With the Bihar election behind us, we have two big policy announcements since. One is still just a recommendation by Niti Ayog to end the inspector raj, a general push towards deregulation. But the other is something where deregulation is most required and will likely have the biggest impact – simplifying India’s archaic and complex labour laws into four codes , utmost needed to save if not unleash our demographic dividend, especially in the wake of the threat of job destruction from automation and AI. Some even refer it to as India’s most important policy reform since 1991. Whilst apprehensions about the efficacy of the reform are valid given implementation still remains at the state levels and we have had a few false starts on the politically sensitive labour law front in the past, it is worth hearing it from an expert with the right credentials for the subject in question. Manish Sabharwal, the founder of Team Lease, India’s leading staffing company, a business which is front and centre of the reform impact, has also been writing extensively about India’s ‘regulatory cholesterol’ as the biggest impedance to growth, over several years now. He explains what this means in this OpEd for the Indian Express.
“The new labour codes reduce 1,228 sections to 480, 1,436 rules to 351, 84 registers to 8, 31 returns to 1, 8 registers to 1, and 4 licences to 1. It decriminalises 65 sections that weaponise thousands of compliances. It expands social security to gig and unorganised workers, removes unfair restrictions on women, and enables portability of benefits for inter-state migrant workers. It reduces corruption by tackling multiple definitions of wages/employee/worker, mandatory physical records, multiple licences given for short durations, prosecution without notice, a non-randomised inspection regime, no time limitation on past case inquiry, the power to re-open past cases suo motu, and an unreasonable EPFO-assessed appeal deposit amount of 75 per cent.
The four labour codes are not perfect; there should be only one. But they represent a huge leap in making India a better habitat for good job creation. They also offer us a small peek into a legislative future when India’s regulatory cholesterol is replaced by a regime of trust, which abandons ineffective notions of jail provisions as a deterrent, replaces prior approvals or licences with perpetual self-registration, acknowledges that arming inspectors to enforce the unenforceable breeds corruption, accepts that everything is permitted till prohibited, and concedes that process is punishment only for the innocent. The labour codes embrace a trust-based regulatory regime that will, hopefully, restrict the administrative state to two instruments: Acts passed by Parliament and Rules notified in the Gazette. In the past, multiple instruments used to create compliance, such as guidelines, circulars, government orders, regulations, directions, notes, policies, and many others, often diminished accountability, bred discretion, and undermined the rule of law.”
Just to recall how the old laws have held job creation back:
“India’s labour laws have been our most poisonous regulatory cholesterol; they hurt small employers more than big employers with networks, money and power. They blunted the migration of Chinese factory refugees to India. They ensured 50 per cent of our labour force was self-exploiting in marginal self-employment or farm employment. They bred a sense of humour about the rule of law because of corruption arising from differences in how the law was written, interpreted, practised, and enforced. Labour inspectors often paraphrased Stalin to brag, “Show me the company and I will show you the crime”. Trade unions had a vested interest in the previous labour law regime because their membership is mostly older people. But the self-interest of a vocal but organised labour aristocracy can hardly be national interest when 65 per cent of our population is below 35 years old.
The new labour codes give states considerable discretion in varying their rule-making. History suggests this matters; the Central Factories Act has been amended only three times since independence — 1954, 1976, and 1987 — while various state-administered Shops and Establishment Acts have been amended more than 1,900 times (more than 180 times by Maharashtra alone). The delegation of powers under the new labour codes recognises that per capita incomes vary 10 times between our richest and backward states; this is four in China, three in Europe and two in the US.”
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