[The changes in Rajasthan, including raising the threshold for unionizing and allowing more flexibility in laying off workers, have been supported in the national government headed by Prime Minister Narendra Modi, who has promised to turn Asia’s third-largest economy into a China-style hub for global manufacturing.]
[The changes in Rajasthan, including raising the threshold for unionizing and allowing more flexibility in laying off workers, have been supported in the national government headed by Prime Minister Narendra Modi, who has promised to turn Asia’s third-largest economy into a China-style hub for global manufacturing.]
JAIPUR,
India — Two years ago,
disgruntled workers at a leather-boot factory here went on strike, demanding a
300 percent pay raise.
As workers
gathered at the gate waving red flags and shouting slogans, factory owner
Rajendra Kumar Poddar found himself caught between the employees’ demands and
the reality of running a business under India’s restrictive labor laws. He
couldn’t afford to pay the inflated wages, but he couldn’t fire the employees,
either, because of a maze of regulations requiring companies to seek government
permission before firing 100 or more employees.
“That would
have been a hugely cumbersome process under our labor laws,” said Poddar, 60,
director of Mayur Leather Products, in the northwestern state of Rajasthan.
Instead, he split the factory into two sites to stay under the 100-worker
limit, which allowed him to fire people.
In November,
Rajasthan became India’s first state to alter the archaic system of overlapping
laws that have led more than 98 percent of businesses in India to
deliberately avoid expanding beyond nine employees to skirt strict labor
regulations. Small entrepreneurs such as Poddar said the laws — which subject
factories to arbitrary inspections and, business operators say, favor trade
unions — make it nearly impossible to fire workers or close a business.
The changes in
Rajasthan, including raising the threshold for unionizing and allowing more
flexibility in laying off workers, have been supported in the national
government headed by Prime Minister Narendra Modi, who has promised to turn
Asia’s third-largest economy into a China-style hub for global manufacturing.
But the
changes also have been criticized, particularly by labor unions, which argue
that they dramatically erode workers’ rights.
“Industrial
development is the need of the hour, but at what cost?” said Ritesh Sharma, a
labor rights lawyer in Jaipur. “The government has the single-minded goal of
improving the industrial investment in Rajasthan, and it has sacrificed worker
welfare in the interest of corporate welfare.”
Businesses
have long complained that the labor laws constitute one of the biggest barriers
to doing business in India.
Even as India
has transitioned from a Soviet-style planned economy to free-market
privatization since 1991 by introducing a string of economic changes —
including eliminating government monopolies and allowing more foreign
investment — the country’s labor laws were left untouched. Consequently, about
44 national and 150 state regulations remained in effect.
The World Bank
said in a 2014 report that India — where more than 82 percent of workers
labor outside the formal employment sector — remains one of the world’s most rigid labor
markets, and the countrycomes in at 142 out of 189 in a global index that
ranks nations by ease of doing business.
Hoping to
change that, Modi is pushing a “Make in India” plan to increase the country’s
manufacturing base, which accounts for just 16 percent of the nation’s
economic output. The government wants to raise that to 25 percent by
creating 100 million jobs by 2022 and absorbing the staggering number of
young people reaching working age every year in this nation of
1.3 billion.
In October,
Modi’s government simplified 16 of the 44 national labor laws and created a
single portal for reporting to multiple departments. The changes, observers
say, can boost the “Make
in India” campaign and
attract large labor-intensive investment to India.
Labor-related
factory inspections — often called Inspection Raj — will now be decided by a
software program instead of being left to the discretion of labor inspectors
possibly seeking bribes.
“Our labor
laws have remained moored in the old legacy of the British Raj. These reforms
play a key role in easing the difficulties of doing business,” said Gauri
Kumar, secretary for the Ministry of Labor and Employment in New Delhi. “The
reforms take away the sting from compliance and make enforcement more efficient.
We are unshackling both the workers and the industry.”
Vasundhara
Raje Scindia, the chief
minister of Rajasthan, told reporters last year that the changes would create
“a habitat for job creation.” She said she wants to generate 1.5 million
jobs by 2018. Scindia has been called “mini-Modi” by the local media in
reference to a shift away from socialist-era politics to a climate in which business-friendly
politicians such as Modi have become more popular.
Under the
reforms, companies in Rajasthan can lay off up to 300 workers without
government permission, up from the 100-employee threshold. Trade union
representation can be introduced only with at least 30 percent of a
company’s workers, up from 15 percent. And a strict factories law will now
apply only to sites that employ 20 or more workers, instead of the previous 10.
“These laws
were a big pain for the industry. Small businesses were saddled with the heavy
burden of compliance and reporting and multiple inspections. A big disincentive
to hire more,” said Chandrajit Banerjee, director general of the Confederation
of Indian Industry in New Delhi. “Existing businesses will not hesitate to scale
up. New labor-intensive investments will also come, which would be very
critical.”
Banerjee cited
investment plans by Britain’s J.C. Bamford Excavators, which recently announced
that it will open its largest factory in Rajasthan, as an example of the payoff
from business-friendly laws.
However, trade
unions in Rajasthan continue to oppose the changes and have said that they were
not consulted.
“Jobs may grow
because of new investments, but job conditions will definitely deteriorate in
the coming years. We will go back to slave-like times,” said Raj Behari Sharma,
general secretary of Bharatiya Mazdoor Sangh, a trade union with membership
across India.
Meanwhile,
Munna, a machine handler at a ball-bearing factory in Rajasthan — who uses only
one name, like many in rural India — said the “morale of the workers is down.”
The owners of his factory have refused to negotiate wage increases with the
registered trade union, he said.
Under the
state’s reforms, complaints against an employer will not be recognized by a
court unless the government gives written permission.
“The new laws
now strengthen the owner’s hands and weaken ours,” Munna said. “We have been
locked up in a box of helplessness.”