Current Affairs: Labour Reforms
Hello friends. Today we’ll start a discussion on an important topic from mains point of view and that is the issue of labour reforms. Now the issue of labour reforms squarely falls in the domain of economy, Indian economy. At the same point of time, a question on the regulation of the labour market can be cropped up in paper II also, but predominantly the question is more likely to come in the economy section of paper III in your mains examination. And so today we’ll be discussing the issue of labour reforms and as when we get into the issue, we’ll actually look into the whole matter from a more exam-oriented approach and look at 4 or 5 major questions and 4 or 5 major dimensions of the whole issue of labour reforms and try to understand what the issue is all about and at the same point of time looking from examination focus perspective we’ll look into the major points that have to be written in the examination and the major issues which have to be addressed while writing an answer.
So, the first important thing as we get into the whole issue of labour reforms, let’s just for a moment start with an important cartoon which displays the whole issue and the complexity of the whole issue itself. Now what we need to understand here, the cartoon in front of you talks about the whole ‘A Right for $15’ campaign that’s been started in the United States by workers who have been working with McDonalds, a major fast food chain in United States where the workers have been arguing for an increase in the minimum wages from the current levels of $7.50 per hour to an increase of up to $15 per hour. And that is the whole context here. Whereas one of the fundamental dilemmas of the issue of labour reforms is to somehow increase, is to somehow bring about a reconciliation between an increase in the wages of labour or increase in labour wages and providing social security protection to workers on the one hand and at the other hand these social sector and minimum wages regulation should be enforced in a manner that the cost of production does not increase significantly. Or globalized world economy we need to keep the cost of production on the lower side to ensure that the products produced are actually globally competitive in a world market. But at the same point of time pushing down the cost of production should not happen on the cost of worker security or on the cost of income security to the worker. So that’s the whole context on which this whole battle in United States is being fought in terms of increase in the minimum wages. Now, what we need to understand here that this example United States isn’t very different from the condition in India today. That the condition in India today and the central issue of labour reforms has to be looked through the angle of both the workers as well as the major business corporations. Whereas the major business corporations want to decrease the cost of productions so as to be globally competitive at the same point of time the worker unions and labour unions have strongly expressed their concern that this increase in productivity and global competitiveness of business houses should not happen at the cost of wages of the worker. So, that’s the whole context that we need to understand and central to the idea of increase in growth of industries in India also has to keep in mind the idea of increasing the amount of wages and increasing the amount of social security available to the workers because we’re not looking at just pushing up economic growth but also to ensure one of the main aims of labour reforms also has to be ensured that not only the economic growth is pushed but the benefits of economic growth are distributed more equitably. Or we are not looking predominantly and single-mindedly only at growth but more importantly at inclusive growth. So now with this brief introduction, let’s first see what are some 4 or 5 major areas of concern and major dimensions of the issue of labour reforms which can be asked in the examination.
So one of the question in your mains examination for example can be what are the major issues and challenges with respect to labour reforms in the country and how can these issues be resolved? So that looks like a most straight forward question. The next way of asking the same question could be that the sluggish pace of labour reforms are a critical limitation upon the manufacturing sector of the economy in India. Comment. And how can these limitations be addressed? So on the surface these seem to be more opinion based questions but they are clear-cut recommendations which have been made and are available in the public domain. And while writing an answer your opinion should be based upon the governmental recommendation and the recommendations made by various committees to address this solution. You should also keep in mind the major initiatives taken by the government recently. Another important way of asking the same question and especially focused on the new social sector schemes for the unorganized sector introduced by the Modi Government such as the Atal Pension Yojana and Pradhan Mantri insurance schemes for disability or death due to accidents etc. These are the 3 major schemes which have been introduced in the social sector which also need to be kept in mind. So the next important way of asking the question could be that evaluate the recently introduced social sector schemes for the unorganized sector and their significance with respect to the issue of labour reform. So how is the whole issue of social security for unorganized sector linked to the issue of labor reforms and to what extent will they have an impact upon the manufacturing sector of the country. So that’s another way of asking or that’s another dimension of asking the question itself. For example, the last important way of asking the issue of labour reforms could be that reconciling worker’s interest with that of key business houses is critical to the success of the ‘Make in India’ campaign. And to what are the possible ways of achieving this. What are the possible ways of integrating the whole issue of labour reform in the context of the larger ‘Make in India’ campaign and what are the possible ways of achieving this? So these are you know, these are the kind of probable questions which can be framed around the issue of labour reform and we’ll try to address them as we’ll discuss the issue. So for the first thing that we need to understand is what are the major issues with respect to the labour sector today. The major issues with respect to the labour sector today can be termed at some 5 or 6 major issues. So we’ll first see those 5 or 6 major issues and then we’ll move forward to understand how can these major issues be resolved. So let’s understand the first major issue. The first major issue with respect to the labour market in India is the issue of the quantity of employment available, or rather let me put it this way with respect to the magnitude of unemployment within the country. So what you need to understand firstly is the distribution of employment according to the sectors of the economy or how much amount of employment is generated by the agricultural sector, the industrial sector and the services sector. So if you just roughly see the data the agricultural sector contributes something around 14% of the GDP and roughly half of the total population employed was actually employed in the agricultural sector. So for that matter agriculture remains a very important aspect of our economy and if you see a sector which generates only 14% of the GDP has 50% of the population dependent upon it. Clearly there is an urgent need to move a large number of people in the employment sector away from agricultural sector into the manufacturing and the services sector. Now at the same point of time if you see the manufacturing sector it contributes roughly 16% of the GDP and employs roughly 22-24% of the population. So again, you see that as compared to the agricultural sector while the manufacturing sector also contributes merely at 16% which the national manufacturing policy and the ‘Make in India’ campaign intends to increase to 25% up till 2025 this 16% of the contribution to GDP comes from 22% of the population employed as of now. So you see even here there is a disparity between the amount of employment generated and amount of the people dependent upon the manufacturing sector and the amount of value generated in terms of GDP. However, when you consider the services sector it generates roughly 70% of the GDP of the country as of now and employs roughly around 28 to 30% of the total population which is seeking employment or which is actually employed as of now. So if you see this data, if you see this data what conclusions do you come to? The conclusion that we come to is the fact that there is urgent and a pressing need to increase the employment share of the manufacturing sector. Increase the employment share of the manufacturing sector because in the post-1990 era the deregulation of the economy there has been a somehow, there has been an era firstly from 1990 to 2000, an era of jobless growth and after that and the whole period since liberalization 20 years of economic growth since liberalization has seen a tremendous jump in terms of the share of economy or the share of GDP contributed by the services sector and normally as you would have known in most of the economies, firstly economy is transit from an agricultural base economy to a manufacturing economy and from manufacturing economy to a services sector based economy. But in the case of India there has been a jump from the agricultural sector to the services sector and manufacturing sector even in 1980s and in 1990s was contributing somewhere around 14-15% of the GDP and after 20 years also its contributing roughly the same. Or there has been a stagnation in the amount of GDP which is contributed by the manufacturing sector in India today. So manufacturing sector in India today contributes mainly 16% of the GDP. If you compare that with China, China, in China the manufacturing sector roughly contributes 35% of the GDP. And so the very fact that the manufacturing sector has been bypassed in India and the GDP growth in India has been services sector led has bypassed manufacturing which is actually more employment intensive sector as compared to the services sector. So in spite of strong growth in terms of GDP percentage or GDP growth rates, 20 years the growth and employment rate or the growth and percentage of employment has not kept pace, or that has what has been called as a phenomena of jobless growth. So the first issue with respect to the phenomenon of jobless growth which has actually bypassed, which is a reflection of the fact that the manufacturing sector has been bypassed and it has stagnated in terms of the its contribution to the GDP at roughly around 15-16%. And because of this the manufacturing sector in India contributes merely 22% of the total employment opportunities available in India. So if at all we need to reap the demographic dividend, demographic dividend of the country, where roughly 10 million individuals are added every year from 2012 to 2022. Every year roughly 10 million individuals are added to the workforce. If at all we need to provide employment opportunities to our working age population which is termed as the demographic asset, we need to create more employment opportunities than the manufacturing sector and this is something that has been missing as of now. So the question that arises is what happens to the quantity of employment in this country? The quantity of employment in this country has or has been actually on the lower side because of the fact that the number of jobs available in the manufacturing sector have been limited to the fact that they only provide to 22% of the population which is currently employed. And this share has to improve if we need to reap the demographic dividend. Now if we come, put this in the context here and how do we relate it to the issue of labor reforms the issue or the rigidity of labor laws have been termed as one of the major reasons which has stifled growth of large manufacturing industries in India. And you may ask how has it happened? It has happened and it has been some termed as somewhat as the missing middle syndrome. Now with in the manufacturing sector if you see there has been a bimodal distribution, there has been a concentration of the manufacturing units either as very large units or the micro and the small enterprises. So enterprises which operate, whose annual turnover is below 5 crores or 20 crores. These, the predominant amount of employment today is actually generated in the micro, small and medium enterprises and the large enterprises are also comparatively lesser. So what has happened is that the amount of employment generated is concentrated in the unorganized sector of the economy. So there is a concentration within the manufacturing sector of small industrial houses on the one hand and large industrial houses on the other. These small industrial houses actually never turn or never become big industrial houses. Or to that extent the growth of the small industrial houses never actually translates into them actually achieving economies of scale and becoming bigger and bigger over time. And why has this happened? This has happened because of the rigidity of labor laws as is termed by a number of advocates of reforming labor laws. So how are labor laws responsible for this bimodal distribution where workers are actually employed in smaller industries which, where number of workers per unit is often less than 10 or 20 units per industrial establishment and on the other hand there are major industries, manufacturing industries like car manufacturing industries and or automobile manufacturing industries and electronic manufacturing industries which employ hundreds of workers. So on the one hand a large number of manufacturing units in India employ actually less than 10 workers and a few of them employ more than 100 workers. So we see that there is no middle ground here. That the growth of middle level industries is quickly ruled out. And to that extent there has been a rapid proliferation over the years of industries which employ less than 10 workers and there has been a very slow increase in the number of industries which employ more than 100 workers. There has to be a reasonable logic which explains this. Now if you know the way that we define the organized sector and the unorganized sector is that normally the definition of the organized sector is any industrial establishment which employs more than 10 workers or more than 20 workers it depends on whether they are connected to electricity or not, or whether they use electricity or not. But nonetheless for our understanding purpose let’s keep it this way that any industry which employs more than 10 workers is has to comply with the whole set of labor laws, whole set of pension reform laws, whole set of social security norms and labor safety regulations if at all any industrial establishment has to employ more than 10 workers. And that is one of the reasons why given the larger number of laws, given the rigidity of laws and given the whole idea of inspector laws where the labor law inspectors actually harass the small industries owner themselves there has been a tendency amongst small industry owners to actually establish rather than establishing a single unit with 100 workers, they would prefer to establish say 10 units with 10-10 workers each and so as to escape the regulation imposed by legal labor laws which apply to the organized sector, any industrial establishment which employs more than 10 workers. On the other hand there has also been a low growth of the larger economic houses because of the fact that any industrial employment group or industrial house which employs more than 100 workers, if at all it later fires any of those 100 workers it has to operate, it has to obtain a permission from the labor commissioner of the respective region for doing so. And so this complicates the fact that while any if at all any manufacturing unit hires more than 100 workers then it becomes very difficult for them to fire these workers if at all the demand goes down or if at all the profits go down at their own will. Because this will require a permission to be granted by the labor commissioner of the respective region and this permission from the labor commissioner is often not granted because of political reasons. Because of the fact that there is a huge pressure on the government not to allow the jobs to be taken away. So in that context what happens is that firms are very afraid of increasing the number of workers beyond 100 because then it becomes very difficult to fire those workers if at all the demand for the goods go down or if at all the amount of profit that the company makes goes down. So in that case if you see that the Pro-labor law reformers attribute this skewedness and bimodal distribution of firms to a reluctance on the part of small firms to expand. A reluctance on the part of small firms to expand because they’ll be subject to labor laws if they employ more than 10 workers they will come under the whole set of labor laws which apply to the organized sector and also at the same point of time if they employ more than 100 workers then they will they are not allowed to fire the workers if at all the demand for their goods decrease at their own will. They’ll have to seek a permission from the labor commissioner. So these are the reasons why firms have preferred to proliferate in terms of smaller sizes or they have been or the proliferation of firms has been more in terms of employing less than 10 workers per unit and on the other hand there has also been a very slow and marginal increase in the factories that tend to employ more than 100 workers. And this has been blamed at the rigidity of our labor laws. Also, also to escape this whole application of labor laws and big industrial houses have actually started investing more in capital intensive technology. So rather than employing 500 workers they would actually invest in technology or in technology such as mechanization and technology such as bringing in robotics to decrease say the intake of worker to 100. So if at all an industry for example earlier was employing 300 workers, because of the fact that it was subjected to the labor law regulations which make it difficult to fire an individual they have reduced their intake of workers to say 70 or 80 and have employed more capital intensive technology such as machines and mechanization and robotics to increase the productivity per worker. So rather than using labor intensive they have gone for capital intensive methods of production so as to bypass the application of labor laws upon them. So that’s another reason why the quantity of employment today has been decreasing, or has not increased to that extent in India. Or the manufacturing sector continues to contribute only a small amount of employment as compared to the other sectors. So that is why you see that the nature that option of capital intensive nature of technology and the bimodal distribution of firms with a rapid proliferation of small industrial houses has been blamed on the rigidity of the labor laws itself. At the same point of time, the rigidity of the labor laws has also been blamed for the fact that labor intensive industries such as manufacturing clothes or manufacturing footwear etc. have shifted to those countries which have more flexible labor laws as compared to India. And that is also one of the reasons why there are certain industries where the demand for labor is very elastic. Or is very seasonal. So, for example, the export market for textile goods increases rapidly around December during Christmas time and it experiences a lean period during the summers. So that is why textile houses may actually need to employ more workers during the winter season than during the summer. And given the fact that Indian labor laws do not allow hire and fire policy, Indian labor laws are rigid to the extent that they do not allow easy layoff of workers when any unit employs more than 100 workers. Because of that fact, again a large number of these labor intensive industries which have a seasonal demand have started or have actually been shifting bases to other countries. For that matter Bangladesh has actually overtaken and has become a serious competitor of India in the textile market because the labor laws there are much more flexible as compared to India. So, that is the whole idea of why the quantity of employment generated in the employment sector actually has been suffering in India. Now that we discussed the issue of the quantity of employment, the next important issue is the issue of the quality of employment.
Now, another important issue of the quality of employment that we are looking at is that the problems with the Indian employment sector is not just purely limited to the fact that there are not enough number of employment opportunities available. A bigger problem is also the fact that the employment opportunities available are substandard. So often the minimum wages act is not enforced. Given the fact that a large number of workers work in substandard conditions. They work in conditions where they are not even paid minimum wages. Also if you see the statistics, the startling fact is that in India it isn’t that the unemployment rates are very high, actually the unemployment rates in India are somewhere around 5 to 6% which are not very high if you compare to the Western European countries or America, but a bigger issue in India is not unemployment but is under-employment. And given the fact that almost 92% of the jobs which are generated today in the manufacturing sector are generated in the unorganized sector. Of 92% of the workers who find employment in the manufacturing sector are actually employed in industrial houses which employ less than 10 workers. So when you see this you come to the understanding that of all the jobs produced in the manufacturing sector 92% of the jobs are being produced in those organizations which employ less than 10 workers and only 8% of the jobs are being produced in the organized sector. So you see that the labor market in India is highly segmented. These workers who work in the organized sector are entitled to pensions, are entitled to paid leaves, are entitled to health benefits etc. and obviously also minimum wages but 92% of the workers do not get any of these benefits which the workers in the organized sector are entitled to, whether it is healthcare benefits, whether they are pension benefits or whether they are just paid leaves. So you see that the quality of employment generated in India is a much, much bigger concern when you understand the whole issue of labor reforms. And so this has resulted in a fragmentation in the segmentation of the labor market where, you know, 8% of the workers actually have access to whole of benefits or social security benefits and this is why Pratap Bhanu Mehta terms this 8% as a labor aristocracy. Or the privileged group within the working class. His 8% population which enjoys access to a host of social security schemes whereas a majority of workers in employed in the manufacturing sector do not have access to any of the social security benefits that the rest of the 8% have. So this is another major problem. So the next important issue which is again related to the whole issue of quality of employment itself is the whole issue of informalization of labor within the organized sector itself. What do we mean by informalization of labor within the organized sector itself? Now if you remember as I told you 92% of the workers in the manufacturing sector are in the unorganized sector are employed by units which employ less than 10 workers. However only 8% of the workers are employed in the organized sector or units which employ more than 10 workers and which are subjected to the labor laws as well as provide a host of social security benefits, rather worker benefits such as health benefits, such as pension benefits etc. to their workers. Now within this 8% also now this is a more disturbing trend. Within this 8% also if you see today a large number of jobs which are actually being created are being created in the contractual segment as compared to the jobs in the, as a permanent employee. Now a worker who is given a job on the basis of contract as compared to a permanent employee, a worker who is given the job on the basis of contract is not again entitled to pensions and healthcare benefits as compared to a permanent employee. And why the position of a contractual worker actually is relatively better as compared to the worker in unorganized sector is that they have to be given a notice of 1 month before they are actually laid off or they will have to be given a compensation of 30 days of wages in case they are fired. So the contractual workers do enjoy greater degree of protection as compared to worker in the unorganized sector who can be told that you do not need to come for the job from the very next day or the worker in the contractual segment actually do enjoy a greater degree of job security as compared to the workers in the unorganized sector but as compared to the permanent employees they do not enjoy that level of job security or for that matter that level of social security or labor benefits as compared to the permanent employee. So the point here is that even the 8% population with in the organized sector is divided today between the contractual employees as well as the permanent employees. Now the permanent employees or rather what you see, there has been an increasing trend since 1995 where earlier of within this 8%, 13% of the workers roughly used to be contractual employees and the rest 87% used to be permanent employees. And this trend has changed to the extent that you know the latest data from 2011 suggests that 34% of the workers even within or one third of the workers even within the organized sector are today contractual employees and only two thirds today are permanent employees. So even within the organized sector there is a continuing informalization that is happening with respect to the quality of employment. So the whole issue of job security in a quality of employment is not just a dichotomy between the organized and the unorganized sector but within the organized sector also there is a greater degree of informalization between the dichotomy between the contractual workers and the permanent employees with one third of the workers today coming from within the organized sector are also contractual employees. So that again points to an increasing job insecurity and increasing degree of informalization of labor within the organized sector also. That’s another manifestation of the whole problem of the quality of employment. So that is another major issue of concern that needs to be dealt with. If you see for example a large number of labor strikes have been broken in Haryana in the automobile manufacturing region in Manesar etc. for example the Maruti strike of permanent employees has been broken when the management tries to bring in contractual employees on a short term contract from outside so as to continue with the production and strike called by the labor union. And this kind of a contractual employee versus a permanent employee classification within the organized sector actually pits one category of worker against the other and the whole category of contractual employees are often used by the employer to break the strike which is called by a labor union. For example something that has been witnessed in the case of Maruti strikes in Manesar in Haryana itself. So this is another major issue with respect to the quality of labor market. Now another issue which is closely related to the issue of labor reforms and the issue of labor market in India, it isn’t that the problem with respect to labor laws in India is that they are not much laws with respect to covering and regulating the labor market. The problem with respect to the labor market is that on the other hand we have a multitude of laws to the extent that you must be knowing that labor is an issue or labor laws is an issue, labor reform is an issue which comes in the concurrent list, i.e. both the central and the state government can make laws on it. And different state have different laws to regulate the labor market within their states and at the same point of time the central government also makes a certain category of laws which apply to all the states. So roughly you see the number of labor laws that are made by central government which are in one or the other related with labor issues is 50. The central government has roughly 50 laws concerned related to the issue of labor market. On the other hand different states have a different number of laws to regulate the labor market. Some have 50, some have 60, some have 100 and so you see they are almost some 70 to 100 laws in every state to regulate the labor market. And this vast multiplication of laws to regulate the labor market is itself a very big problem. And this complicates the need and this complicates the whole issue of manufacturing sector itself. So if at all your employing say more than 100 workers then you are subject to some 100 labor laws if you are employing more than 100 workers. So this makes it virtually impossible for the business houses to comply with all the labor laws which have been made by the central and the state government. And their inability to comply with the laws made by the central and the state governments because of the fact that virtue of the fact that there are so many number of laws and a large number of these laws are actually also contradictory to each other because of this vast multitude of laws it becomes very difficult for business houses to comply with these laws and thus they are exposed to the mercy of the labor inspector. The labor inspectors often have the power to impose fine and even jail terms on the management of the industrial houses if they are found violating the labor laws. So that’s another major issue of concern. That it raises the difficulty of doing business. So rather than bringing in ease of doing business, this multiplicity of labor laws actually raises the difficulty of doing business in India and hampers the growth of the manufacturing sector in India and thus the growth of the ‘Make in India’ policy also. So that’s the whole idea that there is an existence of a host of laws, multiplication of laws to regulate the labor sector on the one hand, and on the other hand these laws are contradictory often found contradictory to each other and they may also have been marked by the fact that this is a very poor enforcement of the labor laws in the first place. However these labor laws become a breeding ground for corruption. So labor inspectors would come inspect the premises, find that a large number of obsolete laws which do not serve any purpose of labor protection in anyway today actually are not being followed by the respective industrial houses and thus if they demand a bribe if at all the industrial house does not want to be subjected to a fine. So this becomes a breeding ground for corruption itself. For example, there is an existence of a host of obsolete rules and regulations with respect to regulating with respect to the labor laws in the country. For example, the labor laws mandate that they need to maintain a register, a manual register which has the name of all the employees on the working rolls of the company. Now in an age of information technology and when we are talking of egovernance and all, the labor law specifically mandate that we have there is a need to maintain a manual labor rolls and manual labor registers and this cannot be done electronically. So that’s the kind of an obsolete law which was made somewhere in 1960s and 70s and which is of no use today. At the same point of time there have been laws which there are labor laws which limit the employment of women after 8’o clock in the manufacturing houses. So rather than actually promoting the participation of women in the labor market this actually curbs the participation of women in the labor market. So there are a lot of obsolete rules, for example there is another obsolete rule made by the central government says that in manufacturing houses, in certain kind of manufacturing houses there should be rat cages. The problem here that comes is that this host of laws, a large number of which are obsolete and large number of which are implemented by the or are sought to be implemented by the central and the state government increased the burden of obligation and in the increased the burden of compliance on the industrial houses so much that it becomes virtually impossible to actually go through all the 100 laws and ensure that the business houses actually complying with all these regulations. So there is an urgent need to actually simplify labor laws to, to group together labor laws and make them simple and to reduce the number of labor laws but we are not talking about here. We’re not saying there is a need to bring down the standards but there is a need to harmonize labor laws, bring similar labor laws together, club them together and reduce them to a number of say 15 or 20 laws maximum which actually are enforceable and which are easier to comply with also for the industrial houses. So this is what will help in tackling the problem of inspector raj and which will actually reduce the difficulty of doing business and rather will increase the ease of doing business in India which will contribute to the ‘Make in India’ campaign. So this is another important issue with respect to labor reforms. Now another important crisis of the labor market today is the weakening of the labor unions. Now another important problem that has been highlighted especially by the labor unions themselves is the declining population of labor which is covered under labor unions. Even in 1970 only 45% of the population actually was covered by one labor union or was a part or was a member or a 45% members were actually a part of one labor union or the other. And this decreased to, to 30% by 1980 or by 1980 only one third of the workers were actually part of one labor union or the other. And now the importance of labor union can be judged by the fact that labor unions are often seen as those collective bargaining enterprises which bargain on behalf of individual workers with the management so as to secure better pay benefits, better wage benefits. Something for example as I told is happening in the unorganized sector in United States with respect to between McDonalds and the worker unions there. So it is important if at all the workers’ right has to be protected and worker’s wages to see a significant increase to that extent it is important that the coverage of labor union at least does not decline but that is something that has been going on for a long time and there is no reason to believe that there has been a reverse in this trend. So that is another important point. Another major problem apart from this multiplicity of labor laws and the declining population under poor enforcement of the labor laws which are already in place. So on the one hand we have large number of labor laws, a large number of which them are contradictory to each other and just cannot be complied with. On the other hand, we have a very less number of labor inspectors per the number of industries. At the same point of time, it is very difficult to enforce the labor laws which are on the record books or which are on the law books themselves. So on the one hand you have a multiplicity of legislation and on the other hand you have a poor enforcement of those legislations themselves. So neither the multiplication of laws beats corruption to the extent that it harasses big business houses and specifically they harass mostly small business houses. On the other hand, the poor enforceability of the labor laws also does not help the workers. Because of the fact that for example, the number of labor inspectors also themselves are very less or most of the labor commission in states are actually understaffed. So you know and this is happened due to the growing indifference of the ruling parties, state governments and even the courts to the problems of the workers. And mechanisms you know, the mechanisms for work place arbitration are largely dysfunctional. Negotiations between the workers and the management often end in failure. And the legal remedies for the unfair dismal of workers can take years on an end to actually solve the case. So on the one hand there is a multiplicity of laws which breeds inspector raj and corruption and on the other hand there is a poor enforcement of these laws which also does not protect worker rights. So that is the important issue that has to be understood here. Now at the same point of time apart from these major issues which are focusing upon the quantity of employment and the quality of employment, there is another major important point that has to be understood, whether it’s a quantitative employment or the quality of employment, is an equally important issue is the nature of the employees themselves or to what extent the employees are skilled. Or the issue of the fact that on the one hand we have less jobs, on the, and at the same point of time people who are actually employed either in the organized sector or in the unorganized sector have received no formal or informal training. By one estimate if you see, only 2% of the population in India has received any kind of formal training for the industrial sector and another 5% has received any kind of formal and another 8% has received only informal training for acting in the industrial sector. So of the workers who are working in the industrial and the manufacturing sector today only 10% have received any sort of a training in India and 90% of the workers even in the industrial sector are untrained workers. Needless to say, untrained workers productivity per worker is going to be much lesser than that of the, of a worker who is trained in that particular field of operation. So perhaps you know one of the biggest crisis with respect to labor in India is the whole problem of unskilled labor. And that is why you know this correlates with the whole issue of the skill India mission launched by the NDA government. So the whole idea of “Skill in India”, the whole idea of Shramev Jayate and the whole idea of reaping demographic dividend is also clearly related to the idea that the labor reforms and the whole idea of labor reforms also has to improve. Not just the quantity and quality of employment but also the employability of the employees themselves. Or the employability of the workers themselves. And should specifically focus upon increasing the skillset available to our potential workers. So related, crucially related to this whole idea of the “Skill India Mission” is test the whole quality of the labor which is being employed. And to that extent if you see that one of the primary aims of this labor reform is to push up manufacturing employment and another important component of pushing up manufacturing employment is not just improving and increasing the quantity and the quality of employment available but at the same point of time pushing up the productivity of our employees also. Because pushing up the productivity of employees is essential to make products of our industries more competitive at the global level. So if the amount of product or the productivity per employee is higher then cost of production will actually come down and if the cost of production comes down then the market for the goods manufacturer in India will increase and this will give a boost to the manufacturing sector. So the problem was killing a labor on the one hand as related to the “Skill in India” mission and on the other hand it is also related to the whole ‘Make in India’ campaign. So that is why this is important and when you see this the level of skilled skill workers in India as compared to say China or Germany or say South Korea which are important manufacturing houses, then you see that only a meagre of 10% of workers in India are have some sort of a training and only 2% have formal skilled training and 8% have informal vocational training. 2% really receive it in the ITI or through apprenticeship or internships etc. ITI are the Industrial Training Institutes etc. 8% of actually workers receive training on the job only. So and when you compare this data with that from China and South Korea and Germany, roughly 50 to 75% of the workers there have received formal or some sort of an informal training. So you see there is a vast gap in terms of the fact that not only there are less employment opportunities but even bigger problem is mismatch between the skills available with the employees and the skill required by the employers. So that’s another issue that the labor reforms and the issue of labor market has to address. So now another important issue is with respect to the whole issue of the labor market is the issue of participation of women in the labor force in the country, or the issue or rather the problem of low participation of women in the work force in India. When you see for example the labor force participation rates in the country that they stand roughly 55% for male and they are much lower for females. So if you look into the 18 to 29 year age group and the workers that come from the 18 to 29 year age group and you see the distribution of the workforce there then you come to understand the glaring fact. The glaring fact is that of all the workers that come from the 18 to 29 year age group, 70% of the workers are actually males and only roughly 29.4% are females. So roughly 30% are females. So you see, only as compared to of the total number of workers from the 18 to 29 year age group there is a vast disparity in the amount of jobs which are available to females as compared to males and the 70% of the workers are males and only 30% are actually females. So this vast gender disparity within the labor market itself is an important issue of concern. And which needs to be addressed because if female participate in the labor market it will because a very important tool of gender empowerment. One of the most effective ways of bringing about gender empowerment is actually increasing the participation of them in the labor force or in the labor work force itself. And to that extent it’s an important anti-poverty tool. Also it is said that if you empower a female you empower a family itself. And to that extent if more females find employment in the job sector in the labor market then it will have a strong impact on the poverty levels of the country, on the malnutrition rates in the country itself. So that’s a very important focus area which should be addressed by the labor laws. Now, there can be policy measures such as introducing flexible working timings, introducing better maternity and paternity leave arrangements, making stricter safety arrangements for women workers etc. which if are implemented actually will create a conducive environment for the participation of women in the labor force itself. So that’s another important issue that needs to be addressed. So if you know we’ve discussed a host of issues. If I just summarize those issues for you and at the broad headings within which the labor issues have to be addressed. The first issue is the quality of employment. The first issue is the quality of employment. Another issue is a quantity of employment. The quality of employment looks issue of quality of employment looks at the informalization of labor and the large number of labor workers who work in the unorganized sector. Now we also have the issue of the quantity of employment where the share of manufacturing sector in the economy, both in terms of GDP and in terms of the percentage of employment contributed by it is actually much lower than it should be if you compare with that with China, or other manufacturing-led houses and which is important for India to reap the demographic dividend. Another problem that I just discussed with you was a low female work female workforce participation right? Another important issue is the diminishing role of labor unions. Something that we have also discussed. Also is a multiplication of host of laws made by the central government and the state governments which actually make compliance with these labor laws so difficult because of the multiplicity and the huge number of such laws themselves and which leads to the problem of labor or inspector raj. Also another important problem related to the issue of multiplicity of laws itself is a poor enforcement of these laws and which diminish the protection provided to the workers themselves. So that’s another important issue, i.e. the poor enforcement of labor laws itself. And one other, another important issue related to the issue of “Skill in India” and is your ‘Make in India’ and with put within the larger context of labor reforms is the unskilled labor force itself. So that’s the point that we need to address. So if we keep these major issues in mind we’ll actually now look at 3 major laws that have to be amended if we have to actually solve these problems of the labor laws or solve these problems of the labor market themselves.
So now we’ll actually look at what is the way forward and one of the ways of doing that is to look at the 3 major legal laws which have to be amended if we have to solve this problem of the labor market. So before we do that, just this caricature actually squarely puts the issue of labor reforms on play. That one of the important focus of the labor reforms and amending the labor laws itself has to ensure that the whole idea of 8 hours of work, 8 hours of sleep and 8 hours for following a pursuit that an individual work out want to should be the ideal that the amendment of the labor laws should actually aim to achieve. So this the struggle for worker work, work period of 8 hours was something that was started in the European countries and received a whole lot of emphasis through the Marxian struggles and all the worker movements which argued for the whole per week working hours limited to 48 hours a week and stuff of that sort. So limiting the number of working hours for workers to 48 hours a week or with overtime maximum up to 68 hours a week has been one of the strongest demands the labor movement itself. At the same point of time allowing enough time for recreation as well as for rest is one of the central demands of the labor movement themselves. So that also has to be kept in mind. This demand has to also be kept in mind. As we look at 3 major laws which have to be commended to solve the labor crisis of the country.
So the 3 major laws which need to be amended are firstly the industrial dispute act of 1976. The second major labor law which needs to be amended is the contract labor regulation and abolition act of 1979. And the third important labor law of which needs to be amended and modified is The Apprentices act 1961. So these 3 major laws need to be modified and this is the way forward if at all we need to reform the labor laws in the country to bring them in harmony with the “Skill in India” and bring them in harmony with the ‘Make in India’ policy. So the industrial dispute act of 1976 is the first major law which needs to be amended. So what does the industrial dispute act of 1976 talk about? As I told you before that the industrial dispute act of 1976 basically has been one of the major acts which has been held accountable for the labor rigidity laws of the rigidity in the labor laws in our country. So the Chapter 5B of the industrial dispute act actually points that if at all the industrial unit employs more than 100 workers and if at all the industrial unit employs more than 100 workers then in that case if at all the management of the company intends to fire an employee then they will have to obtain a permission from the labor commissioner. And an employee can be terminated only when the permission has been obtained from the labor commissioner. That is the whole provision of the industrial dispute act which has been one of the central issues with respect to the rigidity of the labor laws. Now pro reformers or reformers who argue that the industrial dispute act should be relaxed argue or put forward the point that this rigidity or this fact that for firing worker hired by a company if at all the number of workers in a company is more than 100 workers then in that case the necessity of obtaining a permission from the labor commissioner actually becomes a cumbersome procedure because on the basis of varying demand for the products of the company it may be urgent and it may be required if the company has to survive that it may have to lay off those workers which are no more needed given the decline or change in the number of goods which are being produced by the industry sales. So if at all let’s assume that the market share of the company today is valued at somewhere around 2000 crores and it is employing 300 workers. Now for some reason tomorrow the market share of the company drops to 1000 crores then the company may need to lay off say 100 workers and may actually want to operate with just 200 workers so as to preserve its market share as well as to ensure the viability of the company. But this laying off of 100 workers will have to be approved by the labor commissioner of the respective state and this permission to lay off the workers from the labor commissioner often may be hard to obtain because it is often termed as politically incorrect if at all the workers are laid off by any company. This seen as affecting the political fortune of any government which may actually give a permission for laying off these workers. So once the size of a firm increases beyond 100 workers, it becomes very difficult to lay off these workers in India and this becomes even more problematic and this issue of laying off workers even becomes much more problematic in case of manufacturing units which are more elastic supplier or with a more elastic demand, for example, as I told you the manufacturing industry in clothing or in footwear where the demand for the goods from these industries increases around October, November and December in the global market and decreases and it witnesses a lean period during the summer seasons. So in this context this rigidity of the labor law where hiring, once hired it becomes very difficult to fire the workers when the size of the industrial unit is more than 100 workers is one of the central issues of contention with respect to the rigidity of the labor laws. And there has been a demand for relaxing the conditions as a labor law. Now just to give you a brief context as to why this law was introduced. This law was introduced by Indira Gandhi in 1976 with and this was a time when the emergency was in operation so as to, so as to give a projection that the government was taking significant steps to protect the right of workers and to ensure that the workers are not hired and then fired at the mercy and the whims and fancies of the industries’ owner this kind of safeguard was built in that they industry owners cannot hire and fire workers at their own will. And this was also supposed to strengthen the collective bargaining position of workers themselves within the industries. But over the period it has actually morphed into a law which has enforced a kind of a labor rigidity which fits the market. So as to avoid the application of this law manufacturing units often outsource other manufacturing units rather than employing 1000 workers in one place may actually employ, say 70 or 80 workers in multiple number of units. So rather than building a larger manufacturing house they may establish smaller manufacturing houses so as to escape the application of this law. And this prevents the coming up of big manufacturing houses in India and this leads to a formulation of labor laws which is unattractive for big manufacturing capital to be attracted to India and that is how it also the rigidity of this labor law decreases the attractiveness of India as a major investment destination for manufacturing countries and to that extent it affects the viability of the whole ‘Make in India’ campaign itself. So that’s the whole logic here. Now suggestions have been made that we can relax the law and say that and what are the suggestions we’ll see as we move forward. Now one of the suggestions that has been made is for example, we segregate layoffs and retrenchment and closures provisions within the IDA act. What basically this means is that you know the term layoffs retrenchment and closure are different terms and have different meanings. The term layoff basically means that if a worker is laid off then the worker continues to be on the roll of the company. This laying off for a temporary period of time actually means that the worker will be called back again when the demand for the industry or the demand for the goods made by that particular manufacturing unit increases again. So the worker is basically laid off for only a temporary period. That is the whole idea of layoffs. Now what is retrenchment is under the idea of layoffs is actually assured that he or she will be taken on, will again be provided gainful employment when the manufacturing picks up pace again. Retrenchment is actually when the worker is laid off because of the decline in demands of the goods of that particular industry but is given no fixed time period and is not even given a minimal wage when the worker has been retrenched. However, the worker continues to be on the roll of the company but there is no fixed time limit within which the worker will actually be called back for work. So you know you can understand that layoffs are of a more temporary nature than retrenchment and retrenchments are of a more temporary nature than complete closure. So closure of the unit of an industrial unit would actually mean that all the workers will thus be denied any employment because the unit itself is being closed down. For example the Nokia unit in Chennai was closed down recently and all the workers were actually employed by other subsidiaries of Nokia but the closure of the unit meant that all the workers working in that particular subsidiary were actually laid off completely. So the idea of layoff, retrenchment and closure are conceptually different terms, but for the sake of simplicity and for the sake of UPSC we’ll term them in the fact that the suggest reforms as to reform the industrial dispute act has been that the number that the rather than completely abolishing the industrial dispute act which may be difficult in, in a democracy given the fact that we’re not looking at completely replacing any kinds of safeguards for workers from the one hand where it is absolutely impossible to fire workers given the fact that you need a permission from the labor commissioner to we do not wish to migrate from this current position to a position where the workers are totally at the whims and mercy of the employer to the extent that the employer can decide how many workers it wants and how many workers it doesn’t want when the demand for work was down. So we need to understand here that worker and work security for the employees has to be brought about in a harmonious fashion and has to be reconciled with the interests of the employer themselves. So we need to, you know, actually bring the interest of employer along with the interest of the employee. So while employees are more concerned about work security and job security and that is why the industrial dispute act was introduced, we need to relax the provision of industrial dispute act so that the interest of the employer also are kept in mind and it doesn’t become completely impossible to fire any worker. At the same point of time we do not need to completely scrap the industrial dispute act as of now because it does offer certain safeguards against arbitrary and firing policy that the employers may adopt if at all the industrial dispute act is completely abolished. So the suggested reforms is that for layoffs and retrenchments if the need for the governmental sanction should be increased from 100 workers to 300 workers. So any industrial unit which employs more than 300 workers should actually take permissions from the labor commissioner if at all it has to fire workers or if at all it has to layoff or retrench workers. So right now the provision of the IDA comes into operation every time the number of workers in a unit go beyond 100. What we are basically trying to say is that the provisions of the suggested reform is that the provision of the IDA act should come into operation only in industrial units which are employing more than 300 workers. So this would ensure that workers that industries which employ 100 to 300 workers will not be subjected to the provisions of the IDA act. That is the first major reform that is suggested. The second major reform that is suggested is that currently if a worker is laid off, he or she has to be paid a salary of 1 month as a compensation. Now if at all this compensation has increased from the wages of 30 days to 45 days, there is bound to be a decrease in resistance from the labor unions to any kind of an alteration with respect to the applicability of the industrial dispute act. Because we have to complement and we have to bring together and the idea of work security for the employee along with the idea of ease of doing business for the employer themselves. So this is the first major law which needs to be reformed.
The second major law which needs to be reformed is the contract labor regulation and abolition act, 1979. And now as I told you contract labors are a subcategory within the organized sector which are often used by the employers to break the strikes if at all they are launched by the permanent employees and so this often creates a rift between the contractual employees as well as the permanent employees. That is one aspect. However the whole idea of contract employment also comes because of the fact that suppose there is a manufacturing unit which is engaged in the whole activity of manufacturing automobiles. Then in that case the core activity, the core function of the industry in which it is engaged and which is generating productive economic revenue is the manufacturing activity or the automobile manufacturing activity for that particular industry. So but at the same point of time the industry does not need workers only who actually carry out the core task of manufacturing automobiles. It also needs guards, it also needs watchmen, it also needs sweepers and cleaners which are also important to the working of the factory or the industrial unit itself. But they cannot be termed as the core activity of the, of the industry itself. So the whole idea of contract labor comes from the fact that every industry or most of the industries industrial units has certain core functions and certain non-core functions. So the whole idea of regulating and abolishing contract labor is based on the fact that contract labor should be abolished in the core activities of the company and the application of contract labor should be limited to the non-core activities of the company. So for example an automobile manufacturing unit can actually hire contract workers for activities such as sweeping activities, such as cleaning activities such as guarding the industrial establishment etc. and can outsource this work to another smaller company. So the whole idea about sourcing is based upon the idea of hiring contract workers which are hired on as contract workers but the 1979 act clearly states that hiring of contract workers should be limited to the non-core activities and hiring of contract workers should be abolished or should be prohibited in the core activities. Now this the whole idea here is because often contract workers who do not enjoy the same job security and often they are hired at lower wages as compared to the permanent employees, the idea here is that the core activities of the company should not be, you know, performed by contract employees so as to ensure that the permanent employees are not bypassed and their bargaining power with respect to the management is not weakened if contract employees are brought within the industrial establishment. So if the contract employees are brought within the industrial establishment within the core activities this will lead to a weakening of the collective bargaining position of the permanent employees themselves. So if at all with respect to non-core activities only the contract labor regulation and abolition act, 1979 actually allows an employment of the contractual workers. However, what we need to understand is the contract labor laws allows flexibility and permit outsourcing and this per outsourcing should be limited only to the non-core activities and that is why if at all as the Supreme Court has pointed out that if work performed by contract labor is can be termed as a core activity then such a kind of employment of contractual labor will be illegal and invalid in the eyes of law. So, you know one of the important things while there have been labor rights workers and workers labor rights law is who have argued for complete abolition of the contractual labor and to modify the contract labor regulation and abolition act into a contractual labor abolition act itself. What we need to understand today that the distinction made between core and non-core activities needs to be continued with in the light of the fact that in a globalized economy where the cost of production is a crucial determinant of the factor that where will the investments or industries be located it is important that the core activities are not subjected to contractual employment to protect the interest of workers but when it comes to non-core activities they can be outsourced on contractual basis to bring down the cost of production. So you know again we are trying to strike a middle ground here and the middle ground here has to be that under no conditions contractual workers should be allowed in to the core activity. And for that matter you know even in the 1976 the central government actually issued a notification which clearly stated that with respect to central government offices and with respect to central government employees, with respect to central government offices even categories of jobs such as sweepers, cleaners, dusting and the watchmen in building should be considered a core activity. And the workers there also should be treated at par with permanent employees. So the central government with 1976 notification at least intends to set a very high standard in terms of what should be termed as core activities and non-core activities. Rightly there can be a discretion in terms of determining what are core activities with respect to an industry and what are non-core activities with respect to an industry. And you know one of the problems with respect to the contractual labor regulation and abolition act, 1979 is the fact that a large number of activities which are actually core activities are also today being outsourced and for that also contractual workers are actually being hired. And to that extent that is a major problem of the non-implementation of the contractual labor regulation and abolition act. The way forward with respect to the contractual labor abolition and regulation act of 1979 is to clearly define, we need the law itself needs to clearly define what are core activities and what are non-core activities for a major sector of industries. Right now there is a good amount of discretion for the companies to decide what is core activity according to them and what is non-core activity according to them. There is an urgent need to for the law itself to actually completely define what are core activities with respect to a major types of industries and to ensure that contractual labors are not allowed in the core activities because it is essential to protecting the right of the workers.
So the third important labor law which need an important amendment and which actually needs a radical overhaul itself is The Apprentices act, 1961. Now the Apprentices act, 1961 lies at the heart of the “Skill India Mission” and to that extent is an important component of the whole ‘Make in India’ campaign also. So that is the whole logic that we are actually looking at. Now if at all we look into the dimension of The Apprentices act we have to understand that what is let’s just for simplicity first understand what is the idea of apprenticeship. The idea of apprenticeship may be closely related to the idea of internship or having an on the job training so that individuals pick up skills on the job and as or they get into an industry oriented curriculum where they acquire job specific skills especially related to the manufacturing sector and these job specific skills related to the manufacturing sector are acquired on the job over a period of 1 to 2 years. During that period the apprentices or the interns are paid not the complete wages or not the minimum standard wages but are paid a part of the minimum standard wages. So they can be paid say half of the wages to what is paid to a normal skilled worker. So the whole idea of the Apprentices act 1961 and the whole idea of apprenticeship or internships as is understood is to bring in the idea of on the job training. So let’s, let’s just take the practical ground reality. Now industrial training institutes in India which are also as the ITI is the industrial training institutes in India pickup students after they pass out of 12th or they pick up the students after they pass out of 10th only for the higher education. So the course can be is a 2 year course where a student can enter into after 10th or in most of the places after 12th. And this 2 year course offers an individual a diploma in a particular manufacturing area. Now this diploma in a particular manufacturing industry is supposed to give, ideally supposed to give that individual who applies for this diploma specific skills which can be used say in the automobiles sector or in the textiles sector or in the chemical engineering sector etc. which can then actually be used for applying for a job in these specific sectors. So an individual trained in a diploma course in say manufacturing in automobile or textile etc. would then become a trained employee who could be employed by the industries in these particular sector. So let’s to understand for now the whole idea of industrial training works in this manner. Now where does the idea of apprenticeship actually come in? The idea of apprenticeship actually comes in that out of this 2 years of training, say one year of training is focused on the theoretical aspects and 1 year is focused upon on the job training that is given to these individuals who’re actually enrolled in the diploma course where they actually go and work in these automobile or textile industries and acquire the skills by working on the job. Given the fact that they are actually being trained on the job they and again the fact that they may not have the requisite skills to start with but by the end of the year they may actually acquire those skills. Given the fact that they are partially skilled workers, the whole idea of the minimum wages is which are paid to permanent employees does not apply to the apprentices or the interns. And given the fact that they go for on the job training and then when they complete the training program they can either be absorbed on full wages or at least even if they are not absorbed on full wages by these industries in which they obtain training, they can actually apply in other industrial units in the same sector. So the whole idea of apprenticeship here is that it gives on the job training to the workers or the apprentices and thus at the same point of time helps us to provide industry specific employable workers which are actually trained in skills which our industries need right now. Now currently for example what is happening with the ITI’s in India is that the skills that they actually provide and are way out of sync with reality. Now core curriculum of ITI’s today is totally out of sync with the latest advancements in technology in the textile sector or in the automobile sector. So the people who actually come out of these ITI’s are not skilled enough to be employed directly by these industries. So in spite the fact that there is a huge amount of population available in the labor force today, a major chunk of this population in the labor force itself is poorly trained. Or there is a skill mismatch here. The skill mismatch is between the skills that yeah prospective employees have and the skills which are actually required by the manufacturing industries today. So there is a skill mismatch and this results in a decline of productivity of the industrial units and at the same point of time it becomes harder for individuals with these skills to find a job in the market because their skills are no more marketable or the market demands are different set of skills. So the whole idea that we are looking at in the whole “Skill India Mission” as well as in modifying the apprenticeship act is that there should be a direct linkage between the ITI’s and the industrial hubs. And these industrial hubs will actually train workers who are enrolled in a diploma in ITI’s for at least 1 year. And this will ensure that this the problem of skill mismatch between those skills imparted by the ITI’s and those skills needed by the industry is solved. So this problem of skill mismatch gets solved here. So that is an important area that we need to look into. So this problem of skill mismatch if it is solved will go a long way in bringing in the idea of skilled workers into the idea of ‘Make in India’ and at the same point of time it will increase the productivity of the employees and it will increase the wages that they can demand also. So to the extent that workers are scared there wage demand as well as the wages paid to them can be expected to grow up or go up. So what is the problem with the act as of now? The problem with the act as of now is the matter that only a few category of industries are allowed to hire apprentices as of now. Now what this results is in the fact that a large number of these industries which need a particular skillset are not able to obtain them from the market and at the same point of time the diploma holders which are being produced by these ITI’s are not employable. So to solve this problem we need to allow a larger number of industries, not just in the manufacturing sector but also in the services sector to hire more apprentices, or hire more interns so as to allow that there is a more closer coordination between industries and training institutes and this industry and training institute linkage will help us to allow or will help us tackle the skill mismatch. So what is the problem today? You know if you just look at the data for that matter the ITI’s or the industrial training institutes have 5 lakh seats throughout the country and of them only roughly or a bit more than half of the seats actually get filled and almost half the seats go unfilled. Why? Why is it so? It is because of the fact that the ITI’s today are seen as imparting those skills which cannot guarantee a job in the market for an individual who gets trained in these institutes. So to that extent the very fact that the skills which are being imparted by these ITI’s are not sufficient enough for an individual to get employed in a training institute has resulted in the fact, has resulted in the fact that even these seats are not getting fulfilled. Now if you compare the number of apprentices in India with that of say Germany, Germany which is a much smaller country than India for that matter has more than 3 million apprentices. So it has more than 30 lakh individuals who works as apprentices. On the other hand, India which is a much bigger country with a much bigger population has a total of 5 lakh seats, half of them go unfilled. So there is a huge potential here to be exploited in terms of bringing in a linkage between the ITI’s and the industrial institutes and that needs to be exploited. Now, at the same point of time, what we need to do thus is to amend the Apprentices act and currently the number of the areas and the areas of industries in which apprentices are allowed to be hired by manufacturing unit is very small. We need to allow a larger range of industries to hire apprentices so as to bring about a closer linkage between industries and training institutes. At the same point of time we should allow the hiring of apprentices not just in the manufacturing sector but also in the services sector. So what we need to understand here is that India for that matter has roughly just 3 lakh apprentices. Germany has 30 lakh. So that’s a big difference that we can adhere to and we can actually cater to and that is why the country needs to include at least 10 to 12 young people, 10 to 12 million young people in this program in the future. So that is why the suggested reforms today are standing at the fact that how do we incentivize the industries to collaborate with the industrial training institutes. So the government and the Indian government has put forward this proposal and this sought to be implemented by amending the Apprentices act, 1961 itself. That the salary which is paid to the interns or to the apprentices, half of that salary or half of that stipend cost, let’s put it to be more technically correct, it’s not a salary. It’s a stipend. Half of that stipend cost is actually to be contributed by the government. So if an apprentice is paid say Rs.8000 per month then half of that apprentice, half of the stipend of the apprentice will be contributed by the government. So if industrial house pays a stipend of 8000, half of that will be contributed by the government and this contribution by the government is coming in recognition of the fact that the ITI and the industrial house linkage is going to produce more skilled employable individuals and to that extent to incentivize this tie up between the industrial houses and the industrial training institutes. The government has agreed to compensate half of the stipend to be paid to the apprentices to the respective industrial houses. So that is a positive step in the right direction and this will go on for during the first 2 years of training as an apprentice. So that is the important change that has been brought and has sought to be brought about by the Apprentices act. The second important way forward to amend the Apprentices act is to allow a larger number of activities or allow a larger number of economic activities and industries in larger number of economic, involved in larger number of economic activities to actually hire apprentices. And to that extent hiring of apprentices is to be allowed not just in the manufacturing sector but also in the services sector. And the suggested amendment aims to add 500 new trades and 500 new kinds of economic activities in which it would be legal to hire apprentices. So that is the important thing here that the Apprentices act needs to be modified to allow by the number of economic activities in which it would be legally permissible to hire apprentices. Now that is another important change that has to be brought.
These are the 3 major changes that we need to bring with respect to our labor laws if at all we have to make India a major manufacturing destination and to bring it in line with the ‘Make in India’ policy. Now if you see, almost all of these major, almost all of these major reforms that have been suggested are have actually been there implementation has been started in Rajasthan and to an extent in Madhya Pradesh and Maharashtra also. These are the states which have taken the lead in reforming their state laws according to the recommendations that we have just discussed now and given the fact that labor laws come under the concurrent list both the central government and the state governments are allowed to make laws on it. And to that extent the Rajasthan government has modified its industrial disputes act and as had been suggested by the recommendations to modify the industrial dispute act the Rajasthan government has agreed and has made changes to its labor laws to increase the ceiling for layoffs, retrenchments and closures and to that extent when they end up as before the industrial dispute act used to apply to every company which used to employ more than 100 workers then the act has been modified to ensure today that in Rajasthan the industrial dispute act and the provisions of industrial dispute act will apply only to those industries which employs more than 300 workers or so. So that is the first important change that the Rajasthan government has brought, that it has modified the industrial dispute act. At the same point of time it has also actually increased the quantum of workers which need to be brought together to establish a union in a particular factory and to that extent while earlier only 15% of the workers needed to come together to establish a union in a particular factory now at least a minimum of 30% workers have to come together to form a union within the factories. So this reform actually makes it a bit tougher to, this reform actually makes it a bit tougher to organize labor unions within factories and to that extent this law has been criticized by a number of critics of the Rajasthan act itself. Now at the same point of time while earlier the definition as I told you the definition of organized sector was any unit employing more than 20, 10 workers in case of the fact that the industrial unit uses electricity then it would it was classified as an organized sector industry. So while the earlier definition of organized sector was that more than 10 workers if employed in an industrial setup which uses electricity was classified as an organized sector and any industrial house which has more than 20 workers if it does not use power will be classified as an organized sector industry. So earlier the norms were these. The Rajasthan Act changes these norms and says that earlier, as compared to earlier when 10 people were required, now 20 will be required to classify an industry as an organized sector industry and to which all the labor laws will apply. And earlier while on the one hand only 20 individuals were required for industries which do not use power for classifying them as organized sector industry, now the bar will be raised to 40. So you see again when 10 workers were, when 10 workers were required earlier to be classified as organized sector now the quantum has been increased to 20, where it was 20 before has been increased to 40. So it actually allows a larger number of industries in this sector to, or these small industries to actually escape the whole multiplicity of labor laws which are sought to be imposed, which are sought to be imposed according to the respective labor laws of the central and the state governments. So it allows a larger number of smaller units to actually escape the labor law provisions. That is the third important change actually that the Rajasthan amended labor laws actually bring about. So to that extent it has been seen that these changes have been made to the labor laws and a good number of the actually have been supported but in some, some of the labor laws especially increasing the quantum of workers required to establish a labor union have actually been criticized by labor rights activists. And to that extent it’s more of a mixed bag when you see that to what extent the amendments introduced in labor laws whereas some government have been progressive. So that’s another important that we needed to consider and that is something that you need to keep in mind when you’re writing an answer on labor unions on the modification of labor laws itself.
Now when you see what is the way forward to reform, what is the way forward to actually bring about labor law reforms. The way forward, it’s pretty much simple. What is the way forward for that matter to push up manufacturing in the country? The answer to this is similar to the fact that what is the way forward to push up the employment or the employment opportunities in this country? When we look at the way forward to push up the employment opportunities in this country we need to bring in a certain number of measures and the we need to bring in a certain number of changes and this changes aim, the aim of these changes should be to create productive employment opportunities for some 8 to 10 lakh, 8 to 10 million individuals who are joining the workforce in India every year and will continue to do so for the next 10 years so we need to create adequate number of jobs and at the same point of time we need to improve not just the number of jobs available in the market but also the quality of employment. Or not just the quantity of employment but also the quality of employment opportunities available in several sectors such that there is a real and substantial increase in the wages paid per worker. So that is the important thing that we need to, this is the ultimate change that we need to bring about and how do you bring about such change with respect to the employment? In the country we need to bring in both supply side as well as demand side measures if at all and we need to apply both this we need to address both the supply side as well as the demand side constraints if at all we need to push up the employment opportunities available in the country. So the most important supply side changes that we need to bring about is to accelerate the growth of the economy. So to accelerating the growth of the economy yes labor laws are important portion but there is but there is a whole other categories of things and a whole other major issues which have to be resolved if you have to push up the growth of manufacturing sector in the country. So whether it is the availability or access to capital that needs to be pushed up or whether it is easier environmental clearances or availability of land or yes the reform of labor laws and the availability of physical infrastructure such as roads or power etc. These all things also need to fall in place whether it is the availability of physical infrastructure or it is the availability of capital or is the availability of ease of business, ease of doing business which can be judged from the fact that how many clearances does the industry actually need to obtain to start operating in India. So whether it is obtaining clearances from the environmental boards or it is operating, obtaining clearances or having easier access to the land markets etc. All of them need to fall in place if we actually need to push up the employment opportunities as well as to push up the manufacturing growth rate of the country. So that is the first important thing. And at the same point of time while pushing, while giving a push to the manufacturing sector of the company, of the country, there needs to be a stronger focus, then it has to be a very and specific focus on labor intensive sectors of the manufacturing economy. Labor intensive sectors of the manufacturing economy for that matter are gems and jewelry, for that matter are textile, for that matter are footwear, which are more labor intensive manufacturing industries and the government should have a specific focus upon these labor intensive manufacturing units if it wants to push up the number of employment opportunities available in the country. So these are the demand side measure and demand side constraints that we need to address if we need to increase the demands for skilled labor in the country and if we need to increase the demand for skilled employees in the country. So that is the demand side measure that we need to address.
The more supply side measure that we need to address is the addressing the shortage of skills. So we know on the one hand we should push up the demand for workers for workers and on the other hand, we need to supply, we need to ensure an adequate supply of workers who are skilled so we do not need only enough number of workers but we also need employable workers and workers who have skills which are in sync with the needs and the demands of the industry. So we need to produce enough number of skilled workers. That is a more demands and more supply side constraint that we need to deal with because a large number of workers today in India have received no formal or any sort of an informal training also. And they directly are actually and does and that makes them unemployable for a wide category of industries. So that’s an important thing that also needs to be addressed. And also another important thing that we need to do apart from addressing the supply side and the demand side is to ease up the regulations which regulate the labor market so as to allow that there is a so or what we basically need to do is to allow the labor markets to operate more freely and to that extent we should not impose artificial rigidities upon the labor market and should allow that the demand and supply of labor is allowed to come in equilibrium without very stringent regulations being put on by the government which may actually disincentives the creation of more jobs in the long run. So that is another thing that we need to do. So the first two measures that we discussed right now under were under the heading of demand side measures. The next measure that we discussed was under the idea of supply side measure. Another important measure that is discussed is to decrease the stringent regulations on the labor market as to allow more decent match between the supply side and the demand side factors. So this is another way of you know looking at the whole issue of labor reforms. Now recently the Modi government and the Indian government actually introduced some 5 major labor reforms which were meant to bring about changes in the labor laws as well as changes in the labor market and that’s why the government had introduced these 5 major labor reforms under the composite scheme of Deen Dayal Upadhyaya Shramaev Jayate Karyakram. The Deen Dayal Upadhyaya Shramaev Jayate Karyakram had actually got 5 major components. The first major component is that it intends to check the whole license or more importantly the inspector raj and to prevent the harassment of business houses at the hands of labor inspectors and to that extent it introduces a new, a new inspection scheme which takes away the discretionary powers with the hand, in the hands of labor inspectors who could had they wished go and conduct a surprise survey and a surprise check on the factory premises of any industry within their jurisdiction to see whether they are complying with the labor laws or not. Now they will rather than this discretion which actually resided with the labor commissioner which sided with the labor inspectors this discretion has been taken away from the labor inspectors so as to ensure that this discretion is not misused and rather the labor inspectors will receive a random list of factory premises and a random computer generated list of factory premises where they should go and actually conduct an inspection. So there is discretion of which factory house they actually want to go and conduct a surprise check, it has been taken away and it will be automated computer generated system which will take away the discretion from them and this will reduce the possibility of corruption in such kinds inspections. So that is an important change and also once the inspection has to be done the report of the inspection will have to be filed within 72 hours and will have to be uploaded online on a portal meant for inspections for labor inspections within 72 hours. So there is a time bound process and it is a randomized process which both of which are geared to reduce the amount of corruption in the labor inspections which are done by the labor inspectors. So that’s a new labor inspection scheme. That’s a first important change. The next important change that has been brought is that is the coming out of a new unified labor portal which is also known as Suvidha. So a new unified labor portal will actually which is also be named as a Shram Suvidha portal, basically firstly gives a unique identification number to every factory which employs workers. So every factory which is coming under the gambit of labor laws will have a UIN number or a unique identification number and this unique identification number can be used to track all the labor inspections which have been done in the past year. What was the result of these labor inspections and what was the, what deficiencies if any were found in these inspections. And the whole unified labor portal actually also makes it much simpler for the employers to file a compliance report with respect to the, with respect to their compliance of labor laws which are there on the statute books. So earlier there used to be for that matter you know it’s kind of unbelievable. Earlier there used to be an early an 80 page form that had to be filled by industry owners as a compliance report with respect to the fact that whether they are following the labor laws of the country and the respective state or not and now this has to be and this is sought to be reduced today from 80 pages to a single page and that will make it easier for the industrial houses to file a compliance report with respect to the labor laws. So this is again there is an aim to actually harmonize and bring together a large number of labor laws into as much smaller number that will make compliance with them also much easier. And also there will be a uniform, there will be a common window for registration of units and for reporting of inspection for submission of inspection reports and submission of annual reports and grievance redressal if any that have been done with respect to the labor unions of respective industries. So a UIN will, you know the unique identification number for industries will become like something like an Aadhar that we have for individual citizens, which will help to track all the activities specifically with respect to labor laws and labor compliance of a particular industry. So that unique identification number will help to track to what extent the company actually has been compliant with a whole variety of labor laws and also with a whole sort of other regulations which a particular industry in a particular sector actually has to comply with.
So the third important change and the third important initiative under the whole Shramaev Jayate program is to bring about a Universal Account Number. This Universal Account Number will basically allow transfer of funds of provident funds of individuals who actually changed their location of work from one industry to another. And this will allow, and this will basically allow the mobile workers to carry the, their contribution that they make to the provident funds in the previous industry to the next industry they actually move into. So that also solves this problem for workers. Another important change is with respect to the Apprentice Protsahan Yojana, or that is with respect to the amendment of the Apprentices act itself as we have discussed. The new scheme actually aims to provide 50% of the stipend cost to those industries which actually try up with the industrial training institutes and 50% of the stipend cost will be contributed by the government for the first 2 years of training when this training is given in collaboration with a particular industry. And half the stipend cost for that industry that half the stipend that the industry pays to the apprentice will actually be reimbursed by the government. Now the aim of the government is to actually increase roughly from 2.5 lakh apprentices today to increase that number to 23 million. So that’s a huge shift that we are looking at and if that picks up it will actually strengthen the whole idea of “Skill in India” mission itself. And lastly another important initiative that the government is looking forward to introduce is to bring about a convergence of social security schemes. Now convergence of social security schemes is important to push up the quality of employment availability in the country. So unless and until an individual’s employment does not offer him, him or her, enough health benefits, enough life security benefits, enough disability benefits and enough benefits and safety measures which may actually be initiated if a worker suffers from disability or accidental death or any kind of a serious health problem then the job security and the quality of employment opportunity available to workers will actually get severely affected and that is why a strong component of labor law reform is actually has to focus upon the quality of employment which is made available in the country. To that extent to improve the quality of employment available in the country there has to be a very strong focus upon the social security schemes which will play a very important role in the whole picture of labor law reforms themselves.