Setting the tune for hire-and-fire labour laws

Despite arguing for a reasonable balance between the objective of protecting the legitimate rights of employees and the equally important objective of providing a framework which would encourage efficiency and create incentives to expand total employment. ''the reforms suggested are bound to meet resistance, says V.S. Sambandan.

A DECADE after the commencement of economic reforms, concerns over their impact on Indian labour persist. If there is one message that runs consistently through the Report of the Task Force on Employment Opportunities, headed by the member of the Planning Commission, Dr. Montek Singh Ahluwalia, it is that there will be a decreasing role for the state in the area of job- creation.

That the second phase of reforms, especially those relating to labour laws, require sensitive handling, is now increasingly accepted. Seen against the hard options before Indian labour, the Task Force has made the point that finding the jobs required is easier said than done. More important, it is also an official statement that job-creation will in future have to come from the private sector, marking a major shift from the past.

Decleration in employment growth

The initial evidence available on the impact of reforms so far on employment growth in various sectors is a pointer to the future. The deceleration in the employment growth rates between 1983-94 and 1999-2000 should be given serious attention. At both aggregate and sectoral levels, the slide has been drastic to be explained away.

Compared to an overall average of 2.04 per cent before reforms (1983-94) the annual growth rate was a mere 0.98 per cent in 1994-2000. While the aggregate picture is not encouraging, certain sectors have, along expected lines, shown a response to the reforms. The agriculture, mining and quarrying and electricity sectors have all shown negative growth rates. The growth has been lower than the pre-reform period in manufacturing, financial services and community, social and personal services. (Table I)

The Task Force, therefore, calls for changes in the identified sectors that will provide an enabling environment for the private sector to step in and emerge as job providers. The changes suggested by the Report are indeed far-reaching and will impact all sectors of the economy (Box).

It is in the area of labour reforms that the recommendations of the Task Force are bound to meet with stiff resistance. When the Union Finance Minister announced the Government's intention to amend two important labour laws - the Industrial Disputes Act and the Contract Labour Act - he set the tone for the hard measures ahead. The Task Force, in its build-up and suggestions for change, has not only reiterated the Government's position but has, in some cases, placed on the public agenda issues that will be difficult for the political leadership to do.

Despite arguing for a ``reasonable balance between the objective of protecting the legitimate rights of employees and the equally important objective of providing a framework which would encourage efficiency and create incentives to expand total employment,'' the reforms suggested are bound to meet resistance.

Changes in three laws

Pointing to the need for a comprehensive review, the Task Force outlines the changes required in three laws: the Industrial Disputes Act (1947), the Trade Unions Act (1926) and the Contract Labour (Abolition and Regulation) Act, 1970. For those who already feel that the measures outlined by Mr. Yashwant Sinha in his budget are a signal to the hard options that the Government plans to exercise, the report of the Task Force suggests even more drastic changes in the labour laws.

In the case of retrenchment, for instance, the report goes a step further than the Finance Minister's proposal. On the first instance, Mr. Sinha proposed an amendment to the Act to make Chapter V-B applicable only to units that employ more than 1,000 employees, the Task Force goes a step further.

Arguing that such an approach would ``give flexibility only to the larger units while denying it to smaller and middle-sized units who perhaps need it the most'', the report says: ``We would recommend a more radical step of deleting Chapter V-B from the Industrial Disputes Act completely and restoring the position prior to 1976.''

On the issue of severance package as well while Mr. Sinha thought in terms of a 45-day severance package for each year of service, the Task Force suggests ``one month at least and possibly higher.'' Given the apprehensions expressed by labour representatives on the possibility of easy lay-offs in the event of changes to the provisions on retrenchment, the suggestion by the Task Force is likely to draw opposition.

Another issue that is likely to cause concern is the report's suggestion on labour courts and Industrial Tribunals. Calling for the need to ``simplify'' provisions regarding dismissal, the observation is:``Section 11A of the Industrial Disputes Act, which allows labour courts, Industrial Tribunals to interpose the state in matters that are best left to established internal processes.'' The ambiguity of the recommendation requires to be clarified, especially the thinking on the roles to be played by labour courts and tribunals.

Pushing the case for ``removing rigidities'' even further, the Task Force calls for changes in service rules to what could be broadly termed redeployment. Present requirement has it that a 21-day notice is required to be given to employees prior to changing the ``job content and the area and nature of work of an employee.'' Though an alternative is not spelt out, the report is of the opinion that ``it is necessary to amend the Act to introduce greater flexibility in this area.''

On strikes, the report observes: ``it would be desirable to introduce the system of `strike ballot' whereby a strike can be called only if it is supported by a qualifying majority of workers.'' A limitation period of three years is also suggested for filing disputes under the ID Act to discourage piling up of old disputes, leading to delay in courts.

The proposals made on changing trade union laws is also bound to be an emotive issue. For checking ``multiplicity'' of unions ``which makes collective bargaining more difficult'' and can also serve as ``a device'' for managements to `divide and rule'', the suggestion is that the Act could be modified to specify that at least 10 per cent of the workers of an enterprise or 100 employees, whichever is less, are necessary to form and register a union.

In its timing as well as the content of its recommendations, the Task Force should form part of a serious public debate on the course of labour law reforms that should be adopted. In addition, the important need to restructure the wage policies has to addressed.

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