Understanding labour reforms and associated issues

Inadequate employment opportunities as well as their quality have been major challenges for the global economy, and also in India.

The report of the International Labour Organization, Employment and Social Outlook, Trends 2016, has underlined that Poor job quality remains a pressing issue worldwide.

Generation of employment and policies to make work decent has been major challenges in India right since Independence and daunting in recent times.

Workforce Participation and Employment Challenges

• Of India’s approximately 1.3 billion population, 70 per cent live in villages and 40-45 per cent can be categorized as the working population.
• The work is segmented along the lines of caste, religion, gender, region, etc. This leads to several problems, such as labour immobility for different groups, in particular women, huge wage differentials and discrimination, etc.
• The proportion of women in the labour force has been consistently lower than male workers by close to 20% points.
• As per the recent official estimates female work participation is in the range of 25 to 30 per cent.
• As per the ILO report Women and Work, 2016, the gender wage gap in India is among the highest in the world, at 26 per cent.
• In India dependence on agriculture accounts for close to 50 per cent of the total workforce and agriculture sector contributes only approximately one sixth of the GDP of the country.
• The non-agricultural sector has extremely high proportion of vulnerable informal employment.
• During Economic reforms period, India has experienced significant agrarian distress because of changes in its macroeconomic policies and declining public investment in the primary sector, leading to lack of labour absorption in agriculture.
• Landless and casual workers have found few opportunities for decent employment in both manufacturing and service sectors.
• The share of the manufacturing sector in the overall national income has been stagnant around 15- 16 per cent since the early 1990s.
• The core of the growth pattern is centered on the expansion of the service sector, which has a preponderance of both vulnerable casual and self-employment.

Increasing Vulnerability and Informality

• As per the World Economic and Social Outlook Report, 2016, 12 per cent of the workforce in the developed countries and 46 per cent of the workforce in the developing countries are in informal employment.
• In India this proportion is much larger with more than 90 per cent of workers being in informal employment.
• Most of these workers can be classed as ‘vulnerable’ who work in insecure jobs with negligible social protection.
• Informality and vulnerability has been on the rise, despite, relatively high economic growth rates of GDP in the reforms era.
• Withdrawal of the Indian state from key areas in the social sector has aggravated the vulnerability of the working-class.
• The presence of vulnerable labour reserves is structured by the lack of employment opportunities.

Need for a Social Protection Floor

• Demographic dividend if upgraded through skill development, and supported by labour market flexibility, will help to attract investments and create jobs.
• Only a minuscule proportion of the total workforce, which is part of the organized sector, enjoys some protective coverage.
• Except for the Minimum Wages Act in some states, informal sector activities remain unaffected by the labour laws which were enacted to address the organized sector.
• India’s policy makers face the challenge of designing and implementing a floor of labour rights, with a comprehensive vision of a ‘national labour market’.
• Such a vision should clearly spell out a set of core labour standards, including a national minimum wage.
• For workers in informal employment, there is an urgent need to ensure universal social protection that improves their conditions of work and helps them live a life with dignity.
• There has to be provisioning of basic services like nutrition, sanitation, health and education. This will improve the material and social conditions of workers.

Informal Labour Market in India

• The Indian labour market contains 92 per cent of the workforce in informal employment and less than 10 per cent in formal employment.
• The reason for this large proportion of workforce being informal draws back to the socio-economic factors that existed since the colonial times.
• The Industrial Revolution in Britain failed to create an impact on the Indian economy. At the time of Independence we were left with a largely peasant economy and the labour force was driven by inter-caste rivalry as non-farm occupations were mostly caste driven.

Indian Labour Market after Independence

• After independence the Mahalanobis strategy of industrialization focused on capital intensive industries.
• The labour-intensive sectors like agriculture, handicrafts, handlooms, small and rural industries did not expand and remained small in size and the labour employed was informal in nature.
• Therefore historically India had a large informal workforce even before the onset of the liberalisation and globalization.

Informal/Unorganised sector

• The National Commission for Enterprises in the Unorganised Sector (NCEUS) defined the informal/unorganised sector as all enterprises owned by individuals or households with less than ten workers.
• According to NCEUS “Informal workers consist of those working in the informal sector without any employment and social security benefits provided by the employers.”
• The high proportion of labour force in the informal sector is because more than 50 per cent of the• workforce is self-employed and engaged in the unorganised farm sector.
• Post-liberalization due to increasing global competition and withdrawal of subsidies, the entrepreneurs continued to keep their firm size small to be exempt from regulations, tax structure, labour laws including social security for workers.
• This disinclination on the part of the entrepreneurs in increasing firm size led to the growth of casual and contract labour post-liberalisation.
• By engaging contract labour the employers would be free of the hassles of hire and fire policy guided by the Industrial Disputes Act, 1947.
• Increasing contractactualisation/ casualization of employment has led to the workforce losing outon job security, social security in terms of medical benefit; pension, workmen compensation, minimum wages, overtime wages for extra hours, exposure to occupational hazards and so on.
• To tackle growing informalization, various Committees and Commissions were constituted which reported that labour force was largely illiterate with very low levels of vocational skills which hindered their transition from the agriculture to the manufacturing or service sector.

Policy Measures

• The Unorganized Workers Social Security Act 2008 was enacted to provide social security and welfare of unorganized workers.
• The Rashtriya Swasthya Bima Yojana was launched in 2008 to meet the out-of-pocket health expenses of unorganised sector workers.
• There is the Contract Labour (Regulation & Abolition) Act, 1970 to regulate the employment of contract labour.
• Various schemes have been introduced with the objective of universalization of social security cover to the informal workers such as the Atal Pension Yojana, Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana and Pradhan Mantri Fasal Bima Yojana.
• Pradhan Mantri Rozgar Protsahan Yojana to encourage small firms to take in more workers and provide them social security benefits.
• To encourage employers to take in apprentices the National Apprenticeship Promotion Scheme was launched.
• Under the Skill India Mission, through the Pradhan Mantri Kaushal Vikas Yojana and skill development programmes being implemented so that new entrants get better paying jobs.
• Under the Ease of Doing Business initiative the process of registration, compliance to labour laws,inspection etc has been simplified to encourage more number of enterprises to be set up and provide quality jobs.
• Schemes such as the ‘Make in India’, Digital India, Swachh Bharat Abhiyan are initiatives tha should provide opportunities for employment generation.
• Entrepreneurship is promoted through initiatives such as Startup India, Standup India, MUDRA, ASPIRE, Atal Innovation Mission, Pradhan Mantri Yuva Yojana etc.

Labour Reforms in India

Labour reforms have often been viewed as changes in the labour laws to make it easy for the entrepreneurs and industrialists to run their businesses without the pain of compliance and fear of punitive action by the state.

Need for Labour Reforms

• It is the most opportune time for labour reforms in India for two reasons:
• China is fast losing its advantage as manufacturing hub as labour cost has trebled there in last one decade.
• The Government of India is committed to ‘Make in India’ and attracting the investors and large businesses to set up their manufacturing bases in the country.
• Success of ‘Make in India’ will depend on how soon and how fast labour reforms are taken further.
• Labour market liberalization is likely to augment employment flexibility, skill development and job creation on a wider scale.

Lack of Labour Reforms

• Attempts at reforming Indian labour market have been rather slow. Even the globalization and liberalization process impacted labour market in limited manner.
• India missed the opportunity of being manufacturing hub of the world due to rigidities in labour market, archaic labour laws and glaring skill deficit.
• Concerns / Challenges
• Significant skill shortage across the country makes the labour market quite unattractive especially for foreign direct investment.
• In terms of vocational skills, India fares worse than some of the developing countries such as Mexico where the percentage of youth having vocational training is 28 per cent.
• Lack of a holistic labour policy is a major obstacle in the way of developing a liberal labour market which can contribute towards making a competitive manufacturing and service industry ecosystems in the country.

Way Forward

• It is imperative that labour laws are progressive, bureaucratic control is substituted by transparent governance as well as voluntary adoption of labour standards.
• The legislation must be aimed at protecting the rights of labour e.g. to form unions for purposes of collective bargaining, laying down minimum obligations which employers must meet with regard to social benefits, health and safety of workers, provision of special facilities for women workers, establishing grievance redressal mechanisms, etc.
• It is important to ensure that basic rights of the workers are protected and labour standards are implemented across industries and formal as well as informal sectors.
• Labour laws need to be simplified and brought in line with contemporary economic realities, including especially current international practice.
• The labour enforcement machinery needs to be further strengthened in the interest of better enforcement of labour laws.
• It is important to eliminate absurdities, dualities and ambiguities from existing labour laws so that industry is in a better position to leverage full potential of labour market.
• Labour laws should foster an enabling environment so far as employment practices are concerned. Sooner we overcome ‘compliance mind-set’, better is our chances enhancing global competitiveness in manufacturing as well as service sector.
• It is high time that the government should focus on coalescing all the existing labour laws into one unified piece of legislation.
• A radical legislative intervention in labour market will be impossible without developing a national labour policy.
• Hence, the government of India should first focus on developing a consensus on national policy framework on labour issues.
• While jobless growth is glaring at the country in the wake of highly automated manufacturing ecosystem, it is also important for the government of India to create new opportunities.
• While ‘Make in India’ has already started attracting investments, concomitant jobs in the manufacturing sector have not increased.
• Hence the government of India needs to focus on creation of job opportunities for larger youth population by way of enabling them to enter the service sector with greater degree of competence.
• This can be accomplished by integrating vocational training with higher education.

Ensuring Gender Justice in Labour

• India has one of the lowest work force participation rates (WPR) of women, which is even lower than many countries in Sub-Saharan Africa and the Middle East and is drastically lower than the participation rates for men (ILO, 2016).
• Though female literacy rates and educational enrolment rates have been moving favourably during a period of higher economic growth, female employment remains a challenge.
• Trends and Patterns in Female employment
• The data on women’s work is not the best. Not only is the WPR lower for women, for rural women there has been a dramatic fall, while for urban women it has stagnated.
• The positive income effect of higher real wages in the economy and positive outcomes of educational programmes are the main reasons attributed to the decline in women’s employment.
• A larger proportion of females are opting out of labour force means increasing care responsibilities on women.
• Apart from lack of employment opportunities, many women cannot participate in full-time employment, because to undertake household domestic work.
• In 2011-12, while 62.3 per cent of women were employed in the agriculture, only about 20 per cent were employed in the secondary sector and 18 per cent in the services.
• In the secondary sector, there has been an increase in the proportion of women in construction over the period, where the nature of employment is an issue.

Nature and Quality of Women’s Employment

• For rural women unpaid workers/helpers are the largest group (41 per cent) and then casual workers (35 per cent). Agriculture and artisanal work are in crisis and men are moving out to search for other paid work.
• Women’s work participation rate is very low in urban areas- just 15 per cent in 2011-12.
• Women are self-employed are working as part of home-based workers in manufacture – in beedi textiles, bangle or bindi making, packaging, etc. Wage rates in home based work are very low.
• Absence of state laws is an issue, with many states yet to extend the coverage of Minimum Wages to these workers.
• The anganwadi and ASHA workers with multiple work responsibilities are not recognized as workers by the state, but ascribed as volunteers, who are eligible only for an honorarium.
• Apart from market oriented activities women are engaged in many economic activities such as collecting firewood and fodder, collecting water and forest produce, weaving and spinning for home use.
• Even after many years of passing of Equal Remuneration Act, 1974 wage gap between women and men remains a reality affecting women of all ages, classes, communities and regions.
• A recent ILO study shows that India has one of the worst levels of gender wage disparity, with men earning more than women in similar jobs, with the gap exceeding 30 per cent.

State Interventions

• Organisation of micro-credit arrangements, formation of NGO-aided Self Help Groups etc, have been constituted for lifting women out of poverty and to strive for their economic ‘empowerment’.
• Though MGNREGS did ease the initial crisis, in the long run the limited number of days of employment guaranteed and the focus on manual work has not been able to address women’s employment puzzle.
• There is enough evidence of young women being denied employment because of the possibility of them taking leaves to meet maternity and child care demands.
• Though there is an increase in the days of maternity leave with the Maternity Benefit Act (Amendment) of 2017, the coverage of it is limited to the organised sector. The amended Act is not applicable to all enterprises, but only those employing at least 10 workers.
• Women from lower income brackets, who are mostly concentrated in the informal sector, are not eligible even for a single day of paid maternity leave.
• In urban informal employment, where education and income levels are higher, many married women drop out of the workforce when they have children, as they have to shoulder the burden of childcare.
• One of the reasons for poor female labour force participation is the lack of suitable jobs on offer, i.e. the disparity between what they can do and what is available to them.
• With poor employment rates for middle level educated groups, there is a need to make greater investments in secondary and tertiary education, vocational and skills training of women.
• The discouraging impact of low wages and poor conditions of work is found to result in women withdrawing from employment if the households can afford.
• Social and cultural constraints are still issues that explain poor participation of women in employment.
• Households in both rural and urban though are increasingly willing to educate their girls, do not see this investment for their employment.
• Women are employed in informal, semi-or unskilled jobs such as domestic work, where incomes are low and there are limited benefits or job security.
• Growing concerns around the safety of women is also a clear deterrent to women’s employment.
• Provision for safety at the workplace and safe transport of women though has been provided for, it is of least priority with no monitoring mechanism in place.
• The increasing incidences of sexual harassment at the workplace, during commuting and in public places are fuelling the perception that cities and towns are not safe, adversely affecting women’s mobility for employment.

Way Forward

It is high time that the state and employers come together on a priority basis to find comprehensive solutions, rather than merely introducing patchy interventions which do not address the issues of women’s employment.

Migration

India does not have a national policy on internal migration. Such a policy would address domicile requirements, portability of benefits within and across states etc.

Trends in Migration

• Even in the absence of a coherent policy, millions of Indians are migrating from one destination to another.
• While a large proportion of individuals migrate within their state of residence, others move across state boundaries.
• Their motives for migrating are varied: movement from place of birth, following marriage, in pursuit of education, seeking work opportunities etc.
• While women primarily move on account of marriage, men are more likely to report migrating for reasons related to work.
• From a policy perspective, a distinction needs to be made between those who move permanently versus those who stay for short duration during the course of the year.
• As per Census of India 2011, nearly 38 percent of Indians had permanently migrated at some point of time during the lives.

Way Forward

• Conversations on ‘Make in India’ often veers towards ‘What to make in India’ and ‘Where to make in India’ rather than the ‘who’ makes ‘what’ and ‘where’ in India.
• In reality, migrant workers are a sizable proportion of the ‘who’. They are integral to ‘Make in India’ initiative and this point is glossed over in most discussions.
• There is a need to ensure that benefits and rights of migrants are protected. Certain benefits must be made portable. Among this includes making access to the public distribution system portable.
• It should be possible to make the access to the public distribution system within a state boundary portable.
• States like Chhattisgarh have demonstrated such a possibility. The state government linked the beneficiary to all the shops as part of public distribution system in Raipur.
• Ensure that children migrating with their parents are able to enrol in schools. Some children do not stay back when their parents migrate seasonally for work.
• For these children, Government of Odisha, is running seasons hostels for children of parents who migrate. Indian Constitution provides the right of freedom of movement within the country.
• However in some states there is a domicile quota wherein residents of the state are preferred for admission to educational institutions or in government jobs.
• “States should be encouraged to proactively eliminate the requirement of domicile status to prevent any discrimination in work and employment”.

Expected Questions

Q1. More than half of India’s labour force is still connected directly or indirectly to agriculture for its livelihood. Policymakers face the dual challenge is of increasing income share of labour force, and increasing the rate of employment absorption into industry and services. Examine how these two challenges can be addressed.

Q2. Many forces—economic, societal, and technological—are interacting to cause “jobless” growth in India. In your opinion, what policies will create more employment in India? Discuss.

Q3. It is often argued that labour reforms are the way to unlock double-digit growth in India. Discuss why and examine what policy challenges exist in bringing labour reforms in India.

Q4. It is said that women’s entrepreneurship might be the tool needed to improve the labour force’s gender balance in India. Do you agree? Substantiate.

Q5. Analyse the trends and pattern in inter-state migration of people and labour mobility in India.

By Gudipati Rajendera Kumar