The New Labour Code for New India: Biggest Labour Reforms in Independent India is what the government pitched it as. Within the document, the Prime Minister is quoted as making several assertions about the impact these labour reforms will have on the Indian economy.
The four new labour codes aim to ensure the well-being of our industrious workers, give a boost to economic growth, ensure the ease of doing business, and empower enterprises by reducing compliance, red-tapism and 'inspector raj'.
These reforms have been held up as shining examples of 'Minimum Government, Maximum Governance'.
All the above are statements of good faith. But how does it hold up in the face of reality?
Problems galore
The document highlights the fact that 90% of the labour force is employed in the unorganised sector, which implies that it will not be easy to ensure compliance with these rules. A mere registration on a portal or electronic filing of returns or documents does not ensure ease of doing business or compliance, as we have seen in the case of GST implementation, where fraud continues unabated even when the compliance burden has gone up for the business.
It is not going to be very difficult to game the system in the case of labour reforms too. The provision of contribution to reskilling funds can be easily circumvented by getting staff to resign and a mandatory health check-up can become a check-box exercise involving unscrupulous medical practitioners and employers, among others. We do know that worker health and safety, including that of women workers, is rarely a priority even in government offices.
Coming to the "well-being of our industrious worker", the current minimum national wage provision itself is ineffective, and a large number of current workers do not get the current minimum wage. The provision to extend it to cover all sectors is meaningless if we cannot solve the problem of compliance.
The provision to assess the level of required minimum wage every five years (or a period not exceeding five years) is inadequate, as we are experiencing significant structural shifts in cost of living far more frequently, e.g., hyper levels of food inflation in some years, annual increases in house rentals, education and healthcare cost inflation. We need annual automatic adjustments to the minimum wage payable across states rather than once-in-five-years bureaucratic review.
Similarly, an involuntary annual health check-up violates worker privacy, adds to employer costs, increases the compliance burden and can result in the workers being targeted for involuntary separation based on their health condition.
More reality checks and what really must have been done
The reality is that labour reforms can contribute to economic growth only if our formal employment levels go up, which, in turn, improves the quality of employment, and the cost of doing business comes down.
Getting a letter of employment is just the first step in the process of formalising employment, and ensuring timely payment is not a favour that the government or the business does to its workforce. We have had many instances where even the government does not pay its staff on time or does not pay them at all.
Another aspect of quality of employment is the proportion of employees who hold low-risk, increasing productivity jobs that compensate them for the value that they create. Our productivity performance during the post-1991 reform period tells us that we have not got that right (Source: RBI’s KLEMS database).
Even when the labour productivity has gone up, the share of labour in income has not gone up between 2000-2019. While the performance post-2019 looks better, there has been a definitional change (inclusion of self-employed persons in KLEMS database), which does not make it easy to interpret the data.
In summary, the Indian government has taken a step to reduce the complexity of labour laws, though five years after the legislation was passed. However, this effort will not qualify as a reform that can help accelerate growth and quality of life for 50 crore employees—90% of whom are in the unorganised sector.
A labour reform instead must focus on improving quality of life through better working conditions (improved health and safety standards), better labour and capital productivity with lower working hours (not 12-hour shifts, with additional hours for commute to work). Also, wages that are adjusted for increases in the cost of living. When can we expect all of that?