Bibek Debroy: Bypass the IDA

OFF THE RECORD

The labour ministry has made a presentation to the parliamentary standing committee on labour on making labour markets more flexible. The ministry's note is now in the public domain. Apart from general comments, the note flags the Contract Labour (Regulation and Abolition) Act or CLRA, the Industrial Disputes Act or IDA, and the inspector raj. Since everything is now evaluated against the touchstone of the National Common Minimum Programme (NCMP), what does the NCMP say? "The UPA rejects the idea of automatic hire and fire. It recognizes that some changes in labour laws may be required but such changes must fully protect the interests of workers and families and must take place after full consultation with trade unions. The UPA will pursue a dialogue with industry and trade unions on this issue before coming up with specific proposals. However, labour laws other than the Industrial Disputes Act that create an Inspector Raj will be reexamined and procedures harmonised and streamlined." This suggests any changes to the IDA will be impossible, but there is no bar to reducing the inspector raj and harmonising and streamlining procedures. In that case, is there a tactical mistake in clubbing the IDA with other labour market reforms? Because of resistance to the former, the latter doesn't materialise.

This is not something that plagues the UPA government alone. What happened to the Industrial Relations Bill that Yashwant Sinha promised in 2001-02? This obsession with the IDA, and specific parts of the Act, probably does more harm than good. Take the CII-McKinsey report, published in 2004 and titled, "Made in India: The next big manufacturing export story". On p. 75, this tells us the government should repeal "Section 5B" of the IDA and I have heard this parroted by assorted people. The problem is there is no Section 5B in the IDA. What is meant is Chapter V-B, covering Sections 25-K through 25-S. I don't think such inaccuracies aid the cause of reform. The labour ministry's note also flags Chapter V-B and argues for increase in the threshold from 100 to 300 (unlike Yashwant Sinha's 1,000) and increase in retrenchment compensation from 15 days to 90 (unlike the Second Labour Commission's 45). The suggestion is that the only offensive part of the IDA is Chapter V-B, inserted into the IDA in 1976, with threshold increased from 100 to 300 in 1982. However, life is more difficult. Without getting into details, there are problems with Sections 9-A, 11, 11-A, 17-B, and 22/23 of the IDA also.

In other words, one needs a new statute, as Yashwant Sinha promised. Repealing Chapter V-B is not only tactically impossible, it won't be enough. However, note that since 1991, states have been far more forthcoming in granting permission for layoffs, retrenchment, and closure. Also note that under Chapter V-B, states are free to introduce their legislative amendments. What happens if the changes in the IDA, pending the new statute, disappear from the central reform agenda and are instead implemented by states? Since we have talked about the IDA since 1991, without results, such bypass seems more doable. Flagging the IDA not only raises blood pressures, it postpones the CLRA and inspector raj changes and runs the danger of imparting rigidities to the Shops and Establishments Act (SEA), which governs any shop or establishment, not a factory. On the CLRA, the ministry proposes excluding some activities from Section 10 and replacing "emergency" by "public interest" in Section 31. Redoing Section 10 is certainly a better option than the repeal of the CLRA, as reformers sometimes argue. Problems with the CLRA primarily arose because of courts and industrial tribunals. In the absence of Section 10, such intervention will be completely uncontrolled. Take the Factories Act as an example. Industrial tribunals may conclude that since canteens are mandated under Section 46 of the Factories Act, no contract labour can be employed in canteens.

Having said this, I am not sure if the labour ministry's proposal is enough. The ministry wants more activities excluded from Section 10 notifications. That is fine, insofar as it goes. But the ministry doesn't seem to want a change in the wording of Section 10 itself. I don't think that is good enough. We probably need the wording of Section 10(2) changed. Otherwise, exclusions will be held to be illegal. Finally, we are left with the inspector raj, which should be the priority on the central labour market reform agenda. That can't be done without harmonisation and rationalisation. The Second National Labour Commission suggested grouping into four or five heads""industrial relations, wages, social security, safety and welfare. Actually, there is an inspector raj at three different levels of an enterprise's working""entry, functioning and exit, but the focus is generally on functioning. Once one has harmonised, there can be common formats, single inspectors, electronic filing and even out-sourcing. And this fits in with what a conference of chief ministers agreed to in 1997. Except that there has been little implementation. And my hypothesis is that non-implementation has often been due to equating labour market reforms with IDA issues. Let's take care of these other issues. Let us work out a viable mechanism for extending social security and protective legislation to the unorganised sector. IDA changes will automatically follow.