Given the need to revive Indian manufacturing - Make in India being a major focus of the current government - the Union labour ministry should be focusing on the long-pending effort to redraft and liberalise Indian labour laws. Such a change would benefit employers, employees and the wider economy. Recently, Labour Minister Bandaru Dattatreya indicated that some changes were indeed planned in the short term to a major labour regulation. Indeed, so urgent did he deem these changes that he was not willing to wait for Parliamentary approval and wanted them to be carried out through an executive order. Unfortunately, this proposed change is not of the sort that has been long demanded, but one that makes little or no economic sense and will only retard the prospects of economic and employment recovery.
Mr Dattatreya proposes to issue an executive order making it compulsory to pay contract workers at least Rs 10,000 a month. This will be accomplished through changing Central Rule 25 of the Contract Labour (Regulation and Abolition) Act, 1970. This is hardly a reformist step. While minimum wage legislation is an important part of social protection, it is well understood that it must take into account local costs and characteristics. A universal wage threshold that is higher than the prevailing wage in many areas cannot be justified. It will either be evaded, or it will cause a shrinkage of employment. It would certainly lead to increased harassment of employers, something which the Centre has specifically pledged to reduce as part of its endeavours to make it easier to do business. There is no economic or social rationale that a contract worker in rural Jharkhand should be guaranteed the same minimum wage as one working in Mumbai city. The minister used as partial justification for this move a Supreme Court mandate that inflation should lead to a revision of the minimum wage. That may certainly be economically justified - but it is not the same thing as universalising a minimum wage across regions. The decision on minimum wages must be left to state governments that are most responsive to specific local needs and conditions. This would also be in keeping with the cooperative federalism supposedly espoused by the Union government. It is inexplicable that, on the important issue of labour market flexibility - where central regulations are the constraint - the Union government has stepped back and left it to the states to fix the issue. But on the issue of minimum wages for contract workers, it has chosen to intervene, effectively bypassing the states.
Worryingly, Mr Dattatreya also said that all contractors will henceforth have to register with the labour ministry. Presumably, the ministry will then expand its monitoring and inspection role. This, again, goes against the idea of reducing harassment of employers. That political calculation rather than economic progressiveness underlies this decision is evident in the fact that Mr Dattatreya, who has been elected to the Lok Sabha from Secunderabad, spoke specifically of the number of sanitation workers in Andhra Pradesh and Telangana who would benefit from his move. While improving the lot of labour is an important objective, this is not how to go about it. Increasing the size and dynamism of the formal sector is the way forward, which needs regulatory flexibility and rationality. Mr Dattatreya should be encouraged to rethink his approach.
