Labour law suspensions: Economic reform or retrograde?

Photo credit: Sandeep Adhwaryu

As regards the worker fraternity, consequences of the labour law suspension, in the three BJP-ruled states, are perhaps well speculated and have been discussed by this author in his previous article. This move, however, is also being labeled uncharitable on the economic grounds despite of it arriving with a stated view of boosting economic activities. Put in another manner, the economists have been describing this step as an economic retrograde rather than a reform or revision of the often criticised Indian labour legislations. This author has made an attempt to succinctly clarify the aforesaid stance herein.

Why are the labour laws criticised?
Indian labour laws are often criticised for being inflexible, convoluted, old and archaic. Flexibility implies that there shall be equilibrium between the worker and employer rights. Thus, the labour laws are required to adapt to the changing market conditions and be flexible for the sake of efficiency. Contrary leads to slowing down of the investment and impediment on the growth of firms. The narrative, however, of the labour laws being inflexible is a mere misconception as highlighted by Aditya Bhattacharjea, Professor at the Delhi School of Economics, in his academic paper. Bhattacharjea points that the said misconception began, in 2004, with an index devised, having multiple inaccuracies, by the researchers Besley and Burgess that suggested as to how the Industrial Dispute Act, which is one of the many labour laws, was inflexible. In yesteryear, the aforesaid index has been repeatedly misinterpreted by the researchers to create an impression that indeed all the labour laws are inflexible. The labour laws, however, do suffer with the vice of ‘multiplicity’ and ‘convolution’. Since, ‘labour’ is a concurrent entry, under Schedule VII, there are myriad labour laws– over 50 central and 200 state laws– which are old and archaic. Further, they are too complicated which makes them difficult to follow, thus, spawning problems like rent seeking and corruption.

Why an economic retrograde and not reform?
Doing away with the labour laws would, most likely, push the labourers into the informal economy, thus decreasing their wage rates at a time when they are already suffering with want of wherewithal amid COVID shock. This remains ironical as the present government has long been pushing for the formalisation of the economy and the said move would further inflate the informal sector of the economy. This would cause grave problems as the informal sector already accounts for 80-90% of the total Indian labour force i.e. approximately 40-45 crore labour force forms part of informal economy. Prior to the COVID-19 pandemic, Indian economy had witnessed an unprecedented seven consecutive quarters of declining growth and was suffering with an economic crisis which has, now, further intensified. At a time like this, when the economy is already slumping due to low domestic demand, downfall in the wage rates would drag the domestic demand further below which would only worsen the economic crisis. It also remains highly unlikely for the industries to increase production as the domestic demand is hitting rock bottom. It is, indeed, icing of salt on an already salty cake- recipe of disaster.

To conclude:
This author, again, reckons that there is a genuine need of labour law reforms. Such a summary suspension, however, shall not be deemed to be a reform. What a reform requires is basically simplification and rationalisation of the complex labour laws, so that the industries and firms have simpler and fewer laws to follow. In this author’s humble submission, the states must have tried establishing social dialogues with the stakeholders before taking such a drastic step. It is necessary to strike a balance between the rights of the workers and the employers, moreover the worker rights shall not be done away with.


Refer to the articles of Udit Misra, Deputy Associate Editor at the Indian Express.

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