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HomeBusinessIndia business awaits changes to Raj era labour laws

India business awaits changes to Raj era labour laws


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WITH steel machines hissing and whirring and staff studiously manning production lines, Sunder Rajan's factory about two hours southwest of New Delhi is prospering.

But Rajan's plant, one of seven spread across four states that churns out car steering systems, faces an uphill battle complying with India's myriad of archaic, complex and often bewildering labour laws.

“There are a huge number of laws, with individual inspectors for individual laws in individual states,” said Rajan, CEO of Sona Koyo Steering Systems.

“It's a nightmare,” he said, adding that he has numerous staff working full-time on compliance issues.

Businesses argue that conforming to India's 44 national and more than 150 state labour laws is not only costly and time-consuming, it has deterred foreign investors, and hobbled manufacturing in a country struggling through the worst slowdown in two decades.

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Prime Minister Narendra Modi, who took office in May, has pledged to overhaul the laws, one of the major reforms his right-wing government says is vital to revive the economy.

In his Independence Day speech on Friday (August 15), Modi underlined his desire for India to become a manufacturing hub, and invited the world's industries to set up shop in the South Asian country.

He also urged the country's youth to set up their own manufacturing businesses, questioning why India was forced to “import even the smallest of things”.

Rajan welcomed Modi's speech as “a sign of good intentions” but said his government now needed to “create the right conditions”.

“We still need for example better labour laws, infrastructure and faster environmental clearances for this to happen,” he told reporters.

The government introduced labour bills this month including to allow more overtime and women to work night shifts, but the left-wing opposition has threatened to block them.

Although trade unions agree reforms are overdue, they oppose the bills, saying worker safety and other conditions are being watered down.

“The laws at the moment are badly enforced so workers, especially in small factories where unions don't exist, are already hugely unprotected,” said Gautam Mody, general secretary of the New Trade Union Initiative.

“These bills will create mini Bhopals,” he said, referring to the 1984 industrial disaster that killed thousands.

India's labour laws date back to the British Raj. Some regulations require companies to keep numerous records for inspection and file reports on attendance, overtime and sick leave.

Others say factories must have a sufficient number of spittoons and washroom walls should be whitewashed regularly.

“There is a lot of confusion in the minds of workers and employers as to which laws apply to them and which don't,” said economist TS Papola, a former government advisor on labour reforms.

Companies with more than 100 employees cannot fire anyone without state government permission first.

“That's the most controversial law, the most serious bone of contention,” said Papola, of the Delhi-based Institute for Studies in Industrial Development.

India has “one of the most rigid labour markets in the world", deterring many firms from expanding, according to the World Bank.

The laws are also motivating companies to hire more contract workers, who can be fired more easily, are not involved in collective bargaining and receive fewer benefits.

India needs to modernise, “reduce the number of and simplify labour laws” to increase flexibility and encourage the growth of formal workforces, it said in a recent report.

About 94 per cent of Indian workers are in what the government calls the informal sector, including domestic service, agriculture and construction. Most labour laws don't apply to those workers, leaving them with little or no protection.

Some 10 million people are pouring into cities and towns annually searching for jobs in a country where half of the population is under 25.

Manufacturing contributes about 15 per cent to the economy, less than China, but India wants to hike that to create tens of millions of jobs.

At Rajan's factory, his 500 contract workers put together steering systems for automakers in India and exports to John Deere in the United States.

Mamta Mandhal, 21, takes home about Rs7,400 ($121) a month, after compulsory contributions to insurance and other schemes.

After three years studying for a diploma in mechanical engineering, it is Mandhal's first job.

She concedes the pay is low and desperately wants to be part of Sona's formal workforce, whose wages and entitlements are higher. But she is not complaining.

“It was difficult to find work. There were 60 graduates in my class. I am grateful and working hard,” she said, in between manning a machine that produces steel components at the plant in the town of Dharuhera.

Rajan, whose staff number 3,500 in total, said he needs a flexible workforce to stay competitive especially during downturns. Laying off formal workers can take months and even years of negotiation.

“Nobody likes to retrench anybody. But we need to be competitive, productive to compete globally. All of the stakeholders need to understand this,” Rajan said.


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