It's time for reforms in labor market

Wed, 26 Mar Pre-Open

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India's restrictive labour laws have always been a roadblock for India Inc. One of the most challenging laws for regular employers has been the Industrial Dispute Act. To give you an insight, the act requires employees to be on a regular payroll. Further, as per the act, there needs to be a prior permission from the Government before laying off an employee when the workforce is more than 100.

However, the employers have found a short term solution for the issue by hiring more contract workers. As per an article in Livemint, contract employees account for 34% of the total work force. The sample for the companies considered under survey comprises of 82 listed firms that account for 64% of market capitalization and 46% of the revenues. The trend is more prominent in cement, auto and energy sectors with around 46% share of contract workers. However, in the services segment that needs specialized skills, the share is just 8%.

While this trend has given some sense of power to corporates, the effect has been quite opposite on the power of the labour union. As per the Labour Bureau Statistics, the number of industrial disputes has fallen quite drastically since 1990. However, this does not mean that labour conditions have become better. It's just that their influence and bargaining power have suffered.

An article in Livemint presents an interesting example of the impact of the trend. Recently, the management at Toyota Kirloskar did not entertain employees' demand for higher wages. This is because the management apparently ran the plant using contract workers even during the lockout. Hence, the management's will prevailed as it used contract labour against the regular one. However, it was quite a different case than that of Maruti Suzuki. In the latter case, both the categories joined hands in their demand for offering regular employment to contract workers. It is important to note here that both the events have are related to the auto sector. It is a sector where the share of contract workers stands at around 47% in the total workforce.

Given the lack of opportunities in the job market and huge young population of India, it is likely that the two groups will weaken the labour union's power rather than strengthening it. But will this be beneficial for the corporates and Indian economy in the long run? We don't think so. While the companies may have found temporary solutions by relying on contract labor, the practice adversely impacts employers' investment in human capital and deprives organizations of rich experience of long term regular employees. It also does not guarantee job security for the employees. It is time that the Government reforms labour laws and comes up with a long term solution that benefits all the stakeholders.