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In the News

N Chandra Mohan: Exit is not a four-letter word

The reform of India’s labour laws still remains a major lacuna in the two-decade old process of economic liberalisation. The utilisation of contract and other non-permanent forms of labour in manufacturing to perform regular work at much lower wages and without basic rights is widespread. An inflection point was the recent violence at the country’s largest car manufacturer’s facility in Haryana. Industry has renewed demands for changes in legislation to encourage more flexibility and exit (read hire and fire) in the use of labour. Trade unions seek greater protections for their constituents.

The growing incidence of contract and non-permanent employment stems in part from labour legislation that requires employers in the organised sector to seek the government’s permission before workers are laid off or retrenched. Employers find ways of circumventing such laws and minimise labour costs with contract and temporary workers. But a dualistic structure of labour utilisation in organised industry also arises because of high variability in demand on account of cyclical and seasonal factors. Temporary workers are hired in times of peak demand and discharged thereafter.

For all the demands for flexibility, India’s labour legislation has not stood in the way of industry’s need for non-permanent workers. This writer’s doctoral dissertation on “Aspects of dualism in India’s urban labour market” cited evidence in this regard from Labour Bureau’s surveys of conditions in various industries from the early 1960s onwards and occupational wage surveys from the late 1950s. These surveys indicated that the permanent and non-permanent worker mix varied in Maharashtra from 13.3 per cent in the bidi industry to 87.9 per cent in the electrical machinery industry.

In West Bengal, the range of variation of permanent workers was considerable: from 56.2 per cent in the jute industry to 88.7 per cent in the manufacture of pottery, china and earthenware. Interestingly, the proportion of permanent workers was systematically higher in larger than smaller classes of establishments in most of the surveyed industries of the Labour Bureau. Labour turnover rates, too, were inversely related to the size-class of establishments: non-permanent workers were relatively more important in the smaller establishments and less so in the larger ones.

However, all of this is not to deny the need for simplified labour legislation to replace 50-odd central laws and many more at the state-level. The suggestions put forward by Arun Firodia, chairman of the Kinetic Group, almost a decade ago in The Economic Times deserve fresh attention: “The Indian industry needs flexibility to adjust the workforce in tune with the changing demand pattern, which depends on changing fashions, product life-cycles and competition. While adjusting the work force surely the interests of the workers need to be protected,” he argued.

The protections the union labour ministry has in mind is amending the Contract Labour (regulation and abolition) Act, 1970s to extend “same work same pay” and similar social security and other benefits to contract workers if they do the same work as those directly employed. This amendment has not yet been passed in Parliament. But Firodia goes further to suggest retraining workers for new jobs and upgrading their skills to make them mobile and adaptable to change. Insurance companies can also offer unemployment insurance to cover the period of unemployment.

Learning from Chinese labour laws that encourage such flexibility; with the government providing funds for training or retraining workers; and dispute settlement through arbitration has also been held out as a guide. Five years ago, even the labour ministry in a note pitched for the Chinese example of contractual labour reform as one of the “doable options” to turn India into a “preferred investment destination”. But the unions trashed this proposal since it sought to usher in “hire and fire” and throw out collective bargaining!

A major positive of China’s labour laws in 2007 is that it encouraged retrenched or laid-off workers to file a wave of filings against employers in the wake of the global economic crisis of 2008. This bottom-up enforcement of laws, in fact, made up in a big way for the absence of effective government enforcement of labour regulations, argued Mary Gallagher, Song Jing and Huong Trieu.

“But these heightened protections may have little positive effect on workers without the requisite economic and social capital to pursue the legal option. These protections may also be leading to an expansion of the informal sector since firms reduce the number of formal workers protected by these laws,” felt the researchers in a paper “Participatory Legislation and Bottom-up Enforcement of Chinese Labour Laws: A Pathway to Implementation?” that was prepared for an international conference organised by Cornell University and International Policy Center.

Since India is bedevilled by a similar dualistic labour market structure, China is hardly the model for us to emulate. Look no further than the severely exploitative labour conditions that were allowed to prevail till recently in Foxconn’s facilities in Shenzhen. To encourage greater flexibility while protecting the interests of contract and non-permanent workers, India’s labour legislation needs to fashion its own model to unleash the potential of economic reforms

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Edward Lehman 雷曼法学博士
Managing Director 董事长

LEHMAN, LEE & XU China Lawyers

Lehman, Lee & Xu is a top-tier Chinese law firm specializing in corporate, commercial and intellectual property matters. For further information on any issue discussed in this edition of China Labor and Employment In The News, or for all other enquiries, please e-mail us at mail@lehmanlaw.com or visit our website at www.lehmanlaw.com and Mongolia www.lehmanlaw.mn.

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