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How Labor laws are affecting implementation of Make in India

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By Abhik Ghosh

What’s the one assurance investors want before setting up a manufacturing base in India? The ease of making workforce adjustments in line with changing market conditions. In this area, Indian labor laws are among the most restrictive.

The Industrial Disputes Act of 1947 has two provisions in the way of workforce adjustments. Chapter VB of the Act requires prior approval of the appropriate government before resorting to any layoff, retrenchment, or closure in establishments employing 100 or more workers.

The draft Labor Code on Industrial Relations currently in circulation seeks to raise the threshold to establishments employing 300 or more workers, but it is still work in progress.

Another major contentious provision is Section 9A of the Act, which mandates 21 days’ notice before affecting any change in established conditions of service of any employee, including any change necessitated by “rationalization, standardization, or improvement of plant or technique”. This is anathema for investors, particularly in this age of fast changing technologies and manufacturing processes.

Contract labor is yet another major area of concern. Investors would surely want to know if engaging workers on temporary contracts would run afoul of the law. The Contract Labour (Regulation and Abolition) Act, 1970, as the name suggests, is enforced to regulate the practice and abolish it in certain cases.

In other words, the practice is not prohibited. Engaging contract workers for temporary, intermittent or seasonal work is allowed, but using them for work of perennial nature violates the letter and spirit of the law.

Why would investors want to engage workers on temporary contracts in the first place? To meet surges in demand for goods and services requiring urgent workforce adjustments. The Immediate deployment of regular workers is not always feasible and pruning them alongside falling demand often meets legal obstacles. Moreover, regular workers are increasingly becoming less productive and more expensive.

The central government has yet to initiate any action in this area. Rajasthan has taken the early lead, raising the threshold for applicability of the law to cover industries or contractors engaging 40 or more contract workers, up from the original 20. Other state governments are expected to follow suit. The move has been welcomed by employers and criticized as anti-worker by trade unions.

But changing the applicability clause is like nibbling at the edges. Plunging into the core, the status of temporary workers must be redefined and extended beyond the present limit of 240 days in a year. That should take care of the persistent demands by the traditional trade union movement for regularization of all contract workers.

On this aspect, the experiment by India’s largest carmaker is innovative and instructive. In 2012, Maruti introduced a new category of directly recruited temporary workers, substantially reducing the role of intermediaries. It has appreciably narrowed the gap in emoluments and allowances between regular and contract workers, which is the main bone of contention.

Temporary workers get on-the-job training as apprentices and become eligible for regular appointment in due course. Maruti pays such workers a stipend for the period they must wait out for regular appointment. This also promotes a sense of belonging and solidarity with the company. It is the habit of institutions to give birth to loyalties. The policy has worked well and has brought industrial peace to what was a volatile workplace.

The big question is: How soon can the central government bring about meaningful changes in the existing laws to facilitate quick workforce adjustments?

For investors, this is the major sticking point. Can the government drive the labor reforms agenda through the legislative route and achieve desirable outcomes?

Given the present party alignments in the Rajya Sabha, this is like building castles in the air. Alternatively, can executive orders be employed to achieve the desired results? Some quick thinking is needed in this direction, followed by swift action.

As the reforms package unfolds, pragmatic solutions will have to be discovered to assure investors that their business interests would not suffer by mindless application of the law, while taking care to ensure that workers’ interests are not compromised.

Labor reforms are critical to the “Make in India” campaign. Investors have been waiting with anticipation. Brand India cannot afford to disappoint.

Abhik Ghosh, IAS (retd), was with the International Labor Organization (ILO) as a senior specialist in industrial relations and labor administration. (IANS)

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James Murdoch Isn’t Taking Over Tesla: Elon Musk

Musk is still the CEO of Tesla.

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Elon Musk, CEO of SpaceX. Wikimedia.

Tesla CEO Elon Musk has denied that James Murdoch, the younger son of media mogul Rupert Murdoch, is going to replace him at electric car maker Tesla.

Reacting to a Financial Times report that claimed James Murdoch was going to join Tesla as Chairman, Musk tweeted on Thursday that this was not true.

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Elon Musk agrees to step down as Chairman (VOA)

“This is incorrect,” tweeted Musk, reacting to the report.

James Murdoch, who serves as a director on Tesla’s board, is set to end his innings as 21st Century Fox’s CEO.

Media reports have also thrown names like former Vice President Al Gore and Jim McNerney of Boeing as potential candidates to lead Tesla.

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Tesla has become the most valuable American carmaker, with its stock worth more than $50 billion. Pixabay

Coming under pressure from his lawyers and investors of Tesla, the tech billionaire on September 29 agreed to step down as Tesla Chairman for three years and paid a $20 million fine, in a deal with the US stock market regulatory authority, the Securities and Exchange Commission (SEC), to resolve securities fraud charges.

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Tesla paid another $20 million to the SEC, despite not being charged with fraud.

Musk is still the CEO of Tesla. (IANS)