By Nageshwar Patnaik in Bhubaneswar, October 3, 2020: Ask any investor about the single most important reason to invest in a country. The answer starts with ‘good governance’. The country with good public governance through transparent laws and their proper enforcement clearly emerges as the most desired investment location.

Today, capital and labor have emerged as the two primary inputs among others for the productive processes. India requires huge capital to achieve the Gross Domestic Product (GDP) of US$ 5 trillion by FY25. The country needs to spend a whopping US$ 1.4 trillion (Rs 100 lakh crore) over these years on infrastructure only.

To succeed in its mission, India has to attract Foreign Direct Investment (FDI). Being a major source for a non-debt resource for the economic development of the country, the FDI not only brings the required capital but also brings in the state-of-art technology, knowledge, skills and expertise that augments capacities and competitive capabilities of domestic businesses.

Paradoxically, Indian economy has been witnessing sharp contradictions in labour-capital relations in the economy. The classic example is the abandonment of labour force by the industry and business organisations during the 68-day long harsh lockdown due to the COVID-19 pandemic. It brought with it images of workers, left with no incomes and social security, making their way home, hungry and tired, laying bare the realities of India’s fragile labour market.

This also exposed the effectiveness of the country’s archaic labor laws, which otherwise have been holding back the economy from taking off to a great height. According to a study by Teamlease labour-capital relations were governed by 463 Acts, 32542 compliances and 3048 filings. This barely protected labour and it has rather contributed to the persistence of informality.

To-day, more than 90% of the country’s workforce is informally employed. About three-quarters is either self-employed or casual labourers, with no income and employment security or benefits. On the other hand, the miniscule organised sector workforce suffers from stagnant wages, and many of them are without social security benefits.

NITI Aayog, the government’s think tank, has been advocating extensive labor reforms—both at the central and state level. The slow pace of reforms of the rigid labor laws have been largely responsible for its failure to attract more FDI from the Western countries. Even domestic investments have suffered on this account. Covid-19-related labor disruptions further has worsened the situation.

The piquant situation apparently pushed the Narendra Modi government in its second stint to aggressively push through major labour reforms to make India a globally competitive manufacturing hub and make it easier for foreign as well as domestic companies to conduct business activities in the country without in any way compromising on workers’ welfare.

The Parliament last month endorsed the Industrial Relations Code, the Occupational Safety, Health & Working Conditions Code and the Social Security Code. Last year, it had passed the Code on Wages, 2019, which fuses four laws relating to wage and bonus payments. These four codes now replaces the welter of federal and provincial laws after the President gave his assent to the three Bills passed by Parliament on Wednesday. The President gave his assent to the Code on Wages Bill, 2019 in August last year.

The Codes are expected to be game-changers in the domain of Industrial Relations – by freeing up both labour and capital from a moribund system that has not effectively served either. These codes have raised high hopes of making India globally competitive and facilitate both domestic and foreign owned companies surge in a post-Covid world.

The industry has wholeheartedly welcomed these changes. At the same time, the new codes expectedly have drawn flak from most labor unions, including the Bharatiya Mazdoor Sangh, which is supported by the BJP’s primary ideologue, the Rashtriya Swayamsevak Sangh (RSS).

Some experts even have claimed that such retrograde measures are unconstitutional and may possibly even take India back to the slavery and barbarism of medieval times. They warn that such a reform process will deteriorate the working conditions of entire labour force in the country. They argue that the labour codes are the wrong solutions for the wrong problem, even as the Modi government is confident that the move will pave the way for huge foreign investments and creating jobs through relaxing regulatory laws.

For the second most populous country like India, creating jobs is a real challenge before any government. However, though the country has been witnessing growth in its Gross Domestic Product (GDP), its unemployment rate in the last 45 years remains the highest, according to the latest Government of India’s Periodic Labour Force Survey (PLFS) backed by the Centre for Monitoring Indian Economy 2019 data. The situation has further worsened with the contraction in its economy due to Covid-19 pandemic.

The country has roughly about fifty crore labour force of which almost 44 percent of India’s labor force works in agriculture, a sector that contributes a mere 15.4 percent to the GDP. Similarly, 24 percent of the workforce is engaged in industry (including the manufacturing sector), which accounts for 23.1 percent of GDP. The service sector employs 32 percent of the labor force yet accords as much as 61.5 percent to the country’s GDP.

Since agriculture is the least remunerative segment with erratic growth, labourers engaged in this sector have been making attempts to enter other sectors but with limited success due to the absence of opportunities. Moreover, the outdated central and state labor legislations have not been useful in protecting the interests of these workers.

The country needed industry-friendly labor laws long back. Finally it has arrived, but the new codes should not just be seen as paving way to an easier “hire-and-fire” policy. For the Modi government, it is going to be a tough balancing act between implementing simpler laws and ensuring an appropriate safety net for workers.

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