A story in Business Standard on 17 June said the International Labour Organization (ILO) office in Delhi had flayed India’s proposed labour reforms, saying that the reforms would take away a chunk of workers from the protection of basic laws. Not only that, ILO had prepared a concept note which would serve as a reference toolkit for trade unions’ future actions.

ILO is a United Nations organisation. It should act as a non-partisan body, playing the role of an honest broker, if needed, between workers’ interests and the interests of the larger economy. What ILO is doing amounts to inciting Indian organized labour against the government’s reform proposals. Importantly, these proposals have been mooted by different governments when they were in office and they are not just the output of anti-labour minds in the National Democratic Alliance government. It is interfering in the policymaking priorities and prerogative of a democratically elected government. This is simply not acceptable.

Among the many amendments proposed to the Factories Act of 1948, one proposes to exempt units that employ 20 workers (instead of the present 10) if there is electricity and 40 workers (instead of the present 20) if there is no electricity, from the purview of the factories law. These numbers were set long ago. Apparently, if these amendments were passed, some 50% of the factories would no longer come under the purview of the factories law. That shows how small India’s factories are. These smaller units need to be freed from intrusive labour laws. They have stood in the way, for several decades, of Indian manufacturing scaling up. One of the reasons why India is a permanently stagflation-prone economy is that production is hopelessly fragmented and inefficient. It is incapable of rising to meet the demands of a country with 1.2 billion people. A sweeping overhaul of extant labour laws, which are good in intent and evil in delivery, is both urgent and important.

These laws have served to keep the Indian labour market an exclusive preserve of unionized workers whose membership remains closed to the vast majority of Indians who need a job with dignity. Businesses go out of the way to avoid scaling up so that they would stay outside the purview of the labour laws and all the intrusive regulation and bureaucratic interventions that would come in their wake. India can have as many start-ups as it wants in the e-commerce space. Venture capitalists and media can go breathless on the exciting potential they offer to the country. However, they are either of tertiary or of lower order importance to the future growth of the economy.

Unless India is able to create jobs in millions in the coming years, the Indian economic story will remain a non-starter. If jobs are not created, there is no demographic dividend. India will be crushed by the demographic deadweight, economically and socially. It will become an economic basket case no matter how much it improves in other areas.

It is a white lie that the amendments to the Factories Act of 1948 do not protect the interests of workers. One of the amendments extends the liability for ensuring the safety of an instrument used in the factory to the designer of that instrument too. Another proposed amendment mandates that shelters and restrooms be provided in factories that employ at least 75 people instead of the 150 as at present.

The resistance that ILO is fomenting against these overdue yet modest amendments to the factories law perhaps has a bigger target. The government is proposing to consolidate and amend laws relating to labour unions, conditions of employment, investigation and settlement of disputes, and matters related with or incidental to such disputes. The proposed Labour Code on Industrial Relations Bill, 2015, proposes to combine Industrial Disputes Act, 1947, The Trade Unions Act, 1926 and The Industrial Employment (Standing Orders) Act, 1946.

There again, the media focus will be on the proposal that the special provisions relating to lay-off, retrenchment and closure of establishments in which not less than 100 workers were employed on an average per working day for the preceding 12 months will now apply to establishments that employ 300 workers or more.

However, the proposed code has many positive features that try to minimize, if not eliminate, political interference in the relationship between an employer and his employees through the election of politically connected persons as heads of labour unions, etc. It provides for more generous compensation than before for retrenched or laid off workers.

India has fragmented land holdings; its businesses are fragmented because of its labour laws and hence, it has a fragmented capital market. Capital is scarce to most businesses because the laws conspire to make them unviable from inception. With all its three factor markets broken, India stands a low chance of becoming economically prosperous. This government is trying to fix all three. ILO is one of the forces standing in the way. Its actions are hostile to the interests of Indian workers and hence, India too. It should be stopped.

V. Anantha Nageswaran is co-founder of Aavishkaar Venture Fund and Takshashila Institution.

Comments are welcome at baretalk@livemint.com. To read V. Anantha Nageswaran’s previous columns, go to www.livemint.com/baretalk

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