. Strike conditions have been applied to all industries. Currently, it's between two weeks and six weeks. This is a game-changing move that will discourage flash strikes and enhance productivity significantly.
As part of its ‘Atma Nirbhar Bharat’ push, the government has decided to encourage medium enterprises to grow in size.
The Bill also reflects the changing nature of the economy; the growth of the gig sector and the vulnerability of sections of workers, from migrant labour to house helpers, who despite playing a crucial role did not fit into the traditional definition of ‘worker’. The new Bills will amalgamate 29 existing labour laws and pave the way for simplifying laws and take welfare measures to India's 50 crore workers, spanning organised and unorganised sectors.
Some experts allege the blanket exemptions to industries through various provisions will lead to social and economic unrest, promote contract system and take away job security and wage security. These allegations are baseless as in many areas; fixed-term workers and regular workers will enjoy equal benefits.
The Code on Social Security, 2020, consolidated laws relating to social security and ensures the extension of social security to all employees and workers both in the organised and the unorganised sector. The Social Security Code enables the creation of a National Social Security Board which will take on the responsibility of formulating suitable schemes for unorganised workers, gig workers and platform workers. Under the Code on Occupational, Safety, Health and Working Condition code, the government has provided for a full-fledged survey for migrant workers for which the centre will source data from various agencies and states.
The Social Security Code also aims at universalising social security by bringing informal workers under its ambit. Henceforth, companies having less than 20 workers can voluntarily join EPFO to get social security benefits, and internal workers will be free to voluntarily join employee state insurance (ESI) schemes for getting healthcare benefits. The code also talks about platform companies employing gig workers, to make provision of 1% to 2% of their profits for social security needs of their workers.

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People need not work continuously for five years to get gratuity benefits, according to the new Social Security Code Bill. The code has removed the mandatory minimum gratuity threshold of five years while introducing a different threshold structure for various categories of workers. Regular and permanent employees will now have to work for at least five years to become eligible, while fixed-term or contractual workers will have no such limit. Instead, their gratuity payment will be linked to their tenure of work. For working journalists, the code makes a provision to avail gratuity benefits after three years of service and for seasonal workers gratuity payments equivalent to salary for seven days will be provided for every season of work.
Earlier, the five-year gratuity payment was mandatory, which meant millions of workers used to forfeit their gratuity deposits, the salary of 15 days for every year of work, if they resigned or lost jobs before the stipulated period. However, the Bill makes provisions that if an employee is involved in damaging activities and/or has damaged property, his gratuity payment can either be adjusted against the damage or forfeited.
All employees will now have an offer letter, and both the centre and the state will create a database on migrant and fixed-term workers and offer them several advantages including portability of public distribution system benefits, construction cess benefits, digitising payment of wages and free annual medical check-up.
Migrant workers will now be brought under the ambit of social security schemes that include life and disability insurance, provident funds, health and maternity benefits and skill up-gradation.
Prime Minister Narendra Modi's ground-breaking labour laws have been envisaged by recognising the changes in the global scenario in a post COVID world. The new labour code seeks to transform India and rid it of past out-dated technological work methodologies. The reduction in compliance burden would facilitate the expansion of establishments, helping to create jobs on a large scale across sectors, giving Prime Minister Narendra Modi's transformational Make in India, a huge boost.
FAQs on Labour Reforms…
• How will the labour codes help the manufacturing sector?
The reforms allow industries flexibility in hiring and retrenchment. They will make industrial flash strikes by workers tougher, by imposing new conditions that will make it more challenging for workers to hold employers to ransom. This will, in turn, raise the productivity of employees, making firms more efficient and competitive.
• What are the changes in hiring and firing?
Under the Industrial Relation Code, the government has allowed companies with up to 300 workers to fire workers or shut plants without the prior approval of the government. Hitherto, prior approval had been required. Firms with more than 300 workers need to still apply for support. However, if the authorities do not respond to their request, the retrenchment proposal will be deemed to be approved. Earlier labour laws required a 30- to 90-day notice period before retrenching "workmen", which is a class of mainly shop floor workers. In the case of manufacturing units, plantations, and mines with 100 or more workmen, layoffs also required government approval. The new labour code eliminates many of these archaic provisions, which were impeding faster industrialisation.
• What is the economic rationale for this?
Economists have long argued that India's out-dated labour laws need an overhaul. Stringent hiring and firing rules applied to firms with over 100 employees, made it virtually impossible to lay off workers, even if they were unproductive and the firms were bleeding. This encouraged smaller firms to stay small, merely so that they could escape the rules. According to the World Bank, with less restrictive laws, India could approximately add on an annual basis, 2.8 million more, good quality formal sector jobs. Hence, it is safe to say that the new labour code will, among other things, boost jobs and create fresh employment opportunities, by incentivising firms to expand.
• How does the new labour code affect workers' right to strike?
The Industrial Relation Code lays down new conditions on the right of workers to go on strike. Unions will now have to give 60 days' strike notice. If proceedings are pending before a labour tribunal or the National Industrial Tribunal, workers cannot go on a strike for 60 days after they are concluded. These conditions apply to all industries. Earlier, workers could go on strike by giving between two weeks and six weeks of notice. Flash strikes are now outlawed.
• What are the new workplace safety rules?
The Occupational Safety, Health and Working Conditions Code, 2020, amends laws were regulating occupational safety, health and working conditions of employees. The code empowers a state government to exempt any new factory from the provisions of the code to create more economic activity and jobs. It fixes the maximum daily work limit at eight hours a day. Women will be entitled to be employed in all establishments for all types of work, and in case they are required to work in hazardous or dangerous operations, the government may require the employer to have adequate safeguards in place prior to employment.
• Is the social safety net now, wider in scope?
Yes. The Code on Social Security, 2020 promises universal social security for the first time, including for both organised and informal workers as well as gig and platform workers. The government, the code states, shall formulate and notify, from time to time, suitable welfare schemes, including schemes relating to "provident fund, employment injury benefit, housing, educational schemes and old age homes. The government can tap corporate social responsibility funds (within the meaning of the Companies Act, 2013) or any other such source as may be specified in the scheme. The social security code lays down the setting up of a National Social Security Board to recommend to the central government, suitable schemes for unorganised workers.
Prime Minister Narendra Modi summed up the ethos of the labour reforms when he stated that the three Bills are shining examples of ‘Minimum Government, Maximum Governance’. The Prime Minister added, "The labour reforms will ensure 'Ease of Doing Business'. These are futuristic legislations to empower enterprises by reducing compliance, red-tapism and 'Inspector Raj'. The reforms also seek to harness the power of technology for the betterment of the workers and industry both, The new labour codes will go down in history as a splendid testimony to the paradigm shift, that Modinomics has brought about, as India takes a giant leap of faith in its goal towards becoming Atmanirbhar”.
The writer is an Economist, National Spokesperson of BJP and Bestselling Author of ‘Truth& Dare--The Modi Dynamic’