Labour Ordinances Bode Ill For The Economy
UP takes the lead
On May 8, the Yogi Adityanath Government of Uttar Pradesh accorded approval to an ordinance suspending application of a majority of labour laws for the next three years in the state. The draft ordinance has been sent to the Centre for concurrence.
The objective of the ordinance -- Uttar Pradesh Temporary Exemption from Labour Laws Ordinance -- is to exempt new and existing industrial establishments in the state from the operation of labour laws for a period of three years to free the existing and prospective industrial ventures from "Inspection Raj" .
This measure, the state's Labour Minister has argued, will be a morale booster for the existing industries in the state. For three years, factory owners will not have to bother about any penal action for violation of as many as 18 major laws that cover various aspects of establishing and running a factory, the relationship between workers and management, safety and welfare of the workers.
The Minister has further said that these "reforms" will make U.P. an attractive destination for foreign investors as they move away from China in the wake of the worldwide anti-China sentiment as a result of the COVID-19 pandemic which "originated" in China.
Another argument put forth by the U.P. Government and its cheerleaders is that the existing labour laws are mostly on paper. The industries do not, in any case, follow or implement many of their provisions. If anything, these laws only encourage corruption in the government departments entrusted with the task of ensuring that the factories follow the rules.
Before examining the validity of these arguments a broad survey of what all are being suspended, and their likely impact on the workers may not be out of place.
The most important Act proposed to be scrapped, albeit for 3 years, is the Minimum Wages Act 1948 and the rules framed under it. In essence, if the ordinance goes through, the factory owners will be under no obligation to pay the prescribed minimum wages to the workers.
The next in the line of fire is the Factories Act 1948 along with a host of rules under the Act. This will widely impact the workers' entitlement to leave, holidays, overtime, etc. Basically, the workers will not be able to claim any of these as mandatory. It will also mean that provision of many welfare measures including canteen facilities will no longer be compulsory.
But of biggest worry is the impact of the suspension of the Factories Act on the safety of the workers as well as the establishment itself. Things like first aid, safety gear and equipment for the workers, fire safety rules, checking and maintenance of various machinery, tanks storing hazardous gases and chemicals, and a host of other critical machineries. In the absence of any supervision by outside agencies we can expect many fatal accidents such as the one that happened at Visakhapatnam on May 7.
The Shops and Establishments Act is another law that is proposed to be suspended. Under this Act the employees of the shops and similar establishments enjoy their rights to wages, leave, holidays and safety, among others. Women employees will most likely lose some of the special rights given to them under these acts and rules.
The argument that suspension of the labour laws will give a fillip to the industry in U.P. after the shock it got due to the prolonged lockdown is mischievous, as much as it is vacuous.
It is mischievous because it is based on the premise that Acts and Rules that provide for a minimum wage for the workers, safety of the work place as well as that of the workers, provide that factories should not degrade the environment, etc., are not in the interest of the people, but are just dispensable hindrances in the way of operating a factory.
Furthermore, the argument implies that the entrepreneur will re-start his factory or establishment only if given a free hand to exploit his workers, flout all safety measures meant for the workers as well as the factory itself, and pollute the environment as much as he would like.
The argument is vacuous because it is not true that a profit-making enterprise would like to deprive its workers of their legitimate salaries and wages. In fact, a modern entrepreneur knows that a well cared for worker is an asset while a grumbling work force would adversely affect the productivity, and hence the profitability of the enterprise.
The reasoning that these "reforms" will make U.P. an attractive destination for foreign investors who might move away from China in view of the world-wide anti-china sentiment in the wake of the COVID-19 pandemic is utterly fallacious. It is based on wrong perceptions of what an entrepreneur -- domestic or foreign -- looks for while finding an ideal place to locate an unit.
Cost of labour is indeed an important input for a foreign investor in deciding where to set up an industry. However, more than cheap labour the investor would look for a place with proper infrastructure, availability of trained manpower, land, adequate supply of power and other utilities at a reasonable cost, transparent rules and regulations, proper legal framework for doing business and for resolution of disputes, rule of law and peaceful working environment.
Absence of rules (if the laws are suspended) related to establishing and carrying out business, mandatory safety measures, environmental requirements, workers' welfare, etc., would actually discourage most investors rather than attract them. Too many laws and rules are a hindrance, but too few of them are equally worrisome for an enterprise.
Investors do like ease of doing business, but there is no study to show that they would prefer a law-less place, or would like to enjoy the freedom to exploit their workers or degrade the environment at will, taking advantage of the relaxed supervision that will follow the suspension of the relevant laws. In fact, a foreign investor would rather pay a little more to the workers, and adhere to the regulations than risk the likelihood of labour agitations, strikes, protest by the green activists, etc.
Another argument for suspending the Factories Act and various rules under it is that most of the rules and regulations related to safety of the workers and work place, environmental rules, etc., are in any case flouted with impunity by the industrial establishments by bribing the inspectors. Therefore, to stop such malpractices the enabling legislation itself must be scrapped.
This is an extremely weird logic. It is like saying that since some Traffic Policemen are corrupt, the traffic rules should be dispensed with and the traffic department itself should be wound up! For the same reason, the fire safety regulations must be suspended, and the fire brigade should be disbanded.
According to newspaper reports, while the ordinance seeks to suspend most of the 40 odd state laws concerning workers, factories, shops and establishments, the suspension does not cover some of the laws such as the Bonded Labour Act of 1976, Employees Compensation Act of 1923 and Building and Other Construction Workers’ Act of 1996. Laws pertaining to women and children, like Maternity Act, Equal Remuneration Act, Child Labour Act and part of the Payment of Wages Act will also not be suspended.
All this may sound nice, and are designed to project the picture of a Government that cares. However, suspension of some labour laws, while keeping others operational will lead to great chaos since many of these laws, rules and regulations are closely intertwined and they need to be read together for proper understanding and implementation. No entrepreneur would enjoy such a situation.
Absence of the regulatory framework of the Factories Act would mean that the safety of the workers as well as that of the work place would go for a six. In the absence of the law, if an unscrupulous factory owner pollutes the environment, or neglects safety aspects while running his establishments, it may not only have very serious impact on the environment, but may also lead to serious accidents endangering lives of many people.
The workers have suffered the most during the present crisis. Many of them are jobless and have little financial resources to look after their families. Therefore, initially they may lap up whatever jobs are offered by any establishment at any salary or wage. They wouldn't bother about absence of some of the basic amenities, and welfare facilities such as provision for first aid, or a canteen. They may even not complain about lack of necessary safety equipment.
This, however, will be short-lived. Sooner rather than later they would raise their voice against such exploitation, demand their basic rights, and labour unrest will begin. The Adityanath Government, true to its style of functioning, may try to throttle those voices and quell the agitations through brutal force. But, that will alienate a very large section of the people and will also provide enough ammunition to the opposition, disturbing the political atmosphere. And such a climate is hardly conducive to running an industry, let alone establishing new ones.
It is nobody's case that our labour laws do not need to be reformed. As a matter of fact, reforms in this area are overdue. However, it is one thing to remove those provisions of the law that actually impede the setting up or expansion of industries and quite another to dump the workers' rights, safety and welfare in the guise of "unshackling the industry".
In their haste to reform the labour laws and to free the factory owners from the requirement of payment of a prescribed minimum wage, our policy makers would do well to remember that the workers not only produce goods; they are consumers as well. Denying them a reasonable minimum wage would mean that a huge percentage of our population won't have the necessary surplus to spend on consumer goods and other products. Thus, short-charging the workers would ultimately boomerang on the health of the industry itself.
The country's economy has been badly battered by the lockdown imposed in the wake of the COVID-19 pandemic. Among all sections of the population, the workers are the worst sufferers in this crisis. Any reform, while aiming to boost the stalled economy, must also protect this most marginalised and vulnerable section of the population. Instead, if the UP ordinance passes muster in its present form, it will further aggravate the situation for those who are already reeling under the crisis.
Only recently the U.P. Government hurriedly withdrew another ordinance that had sought to deprive the workers of their legitimate wages for working overtime, when it became apparent that it would be annulled by the Allahabad High Court.
It is hoped that, taking its cue from this, the Union Government, would disallow the hastily drafted, blatantly anti-worker "Temporary Exemption from Labour Laws" Ordinance proposed by the U.P. Government. If, however, the Government at the Centre tries to brazen it out, the action might spark huge trouble, which the economy, already badly bruised, will hardly be able to withstand.
Sandip Mitra is a retired government servant
Cover Photograph Reuters