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Labour reforms: Time they happened

G. Srinivasan

THOUGH the reforming of India's labour laws and regulations is still the much-talked about component of the comprehensive economic reforms of the last decade, there has been scarcely any matching action. That successive governments since Mr P. V. Narasim ha Rao's, which opened up the economy to competitive forces, could not make even a modest start for more than a decade speaks volume of the constraints this politically explosive issue evokes, even as it is admitted that the rigours and rigidities of lab our laws are responsible for tepid investor response, domestic and foreign, over the years.

Not that the authorities do not understand how to effect major changes in this crucial factor of production. Unfortunately, even a modest move has met with stiff resistance from entrenched forces that professes to safeguard the interests of the workforce , in the meantime fostering fear in the governing class that any misstep could cost them dearly in the electoral battles.

The fear is being fed by adverse reports on the labour and employment situation in the decade of the economic reforms -- when the market forces increasingly began to determine the allocation of scarce resources among competing segments. The available fac ts have also fuelled such fears -- borne out by the findings of the National Sample Survey Organisation (NSSO) for 1999-2000. The NSS data for 1999-2000 reveals a distinct deceleration in the rate of growth of total employment which plummeted from 2.04 p er cent per year from 1983 to 1993-94 to only 0.98 per cent per year between 1993-94 and 1999-2000.

The official explanation for this steep drop in employment growth is that this ought to be viewed in the context of an equally sharp drop in the growth of the labour force from 2.05 per cent between 1983 and 1993-94 to only 1.03 per cent between 1993-94 and 1999-2000. Even as the labour force grew between 1993-94 and 1999-2000 skidded, the rate of growth of employment was even lower than the labour force growth. Consequently, the rate of unemployment revealed an uptrend. Unemployment rates are significa ntly higher in the younger age groups as in 1999-2000 the incidence of unemployment in the age group 15-29 years was 5.4 per cent compared to 2.23 per cent of the overall unemployment rate. A significant lineament of the unemployment problem is that the rate of unemployment is typically higher among the educated than among those that have lower levels of education.

Given that unemployment among the educated is increasing and the uneducated and unskilled labour force is steadily expanding, the overall idle workforce will effect a huge loss on the nation's progress unless social schemes that provide an income are dev ised. It is precisely for this reason that the Plan panel's Task Force on Employment Opportunities, under the chairmanship of Mr Montek Singh Ahluwalia, insisted on continuing special employment programmes even while urging the authorities to appreciate the limitations of these programmes as laid bare by countless evaluation reports.

The Ahluwalia Report, balanced in its approach, has maintained that even wage employment programmes should be focussed on maximising the development impact on rural areas through the creation of durable assets in economic and social infrastructure. It ar gued in favour of investing in such infrastructure as the existing deficiencies in infrastructure in the rural areas were glaring. It said that given the scarcity of resources, it was desirable to use the available resources for such investments even if the direct employment created was slightly lower.

The Task Force admitted that ``our ability to expand the total volume of resources devoted to special employment programmes in the year ahead will be limited because resources are severely constrained and there are several other demands on the system''. It stated that expanding the size of these programmes was difficult to justify given the ``mixed experience'' till now. The Ahluwalia Report recommended that an independent assessment of the impact of these programmes should be commissioned by the Planni ng Commission before there is any spurt in total resource allocation. Pending such a review, the total resources devoted to these programmes should be held constant at current levels, though resources could be shifted from programmes perceived less effec tive to those perceived non-effective on the basis of current monitoring and evaluation.

These suggestions are sensible in the current context when the Government had to rationalise its expenditure mix to achieve optimum results in the face of budgetary constraints and looming fiscal deficit. But its blunt view that ``persisting with labour laws that are much more rigid than those prevailing in other countries only makes us uncompetitive not only in export markets but also in domestic markets'' does not gel well with the extant political philosophy of some leading political parties, includi ng the original reformer Congress (I) and a motley group of non-Congress Opposition parties. Some of these have allied themselves with the ruling NDA headed by the BJP. Its recommendation that the most important change needed is to abolish the requiremen t of prior permission of the government for retrenchment, lay-offs or closure by deleting Chapter VB from the Industrial Disputes Act was frowned upon by those who felt threatened that their smugness and slothful conduct would be smashed.

Although the Ahluwalia Report said that the retrenchment compensation could be hiked from half-a-month's pay to one month's pay per year of service to improve the protection of labour, the report stirred up a hornet's nest with even political heavyweight s such as Mr George Fernandes condemning the report for its anti-labour tone. In fact, exasperated by the double standards of political parties opposing essential reforms and restructuring, the Prime Minister, Mr Atal Bihari Vajpayee, convened a high-pow ered group of government policy-makers in September that adopted a two-month deadline to effect the reform of such anachronistic labour laws as the current Trade Union Act 1926 and the Industrial Disputes Act to 1947.

The NDA Government was rattled by the slow pace of vital reforms, such as labour reforms, as it obstructs flow of requisite investment into the productive segments of the economy, besides keeping foreign and institutional investors at bay. Though the cap tains of leading chambers of commerce and industry pleaded for expeditious reforms on the labour front to get over the investment famine and concomitant sluggishness of the productive sectors of the economy, the Government's deadline for obtaining the po licy-makers' consent within two months from September is already over.

With the political dispensation dreading the hard decisions concerning arcane labour laws that enfeeble the competitiveness of domestic industry, it is given to the bureaucracy to sing the virtues of an urgent and decisive move in this direction. It is s mall wonder that the Working Group Report of the Planning Commission on the Tenth Plan (2002-07), under the chairmanship of the Secretary, Ministry of Labour, has come out with a comprehensive and pragmatic set of proposals for the review of labour laws so as to recast them to the requirements of employment generation, productivity, competitiveness and economic reforms with due regard to the needs of special sectors such as information technology, small-scale industries and special economic zones, expor t processing zones and export-oriented units.

On October 15, 1999, the Government set up the Second National Commission on Labour. The NCL was to submit its report this October, but has been given an extension up to February 15, 2002. Its recommendations on the reform of labour laws would lay the ba sis for suitable amendments to the country's obsolescent labour laws so that they are more in consonance with the emerging labour market needs of a competitive economy. It is time the Government implemented some of the Ahluwalia Report's suggestions as a lso those of the Working Group on Labour Laws in the Tenth Plan by using the prevailing bad economic situation to thwart any orchestrated protest by vested interests.

When countries such as China accord an overseas investor the guarantee that its labour laws will be tailored to ensure that production operations and delivery schedules are not disrupted, it is time the Indian authorities ensure a measure of such protect ion to its own entrepreneurs, small, medium and large-scale so that the economy's productive machinery operates without snags.