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Manufacturing discontent: India’s workers in crisis

Labour courts are overburdened and the justice system is a nightmare for the poor to negotiate.

India is all set to be the world’s youngest country by 2020, with potentially the world’s largest labour force. The optimism about the country’s future as an economic powerhouse rides on the promise of its demographic dividend.

The current government, elected on the ostensible mandate of economic development, has launched a Make in India initiative that seeks to increase the manufacturing sector’s share of the economy from 16 percent of the gross domestic product to 25 percent by 2022.

But the task is seemingly uphill. India ranks poorly on the ease of doing business index, and one of the World Bank’s key policy prescriptions has been reform of the country’s labour laws in favour of employers.

To this end the central government has proposed a set of labour law amendments and, even as they are being debated, state governments run by the ruling Bharatiya Janata Party have already initiated reforms along those lines.

The reality about working conditions

The proposed reforms will make it easier for employers to fire labourers, make it harder to unionise, tougher to take industrial disputes to court and will exempt a large number of small and medium enterprises from existing labour regulations – including health and safety regulations.

They will also put an end to the regime of inspection meant to ensure implementation of laws and set up an alternative mechanism of self-certification in order to protect employers from harassment by corrupt inspectors.

The thrust of the argument is clear: Greater flexibility and leniency for employers over employees will lead to increased investment in the manufacturing sector, more employment, exports, and eventually, the growth of the economy. The underlying assumption is that stringent pro-labour regulation causes less productivity.

There is, however, strong evidence to indicate that states with labour laws that favour employees are not necessarily less productive.

More importantly, there is little evidence to show that pending reforms – of licensing, land acquisition and bankruptcy laws – and less regulation of the labour market will help the manufacturing sector.

Labour laws in India need to be unified, streamlined and reformed but only once the terms of the debate have shifted from labour versus capital towards consensus building for better industrial relations and sustainable growth.

Another, more fundamental question lies at the heart of this debate: Do the existing labour laws really favour labour over capital, as World Bank reports claim?

Roughly 90 percent of employees – largely the poorest and most marginalised – in the country work in the informal sector and are therefore outside the purview of most of the contentious regulation.

But even within the relatively small formal sector, a large number of employees are hired on contract and have limited recourse under labour laws that are meant to safeguard their interests.

Contracted workers increased from 12 percent of all registered manufacturing workers in 1999 to 25 percent in 2010 (PDF).

Proponents of the reform argue that if employers have greater flexibility to fire, factories will take on more permanent employees.

Again, there is little evidence to back this claim, especially given that employers get away with paying contract workers lower wages than those of regular employees, and unless that changes they have little incentive to regularise jobs.

No power to negotiate

But let us focus for a moment on the small number of regular workers in the formal sector who are covered by what is being called stringent regulation.

It is commonplace for factories to play fast and loose with the rules; and the system of inspection that is supposed to ensure the implementation of laws has been overburdened and inefficient.

When inspectors do show up they are prone to rent-seeking in lieu of overlooking the exploitation of labourers.

As mentioned above, the system of compliance is now being changed so that employers have greater protection against rent-seeking inspectors, but in no way does it make the system more just for the employees.

The problem with reforms that seek to tilt the balance of interests in favour of management is precisely this: Irrespective of how the existing laws are written, the average labourer in India often finds herself or himself working for abysmal wages, without adequate job security, no comprehensive social security or unemployment benefits, amid appalling health and safety conditions.

Labour courts are overburdened and the justice system is a nightmare for the poor to negotiate.

A study commissioned by the former Planning Commission of India – which was in charge of boosting the country’s manufacturing sector – found that factories which invested in their employees and followed just policies with respect to human resources had higher productivity than those who did not (PDF).

The report also acknowledges that the stress within the labour ecosystem in India could have a significant effect on the competitiveness of the manufacturing sector.

On September 2, a general strike of roughly 180 million workers – possibly the largest reported general strike in history – resulting in an estimated loss of $2.65bn, was a powerful indicator of the stress.

Unsurprisingly the state chose to respond by attempting to suppress the strike in some parts and downplay it in others.

Workers from several other sectors, however, took cognizance of the plight and demands of factory workers and joined the strike to express solidarity.

One of the key demands of striking workers was simply that labour laws should not be amended unilaterally. Acceding to this would be a good way for policymakers to begin rethinking the direction and ethos of change.

Labour laws in India need to be unified, streamlined and reformed, but only once the terms of the debate have shifted from labour versus capital towards consensus building for better industrial relations and sustainable growth.

If, on the other hand, the government continues to ignore the rising chorus of increasingly desperate voices, it will do so at its own peril.

Its repercussions will extend beyond the manufacturing sector because you can build neither a healthy economy nor a healthy society by marginalising the majority of the population you are hoping will yield economic dividend.

Originally published in Al Jazeera.

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