Narendra Modi had promised to make India a better and easier place to do business. His government is now proposing rules that would give more flexibility to corporations in hiring and letting go of contract workers.
This would be the biggest labour reform in the last two decades and will help India shed the tag of being a country where rigid labour laws make it difficult to do business. However, it will be difficult to get such rules passed in parliament, where the Congress and other left-leaning parties have a majority in the upper house.
The proposed leeway will apply for workers on short assignments that end with the completion of a project, reports Business Standard. Such a proposal was first implemented by the Atal Behari Vajpayee-led NDA government in 2003, but was rolled back by the Congress-led UPA government.
Industry players, particularly those in manufacturing, mining and construction, have always supported more flexibility in hiring workers. According to the new draft rules, factories can hire workers for a specified 'fixed-term'. They will be paid the same wages and allowances as regular employees. The difference in terms is that employers can ask the fixed-term workers to leave immediately after completion of a project, without any notice period. Companies will save costs with this measure, and will not need to go through an onerous set of rules. Also, units that employ 300 workers or less will be allowed to lay off workers without any government approval. Earlier the limit was for establishment with 100 workers or less.
Industry organization FICCI had submitted a list of proposals in August and this proposal was included in there. Indian companies have been reluctant to hire temporary workers as they might not be able to terminate them and instead expected to hire them on a permanent basis later. The termination process itself is cumbersome. The company is required to give a notice, pay additional compensation and inform the government before the worker can be let go.
Wary of such rules, companies have opted for hiring contract workers, who now make up 34 percent of the total workforce in major industries. "In industry, temporary workers account for a higher share due to labour-intensive jobs and also because current employment laws resemble a marriage where divorce is not possible," said Manish Sabharwal, chairman, TeamLease Services Pvt Ltd.
The World Bank says India has one of the most rigid labour markets in the world. That in turn has been a drag on manufacturing, which accounts for only 16 percent of India's $2 trillion economy, compared with 32 percent of China's. Just 8 percent of manufacturing workers in India are in formal employment, the rest are short-term contractors who enjoy minimal social security benefits.
Trade Unions are totally opposed to the draft proposals which they label 'hire and fire policies'. "It is strange that the proposal has not reached trade unions. We will strongly protest this," said AK Padmanabhan, president of Centre of Indian Trade Unions (CITU), one of the nation's largest such organisations.
The government's previous crucial legislations such as GST bill and Land Bill, are both stuck in parliament after opposition parties refused to cooperate in their passage in the Rajya Sabha. The new draft proposals on labour reform might meet the same fate, particularly because trade unions are affiliated to major political parties and constitute an important voting bloc.