The NDA Government’s proposal to introduce new labour laws will attract foreign investments. If passed, it will boost foreign investor interest for manufacturing in India, one way to deliver on the millions of jobs needed

Consolidation in the Bharatiya Janata Party reforms strategy is indicated by a new assertiveness. This, alongside a corresponding firm handling of irresponsible Opposition moves, is starting to pay off.

There is news that the NDA proposes to table five new labour laws to reform and consolidate over 40 laws, originally Victorian, probably from the early industrial revolution. These were made more stringent in favour of workers/labour/employees, under the socialist dispensation, for all the years since independence.

Still, since 90 per cent of small Indian enterprise is in the ‘unorganised’ sector, it stayed out of reach of all or most of these complicated laws.

So this move, on the cusp of two years in office, is calculated to attract big investment from abroad. The Government has worked up the dander to try to run the gauntlet of opposition parties, trade unions, leftist intellectuals, taunts of crony capitalism etc.

This set of five Bills  codifying and modernising all the labour related legislation, will mark the very first comprehensive reform of the mass of outdated and obstructive labour laws that have long been hampering the growth of medium to large Indian business and industry.

They constitute an industrial relations code Bill, a wage code Bill, a small factories Bill, and two amended Bills  the shops and  establishment amendments Bill and an Employees’ Provident Fund and Miscellaneous Provisions Amendment Bill.

This new labour legislation will be tabled, soon after April 25, when the second half of the Budget Session commences. If passed, it will considerably boost foreign investor interest in manufacturing in India, one certain way to deliver on some or all of the millions of new jobs needed, though the Opposition may not agree.

The key difference under the new labour laws will be in an unprecedented flexibility in both hiring and firing. This is in line with  competitive international environments, that are welcoming foreign investment elsewhere. It is also a long-standing demand of those countries, like Japan, which have already pledged billions of dollars in investment in India.

Currently, it is almost impossible to terminate the services of an employee, or stop paying wages and benefits, even if the business is closed down. The present laws have been used mostly in a negative manner, by both in-house employee trade unions, and the broader affiliated trade union universe, at the city, State, and national levels.

Plans of consolidation, modernisation, mechanisation, are routinely held up or stymied altogether, by trade unions, who want to be assured that there will be no job cuts or efficiency/higher performance demands. And the political establishment has, till now, sided with these self-same bodies, against the owners of business and industry, both in the private sector and in the Government-owned public sector.

So, few attempts at seeking greater efficiency along with growth and expansion have been successful. As a consequence, most factories and even service businesses, employ contract labour, and even higher ranked personnel, that can indeed be hired and fired at will, and do not qualify for pensions, provident fund and other benefits, under the present laws.

Many of the present thicket of laws also contradict each other, leading to confusion and protracted litigation.

The overall, anti-capitalist mood and socialist hangover from this history still persists this year, but alongside a new found resolve to achieve high single, if not double-digit gross domestic product growth rates.

This being the only way to dent, and eventually eliminate, India’s endemic and chronic poverty at the base of its huge population pyramid. And since high growth rates first entered the equation in the mid-eighties, the salutary effect on extreme poverty has been well noted. It has affected the aspirations of the poor voting public who want more, and the political class is on the spot to deliver or be voted out.

It has lifted the economic circumstances of millions of Indians, even as the population has grown three-fold since 1947, and stands at over 1.2 billion currently. So even those who do not readily agree to the trickle-down effect of GDP growth rates, end up attributing other reasons for the undeniable phenomenon.

After all, nobody was lifted above the arbitrary and extremely modest poverty-line before, and this did not happen at all when India progressed at no more than 3.5 per cent per annum.

Most of those socialist years till the 1980s, had GDP hovering at a disgraceful one per cent to two per cent, without adjusting for inflation, which ran as high as 20 per cent to 30 per cent per annum, and an occasional year returned even a minus 5.2  per cent rating!

The BJP, traditionally a party supported by the business community and the upper castes, has in the 2014 general election, enlarged its constituency to embrace the rural voter and the poor from other castes, as well as various other religions/communities beyond its traditional support base, including some 10 per cent of the Muslims. Its message of ‘sabka saath, sabka vikas’ is still resonating with the masses, even though there is some disappointment with the pace of progress achieved so far.

The new bankruptcy law which seeks to empower creditors to intervene before an enterprise is beyond redemption is also expected to be passed soon, perhaps along with the Goods and Services Tax Bill. Should all three sets go through, the knock-on effect on GDP could push it up by one per cent to two per cent points, particularly in what is now likely to remain a declining interest cycle and a time of lower and stable inflation. The strict control of the fiscal and current account deficits, if not the revenue deficit still, has contributed to a favourable outlook as well. 

In the first part of the Budget Session concluded in March there have also been a couple of legislative breakthroughs. The successful passing of the Real Estate (Regulation and Development) Bill and the Aadhar Bill augurs well for the future.

The first law will go a long way to restore both consumer confidence, professionalise the builder/broker/construction sector, and revive investment, particularly private equity and foreign investment, in the moribund residential/commercial building platform that accounts for a fair chunk of GDP, certainly upwards of nine per cent inclusive of associated industry and trade, and provides a great deal of labour employment too.

With plans for housing for all and smart cities this is a sector to watch and along with infrastructure also on fast track, it could altogether account for 25 per cent or more of the total before too long.

The second law passed will be far more effective than heretofore in the targeted delivery of subsidies and compensatory payments, as it will go directly into millions of Aadhar-linked bank accounts. It has the secondary effect of consolidating the Government’s early programme to empower and bring more and more of the ‘unbanked’ into the system.