Key reform thrusts

India has been notorious for its archaic labour laws. The need for reforms has never been in doubt. The clutch of reforms announced last week by Prime Minister Narendra Modi, dealing with both the employers and the workers, has not come a day too soon. If implemented well – and this is a big if – they could crank up the manufacturing jobs machine like never before. Many of these long-awaited reforms now being proposed formed part of last year’s Economic Survey, prepared when Raghuram Rajan was Chief Economic Advisor to the Finance Ministry under P Chidambaram. The 2012-13 Economic Survey noted that India had too many labour laws – 45 of them between Centre and States.

The initiative seeks to establish the norm that production is a two-way traffic run by the employer and the employee and that a happy equilibrium has to be established to ensure that they function purposefully – and productively. Thus, the demand-based vocational training, an apprentice scheme and revamp of the health insurance scheme to benefit workers in the unorganised sector. These will soon be complemented by pro-business labour reforms that will make it easier to do business and free factories from the clutches of ‘Inspector Raj.’

This is being facilitated by a unique Labour Identification Number that will be allotted to industrial units to facilitate online registration. Compliance will also be ensured online, with the number of returns to be filed being reduced from the present 16 to just one. Among the measures, Modi launched his Pandit Deendayal Upadhyaya Shrameva Jayate Karyakram that, inter alia, offers provident fund subscribers a universal account number even while raising the limit for coverage from salary levels of Rs 6,500 to Rs 15,000 pm. The Labour Ministry has separately stepped up plans to repeal some moribund labour laws and protect small units from the rigours of onerous current labour legislation. The biggest gainers, as seems evident, will be the micro, small and medium industrial units. Currently, factory laws cover more than a dozen Acts, each one of them prescribing a different compliance format – a requirement that makes smaller factories prone to regular harassment by inspectors. The labour ministry has thus proposed one omnibus law that covers all aspects for small factories – that is, factories employing less than 40 people.

If these changes are legislated as planned, a critical roadblock to more employment generation in the factory sector will have been removed. Micro, small and medium enterprises sector comprises some 36 million units providing employment to 81 million people.

There will be critics on both counts, depending upon which side of the proverbial barricade one is viewing these reforms from. However, the need for infusing dynamism into production cannot be denied if India is to rise to the challenges, both internal and external, that it must face as a major emerging economy.