NEW LABOUR REFORM PROTEST IN TAMIL NADU

The Context

It is difficult to implement reforms in India. A urgently needed structural reform is launched, a vocal minority of powerful interest groups fiercely oppose the reform, and the government gives in to pressure and reverses the reform. For example, this is how the agricultural laws drama played out, and it is happening again with Tamil Nadu’s labour law amendments.

The Factories (Amendment) Act, 2023, which was approved by the Tamil Nadu parliament earlier in April, gives workers in factories in some industries throughout the state flexible working hours. In essence, employees would have the choice to work twelve hours per day rather than eight, and while the required total number of working hours per week, 48, remains the same, this corresponds to an additional leave day. Trade union and opposition party protests compelled MK Stalin’s administration to undo the measures.

Why Labour Reform?

For the foreseeable future, India will need to create almost 20 million jobs annually to accommodate the 12 million individuals who join the labour force every year. It is imperative to give the agricultural industry’s covert unemployed workers and the stock of unemployed people constructive jobs. India has experienced poor employment development since the turn of the millennium, while achieving strong GDP growth rates. Despite the significant value added of services, India’s manufacturing sector has stagnated, making it impossible to provide large-scale employment.

The existence of strict, outdated, complicated, and burdensome labour rules is one of the causes that has caused a sticking point in India’s manufacturing history. The maze of Indian employment rules has always been challenging for businesses to comply with and manoeuvre around. Employers perceive Indian labour regulations as being more restrictive than those in other nations, according to firm-level studies, which show this. Labour regulations are found to be more stiff in India than other emerging nations according to various indices (rigidity of employment).

The fact that India mostly exports capital- and skill-intensive commodities despite having an abundance of workers shows that this has unfavourable impacts if enterprises either employ higher capital than labour or remain tiny and in the informal sector where the regulations do not apply to them.

The economic research is extremely unambiguous about the detrimental effects of strict labour rules on output, productivity, investment, and wages. Developing nations with strict employment rules typically have larger informal economies, greater unemployment rates, particularly for young people, and lower registered manufacturing sector production. The significant productivity discrepancies between various Indian regions are also explained by variations in labour laws.

In light of this, the Union government simplified and unified the 29 distinct labour laws into four codes to reform the labour laws. The states are in charge of making additional amendments to the labour laws because labour is on the Concurrent List. Karnataka has already taken the initiative by allowing women to work 12-hour shifts and nights. To draw in new investments during the pandemic, many states loosened the most onerous labour rules.

Unluckily, a lot of the conversation around labour legislation is sometimes framed as a zero-sum game where business and labour are competing against one another and only one can win at the expense of the other. These don’t have to be at odds, though. Increased investment as a result of labour reforms raises earnings, productivity, and employment. Evidence also demonstrates that over time, the average number of hours worked per week decreases as nations grow.

Flexibility in working hours enables businesses to run consecutive shifts and maximise capacity. To alter work rules, this is merely the first, relatively small step. Numerous additional areas also need reforms: From stringent requirements like the hiring and firing restrictions, which require state clearance before terminating employees, to more absurd legislation forcing manufacturers to mandatorily supply spittoons in employee-friendly areas.

Misconceptions

According to the Tamil Nadu legislation, workers may select either 8 or 12 hours of labour every day, depending on their preferences. The entire modification is rejected on the grounds that the option won’t be honoured, which would result in labour exploitation. There are three problems with this reasoning.

First, the same authorities who presently supervise the 48-hour workweek and 8-hour shifts will also oversee the new system. There’s no reason to think this will change under the new system if they were able to implement the prior regulations. If not, the issue is with bolstering the enforcement organisations.

Two, only a small portion of the state’s and the nation’s labour force is covered by these labour regulations. The majority of the labour force is employed in the informal economy, which offers very few protections. In fact, a formalisation of businesses and workers is possible by reducing the strict restrictions. Unfortunately, the largest obstacle to labour reforms that could extend protection to a huge group of people outside the scope of these laws is labour unions that ostensibly represent the interests of a small minority of workers.

Third, keep in mind that industries with weak labour regulations, like software, have had the biggest increase in investment, labour productivity, and pay without necessarily turning to employee exploitation.

With favourable global conditions, India is in a special position to grow its manufacturing sector. Countries are rethinking their excessive reliance on China for manufacturing and diversifying their supply networks. While Vietnam has drawn the majority of businesses leaving China, India can still turn things around by enacting radical changes. The advent of Apple and Foxconn in India as well as the growth of Samsung’s investment may signal the beginning of a new manufacturing age. However, Tamil Nadu and India need to step up their efforts to drive through labour and land reforms rather than cowering and pulling back the changes.