Labour, Land laws and Tax are the major three impediments of doing business in India.
The World of Work : Labour Market Reforms and Legislation in India
The World of Work : Labour Market Reforms and Legislation in India
Labour, Land Law and Tax Reforms : Updates
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5 contentious issues holding up India's labour law reforms
Former Niti Aayog chairman Arvind Panagariya best captured the complexities of India's labour laws in these words, "The labour situation is incredibly complicated: when you go from six workers to seven in a firm, the Trade Unions Act kicks in. When you go from nine to ten, the Factories Act kicks in. And when you go from 19 to 20, something else kicks in, as happens again when you go from 49 to 50 and 99 to 100. The biggest killer is the Industrial Disputes Act, which says that if you are a manufacturing firm with 100 workers or more, you cannot dismiss any of them under any circumstances unless you get prior approval from the government."
"This is rarely given and it applies even if you go bankrupt, in which case you still have to pay your workers. This has important consequences because investors are not going to enter into an industry if they can't exit. So India has a very pernicious set of labour laws and that really, to me, is the reason why Indian firms have remained so small on average."
Labour is in the concurrent list and more than 40 central laws and more than 100 state laws govern the subject. The central government is keen to consolidate the central laws into four codes - relating to wages, industrial relations, social security and welfare and occupational safety, health and working conditions - and bring about reforms to ensure ease of business.
Contentious labour reform proposals
The government ran into trouble during the previous Lok Sabha because of strong opposition from trade unions of all persuasions to a large number of reforms proposed in the four codes. The key contentious reforms are as follows:-
Membership and composition of trade unions: The Industrial Relations Code of 2017 provided that a minimum of 10% of workers or 100 workers employed in an establishment or industry would be needed - from seven at present - to register a trade union. It also restricted outsiders to an establishment/industry from becoming a member to two and prohibited a minister or a person holding an office of profit (outside of establishment) from becoming a member or office bearer.
The trade unions are opposed to these. Both the RSS-affiliated Bharatiya Mazdoor Sangh (BMS) and the Left-backed Centre of Indian Trade Unions (CITU) say there should be no such changes. The BMS president CK Sajinarayanan says that it is for the trade union to decide who should be a member or leader of the union, adding that "the government has no business deciding this".
The CITU general secretary Tapan Sen too holds a similar view and says it is particularly difficult to gather such a large number of members in private sector with no union to protect them from vindictive actions. He cites the case of an automobile unit in the NCR which required the Parliament's intervention for forming a union.
The industry has a different take. MS Unnikrishnan, chairman of the CII National Committee on Industrial Relations, says the industry would prefer to increase the limit further, to have only one trade union in an establishment and stop political affiliation for these bodies as that hinders conciliation.
Hire and fire: The Industrial Relations Code of 2017 further sought to increase the limit for prior permission of the government for lay-off, retrenchment and closure to 300 workers, up from 100 at present. This has been the most controversial provision.
The trade unions strongly protest against such a change. The BMS says a company which earlier needed 100 workers can now operate with just 20 to 30 due to mechanisation and so, the limit should be brought down. The CITU thinks if the hire and fire policy is further liberalised, there is a bigger risk of a worker being thrown out for demanding even legitimate rights.
The industry begs to differ. Unnikrishnan says the industry should not be "compelled" to run unviable units and that this is not about a hire and fire policy but prudent business policy. "We want the limit to go further up (more than 300)", he says.
Ban on strikes: The Industrial Relations Code of 2017 also restricted strike by (a) requiring prior notice of 14 days and striking within two months of such notice (now prior notice is required only for essential services), (b) but banning strikes during the pendency of the conciliation process which starts from the day of the notice and (c) increasing fine up to Rs 50,000 in addition to one month's imprisonment for violations.
The trade unions think these provisions amount to a virtual ban on strike and oppose it. Sajinarayanan says it is "totally against the basic right of workers", a strike being the last resort for enforcement of workers' rights.
The industry does not think so. Rituparna Chakraborty of Teamlease Services, a leading human resources company, says strike does not help anyone. Instead, the focus should be on creating an environment to address issues and remove lack of trust in collective bargaining. Unnikrishnan supports the idea and bats for attitudinal changes to conflict management.
Single social security authority: Another contentious issue is a single mechanism, under the Social Security and Welfare Code of 2017, to govern pension, provident fund, medical benefit etc. for all kinds of workers, including part-time, casual, fixed term, domestic and home-based workers. It sought to club 15 central laws together.
The trade unions have their reservations. While welcoming the attempt to provide social security cover to all kinds of workers, Sajinarayanan fears that the merger of organisations and funds for organised (EPFO, ESIC) with that of the unorganised sectors would lead to "cross subsidisation" and harm the interest of the former.
He suggests a separate body for the unorganised sector workers. Sen fears that the merger would cause a mess and prove detrimental to those which are working well. He also fears that it would be easier for the government to use a single fund for speculative purpose.
The industry has no such apprehensions. Chakraborty says that including all kinds of workers in one group would end many of the complexities that lead to a higher cost of compliance, informalisation of work and exploitations in the unorganised sector. Unnikrishnan says that the fears could be easily addressed by ensuring that the regulatory body is professionally run. He dismisses fear of investing in stock markets, saying that this is a globally accepted norm for decent returns.
Redefining factories: The government proposes several amendments in the Factories Act of 1948 to ensure adequate safety measures and promote health and welfare of the workers. One of these relates to redefining factories from a minimum of 10 workers in an establishment (if power is used) to 20 and from 20 (if power is not used) to 40 workers.
The CITU thinks this would push out a large number of units in the organised sector. The BMS is in favour of removing all thresholds, including ones for applicability of EPF and other laws too. Sajinarayanan says labour law should be applicable to all factories, even if there is one worker.
While it remains to be seen how far the government accommodates the trade unions' wishes, many of the reform proposals are actually borrowed from Rajasthan - like increase in the thresholds for trade unions, expanding the size for lay-offs/closure and redefining a factory - which the Economic Survey of 2018-19 says has produced good results.
Former Niti Aayog chairman Arvind Panagariya best captured the complexities of India's labour laws in these words, "The labour situation is incredibly complicated: when you go from six workers to seven in a firm, the Trade Unions Act kicks in. When you go from nine to ten, the Factories Act kicks in. And when you go from 19 to 20, something else kicks in, as happens again when you go from 49 to 50 and 99 to 100. The biggest killer is the Industrial Disputes Act, which says that if you are a manufacturing firm with 100 workers or more, you cannot dismiss any of them under any circumstances unless you get prior approval from the government."
"This is rarely given and it applies even if you go bankrupt, in which case you still have to pay your workers. This has important consequences because investors are not going to enter into an industry if they can't exit. So India has a very pernicious set of labour laws and that really, to me, is the reason why Indian firms have remained so small on average."
Labour is in the concurrent list and more than 40 central laws and more than 100 state laws govern the subject. The central government is keen to consolidate the central laws into four codes - relating to wages, industrial relations, social security and welfare and occupational safety, health and working conditions - and bring about reforms to ensure ease of business.
Contentious labour reform proposals
The government ran into trouble during the previous Lok Sabha because of strong opposition from trade unions of all persuasions to a large number of reforms proposed in the four codes. The key contentious reforms are as follows:-
Membership and composition of trade unions: The Industrial Relations Code of 2017 provided that a minimum of 10% of workers or 100 workers employed in an establishment or industry would be needed - from seven at present - to register a trade union. It also restricted outsiders to an establishment/industry from becoming a member to two and prohibited a minister or a person holding an office of profit (outside of establishment) from becoming a member or office bearer.
The trade unions are opposed to these. Both the RSS-affiliated Bharatiya Mazdoor Sangh (BMS) and the Left-backed Centre of Indian Trade Unions (CITU) say there should be no such changes. The BMS president CK Sajinarayanan says that it is for the trade union to decide who should be a member or leader of the union, adding that "the government has no business deciding this".
The CITU general secretary Tapan Sen too holds a similar view and says it is particularly difficult to gather such a large number of members in private sector with no union to protect them from vindictive actions. He cites the case of an automobile unit in the NCR which required the Parliament's intervention for forming a union.
The industry has a different take. MS Unnikrishnan, chairman of the CII National Committee on Industrial Relations, says the industry would prefer to increase the limit further, to have only one trade union in an establishment and stop political affiliation for these bodies as that hinders conciliation.
Hire and fire: The Industrial Relations Code of 2017 further sought to increase the limit for prior permission of the government for lay-off, retrenchment and closure to 300 workers, up from 100 at present. This has been the most controversial provision.
The trade unions strongly protest against such a change. The BMS says a company which earlier needed 100 workers can now operate with just 20 to 30 due to mechanisation and so, the limit should be brought down. The CITU thinks if the hire and fire policy is further liberalised, there is a bigger risk of a worker being thrown out for demanding even legitimate rights.
The industry begs to differ. Unnikrishnan says the industry should not be "compelled" to run unviable units and that this is not about a hire and fire policy but prudent business policy. "We want the limit to go further up (more than 300)", he says.
Ban on strikes: The Industrial Relations Code of 2017 also restricted strike by (a) requiring prior notice of 14 days and striking within two months of such notice (now prior notice is required only for essential services), (b) but banning strikes during the pendency of the conciliation process which starts from the day of the notice and (c) increasing fine up to Rs 50,000 in addition to one month's imprisonment for violations.
The trade unions think these provisions amount to a virtual ban on strike and oppose it. Sajinarayanan says it is "totally against the basic right of workers", a strike being the last resort for enforcement of workers' rights.
The industry does not think so. Rituparna Chakraborty of Teamlease Services, a leading human resources company, says strike does not help anyone. Instead, the focus should be on creating an environment to address issues and remove lack of trust in collective bargaining. Unnikrishnan supports the idea and bats for attitudinal changes to conflict management.
Single social security authority: Another contentious issue is a single mechanism, under the Social Security and Welfare Code of 2017, to govern pension, provident fund, medical benefit etc. for all kinds of workers, including part-time, casual, fixed term, domestic and home-based workers. It sought to club 15 central laws together.
The trade unions have their reservations. While welcoming the attempt to provide social security cover to all kinds of workers, Sajinarayanan fears that the merger of organisations and funds for organised (EPFO, ESIC) with that of the unorganised sectors would lead to "cross subsidisation" and harm the interest of the former.
He suggests a separate body for the unorganised sector workers. Sen fears that the merger would cause a mess and prove detrimental to those which are working well. He also fears that it would be easier for the government to use a single fund for speculative purpose.
The industry has no such apprehensions. Chakraborty says that including all kinds of workers in one group would end many of the complexities that lead to a higher cost of compliance, informalisation of work and exploitations in the unorganised sector. Unnikrishnan says that the fears could be easily addressed by ensuring that the regulatory body is professionally run. He dismisses fear of investing in stock markets, saying that this is a globally accepted norm for decent returns.
Redefining factories: The government proposes several amendments in the Factories Act of 1948 to ensure adequate safety measures and promote health and welfare of the workers. One of these relates to redefining factories from a minimum of 10 workers in an establishment (if power is used) to 20 and from 20 (if power is not used) to 40 workers.
The CITU thinks this would push out a large number of units in the organised sector. The BMS is in favour of removing all thresholds, including ones for applicability of EPF and other laws too. Sajinarayanan says labour law should be applicable to all factories, even if there is one worker.
While it remains to be seen how far the government accommodates the trade unions' wishes, many of the reform proposals are actually borrowed from Rajasthan - like increase in the thresholds for trade unions, expanding the size for lay-offs/closure and redefining a factory - which the Economic Survey of 2018-19 says has produced good results.
Rajya Sabha passes Wage Code bill providing minimum wages for workers
Next in line :
The Occupational Safety, Health and Working Conditions Code, 2019
- The bill will subsume four labour laws — Minimum Wages Act, Payment of Wages Act, Payment of Bonus Act and Equal Remuneration Act
Next in line :
The Occupational Safety, Health and Working Conditions Code, 2019
Trade Unions Protest Against Changes in Labour Laws, Allege Pro-Employer Bias
As expected they started.
Last time Modi chickened after the protest.
As expected they started.
Last time Modi chickened after the protest.
You know what I think Modi'd do. Prepare a smokescreen on the LoC. Ignite it and in the meanwhile get all such contentious bills passed during the extended session of the Parliament. That's bania buddhi.
Correlation does not imply causation.
All the bills which are passing now because they got the numbers in RS.
I suppose you think the trade unions are a cakewalk, isn't it? Or the massive media coverage such an unrest would provide. Weigh this against high voltage action on the LoC and join the dots.
Well in that case, I hope every difficult bill/reform that we need to pass is done this way. Given the number of bills passed this session is unprecedented, I'd say its quite beneficial. Helps the Parliament run smoother also the added bonus of putting pressure on our good neighbour. Win-Win, I say.
If passing bills without adequate discussions or even framing them in a better manner thru consultation or referral to a select Committee is an achievement then this government has done exceedingly well.
That's a fair critique, but this is Indian politics, you can't have everything. Besides every bill ever passed is amended a hundred times anyway. Should the bill passed be completely unacceptable, its likely to be tabled again and again.
I will take this functional Parliament over a non-functional one like we saw in the first term of Modi any day. If the Parliament is working smooth it easier for the opposition to demand an amendment if they so desire.
However if we are back to those days where the Parliament was log jammed by the opposition, who does that help ?
Draft Social Security code is out: Five things you need to know
New Delhi: After years of deliberations, the union government has finally circulated the draft social security code, a key labour law proposal that seeks to amalgamate a clutch of existing laws and proposes several new initiatives including universal social security for unorganized sector workers and, insurance and health benefits for gig workers including the Ola and Uber drivers. Besides, it also proposes corporatization of existing organizations like EPFO and ESIC headed by people other than the labour minister. Here are the five key things in the draft code:
1) Insurance, PF, life cover for unorganized sector employees:
The draft code says the “Central Government shall formulate and notify, from time to time, suitable welfare schemes for unorganised workers on matter relating to life and disability cover; health and maternity benefits; old age protection; and any other benefit as may be determined by the central government".
While framing of schemes, the draft says the states may also formulate and notify suitable initiatives for unorganized workers, including schemes relating to provident fund, employment injury benefit, housing, educational scheme for their children, old age and funeral assistance.
Bulk of India’s labour force is in informal sector and a move looks forward looking but most of key initiatives it suggest may be the decision of the states with little contribution from the centre. There may be unorganized sector social security boards at the centre and state levels.
2) Corporatization of EPFO and ESIC:
The pension, insurance and retirement saving bodies including EPFO and ESIC will be body corporate. The world body corporate has been added in the draft and may bring in a departure from the current autonomous body status of such organization. The draft also talks about appointment of chief executive officers (CEOs) in these organization indicating that the labour minister, labour secretary, the central PF commissioner and Director General of ESIC may not be by default the head of such organizations.
It means, the EPFO may become a more structured national body with its entire Rs. 11 trillion corpus under the responsibility of a central government-appointed chairman. Currently EPFO is headed by the labour minister chaired central board of trustees.
“The Central Government shall also appoint a Financial Advisor and Chief Accounts Officer to assist the Chief Executive Officer in the discharge of his duties," draft code said. “The Central Board shall be a body corporate, having perpetual succession…"
3) Benefits for Gig workers:
Millions of gig workforce in India, often referred as lonely in the workplace, may soon get life and disability insurance, health and maternity benefits among others as the union government is formulating a labour code that propose such provisions.
As per the draft social security code, the “Central Government may formulate and notify, from time to time, suitable social security schemes for gig workers and platform workers" and such schemes would encompass issues like “life and disability cover", “health and maternity benefits" , “old age protection" and “any other benefit as may be determined by the Central Government".
Though the exact number of gig workers are unknown as they are still figuring out whether they are formal workers or informal workers or independent entrepreneurs, a 2017 study by consulting firm EY has said that nearly one out four gig workers in the world are from India. The draft proposal comes as California on Wednesday approved a law for wage benefit and protection for gig workers such as those working in taxi aggregating companies like Uber and Lyft. Like Ola in India, Lyft is a popular tax aggregator in the US.
4) Maternity Benfit:
The draft says subject to the other provisions of this Code, every woman shall be entitled to, and her employer shall be liable for, the payment of maternity benefit at the rate of the average daily wage for the period of her actual absence, that is to say, the period immediately preceding the day of her delivery, and any period immediately following that day.
For the purposes of this sub-section, ―the average daily wage means the average of the woman's wages payable to her for the days on which she has worked during the period of three calendar months immediately preceding the date from which she absents herself on account of maternity, subject to the minimum rate of wage fixed or revised under the Code on Wages, 2019.
5) Existing labour laws that the code will merge:
The Code on Social Security, 2019 once in place will merge eight exiting labour laws including Employees' Compensation Act, 1923; Employees‘ State Insurance Act, 1948, Employees‘ Provident Funds and Miscellaneous Provisions Act, 1952; Maternity Benefit Act, 1961; Payment of Gratuity Act, 1972; Cine Workers Welfare Fund Act, 1981; Building and Other Construction Workers Cess Act, 1996 and Unorganized Workers‘ Social Security Act, 2008.
The coming disruption in India’s job market
The new Labour and Social Security codes will fundamentally alter the nature of employment
There is a difference between growth and size. India continues to be one of the fastest growing countries in the world, but it has some way to go before its economy catches up in sheer size with the biggies. Take California, for instance. The state is one of the largest in the US, but is eight times smaller than India in land area and has just 3 per cent of India’s population. Its GDP, however, at a little over $3 trillion, is actually bigger than India’s GDP of around $2.96 trillion.
But there is one area where India is playing catch-up with California. Surprisingly, it is not technology — where hundreds of thousands of clever, highly-skilled Indian Americans have helped California’s ‘Silicon Valley’ become the unquestioned technology capital of the world — but in the area of labour.
Labour laws, to be precise. Last month, California Governor Gavin Newsom signed Assembly Bill 5 into law, which will force companies like Uber and Lyft to reclassify their gig workers as employees, and extend benefits of labour protection like minimum wages, overtime and social security cover. The law redefines who can be classified as a contract worker. From January 1, 2020, Uber’s army of drivers can no longer be considered independent contractors, since the job they do — driving vehicles for hire — falls within the “normal course” of Uber’s business.
India is proposing something similar. It has already passed the Code on Wages, 2019, which amalgamates four separate laws — the Payment of Wages Act, 1936; the Minimum Wages Act, 1948; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976 — into a single law which codifies the powers of the Centre, which can make wage-related decisions for specified industries such as railways, mines and oil fields, etc, while States can set wage levels for other industries. The Code also proposes a uniform floor wage across the country, below which industry/state-specific minimum wages cannot fall.
Addressing the gig economy
Now, a draft Code on Social Security (currently in its third iteration) which proposes to merge as many as eight laws covering social security benefits of workers in different industries with a uniform law. This is actually a long-delayed reform — the Modi government promised, but did not take up labour reforms during its first stint — and will bring a few of India’s many complex and outdated laws somewhat up to date.
But what has set India Inc — particularly India’s new, but booming technology-driven start-ups — buzzing is a proposal which will effectively do what California’s Assembly Bill 5 has done: convert India’s millions of gig workers into “employees” and force gig-worker-based companies like Swiggy and Zomato and Ola and Uber to recognise the millions of their “independent contractors” as workers and extend social security benefits like PF and ESI to them.
Now this is huge. The ramifications extend far beyond just a handful of tech unicorns like Zomato and Ola. Staffing solutions provider Teamlease estimates that as much as 56 per cent of all new jobs will be created in “sharing/gig economy”. Those calls you get pitching insurance policies or credit cards or time-share holidays are not being made by people whom the companies they are working for will classify as their ‘employees’. They are temporary staff, hired for short durations to meet specific business objectives. From mall salesgirls to food delivery agents to software coders, they are all part of India’s booming gig economy, even if they themselves do not recognise that they are part of it.
To a food delivery agent, the job is a temporary one, mostly seen as a stopgap before landing a more secure (read permanent) job. If the new Social Security Code goes through, it will erase many of the differences they see between their current jobs and a “permanent” one — social security (PF) cover, some form of medicare, maybe termination and retiral benefits.
This will, of course, radically disrupt the business models of such companies, which currently claim that they are simple technology platforms enabling independent contractors to deliver services to customers. They will now have to factor in the costs of providing for such social security, which may well end up putting the brakes on their headlong growth.
Changed nature of work
This also raises a fundamental question mark on whether the economy can afford such a disruption at this point. Remember, India is still in the ascending part of its demographic dividend curve, which means that more people are entering the workforce than those leaving it every year.
Our jobs data is woefully inadequate to make any kind of meaningful forecast. But maybe, looking at external examples might help. Brazil is a good fit. It is a large emerging economy, much like India, and has large numbers of young (and poorly skilled) job seekers (again, much like India).
And just like us, they had some of the world’s toughest, most cumbersome labour laws, long seen as impediments to unlocking the full potential of the economy. All that changed in 2017, when Brazil passed Law No. 13,467/2017 to amend the Brazilian Labour Code (Consolidação das Leis do Trabalho – CLT). Its purpose reads almost like the preamble to India’s revised labour code. It aims to lead to the creation of new jobs and reduce unemployment rates (currently over 11 per cent), by axing restrictive rules and recognising the changed nature of work and employer-employee relationships.
It allows for the gig economy and the contractual and temporary nature of present-day employment. It accounts for terminations, which will no longer need to be ratified by unions or the Ministry of Labour. The new Law also establishes the possibility of termination by mutual consent and sets strict conditions for demanding things like equal pay, or benefits and allowances.
Despite initial — and strong — objections from unions, the reform appears to be working for workers as well. Social security cover has been improved and even temporary workers get benefits like (pro-rated) leave, bonus etc.
Make no mistake, the Indian jobs market is set for significant disruption and turmoil. But unless India makes some difficult choices now, the future is only going to get more difficult.
New Delhi: After years of deliberations, the union government has finally circulated the draft social security code, a key labour law proposal that seeks to amalgamate a clutch of existing laws and proposes several new initiatives including universal social security for unorganized sector workers and, insurance and health benefits for gig workers including the Ola and Uber drivers. Besides, it also proposes corporatization of existing organizations like EPFO and ESIC headed by people other than the labour minister. Here are the five key things in the draft code:
1) Insurance, PF, life cover for unorganized sector employees:
The draft code says the “Central Government shall formulate and notify, from time to time, suitable welfare schemes for unorganised workers on matter relating to life and disability cover; health and maternity benefits; old age protection; and any other benefit as may be determined by the central government".
While framing of schemes, the draft says the states may also formulate and notify suitable initiatives for unorganized workers, including schemes relating to provident fund, employment injury benefit, housing, educational scheme for their children, old age and funeral assistance.
Bulk of India’s labour force is in informal sector and a move looks forward looking but most of key initiatives it suggest may be the decision of the states with little contribution from the centre. There may be unorganized sector social security boards at the centre and state levels.
2) Corporatization of EPFO and ESIC:
The pension, insurance and retirement saving bodies including EPFO and ESIC will be body corporate. The world body corporate has been added in the draft and may bring in a departure from the current autonomous body status of such organization. The draft also talks about appointment of chief executive officers (CEOs) in these organization indicating that the labour minister, labour secretary, the central PF commissioner and Director General of ESIC may not be by default the head of such organizations.
It means, the EPFO may become a more structured national body with its entire Rs. 11 trillion corpus under the responsibility of a central government-appointed chairman. Currently EPFO is headed by the labour minister chaired central board of trustees.
“The Central Government shall also appoint a Financial Advisor and Chief Accounts Officer to assist the Chief Executive Officer in the discharge of his duties," draft code said. “The Central Board shall be a body corporate, having perpetual succession…"
3) Benefits for Gig workers:
Millions of gig workforce in India, often referred as lonely in the workplace, may soon get life and disability insurance, health and maternity benefits among others as the union government is formulating a labour code that propose such provisions.
As per the draft social security code, the “Central Government may formulate and notify, from time to time, suitable social security schemes for gig workers and platform workers" and such schemes would encompass issues like “life and disability cover", “health and maternity benefits" , “old age protection" and “any other benefit as may be determined by the Central Government".
Though the exact number of gig workers are unknown as they are still figuring out whether they are formal workers or informal workers or independent entrepreneurs, a 2017 study by consulting firm EY has said that nearly one out four gig workers in the world are from India. The draft proposal comes as California on Wednesday approved a law for wage benefit and protection for gig workers such as those working in taxi aggregating companies like Uber and Lyft. Like Ola in India, Lyft is a popular tax aggregator in the US.
4) Maternity Benfit:
The draft says subject to the other provisions of this Code, every woman shall be entitled to, and her employer shall be liable for, the payment of maternity benefit at the rate of the average daily wage for the period of her actual absence, that is to say, the period immediately preceding the day of her delivery, and any period immediately following that day.
For the purposes of this sub-section, ―the average daily wage means the average of the woman's wages payable to her for the days on which she has worked during the period of three calendar months immediately preceding the date from which she absents herself on account of maternity, subject to the minimum rate of wage fixed or revised under the Code on Wages, 2019.
5) Existing labour laws that the code will merge:
The Code on Social Security, 2019 once in place will merge eight exiting labour laws including Employees' Compensation Act, 1923; Employees‘ State Insurance Act, 1948, Employees‘ Provident Funds and Miscellaneous Provisions Act, 1952; Maternity Benefit Act, 1961; Payment of Gratuity Act, 1972; Cine Workers Welfare Fund Act, 1981; Building and Other Construction Workers Cess Act, 1996 and Unorganized Workers‘ Social Security Act, 2008.
The coming disruption in India’s job market
The new Labour and Social Security codes will fundamentally alter the nature of employment
There is a difference between growth and size. India continues to be one of the fastest growing countries in the world, but it has some way to go before its economy catches up in sheer size with the biggies. Take California, for instance. The state is one of the largest in the US, but is eight times smaller than India in land area and has just 3 per cent of India’s population. Its GDP, however, at a little over $3 trillion, is actually bigger than India’s GDP of around $2.96 trillion.
But there is one area where India is playing catch-up with California. Surprisingly, it is not technology — where hundreds of thousands of clever, highly-skilled Indian Americans have helped California’s ‘Silicon Valley’ become the unquestioned technology capital of the world — but in the area of labour.
Labour laws, to be precise. Last month, California Governor Gavin Newsom signed Assembly Bill 5 into law, which will force companies like Uber and Lyft to reclassify their gig workers as employees, and extend benefits of labour protection like minimum wages, overtime and social security cover. The law redefines who can be classified as a contract worker. From January 1, 2020, Uber’s army of drivers can no longer be considered independent contractors, since the job they do — driving vehicles for hire — falls within the “normal course” of Uber’s business.
India is proposing something similar. It has already passed the Code on Wages, 2019, which amalgamates four separate laws — the Payment of Wages Act, 1936; the Minimum Wages Act, 1948; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976 — into a single law which codifies the powers of the Centre, which can make wage-related decisions for specified industries such as railways, mines and oil fields, etc, while States can set wage levels for other industries. The Code also proposes a uniform floor wage across the country, below which industry/state-specific minimum wages cannot fall.
Addressing the gig economy
Now, a draft Code on Social Security (currently in its third iteration) which proposes to merge as many as eight laws covering social security benefits of workers in different industries with a uniform law. This is actually a long-delayed reform — the Modi government promised, but did not take up labour reforms during its first stint — and will bring a few of India’s many complex and outdated laws somewhat up to date.
But what has set India Inc — particularly India’s new, but booming technology-driven start-ups — buzzing is a proposal which will effectively do what California’s Assembly Bill 5 has done: convert India’s millions of gig workers into “employees” and force gig-worker-based companies like Swiggy and Zomato and Ola and Uber to recognise the millions of their “independent contractors” as workers and extend social security benefits like PF and ESI to them.
Now this is huge. The ramifications extend far beyond just a handful of tech unicorns like Zomato and Ola. Staffing solutions provider Teamlease estimates that as much as 56 per cent of all new jobs will be created in “sharing/gig economy”. Those calls you get pitching insurance policies or credit cards or time-share holidays are not being made by people whom the companies they are working for will classify as their ‘employees’. They are temporary staff, hired for short durations to meet specific business objectives. From mall salesgirls to food delivery agents to software coders, they are all part of India’s booming gig economy, even if they themselves do not recognise that they are part of it.
To a food delivery agent, the job is a temporary one, mostly seen as a stopgap before landing a more secure (read permanent) job. If the new Social Security Code goes through, it will erase many of the differences they see between their current jobs and a “permanent” one — social security (PF) cover, some form of medicare, maybe termination and retiral benefits.
This will, of course, radically disrupt the business models of such companies, which currently claim that they are simple technology platforms enabling independent contractors to deliver services to customers. They will now have to factor in the costs of providing for such social security, which may well end up putting the brakes on their headlong growth.
Changed nature of work
This also raises a fundamental question mark on whether the economy can afford such a disruption at this point. Remember, India is still in the ascending part of its demographic dividend curve, which means that more people are entering the workforce than those leaving it every year.
Our jobs data is woefully inadequate to make any kind of meaningful forecast. But maybe, looking at external examples might help. Brazil is a good fit. It is a large emerging economy, much like India, and has large numbers of young (and poorly skilled) job seekers (again, much like India).
And just like us, they had some of the world’s toughest, most cumbersome labour laws, long seen as impediments to unlocking the full potential of the economy. All that changed in 2017, when Brazil passed Law No. 13,467/2017 to amend the Brazilian Labour Code (Consolidação das Leis do Trabalho – CLT). Its purpose reads almost like the preamble to India’s revised labour code. It aims to lead to the creation of new jobs and reduce unemployment rates (currently over 11 per cent), by axing restrictive rules and recognising the changed nature of work and employer-employee relationships.
It allows for the gig economy and the contractual and temporary nature of present-day employment. It accounts for terminations, which will no longer need to be ratified by unions or the Ministry of Labour. The new Law also establishes the possibility of termination by mutual consent and sets strict conditions for demanding things like equal pay, or benefits and allowances.
Despite initial — and strong — objections from unions, the reform appears to be working for workers as well. Social security cover has been improved and even temporary workers get benefits like (pro-rated) leave, bonus etc.
Make no mistake, the Indian jobs market is set for significant disruption and turmoil. But unless India makes some difficult choices now, the future is only going to get more difficult.
Cabinet approves the Industrial Relations Code Bill, 2019
The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has given its approval for introduction of the Industrial Relations Code, 2019 in the Parliament.
Benefits:
· The re-skilling fund, is to be utilised for crediting to workers in the manner to be prescribed.
· Definition of Fixed Term Employment and that it would not lead to any notice period and payment of compensation on retrenchment excluded.
The draft code on Industrial Relations has been prepared after amalgamating, simplifying and rationalizing the relevant provisions of following three Central Labour Acts:
The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has given its approval for introduction of the Industrial Relations Code, 2019 in the Parliament.
Benefits:
- Setting up of two-member tribunal (in place of one member) introducing a concept that some of the important cases will be adjudicated jointly and the rest by a single member resulting speedier disposal of cases.
· The re-skilling fund, is to be utilised for crediting to workers in the manner to be prescribed.
· Definition of Fixed Term Employment and that it would not lead to any notice period and payment of compensation on retrenchment excluded.
- Vesting of powers with the government officers for adjudication of disputes involving penalty as fines thereby lessening the burden on tribunal.
The draft code on Industrial Relations has been prepared after amalgamating, simplifying and rationalizing the relevant provisions of following three Central Labour Acts:
- The Trade Unions Act, 1926
- The Industrial Employment (Standing Orders) Act, 1946
- The Industrial Disputes Act, 1947
Status of Labour Reforms
- The Code on Wages - Passed
- Code on occupational safety health and working conditions - Introduced In Lok sabha (Review ongoing by standing committee)
- Industrial relations code bill - Introduced In Lok sabha
- Social Security bill - Cabinet Approval
Govt introduces Labour Code on Industrial Relations bill in Lok Sabha
The Code on Occupational Safety, Health and Working Conditions Bill, 2019 Introduced in Lok Sabha Today
Five years on, has land acquisition act fulfilled its aim?
“The law was drafted with the intention to discourage land acquisition. It was drafted so that land acquisition would become a route of last resort” Legislating for Justice: The Making of the 2013 Land Acquisition Law, by Jairam Ramesh and Muhammad Ali Khan
It is not often that the government enacts a law to discourage the very process the legislation aims to streamline. But the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, (LARR) is not just any piece of legislation. It deals with a controversial and highly emotive issue that has huge political implications and replaces a colonial-era law of 1894.
Some like former Planning Commission secretary NC Saxena call LARR “probureaucracy, anti-farmer and anti-industry.” Activists slammed the 1894 law for its lack of clauses on adequate compensation, consent of landowners and others dependent on the land being acquired, and their rehabilitation. Industry, however, has expressed concerns over LARR going too far on the other side on these provisions. Despite the criticisms, LARR was among the most important laws passed in the 10 years of Congress-led United Progressive Alliance government (2004 and 2014), along with the Right to Information Act, Forest Rights Act and the National Food Security Act.
Land acquisition has led to large-scale protests against projects like the Sardar Sarovar dam in Gujarat; a special economic zone in Nandigram and a Tata Motors plant in Singur (both in West Bengal) as well as Vedanta’s bauxite mining plans in Niyamgiri and Posco’s steel project in Jagatsinghpur (both in Odisha). Mega projects — which are required to power the economy and create jobs — often get stuck at the land acquisition stage. Land ownership in vast parts of India are fragmented and disorganised, making direct acquisition a challenge for a private entity. Besides, land-losers might end up with an unfair deal. LARR was conceived to take care of such issues, and help power the economy. But five years after the law was cleared, land acquisition remains a thorn for the government and private entities. This raises the question, has LARR fulfilled its aim?
'Guilty Government'
“The government is most guilty when it comes to land acquisition over the past 50-60 years. Its track record is pathetic,” says Jairam Ramesh, who was minister for rural development when the LARR bill was passed by the Lok Sabha and Rajya Sabha between August 29 and September 5, 2013. (The department of land resources is under the rural development ministry). LARR came into effect on January 1, 2014.
Among the key features where LARR differs from the 1894 law are compensation, consent, social impact assessment (SIA) and rehabilitation and resettlement. LARR mandates compensation up to twice the market value in rural areas, but keeps it at market value in urban areas, like in the 1894 act. But landowners also get an additional 100% solatium, calculated on the compensation paid for the land, unlike 30% in the old law. This means landowners get up to four times the market value in villages and twice the market value in cities.
Under LARR, public-private partnership projects need the consent of 70% of affected families and private projects need 80%. But government projects do need not consent. “It was a compromise I had to make to get the bill passed. Ideally, consent should be required even for government projects,” says Ramesh.
Narendra Singh Tomar, minister for rural development, was not available for comment.
SIA, for which there was no provision in the 1894 act, and rehabilitation, which was not a must earlier, were also made mandatory under LARR. But SIA, which weighs the cost of a project against its benefits, was waived for some projects. “It imposes an obligation on the acquiring body to demonstrate the object sought to be achieved justifies the cost of displacement,” write Ramesh and Khan in their book, Legislating for Justice: The Making of the 2013 Land Acquisition Law.
Rehab Options
As part of rehabilitation, those affected can choose from three options: employment for at least one member of every affected family in the project concerned; a one-time payment of Rs 5 lakh per family; or an inflationadjusted monthly payout of not less than Rs 2,000 for 20 years.
Thirteen laws, including the National Highways Act, 1956, and the Railways Act, 1989, were exempted from LARR for a year. In December 2014, months after taking charge, the Narendra Modi government brought in an ordinance to bring these laws within the ambit of LARR. The real reason, according to experts, was to dilute the law.
The ordinance exempted five categories of projects — including rural infrastructure and affordable housing — from clauses relating to consent, SIA and the one that says acquired land not used for five years has to be returned to the original owners or occupants. The ordinance caused a backlash from the opposition and activists. In August 2015, the government said it would let the ordinance lapse. Later, the Union government said it would allow states to amend LARR, in effect allowing states to remove or change the clauses.
While land is a state subject, land acquisition is on the concurrent list. So while the central law overrides the state law in such cases, states can amend central laws, with the assent of the President, if provisions in the state law are “repugnant” to provisions in the central law.
So far, eight states, including five BJPruled ones, have amended LARR. Gujarat and Telangana have, for instance, exempted the types of projects mentioned in the ordinance from consent and SIA. Shailendra Kumar Joshi, chief secretary of Telangana, says the state amended LARR as land acquisition under it was difficult. The amendment provides for a higher compensation than LARR. “We have also provided flexibility to landowners on rehabilitation and resettlement (R&R) where the displaced persons can choose money in place of R&R,” adds Joshi.
Diluting the Law
In Maharashtra, only private projects have to adhere to the two clauses. In Tamil Nadu, acquisitions done under four state laws are exempted from consent and SIA clauses. Other changes by states include Andhra Pradesh reducing the notice period for public hearing for SIA from three weeks to one, and Jharkhand having no provision for return of unused land for five years.
“Consent, SIA and rehabilitation & resettlement are what states are skimping on,” says Namita Wahi, a fellow of the Centre for Policy Research (CPR). Some states such as Haryana have stuck to the lower end of the compensation mentioned in the central law for rural areas, according to a report by CPR and Namati Environmental Justice Program. LARR is a poorly conceived law, says Sannjoy Chakravorty, professor of geography and urban studies, Temple University, and author of The Price of Land: Acquisition, Conflict, Consequence. No government can pay four times the market value of land, in his opinion. “It has multiplied what are already the highest land prices in the world.” Land should not be acquired but should be bought through negotiations like in a free market, adds Chakravorty.
Ramesh concurs. “Land acquisition...should be under the rarest of rare circumstances. In fact over a 10-15-year period, we should move to a situation where governments do not acquire land even for their own use. They should buy.” But, he adds, LARR is needed in the interim because of the state of our land records, among other things.
Virendra D Mhaiskar, chairman and managing director of highway construction company IRB Infrastructure Developers, recently told ET Magazine people’s opposition to giving up land for projects has evaporated due to the higher compensation offered under LARR. But a former chief executive of another infrastructure developer says LARR has added a lot of bureaucratic hurdles, thereby increasing costs. “We don’t know who the real beneficiaries of the compensation are,” he says, requesting anonymity.
Pooling Advantage
Regardless of the compensation, several large projects are battling land acquisition issues. For instance, out of the 1,400 hectares needed for the Mumbai-Ahmedabad bullet train project, less than one hectare has been acquired. According to Land Conflict Watch, there are 247 ongoing land acquisition conflicts. These projects have a proposed investment of nearly Rs 10 lakh crore and affect over 30 lakh people.
“The act is based on the wrong philosophy that development is a zero-sum game,” says Saxena. The government wanted farmers to benefit but it has hurt industry. This has made state governments look at alternatives to acquisition, he adds.
One option that has got visibility is pooling. It has been in the limelight in recent years thanks to its adoption by the Andhra government to develop its new capital, Amaravati, using 33,000 acres pooled from 25,000 farmers. Under pooling, a group of landowners give up their land to a government agency, which develops the land with infrastructure and amenities and returns a part of it back to the owners. The idea behind this is that with all the development, the smaller land parcels returned to the owners will be worth at least as much as the original parcel, and the government saves on acquisition costs.
But the jury is still out on the success of the model. Ajay Jain, Andhra’s principal secretary for infrastructure and investment, says without pooling, the capital city project would have been a non-starter. “We have ensured that the landowners are not uprooted, and at least a fourth of their developed land parcels have already been allotted to the landowners, who are now partners in the capital city.” The state government now plans to use pooling for the expansion of the Vijayawada airport and the Bhagapuram greenfield airport, among others.
Land acquisition will continue to be problematic, as balancing industrial and infrastructure development with the needs of landowners and occupants is a tough act. Alternatives to land acquisition like pooling and leasing may not be always viable.
“The law was drafted with the intention to discourage land acquisition. It was drafted so that land acquisition would become a route of last resort” Legislating for Justice: The Making of the 2013 Land Acquisition Law, by Jairam Ramesh and Muhammad Ali Khan
It is not often that the government enacts a law to discourage the very process the legislation aims to streamline. But the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, (LARR) is not just any piece of legislation. It deals with a controversial and highly emotive issue that has huge political implications and replaces a colonial-era law of 1894.
Some like former Planning Commission secretary NC Saxena call LARR “probureaucracy, anti-farmer and anti-industry.” Activists slammed the 1894 law for its lack of clauses on adequate compensation, consent of landowners and others dependent on the land being acquired, and their rehabilitation. Industry, however, has expressed concerns over LARR going too far on the other side on these provisions. Despite the criticisms, LARR was among the most important laws passed in the 10 years of Congress-led United Progressive Alliance government (2004 and 2014), along with the Right to Information Act, Forest Rights Act and the National Food Security Act.
Land acquisition has led to large-scale protests against projects like the Sardar Sarovar dam in Gujarat; a special economic zone in Nandigram and a Tata Motors plant in Singur (both in West Bengal) as well as Vedanta’s bauxite mining plans in Niyamgiri and Posco’s steel project in Jagatsinghpur (both in Odisha). Mega projects — which are required to power the economy and create jobs — often get stuck at the land acquisition stage. Land ownership in vast parts of India are fragmented and disorganised, making direct acquisition a challenge for a private entity. Besides, land-losers might end up with an unfair deal. LARR was conceived to take care of such issues, and help power the economy. But five years after the law was cleared, land acquisition remains a thorn for the government and private entities. This raises the question, has LARR fulfilled its aim?
'Guilty Government'
“The government is most guilty when it comes to land acquisition over the past 50-60 years. Its track record is pathetic,” says Jairam Ramesh, who was minister for rural development when the LARR bill was passed by the Lok Sabha and Rajya Sabha between August 29 and September 5, 2013. (The department of land resources is under the rural development ministry). LARR came into effect on January 1, 2014.
Among the key features where LARR differs from the 1894 law are compensation, consent, social impact assessment (SIA) and rehabilitation and resettlement. LARR mandates compensation up to twice the market value in rural areas, but keeps it at market value in urban areas, like in the 1894 act. But landowners also get an additional 100% solatium, calculated on the compensation paid for the land, unlike 30% in the old law. This means landowners get up to four times the market value in villages and twice the market value in cities.
Under LARR, public-private partnership projects need the consent of 70% of affected families and private projects need 80%. But government projects do need not consent. “It was a compromise I had to make to get the bill passed. Ideally, consent should be required even for government projects,” says Ramesh.
Narendra Singh Tomar, minister for rural development, was not available for comment.
SIA, for which there was no provision in the 1894 act, and rehabilitation, which was not a must earlier, were also made mandatory under LARR. But SIA, which weighs the cost of a project against its benefits, was waived for some projects. “It imposes an obligation on the acquiring body to demonstrate the object sought to be achieved justifies the cost of displacement,” write Ramesh and Khan in their book, Legislating for Justice: The Making of the 2013 Land Acquisition Law.
Rehab Options
As part of rehabilitation, those affected can choose from three options: employment for at least one member of every affected family in the project concerned; a one-time payment of Rs 5 lakh per family; or an inflationadjusted monthly payout of not less than Rs 2,000 for 20 years.
Thirteen laws, including the National Highways Act, 1956, and the Railways Act, 1989, were exempted from LARR for a year. In December 2014, months after taking charge, the Narendra Modi government brought in an ordinance to bring these laws within the ambit of LARR. The real reason, according to experts, was to dilute the law.
The ordinance exempted five categories of projects — including rural infrastructure and affordable housing — from clauses relating to consent, SIA and the one that says acquired land not used for five years has to be returned to the original owners or occupants. The ordinance caused a backlash from the opposition and activists. In August 2015, the government said it would let the ordinance lapse. Later, the Union government said it would allow states to amend LARR, in effect allowing states to remove or change the clauses.
While land is a state subject, land acquisition is on the concurrent list. So while the central law overrides the state law in such cases, states can amend central laws, with the assent of the President, if provisions in the state law are “repugnant” to provisions in the central law.
So far, eight states, including five BJPruled ones, have amended LARR. Gujarat and Telangana have, for instance, exempted the types of projects mentioned in the ordinance from consent and SIA. Shailendra Kumar Joshi, chief secretary of Telangana, says the state amended LARR as land acquisition under it was difficult. The amendment provides for a higher compensation than LARR. “We have also provided flexibility to landowners on rehabilitation and resettlement (R&R) where the displaced persons can choose money in place of R&R,” adds Joshi.
Diluting the Law
In Maharashtra, only private projects have to adhere to the two clauses. In Tamil Nadu, acquisitions done under four state laws are exempted from consent and SIA clauses. Other changes by states include Andhra Pradesh reducing the notice period for public hearing for SIA from three weeks to one, and Jharkhand having no provision for return of unused land for five years.
“Consent, SIA and rehabilitation & resettlement are what states are skimping on,” says Namita Wahi, a fellow of the Centre for Policy Research (CPR). Some states such as Haryana have stuck to the lower end of the compensation mentioned in the central law for rural areas, according to a report by CPR and Namati Environmental Justice Program. LARR is a poorly conceived law, says Sannjoy Chakravorty, professor of geography and urban studies, Temple University, and author of The Price of Land: Acquisition, Conflict, Consequence. No government can pay four times the market value of land, in his opinion. “It has multiplied what are already the highest land prices in the world.” Land should not be acquired but should be bought through negotiations like in a free market, adds Chakravorty.
Ramesh concurs. “Land acquisition...should be under the rarest of rare circumstances. In fact over a 10-15-year period, we should move to a situation where governments do not acquire land even for their own use. They should buy.” But, he adds, LARR is needed in the interim because of the state of our land records, among other things.
Virendra D Mhaiskar, chairman and managing director of highway construction company IRB Infrastructure Developers, recently told ET Magazine people’s opposition to giving up land for projects has evaporated due to the higher compensation offered under LARR. But a former chief executive of another infrastructure developer says LARR has added a lot of bureaucratic hurdles, thereby increasing costs. “We don’t know who the real beneficiaries of the compensation are,” he says, requesting anonymity.
Pooling Advantage
Regardless of the compensation, several large projects are battling land acquisition issues. For instance, out of the 1,400 hectares needed for the Mumbai-Ahmedabad bullet train project, less than one hectare has been acquired. According to Land Conflict Watch, there are 247 ongoing land acquisition conflicts. These projects have a proposed investment of nearly Rs 10 lakh crore and affect over 30 lakh people.
“The act is based on the wrong philosophy that development is a zero-sum game,” says Saxena. The government wanted farmers to benefit but it has hurt industry. This has made state governments look at alternatives to acquisition, he adds.
One option that has got visibility is pooling. It has been in the limelight in recent years thanks to its adoption by the Andhra government to develop its new capital, Amaravati, using 33,000 acres pooled from 25,000 farmers. Under pooling, a group of landowners give up their land to a government agency, which develops the land with infrastructure and amenities and returns a part of it back to the owners. The idea behind this is that with all the development, the smaller land parcels returned to the owners will be worth at least as much as the original parcel, and the government saves on acquisition costs.
But the jury is still out on the success of the model. Ajay Jain, Andhra’s principal secretary for infrastructure and investment, says without pooling, the capital city project would have been a non-starter. “We have ensured that the landowners are not uprooted, and at least a fourth of their developed land parcels have already been allotted to the landowners, who are now partners in the capital city.” The state government now plans to use pooling for the expansion of the Vijayawada airport and the Bhagapuram greenfield airport, among others.
Land acquisition will continue to be problematic, as balancing industrial and infrastructure development with the needs of landowners and occupants is a tough act. Alternatives to land acquisition like pooling and leasing may not be always viable.
Opinion | Let us prioritize employment over labour protection
In a trip to Vietnam, while travelling by road from Hanoi to Ha Long Bay, I noticed contiguous factory buildings for more than a mile bearing the name Canon. My tourist guide told me that these are outsourced manufacturing units. It is reported that 60% of Samsung phones are made in Vietnam, and last year, the brand’s products accounted for about 20% of this country’s exports. It is intriguing how a war-torn country has become a bigger success than even China in reducing poverty, which has dropped from 60% in 1990 to 10% today. My six days in Vietnam encouraged me to believe that it has been possible on the back of flexible labour policies, physical infrastructure and efficient supply chain links.
In India, land and labour reforms are emotive issues. The Narendra Modi government, at the start of its first term, did attempt land reforms; it promulgated nine ordinances, one after the other, which eventually lapsed after failing to get Rajya Sabha approval. Recently, Parliament legislated a new labour code, amalgamating the provisions of several acts. Provident Fund benefits have been extended to temporary/contract employees. In fact, there have been some coordinated efforts between the Centre and some states to liberalize the engagement of labour.
Labour reforms tend to have political consequences. The vice-chairman of NITI Aayog, while talking about labour reforms, has been clear that there would be no “hire and fire" policy. While wages in India are low, the cost of labour is higher than in other Asian countries. Improving labour productivity, which is a serious impediment to the expansion of manufacturing, warrants investment in technology and scaling up the size of Indian enterprises.
Currently, the Indian economy is going through a bad patch. India’s quarterly gross domestic product (GDP) growth has fallen to 5% in the first three months of the current fiscal year, with obvious consequences. The country now faces the challenge of low aggregate demand—caused, inter alia, by rising unemployment. While the Code on Wages, 2017, which stipulates a national floor minimum wage, has the potential to mitigate the effects of declining demand, without large-scale employment generation, its benefits cannot be realized.
Trade wars between the US and China, and Japan and Korea, have combined with demographic issues in those geographies to inspire significant shifts in manufacturing locations, particularly away from China. This offers an opportunity to welcome factories to India and join global supply chains. The Modi government has taken the bold step of bringing down corporate tax rates to a level comparable with other jurisdictions, especially in Asia. Though this decision is expected to aid the economy in the medium to long term, its full benefits can be reaped only if manufacturing units move to India.
At a point in time when employment opportunities are being generated at less than half the rate of new entrants to the job market, labour protection measures have very little meaning. Labour laws protect employees against exploitation by employers. But the question is: If there is no employment, whom do we protect? Currently, 95% of employment in India is generated by agriculture, businesses in the informal economy, and micro, small and medium enterprises (MSMEs). No aspect of India’s labour protection law, except perhaps the minimum wage, applies to them.
This is not to suggest giving a complete go-by to labour protection laws. However, employment may rise if companies could hire well beyond 300 people without worrying about restrictions on layoffs during downturns. Let firms hire freely. Ask an unemployed person whether he wants a job or job protection, and most likely he would want a job first. Once adequate employment opportunities are created, the government can deal with welfare issues. It could create a fund from the extra tax revenues, for example, for the purpose. Simply put, the order should be reversed from “first protect and then employ" to “first employ and then create welfare measures". This is exactly what China, Vietnam, Cambodia, Bangladesh and other Asian Tigers have done to attract global manufacturing.
With a view to experiment and not radicalize the national order, China created special economic zones and allowed businesses complete freedom to perform, with no conditions imposed. This attracted hordes of investors. The model has since been replicated countrywide. India’s Special Economic Zones, in contrast, have largely been tax-saving and land-grabbing exercises.
Sometime in 2004, when I visited China as chairman of the Securities and Exchange Board of India (Sebi), the then Indian ambassador had given me a paper to read, and one of the observations in it was that more than 80% of the export of manufacturing goods from China was done by enterprises that were 100% foreign owned. China has benefited from the employment of Chinese labour and the value addition involved. It would be worthwhile to explore a similar approach.
The earnestness of the Modi government to enhance the economic prosperity of India is undoubted. It has taken bold steps to improve the fundamentals of India’s economy. However, without land and labour reforms, the speed of economic growth cannot be accelerated, nor can the country’s demographic dividend be maximized. Every opportunity has a timeline. And the daring harness it optimally.
G.N. Bajpai is former chairman of Sebi and LIC, and columnist and author
In a trip to Vietnam, while travelling by road from Hanoi to Ha Long Bay, I noticed contiguous factory buildings for more than a mile bearing the name Canon. My tourist guide told me that these are outsourced manufacturing units. It is reported that 60% of Samsung phones are made in Vietnam, and last year, the brand’s products accounted for about 20% of this country’s exports. It is intriguing how a war-torn country has become a bigger success than even China in reducing poverty, which has dropped from 60% in 1990 to 10% today. My six days in Vietnam encouraged me to believe that it has been possible on the back of flexible labour policies, physical infrastructure and efficient supply chain links.
In India, land and labour reforms are emotive issues. The Narendra Modi government, at the start of its first term, did attempt land reforms; it promulgated nine ordinances, one after the other, which eventually lapsed after failing to get Rajya Sabha approval. Recently, Parliament legislated a new labour code, amalgamating the provisions of several acts. Provident Fund benefits have been extended to temporary/contract employees. In fact, there have been some coordinated efforts between the Centre and some states to liberalize the engagement of labour.
Labour reforms tend to have political consequences. The vice-chairman of NITI Aayog, while talking about labour reforms, has been clear that there would be no “hire and fire" policy. While wages in India are low, the cost of labour is higher than in other Asian countries. Improving labour productivity, which is a serious impediment to the expansion of manufacturing, warrants investment in technology and scaling up the size of Indian enterprises.
Currently, the Indian economy is going through a bad patch. India’s quarterly gross domestic product (GDP) growth has fallen to 5% in the first three months of the current fiscal year, with obvious consequences. The country now faces the challenge of low aggregate demand—caused, inter alia, by rising unemployment. While the Code on Wages, 2017, which stipulates a national floor minimum wage, has the potential to mitigate the effects of declining demand, without large-scale employment generation, its benefits cannot be realized.
Trade wars between the US and China, and Japan and Korea, have combined with demographic issues in those geographies to inspire significant shifts in manufacturing locations, particularly away from China. This offers an opportunity to welcome factories to India and join global supply chains. The Modi government has taken the bold step of bringing down corporate tax rates to a level comparable with other jurisdictions, especially in Asia. Though this decision is expected to aid the economy in the medium to long term, its full benefits can be reaped only if manufacturing units move to India.
At a point in time when employment opportunities are being generated at less than half the rate of new entrants to the job market, labour protection measures have very little meaning. Labour laws protect employees against exploitation by employers. But the question is: If there is no employment, whom do we protect? Currently, 95% of employment in India is generated by agriculture, businesses in the informal economy, and micro, small and medium enterprises (MSMEs). No aspect of India’s labour protection law, except perhaps the minimum wage, applies to them.
This is not to suggest giving a complete go-by to labour protection laws. However, employment may rise if companies could hire well beyond 300 people without worrying about restrictions on layoffs during downturns. Let firms hire freely. Ask an unemployed person whether he wants a job or job protection, and most likely he would want a job first. Once adequate employment opportunities are created, the government can deal with welfare issues. It could create a fund from the extra tax revenues, for example, for the purpose. Simply put, the order should be reversed from “first protect and then employ" to “first employ and then create welfare measures". This is exactly what China, Vietnam, Cambodia, Bangladesh and other Asian Tigers have done to attract global manufacturing.
With a view to experiment and not radicalize the national order, China created special economic zones and allowed businesses complete freedom to perform, with no conditions imposed. This attracted hordes of investors. The model has since been replicated countrywide. India’s Special Economic Zones, in contrast, have largely been tax-saving and land-grabbing exercises.
Sometime in 2004, when I visited China as chairman of the Securities and Exchange Board of India (Sebi), the then Indian ambassador had given me a paper to read, and one of the observations in it was that more than 80% of the export of manufacturing goods from China was done by enterprises that were 100% foreign owned. China has benefited from the employment of Chinese labour and the value addition involved. It would be worthwhile to explore a similar approach.
The earnestness of the Modi government to enhance the economic prosperity of India is undoubted. It has taken bold steps to improve the fundamentals of India’s economy. However, without land and labour reforms, the speed of economic growth cannot be accelerated, nor can the country’s demographic dividend be maximized. Every opportunity has a timeline. And the daring harness it optimally.
G.N. Bajpai is former chairman of Sebi and LIC, and columnist and author
Land reform a game-changer that Narendra Modi government has overlooked
It must be the core priority for any government that wants to improve the agricultural situation.
In the run-up to the big 2019 elections, the last few months of the Narendra Modi-led government seem to have been defined by a prevailing agrarian crisis. While the Centre, the opposition and the state governments jostle to provide fiscal support and farm loan waivers, fundamental reform for land use is being overlooked. It has a cascading effect on productivity, growth, and access to credit.
Land reform should be a core priority for any government aiming to meaningfully improve the agricultural situation. Yet, an examination of the present government’s track record highlights its failure to develop a holistic vision for reforming the land market.
In its initial days, the NDA government got mired in controversy over amendments to the land acquisition law passed by its predecessor. In light of a backlash, it had to disband its proposed amendments. That put any serious debate on land reform on the backburner.
While some states have amended the land acquisition law based on local needs, it is uncertain whether they will stand up to the Supreme Court’s scrutiny. Besides, reform is about more than land acquisition.
There are four major issues that hinder entrepreneurship, access to credit and higher growth inland market. The first is the poor quality of land records. The lack of good records creates uncertainty about land rights and encumbrances. This inhibits investment for both agriculture and industry, creates significant impetus for litigation, and leads to financial exclusion of those who cannot prove their right to their property.
The second is the framework of restrictions on the transferability of land rights, depending on the type of land, proposed land use, and the occupational or residential role of the interested buyer.
Specifically, restrictions on leasing, sub-leasing and rental arrangements discourage consolidation of land and give rise to further informality (and subsequently, inaccurate land records).
Third, administrative procedures are complex and create impediments that hamper the smooth functioning of the land market. While India has made considerable progress on the Ease of Doing Business index in the last few years, it continues to be ranked at 166 on the ease of registering property.
The Registration Act, 1908 and state revenue laws require the completion of two separate processes to effect a land transfer. This, and poor state capacity, leads to interminable delays in completing the process.
Any overhaul will require a careful evaluation and rethink of the administrative processes enshrined in existing laws.
To focus on easing restrictions on land transfers, the NITI Aayog formed an expert committee that proposed the liberalisation of the land leasing market. This panel drafted a model law for consideration and adoption by states but on this count, too, it is unclear what progress has been made. While Uttarakhand and Uttar Pradesh now permit leasing, other states have not moved in this direction.
Fourth, there is a high volume of property litigations. A survey conducted by DAKSH in 2018 found that two-thirds of civil litigations were related to land and property. The overwhelming number of litigants surveyed had an annual income of less than Rs 3 lakh and had not studied beyond school.
Litigation is, therefore, an additional cost borne by the poor for transacting in land and property—it is a significant road block for higher growth and productivity.
The government has had little to show in terms of addressing these issues in the past five years. The decade-old National Land Record Modernisation Programme (NLRMP) aimed at improving land records was rechristened the Digital India Land Record Modernisation Programme (DILRMP), but fundamentally, the scheme has remained the same despite low-to-middling success across states.
A three-state study conducted by the National Council for Applied Economic Research (NCAER), the National Institute for Public Finance and Policy (NIPFP) and the Indira Gandhi Institute for Development Research (IGIDR) found significant shortcomings in the implementation of DILRMP across states, albeit for different reasons. (Note: The author was involved in the NIPFP study of DILRMP implementation in Rajasthan.)
The joint study recommended moving to outcome-driven indicators for measuring progress across states, and incentive-based fiscal support to states based on their performance.
It is unclear whether any key decision has been made upon the recommendations.
Although land is a state subject, it is for the central government to incentivise states to undertake reforms, and to provide knowledge and capacity-building platforms.
The BJP-led NDA government has, however, focused only on immediate demands rather than bring about a fundamental reform – one that could reap benefits for the economy in the long run.
It must be the core priority for any government that wants to improve the agricultural situation.
In the run-up to the big 2019 elections, the last few months of the Narendra Modi-led government seem to have been defined by a prevailing agrarian crisis. While the Centre, the opposition and the state governments jostle to provide fiscal support and farm loan waivers, fundamental reform for land use is being overlooked. It has a cascading effect on productivity, growth, and access to credit.
Land reform should be a core priority for any government aiming to meaningfully improve the agricultural situation. Yet, an examination of the present government’s track record highlights its failure to develop a holistic vision for reforming the land market.
In its initial days, the NDA government got mired in controversy over amendments to the land acquisition law passed by its predecessor. In light of a backlash, it had to disband its proposed amendments. That put any serious debate on land reform on the backburner.
While some states have amended the land acquisition law based on local needs, it is uncertain whether they will stand up to the Supreme Court’s scrutiny. Besides, reform is about more than land acquisition.
There are four major issues that hinder entrepreneurship, access to credit and higher growth inland market. The first is the poor quality of land records. The lack of good records creates uncertainty about land rights and encumbrances. This inhibits investment for both agriculture and industry, creates significant impetus for litigation, and leads to financial exclusion of those who cannot prove their right to their property.
The second is the framework of restrictions on the transferability of land rights, depending on the type of land, proposed land use, and the occupational or residential role of the interested buyer.
Specifically, restrictions on leasing, sub-leasing and rental arrangements discourage consolidation of land and give rise to further informality (and subsequently, inaccurate land records).
Third, administrative procedures are complex and create impediments that hamper the smooth functioning of the land market. While India has made considerable progress on the Ease of Doing Business index in the last few years, it continues to be ranked at 166 on the ease of registering property.
The Registration Act, 1908 and state revenue laws require the completion of two separate processes to effect a land transfer. This, and poor state capacity, leads to interminable delays in completing the process.
Any overhaul will require a careful evaluation and rethink of the administrative processes enshrined in existing laws.
To focus on easing restrictions on land transfers, the NITI Aayog formed an expert committee that proposed the liberalisation of the land leasing market. This panel drafted a model law for consideration and adoption by states but on this count, too, it is unclear what progress has been made. While Uttarakhand and Uttar Pradesh now permit leasing, other states have not moved in this direction.
Fourth, there is a high volume of property litigations. A survey conducted by DAKSH in 2018 found that two-thirds of civil litigations were related to land and property. The overwhelming number of litigants surveyed had an annual income of less than Rs 3 lakh and had not studied beyond school.
Litigation is, therefore, an additional cost borne by the poor for transacting in land and property—it is a significant road block for higher growth and productivity.
The government has had little to show in terms of addressing these issues in the past five years. The decade-old National Land Record Modernisation Programme (NLRMP) aimed at improving land records was rechristened the Digital India Land Record Modernisation Programme (DILRMP), but fundamentally, the scheme has remained the same despite low-to-middling success across states.
A three-state study conducted by the National Council for Applied Economic Research (NCAER), the National Institute for Public Finance and Policy (NIPFP) and the Indira Gandhi Institute for Development Research (IGIDR) found significant shortcomings in the implementation of DILRMP across states, albeit for different reasons. (Note: The author was involved in the NIPFP study of DILRMP implementation in Rajasthan.)
The joint study recommended moving to outcome-driven indicators for measuring progress across states, and incentive-based fiscal support to states based on their performance.
It is unclear whether any key decision has been made upon the recommendations.
Although land is a state subject, it is for the central government to incentivise states to undertake reforms, and to provide knowledge and capacity-building platforms.
The BJP-led NDA government has, however, focused only on immediate demands rather than bring about a fundamental reform – one that could reap benefits for the economy in the long run.
India trying to set up IPR office on US model
The government said in Rajya Sabha on Friday said it is trying to set up a fully computerised intellectual property rights (IPR) office in the country which is similar to the US model where everything is done online.
Responding during Question Hour, Commerce Minister Piyush Goyal said the government has brought a lot of "sanity" to the working of eight areas of IPR, be it patent, copyright or trademark. "All of these are synergised into one office now. We are in the process of computerising every process so that people don't have to go to any IPR office whatsoever," he said.
In the whole of the US, there is one IPR office and everybody works online, he said, and added, "I am trying to develop that module here." With smartphones proliferating all over India, the government wants to ensure rural artisans and craftsmen engage directly online through video conferencing and get advise on patent related issues free of cost, he said.
The government has already reduced charges significantly for start-ups, artisans and women entrepreneurs, he added. On protection of traditional knowledge under India's IPR policy, Goyal said it is not only related to traditional medicine but also traditional cultural expression.
An initial study has been conducted to get a feel of what a road map on this issue should be, he said, and added that the government is now in the process of working out a much more detailed analysis and prepare a road map forward.
On government's efforts to protect traditional knowledge, the minister said 3.6 lakh formulations which were part of traditional knowledge have now been made available to 13 patent offices across the world.
"Due to which, we were able to save about 236 cases which otherwise would have got patented somewhere else. They were able to deny the patent in different geographies because of our effort to make the world aware that India has lot of traditional knowledge," he added.
The minister also assured the BJD member that the government will consider protecting "traditional culture" in the IPR policy. The government is very committed that rural India is engaged with the world when it comes to the country's traditional knowledge and culture, he added.
India trying to set up IPR office on US model
The government said in Rajya Sabha on Friday said it is trying to set up a fully computerised intellectual property rights (IPR) office in the country which is similar to the US model where everything is done online.
Responding during Question Hour, Commerce Minister Piyush Goyal said the government has brought a lot of "sanity" to the working of eight areas of IPR, be it patent, copyright or trademark. "All of these are synergised into one office now. We are in the process of computerising every process so that people don't have to go to any IPR office whatsoever," he said.
In the whole of the US, there is one IPR office and everybody works online, he said, and added, "I am trying to develop that module here." With smartphones proliferating all over India, the government wants to ensure rural artisans and craftsmen engage directly online through video conferencing and get advise on patent related issues free of cost, he said.
The government has already reduced charges significantly for start-ups, artisans and women entrepreneurs, he added. On protection of traditional knowledge under India's IPR policy, Goyal said it is not only related to traditional medicine but also traditional cultural expression.
An initial study has been conducted to get a feel of what a road map on this issue should be, he said, and added that the government is now in the process of working out a much more detailed analysis and prepare a road map forward.
On government's efforts to protect traditional knowledge, the minister said 3.6 lakh formulations which were part of traditional knowledge have now been made available to 13 patent offices across the world.
"Due to which, we were able to save about 236 cases which otherwise would have got patented somewhere else. They were able to deny the patent in different geographies because of our effort to make the world aware that India has lot of traditional knowledge," he added.
The minister also assured the BJD member that the government will consider protecting "traditional culture" in the IPR policy. The government is very committed that rural India is engaged with the world when it comes to the country's traditional knowledge and culture, he added.
India trying to set up IPR office on US model
mukul 
(@MukulAgarwal66) Tweeted:
Digitisation Of Land Records Completed In 90 Per Cent Of Over 6.5 Lakh Indian Villages: Rural Development Ministry Digitisation Of Land Records Completed In 90 Per Cent Of Over 6.5 Lakh Indian Villages: Rural Development Ministry via @swarajyamag
Most important work, completely under the radar, with far reaching consequences.... This is why Modi wins ( )
(@MukulAgarwal66) Tweeted:Digitisation Of Land Records Completed In 90 Per Cent Of Over 6.5 Lakh Indian Villages: Rural Development Ministry Digitisation Of Land Records Completed In 90 Per Cent Of Over 6.5 Lakh Indian Villages: Rural Development Ministry via @swarajyamag
Most important work, completely under the radar, with far reaching consequences.... This is why Modi wins ( )