Several other critical labour laws need fixing
Given there are around 44 Central laws that concern labour and 27 definition of workers—airline pilots are workers under the Trade Unions Act but not under the Payment of Wages Act—equating labour law reform with hire-and-fire, or Chapter VB of the Industrial Disputes Act, has probably been the worst thing for employers. Since hire-and-fire is a political hot potato, the government has not touched any of the less volatile labour law provisions either. All of this is, however, changing for the better and the new labour portal being worked on is an example of the change. India has around 7-8 lakh employers and, of these, around 1.25 lakh were physically inspected last year, leading to all manner of harassment. What is now proposed is an algorithm which will throw up firms which need to be inspected—the algorithm, for instance, could include the number of employees falling or a drop in contributions. Only units whose names are thrown up can be inspected and all reports have to be filed within three days on the portal, reducing the scope for harassment—since the portal will list all laws that need to be complied with, there will be no grey area as is the case today.
Once this is fixed, the government needs to move on to the second phase, which is to look at the benefits side of the equation. At the lower end, Teamlease estimates, over 48% of employee benefits are taken away by contributions to EPFO/ESIC. At a cost of 4%, the EPFO is probably the world’s most expensive mutual fund investing in only fully secured GSecs; given the large number of dormant accounts, that suggests a large number of employees are not even able to get their contributions out. So, the government needs to make it voluntary for the employee to contribute to these two institutions, and to think about possible substitutes for them—the NPS is an obvious substitute for the EPFO. After this, the next phase of labour reforms has to be dealing with depoliticising trade unions. This means not allowing outsiders to become members and to ensure that a union must have a minimum proportion of workers as its members before it is recognised.
The changes to Chapter VB can be tackled at the Central level after this—states like Rajasthan have already modified this at their level and a Central approval is expected soon. But even before that, a big step forward would be to recognise fixed-term contracts—if a firm hires someone on contract for a year, the person should not be considered a permanent employee. The changes proposed to the Apprentice Act, similarly, will go a long way in alleviating labour pains for both companies as well as those that want to be trained—if India had Germany’s level of apprentices, it would have 15 million against the actual number of under-3 lakh. None of these changes, it is true, will figure in the list of big changes that will hit the headlines, but each one will make life that much simpler for employers.