Time to move labour laws off the concurrent list
Given the string of strikes across most major automobile companies in recent times, and how much Tamil Nadu has riding on the sector—both now, and in the future—it is not surprising that the state’s automobile and auto components’ policy should seek to outlaw strikes by declaring the industry a “public utility”. Some years ago, West Bengal did something similar by declaring the IT industry a public utility. That states are increasingly getting more aware of the need to have as industry-friendly labour laws as possible is not surprising since a recent McKinsey study points out, states with industry-friendly labour laws had 35.3% of their non-farm employment in 2010 housed in the organised sector vs 23.2% for states which had less labour-friendly policies. Given that organised sector wages are higher due to higher productivity, it is critical that more organised sector jobs be created. Indeed, a recent Crisil study points out that, while India will need 50 million new jobs between FY12 and FY19, industry will not be able to create the necessary number of jobs and 12 million people will have to seek employment in the agriculture sector.
The problem here is that even if states like Tamil Nadu want to provide a more secure industrial climate for investors, Central laws prevent them from doing anything except to tinker at the margin by declaring one or two industries to be public utilities. Since the Industrial Disputes Act is a concurrent law, this means no state can over-rule the Central law which holds that any firm with more than 100 workers has to take the government’s permission before it retrenches them. States are free to lower this to 50, but they can’t raise this to, say, 300. As the Centre has done in the case of FDI in retail, it needs to come out with an enabling provision to raise the ceiling to 500 or 1,000. It is then up to individual states to decide if the local law will apply at 100 or 200 or whatever. Only then will it be possible for the industry to generate the 50 million target set by the government for the 12th Plan period. Of course, as the National Investment Manufacturing Zones (NIMZ) policy points out, other changes will also need to be made to free up industry from mountains of paperwork—currently, 100 forms need to be filled up in a year, regardless of the size of the company—as well as to come up with insurance schemes that can provide temporary relief to workers while they re-skill.