Labour market reforms were promised by the Finance Minister Mr. Yashwant Sinha in his 2001-02 Budget speech. But it took almost one year for the Government to wake up to the need to deliver on it.

The Union Cabinet recently approved a proposal to amend the Industrial Disputes Act to allow companies with upto 1,000 employees to close shop or retrench staff without the permission of the Government.But given the current political configurations, the proposal is almost certainly destined for parliamentary defeat. This is because the enabling Bill has to be passed by Parliament and the NDA Government does not have a majority in the Rajya Sabha. The legislation can be approved in the Upper House only with support from the main opposition party- Congress. But Congress seems to be in no mood to oblige because it finds that the Government has done nothing to build a consensus on such a sensitive issue.

The Group of Ministers (GoM), which cleared amendments to the legal provision allowing easier closure and lay-off of workers in economically unviable units, had approved changes in the Payment of Wages Act relating to wage ceiling of workers who get protection. It has proposed to raise the ceiling from Rs.1600 to Rs.6500 per month.While announcing the Government’s intention to bring in the amendment during his last year’s Budget speech, the Finance Minister had said that along with increasing the number of employees to 1000 from 100 at present, the separation compensation would be increased from 15 days to 45 days for every completed year of service.

This is obviously to enhance the chances of the contemplated change being accepted by the Trade Union and the Opposition parties. Here the calculations of the Cabinet may go wrong, as already the Central Trade Unions have indicated their intention to oppose the measure tooth and nail by holding countrywide protests.

The Finance Minister explained that the enhancement of compensation would act as a deterrent on employers to take recourse to lay-offs, retrenchment and closure in a routine manner.While the Central Trade Unions slammed the Government for its “too radical approach” to labour reforms, their opposition might be lighter to other proposals- all flash or lightning strikes to be considered illegal, employees working in public utility services to give 45 days’ notice and at other places 30 days’ notice before going on strike, an employer can lay off two per cent of the staff per year linking it with their productivity, and stiffer penalties, including jail term of six months, for defaulting employers.

However, the problem in all these issues would be one of enforcement: even today, despite the stringent legislation, companies have resorted to be facto closure and retrenchment, and not-so-voluntary retirement schemes. And these have happened with no penal consequences.
The All India General Secretary of Bharatiya Mazdoor Sangh, a trade union affiliate of the Sangh Parivar Mr. Hasu Bhai Dave feared that the effect of this amendment would be that 90 per cent of the industrial workers would come out on the roads. “ Unfortunately, this has been done under pressure from foreign agencies like WTO, IMF and World Bank,” Mr. Dave said much to the embarrassment of the BJP- led Government.

While CITU has threatened an agitation against the move, INTUC has warned that even the public sector enterprises employing less than 1000 people could be shut down. With the decision having grim foreboding for the large number of industrial units in West Bengal. AITUC Joint Secretary Mr. Ranajit Guha said in Kolkata that a series of agitational programmes would be launched, against the “ anti-working class” measures.

Here it will be pertinent to mention that with the decision to carry out labour reforms, nearly 99 per cent of the industrial units will go out of the purview of the Industrial Disputes Act for closure and retrenchment of labour. According to the Annual Survey of Industries, only 1120 of the 1,35,551 factories in the country employ more than 1000 workers, which account for less than one percent of the companies. Employment-wise nearly 74 per cent of the workforce would be out of the purview of the Act as only 18.73 lakh workers of the total workforce of 76.04 lakh are employed in units having more than 1000 persons.

The Government also proposes to bring in amendments to laws to enable extension of public utility status from the present period of six months to three years.The proposal has been backed by the Commerce Ministry, which is keen to have this provision for its Special Economic Zones (SEZs) and Export Processing Zones (EPZs), which at present have deemed public utility status. Extension of the public utility status would help prevent strikes in these specialized zones. While the Trade Unions are seeing red, the Industry has hailed the decision to amend the Act saying that it marked the beginning of second-generation reform “with a bang”. 

Various industry chambers and sectoral associations have also welcomed the Cabinet approval to proposed amendment. The underlying feeling is that this gives a strong signal about the government’s determination to resuscitate investments locked in sick enterprises. An estimated Rs.20000 crore was locked in sick industrial units and the amendment would help a large number of industries in small and medium sized segment to turn around, the chambers feel. It would also grant greater autonomy to industry so and would harmonize Indian labour policy with other developed countries. The proposed amendment would also send a positive signal to foreign investors who have been complaining of India’s closed labour policy.

However, it is important for all the concerned agencies including chambers to think of the adequate institutional arrangements that may be required in order to give a humane face to reforms. It is important for labour market reforms to gain wider acceptability and that might call for an effective social net that goes beyond the severance terms.

For instance, health insurance benefits under the Employees States Insurance Scheme could be extended to retrenched employees on the strength of past contributions. Besides, the best response to labours apprehensions about future is to create growth impulses in the economy that will ensure the continued creation of new jobs. Simultaneously, there must be facilities for labour to retain it to cope with the changed business or technological environment.

Since the Government has not apparently applied its mind to these issues, the proposal for labour reforms is reported to have met with stiff resistance even within the Cabinet. The Ministers suggested that the ceiling on companies should not be hiked in one go from 100 employees to 1000 and a middle path should be found. The atmosphere at the Cabinet meeting hoted up so much that at one stage a proposal was mooted to shelve the issue of the much disputed Act.

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