The human factor of production

The UPA government has placed employment growth at the centre of its economic policy, in an attempt to change the "jobless growth" of the last decade.

But is it necessary to reform the labour market to achieve employment growth? And what do we mean when we talk of labour reform""after all, 92 per cent of the Indian labour force work in the unorganised sector, where labour flexibility is the norm?

Moreover, is labour law reform only a question of giving employers the right to fire workers? These are some of the questions taken up in this book, the answers to which should provide policy makers a road map for ensuring that the millions who join the labour force every year are able to find jobs.

The book is a collection of 14 papers, all of them related to the issue of labour market reforms.

Bibek Debroy's paper sets out the argument succinctly. He says that "in the absence of flexible labour markets in the organised sector, growth in output does not necessarily lead to an increase in employment, because labour effectively becomes a fixed input.

Hence production becomes artificially capital-intensive. In an attempt to protect existing jobs, future and potential jobs are lost. Thus, the system is not in the broader interest of labour either".

He goes on to point out the plethora of labour laws, both state and central, the overlaps, redundancies and contradictions between the various statutes, the mindless details of some of the rules and their role in promoting and perpetuating the inspector raj.

He argues that nobody, except perhaps the factory inspectors, can have any objection to harmonising and rationalising these laws, and that harmonisation can be done even when the more contentious issues in labour laws are being debated.

Debroy says that "flexibility requires harmonisation, standardisation, friendly inspections and reduced avenues for bribery and corruption ... By equating labour reforms with the 'hire and fire' of the Industrial Disputes Act, we therefore do a disservice to the cause of labour market flexibility."

He also highlights the gap between law and practice, pointing out that a termination dispute can take over 30 years for a verdict to be delivered, thus in practice effectively giving the employer a free hand in firing workers, and making the worker go through the tortuous litigation system to seek redressal.

Amirullah Khan of the India Development Foundation, however, argues that in practice workers cannot be dismissed even for serious misconduct, a view echoed by the recent case of a worker found sleeping on his job, which took decades before the Supreme Court allowed the company to sack him.

Khan also agrees that had it not been for the identification of labour reform with an exit policy for labour, the work on the harmonisation and standardisation of labour laws could have been carried out by now, since a comprehensive draft of an Indian Labour Code had been prepared as early as 1994.

He also makes the interesting point that, in spite of unchanged labour laws, the number of disputes has fallen sharply in the post-reform era, from 1,714 in 1992 to 413 in 2002. This, he claims, is because of "attitudinal shifts and mindset changes".

Professor C S Venkataratnam also points to the changes in mindset, as seen from recent pronouncements of the Supreme Court. While laws may not have changed at the Centre, they have done so in the states.

He says that "in some states revolutionary changes have been initiated through the declaration of a new labour policy (Kerala), inspection (Rajasthan). In UP, labour inspectors are advised to carry out inspections only after permission from the Labour Commissioner.

The new rules in West Bengal and Orissa provide for secret ballot as the method of determination of the representative union."

Arnab Hazra says that not only is the Industrial Disputes act outdated and inefficient, it is also easily circumvented by employers. Surendra Nath points to the Chinese experience.

He says that China has only one labour law running into 107 articles, whereas Indian labour laws passed by Parliament alone run into a couple of thousand pages, and there are hundreds of state labour laws running into well over ten thousand pages.

He also makes the point that labour productivity in India is very low, comparing unfavourably with neighbouring countries like Pakistan, Indonesia, and China. The average productivity of a Japanese worker is 33 times and that of a Chinese worker 12 times that of an Indian worker.

P D Kaushik looks at the digital economy, while papers by Amaresh Dubey, Veronica Pala, and Eugene Thomas analyse the informal sector and the women's work force participation rates.

Laveesh Bhandari focuses on sub-contracted home work. T C A Anant, Arnold Packer, and D Shyam Babu are the other contributors.

There's also a paper by H Mahadevan, dy general secretary of the All India Trade Union Congress, which sticks out like a sore thumb in this collection. Mahadevan argues that once we accept the logic of foreign investment-led development, we have to introduce policies that are acceptable to MNCs.

"Hence," he says, "a labour repressing or labour co-opting regime is attempted by capital and the state, ushering in a hire-and-fire policy regime and jettisoning labour protection."

This volume will provide a comprehensive backgrounder to the current state of labour legislation in the country and the directions for reform. But it also raises some questions.

Many companies have successfully been able to shed excess labour through either voluntary retirement programmes or through outsourcing. Several economists in this volume have drawn attention to the fact that the labour laws can easily be circumvented.

In that case, is it the absence of labour flexibility that holds back investment? Also, there's the argument that much of modern technology is capital-intensive per se and so looking for employment growth in the organised manufacturing sector may be a pipe dream.

In China, in spite of massive foreign investment, there has been a net loss of jobs in manufacturing as inefficient state firms shed workers. China too has labour legislation in place, but that hasn't prevented thousands of sweat shops from holding back wages and making their employees work 15-hour days.

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Reforming the Labour Market

Bibek Debroy and P D Kaushik
Academic Foundation, in collaboration with
Friedrich Naumann Stiftung and
Rajiv Gandhi Institute for Contemporary Studies
Price: Rs 695,
Pages: 417