As part of its economic reforms programme, the Union government passed three codes on labour laws recently. These, along with the Code on Wages enacted in 2019, complete the labour market reforms agenda of the National Democratic Alliance government. The reforms aim to achieve two main objectives. The first is to rationalize the existing bits and pieces of legislations pertaining to labour markets into four simplified codes covering wages, workers’ rights, industrial relations, occupational safety and social security. The second objective is to energize economic activities by making it easier for employers to hire and fire workers without creating additional uncertainty for the latter. Indian industry has long been constrained by archaic labour laws that had the aim of protecting workers from arbitrary exploitation in a labour-surplus economy. Although the aim was certainly laudable, it made it extremely difficult for employers to be flexible in disengaging workers. Indeed, labour began to be treated as a fixed cost by employers and they began to find ways and means, through suitable choice of technology, to minimize employment. The paradoxical outcome was high unemployment with labour-saving technologies being preferred by even small and micro enterprises. In the informal sector, which employs the largest segment of the nation’s labour force, workers had hardly any rights worth mentioning. In the organized sector, on realizing that it was difficult for the employers to retrench them, militant workers often went on strike and disrupted production on flimsy grounds.

The new codes aim to correct many of these anomalies. For instance, the right to strike remains but the notice period has been increased. Similarly, employers will find it easier to offer employment to workers on a contractual basis provided they are treated on a par with regular workers in terms of working hours, pay and benefits like gratuity. Finally, economies with easy flexibility enable employers to hire and fire. But they also have a wide social security network, which provides safety to individual workers when they are not employed. This task of protection is taken up by the State and not left as the private liability of an employer. The new codes aim to provide additional and wider cover for India’s embryonic social security apparatus. These changes are certainly going to benefit employers. The rules that protect workers must be followed strictly. Only then would Indian industry become mature and more efficient.