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Focus: GS-III Indian Economy


  • More than 90% of India’s workforce is informally employed. About three-quarters is either self-employed or casual labourers, with no income and employment security or benefits.
  • India’s organised sector too is characterised by stagnant wages, and a decrease in the proportion of employees with social security benefits.

Need for reform

  • It is the reality that the existing system of labour laws does relatively little to protect labour, that needs to drive the debate on labour law reform.
  • However, in recent times, in the rush to promote ease of doing business, deregulation of labour has taken precedence over the real debate India should be having.
  • We need to step away from entrenched positions of growth vs labour rights, which lead to a zero-sum discourse.

Blueprint that does not constrain capital

I. The challenge of State capacity.

  • Indian capital’s frustration with labour laws stems from the fact that laws are being implemented in an environment that incentivises arbitrary implementation, corruption and abuse of the coercive powers of the State.
  • This is a consequence of a deadly cocktail of bad laws and weak regulatory capacity, particularly relating to dispute resolution and grievance redressal.

II. The imbalance in the relative economic strengths of capital and labour.

  • India is a labour-surplus economy and labour markets are characterised by the presence of monopsony.
  • These realities make a strong theoretical case for robust labour laws but, at the same time, risk laws being rendered ineffective by the forces of supply and demand. Therefore, labour law reform must go hand in hand with robust social security.

III. The shifting global economic landscape.

  • Against the backdrop of trade wars and retreating globalisation, it is likely that the East Asian pathway of exporting its way to prosperity in a global labour market may no longer be available for India.
  • At the same time, the ever-expanding role of information technology will continue altering labour markets significantly. In the gig economy for instance, it is a computer that navigates relationships between labour and capital.

IV. The structural changes in India’s labour market post the 1991 reforms.

  • The spatial concentration of growth has resulted in increased inter-state migration, placing new pressures on labour markets.
  • This has been accompanied by an increase in temporary or contract workers.
  • Contract workers now account for a third of workers in the manufacturing sector. They are dependent on intermediaries (or contractors) who are as powerful in shaping labour-capital relations as employers themselves. Labour law reform will need to contend with the challenge posed by the omnipresent contractor and the role he plays in shaping labour-capital relations, and yet manages to stay outside the direct purview of the law.

-Source: Hindustan Times

February 2024