Should India reform its Labor Laws? The Debate over Rigid and Flexible Labor Laws

The Case for India to Reform Its Labor Laws

India is on the move and its economy is booming with it being the largest major economy clocking faster growth rates.

The avowed intention of the Indian Policy making elite is to ensure that India gains parity or for that matter, at least somewhere near to what China did over the last three decades.

In other words, if India has to reach where China is now, it has to think seriously about the factors choking its growth and throwing a spanner in its wheels of the economy.

Most economists agree that reforming the Labor laws in India would be a good step to ensure that private firms gear up for faster growth.

This is because at the moment, hiring and firing of workers is governed by a complex set of rules and regulations and Labor laws that are archaic and unsuitable to the needs of a growing Free Market Capitalist Economy.

Indeed, if India has to follow the Neoliberal path to economic prosperity, the first thing it must do is to ensure that manufacturing takes off.

The path to economic prosperity lies through Agriculture and manufacturing revival though, services are also an important priority.

While the services sector has benefited from a rather Laissez Faire regime of regulation, the same cannot be said of the manufacturing sector that has been hamstrung due to its inability to follow seasonal and cyclical patterns of growth and demand and supply and thereby hiring and firing according to such imperatives.

Indeed, look at any major industrialized economy and you would find that SMEs or Small and Medium Enterprises in such countries hire workers according to the specific needs that may arise from time to time and then, downsize the workforce when economic conditions turn adverse.

In other words, manufacturing firms need flexible Labor laws if they are to become more competitive and bring them at par with the developed world.

Flexible Labor Laws Work Only When There are Safety Nets for Workers

Having said that, it is also the case that hiring and firing of workers at will is possible only when such workers are assured of a safety net when they are out of work.

This is the case with advanced economies wherein Social Security, Unemployment Assistance, and Healthcare are covered by the state wherein out of work workers can avail of such benefits so that they do not lapse into abject poverty.

Indeed, before the Trump Administration, the United States under the Obama regime had significantly allocated resources for jobless workers since at that time; the economy was recovering from the worst economic crisis since the Great Depression.

Therefore, flexible labor laws work only when the system of safety nets and social support are in place.

Indeed, for capitalists to demand the superstructure of free market models, the ground beneath the feet of the workers must be cushioned by safety nets which prevent them from destitution in adverse economic conditions.

The Precariat and the State

It is clear that if India has to reform its labor laws, it must also ensure that such support systems are in place to take care of the needs of the workers. While there are some laws that cover these aspects, by and large, the Indian state does not provide for cushions though Healthcare is free in Government Hospitals.

This is the reason why any attempt to reform labor laws is vehemently opposed by the Trade Unions in India as was the case during the recent Two Day strike that witnessed an estimated 200 Million Workers from all sections of society taking part in demonstrations.

This strike that was billed as the Largest Ever Strike by workers is a reflection of the insecurities of the workers as they face a precarious future in Neoliberal India.

Indeed, the term Precariat has been coined by sociologists to explain how Urbanization, Migration, and Industrialization have given rise to a new class of workers who lead Precarious lives since they neither have employer provided safety nets nor state provided welfare to take care of their needs.

Therefore, what India needs to do in parallel with reforming its labor laws is to ensure the wellbeing of the workers.

Demographic Dividend, Demographic Nightmare, and Social Unrest

Having said that, there is not much time left for the Indian State to proceed in a leisurely manner as there is an urgent need to create jobs for its youthful population the absence of which is leading to social unrest all over the country.

Indeed, as the increasing lawlessness shows, the Indian Youth are taking to the streets for any and all causes just because they are not gainfully employed.

Moreover, India is poised or has reached the Demographic Dividend position wherein it stands to reap the rewards of the most youthful population in the world. On the other hand, unless India creates enough jobs, this can turn into a Demographic Nightmare which would leave everyone poorer.

Even the much vaunted Make in India policy would fail if the present labor laws are not reformed as the Industrialists would have little appetite to invest in an economy where hiring and firing of workers is tedious and not efficient enough for the demands of a capitalist economy.

As can be seen from the preceding discussion, the choices before the government are stark and given that this is an election year, it is the case that unless India gets it act together quickly, it would find itself in a dire situation.

Authorship/Referencing - About the Author(s)

The article is Written and Reviewed by Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.