Reform in Practice: Laveesh Bhandari (CSEP) on Labour Flexibility and Unemployment Insurance

What is one area of regulation in India that should be deregulated?

There is the IDR, or the Industrial Disputes and Resolution Act. It started in 1950, and since then it's been one of the core issues related to labour laws. What it essentially says, or rather Chapter 5B, talks about that before you can rationalize or retrench any worker, you need to get permission from the unions, and then you also need to get some sort of permission from the government.

Now, because of that, it becomes extremely difficult to be able to manage workers. It's not just about rationalisation, because if you do not have the power to be able to, let's say, retrench a redundant worker, then it really gets in the way of firms. Now, this prevents them, from many of the firms, from growing larger, from actually even entering some spaces or some sectors.

So this is a law which is actually not really required. Essentially what it does is, it protects the job. Now, the role of the state or the government is not to protect the job, it's to protect consumption perhaps.

So you want to make sure that the workers are not exploited, absolutely, for that you have minimum wages, and you have a few other laws. You want to ensure that they're not exploited in other ways, that people are not forced to work. So all of that can actually be enabled by some other mechanisms, and one of them happens to be unemployment insurance.

So my basic solution to the problem is, we must get rid, totally rid, of Chapter 5B of the IDRA, and that settles one part of the story, which is giving firms the flexibility of being able to manage and rationalise and retrench the workers if required. But then also to protect workers through a mechanism of unemployment insurance. There are many ways of doing that.

One is that you take a cut from the worker's salary while he or she is working, and that then goes into an unemployment insurance. But there is already, the government is charging about 3.25% of a person's salary to go in as something called ESIS, which essentially has to do with health insurance, or rather being able to take care of healthcare costs. Now, there's already Yashmat Bharat, which is taking care of health costs.

So all we need to do is expand that component to cover all industrial workers, and take that 3.25% that industrial workers are anyway paying and putting it into unemployment insurance. So therefore, you've protected consumption. There is no need then to be able to protect the job.

You've enabled flexibility that firms have. And of course, you've essentially created a situation where labour laws have become less stringent for all. So this mechanism has another advantage.

Right now, the government, I mean, essentially the IDR has started with 100 workers. It's now the new social code that has come in, which embraces that, has now taken it up to 300 workers. Okay.

Now, if we are going to take it up to 300 workers, the question is why not 400 or 500 or 1,000 or 2,000? There are factories today that hire more than 100,000 workers. Now, for these factories to be able to say you can't even retrench one worker is absolutely completely preposterous. You need to be able to manage workers in a certain manner.

So therefore, this whole part, which flows from the IDRA into the new social code has to be completely eliminated, and of course, and that needs to be replaced by unemployment charts.