The citizens of India, en masse, are forcing their government to face up to the need for reform in one of the most pressing areas — the country’s arcane labour laws. The nation-wide strike of trade unions last week highlights their calls for tighter labour laws, a minimum wage and better working conditions.
The workers’ willingness to speak out to in public should be applauded, but the striking workers are missing the bigger picture by demanding job security rather than job market security.
Millions took to the streets on Feb 27, demanding tighter labour laws, like protection in the form of permanent jobs for millions of temporary contract workers – calling, in other words, for an end to contractual labour in the formal or ‘organised’ sector.
What the workers must understand is that demands like these, as they stand, are counter-productive to the much-needed reform of archaic labour laws currently in effect. They should instead demand that legislation be put in place that is more flexible to generate more job opportunities combined with measures – such as unemployment support - to give workers the security they need to remain in the job market.
Demanding an extension to labour laws that already restrict hiring and firing gives no incentive to the state to repeal the old, convoluted legislation.
One should remember that the higher the job market flexibility, the greater the number of jobs. While India’s GDP growth rate went from 4 per cent in 2000 to 9.5 per cent in 2005, the number of jobs added was 8.4m in the formal sector and 52.3m in the informal sector–bringing the total work force to 457m. The proportion of informal sector jobs remained the same in that period—at 86 per cent—and has increased only since then.
According to the World Bank, if India’s labour laws had been less restrictive in terms of contracting workers, there could have been approximately “2.8m more good quality formal sector jobs” created between 1997 and 2007.
Today, over 90 per cent of the Indian labour force is in the informal or ‘unorganised’ sector. Any legislation to do away with contractual labour is unlikely to trickle down to this majority. It would also disincentivise informal businesses from making the transition to the formal economy, where workers’ productivity is six times that of an informal sector employee, according to the Indian national commission for enterprises in the unorganised sector .
Businesses in the formal sector tend to be most burdened by inefficient legislation. The law prohibits businesses with more than 100 employees from hiring and firing workers without permission from the government even for simple reasons like the seasonal nature of their business and skills redundancy.
Furthermore, a delay in labour reform is a loss on economies of scale for the businesses; in contrast, the Chinese authorities seem to have understood this basic principle of economics much better, enabling their companies to increase productivity exponentially, unlike their Indian counterparts.
As Kaushik Basu, chief economic advisor to the Indian government, has said: “What is needed is not freedom for firms to wantonly fire workers but a legal regime whereby firms can write different kinds of contracts with their workers depending on their needs.”
The International Labour Organisation has dabbled in the concept of ‘flexicurity’—a mash-up of the words ‘flexibility’ and ‘security’—for workers in India. The idea is that labour laws should aim to give employers the flexibility to hire and fire workers in the face of challenges posed by the needs of their business in a globalised market.
In turn, workers should be given security in their current employment and also when making a transition from one job to another. The state could provide this through efficient social security measures like unemployment insurance between jobs or vocational training to upgrade workers’ skills.
Our Asian neighbours like Malaysia and Singapore have managed to implement this transition from job security to job market security successfully, through the necessary coordination between the state and private sector to write out contracts. It is time that India stop shying away from discussing ‘flexicurity’, which would greatly enrich the reform debate.
Gurudas Gupta, general secretary for the All-India trade union congress, one of the oldest and largest trade unions in India, said of the strike last week, “This is a historic occasion. For the first time all the big trade unions have come together to protest the anti-labour polices of the government.”
He must remember that this strike has cost the national exchequer a huge sum, and the campaign is worth pushing only if calls for reforms that are robust and sustainable, and are based firmly in the realities of India’s economy.
(By Hemal Shah , programme coordinator of economic studies at the London-based Legatum Institute.)
Courtesy : The Financial Times, March 8, 2012
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