The government introduced three separate labour codes – on industrial relations, occupational safety and health, and social security — in the Lok Sabha on Saturday, proposing significant changes to make them less rigid for industry, while strengthening the safety net of workers.
“The initiative of bringing transparency and accountability through codification of labour laws will bring ease of compliance to the industry and investment push for India,” said MS Unnikrishnan of CII’s national committee on industrial relations.
The Industrial Relations Code (IR Code, 2020) allows businesses with up to 300 workers to retrench and close establishments without government approval. The earlier limit was 100 employees, which means more businesses will have this freedom.
It also provides a legal framework for fixed-term employment and ease of firing of contract workers.
“The given operational freedom will facilitate the expansion of establishments and job creation across different sectors,” Unnikrishnan added.
Industry body Assocham said empirical evidence showed that flexibility in hiring or firing led to net employment generation.
“The increase in the threshold of 300 workers, as against 100 at present, has been tried well in Rajasthan, resulting in more employment. Given the current stressed times, this move would support more players to scale up operations and attract investments,” Deepak Sood, secretary general of Assocham said.
A proposed provision under the Occupational, Safety, Health and Working Conditions Code that entails a single licence for staffing firms to hire workers on contract across different locations instead of multiple licences earlier, has come as big relief, the staffing federation said.
“The national and state licence for contract staffing under OSH Code will not only be a progressive step to increase formalisation but an opportunity for over 39 crore informal workers to be employed through formal staffing organisations that can give them wage protection and social security,” said Suchita Dutta, executive director of the Indian Staffing Federation.
Increasing the threshold limit of contractor employees from 20 to 50 under the OSH Code, while opening up hiring of contract workers in all areas will ease compliance for employers.
“Now, the principal employer can engage contractor labour through contractors in any core activity of the establishment under given conditions, which is favourable and will improve ease in doing business,” Rohit Relan, a member of industry body Ficci, said.
Companies are, however, apprehensive over the additional costs of providing universal social security under the Social Security Code to all workers, including the unorganised and gig and platform workers.
These together account for over 90% of India’s total estimated workforce of 450 million.
“There has to be a limit to how much cost burden you would impose on small, fledgling enterprises through mandatory minimum wages and universal social security for all workers,” said Anil Bharadwaj, secretary general of the Federation of Indian Micro and Small and Medium Enterprises.
This is likely to substantially increase wage costs of employers, Bhardwaj said, adding that it would take away competitive advantage on the labour front.
The IT and IT-enabled Services industry expressed concerned that the Standing Order provisions of the IR Code do not differentiate between commercial establishments and industrial establishments.
“The standing orders are meant for industrial establishments like plants, mines and factories,” said Ashish Aggarwal, head of public policy at IT industry lobby group Nasscom.
“We are still studying the new versions of the code, but we can see that the IR code provides an enabling clause which could provide exemption to the IT-ITeS industry but does not provide an upfront exemption. This is a miss,” he said.
It will also lead to additional compliance burden as the IT-ITeS is also regulated under state-specific Shops and Establishment Acts.
Labour expert KR Shyam Sundar, however, said enhancing a company’s powers of retrenchment may push unemployment rates higher, especially at a time when millions of workers have been out of work since the Covid-19 outbreak.
“It will only intensify unemployment,” Sundar said, arguing that with 300 as a threshold, 90% of working factories and over 40% of workers will be beyond the purview of the key changes in the IR Code, which means employees in smaller establishments will not enjoy employment security.
The government’s Periodic Labour Force Survey has pegged India’s unemployment rate in 2018-19 at 5.8%. The Centre for Monitoring Indian Economy, an independent think tank, estimates employment to have touched a peak of 23.5% in April and May before dropping to 8.35% in August.