Labour laws are not the reason hindering India's rapid industrialisation

India aspires to be the successor, the replacement and competitor to Chinese industrial powerhouse in the post-Covid world. While comparisons do not square up, the rush to jettison restrictive labour laws seems to be on the fast track. When Vasco da Gama wanted to take a spice sapling from Kerala, the statement attributed to the Zamorin of Calicut is instructive. He told Vasco da Gama to take the sapling but reminded him that he could not take the weather, soil and climate. Is the lack of eco-system in India a big obstruction despite some states being on overdrive to change labour regulations or suspending them? Is the dream of instant industrialisation with China-based multi-national corporations rushing in because labour laws are being suspended a possibility? 

Putting all the labour laws under suspension for a period of three years appears to be a strategy of leveraging on low wage. The world has moved away from this strategy and Indian labour wages are not as high as what the industry often tries to convince us. Low wage is a short-term advantage and does not necessarily provide a long-term comparative advantage.

Even in India, labour problem is low down on an entrepreneur’s wish list. Corruption of labour inspector is quoted as a reason. But the same thing can be said about our police, politics, judiciary and bureaucracy with rent seeking at the heart of their operation. Stretching working hours to 12 hours, suspending even workmen’s safety and occupational health provisions smack of a heartless public policy on the one hand and misplaced priorities on the other. Incidentally, Indian industry has a large swathe of contract labour even in well-established houses under the guise of meeting the spikes in requirement. They do the same work  without social security  and other benefits. Percentage cost of labour to total cost had come down from 23 per cent to 13 per cent by 2016 itself because of automation ( among the top 500 industries) and might have come down further. 

It is easy to believe that the land, labour and laws are the problem in Indian industrialisation. It will be naive to believe that with a land pool of 460,000 hectres earmarked, labour reduced to energy units and laws changed, the requirement will be met for attracting global capital to make India a manufacturing hub. Labour laws have been often obsolete, multiple and non- efficacious for the industry and labour. 

Some provisions like chapter V-B of Industrial Disputes Act, which was introduced during the emergency, lays down that the units employing more than 100 workers require permission from government to close down. This militated against attaining scale, which is a requirement of modern production system. But throwing the baby with the bathwater as if labour does not matter reflects the centrality of arrogance in  politicians’ convoluted world view. The road to hell is often paved with good intentions.

Land, labour and laws are important. But they are subordinate to the rule of law, ease of doing business, ports and logistics, tariff for electricity and inverted duty structure. Somehow the ground reality refutes our claim on ascending the international ladder on Ease of Doing Business(EODB). We are still a poor 63rd in the world. Tweaking a few things do not change the egregious structure of production system, congested ports, longer turn around time and rent seekers all around.   

For industries to be attracted, prevalence of rule of law is the most critical. Not only contract should be adjudicated and enforced in a timely and judicious manner, the cost of seeking justice should be reasonable. Uttar Pradesh is a bad example for the rule of law. Safety of life and property is always at risk there with an encroaching state known for impunity in extra-juridical killings and law enforcement agencies functioning like untamed brigands. 

As far as contract enforcement go, existing institutions are unpredictable, over- active and time insensitive in their Byzantine  system. Businesses can hardly afford the luxury of long drawn out litigation if they are part of the global trade and supply chain. 

China's manufacturing is based on deeply entrenched, networked and efficient supply chain, middle-income wages, productive labour and  a first class infrastructure. This supply chain is unlikely to be wrenched when it is so efficient. A survey of CEOs concluded that no one is keen on going out of China. China's domestic market is much larger than India's and dwarfs it. The supply chain and the growth is intertwined with domestic demand there. In India, in contrast, the growth has not been redistributive enough and failed to put purchasing power in the hands of workers and people as much. Companies are unlikely to shift based on the fiat or incentive by governments. China +1 is a possibility that the countries are looking at. 

But given the advantage of China base, some small shifting may happen— and not necessarily to India. Other countries such as Vietnam, Cambodia and Bangladesh are ahead of India in terms of preference. The world is in rewind now:  Diversification plans are either going to be mothballed or a small shift will take place to other countries. But that may not include India, no matter how much we delude ourselves.  

The writer is former secretary to Govt of India