New Labour Codes: Missing piece in manufacturing, execution needs political hardsell

There was little indication of the government’s homework behind the notification of the labour codes, except for the meetings of trade unions with the Finance Minister on Thursday and of the RSS-backed Bharatiya Mazdoor Sangh with the Labour and Employment Minister hours before the latter announced the decisions on social media.

The secrecy was partly to avoid a backlash from labour unions on either side of the political spectrum, something that the government is very concerned about, given what happened earlier with the reasonably well-intentioned farm law reforms. The challenge, going ahead, will be to demonstrate political conviction by communicating the importance of this reform, ensure stakeholders come on board, and states take it forward.

Investment sentiment

An unshackling of labour laws is critical to revitalise the investment spirits, which have failed to awaken despite several favourable fiscal and monetary policy measures. It indicates a willingness to push fundamental reforms that involve the factors of production, and to consider measures impacting large segments of populations, such as farmers or labour unions.

It comes at a time when the external outlook has been muddied by growing protectionism across geographies, especially the United States, and India coming on its own, letting go of its diffidence in trade negotiations, and entering into bilateral pacts with key trading partners.

In fact, over the last few years, the government has preferred to engage with states and nudge them for small incremental reforms. This was also perceived as its reluctance to take bold reforms that required consensus-building at a larger scale. Much against the grain of their fiscal philosophy, cash/ handout led welfarism had gained currency, be it Maharashtra or Bihar.

A top government official had indicated to The Indian Express that the state-level reforms being pushed by the Centre were being done with the assumption that the labour codes might not go through. Just ahead of the announcement on labour codes, the government had moved to roll back quality control orders (QCOs) on 21 key inputs earlier this month, ranging from chemical intermediates, synthetic fibres to polymer resins that where adversely impacting the textile sector supply chain, and metals such as nickel, copper and aluminium, after months of push back by the domestic industry, especially the MSMEs.

Incomplete reforms

Labour reforms was one area where much of the groundwork was already done, and a number of states had moved on their own. The Centre has been stuck with implementation of labour reforms despite having passed the requisite legislation in Parliament as early as August 2019 (Code on Wages) and September 2020 (Code on Social Security; Occupational Safety, Health And Working Conditions Code; and Industrial Relations Code). With labour being a concurrent subject, both the Centre and states had to frame laws and rules. While Parliament cleared the four labour codes in 2019 and 2020, and the Centre pre-published the draft rules for all four codes, some state governments were lagging in completing the process. Internal discussions within the government in 2022 had even contemplated a staggered implementation of the labour codes with an initial rollout of two codes, the Code on Wages and the Code on Social Security, ahead of the general elections last year.

The onus in many ways had shifted towards states for these reforms. As is the case for labour reforms, where some of the states, which have been lagging behind in drafting their set of rules in alignment with the central rules, were being nudged to step up. Some state governments such as Karnataka and Rajasthan moved towards bringing in legislation to regulate the social security and welfare of platform-based gig workers even as a similar provision in the Code on Social Security is in limbo. As per the provision in The Code on Social Security, aggregators employing gig workers have to contribute 1-2 per cent of annual turnover for social security, with the total contribution not exceeding 5 per cent of the amount payable by the aggregator.