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LATEST NEWS UPDATES | 'Formalising' the Economy: What's in It for Workers? -Karuna Dietrich Wielenga and Shashank Kela

'Formalising' the Economy: What's in It for Workers? -Karuna Dietrich Wielenga and Shashank Kela

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published Published on Feb 9, 2018   modified Modified on Feb 9, 2018
-TheWire.in

The Modi government’s attempts to reshape the economy lie entirely in the financial realm; they come on the back of concerted efforts to strip workers of legal protection in not just the informal sector, but also the formal.

The Narendra Modi government has made two major interventions in the economic sphere, demonetisation and the Goods and Services Tax (GST), with the ostensible aim of expanding the formal sector at the expense of the informal.

Demonetisation failed to achieve its stated goals, at heaviest cost to the poorest; the jury is still out on GST (which, it should be remembered, enjoys cross-party support). Enterprises in the informal sector are clearly struggling to comply with a system that requires computer literate accountants, a luxury most small firms and artisans are unable to afford. The lack of physical infrastructure – such as dedicated offices to accept returns and offer advice on compliance – is entirely characteristic of the Indian state’s propensity to cut costs at the expense of those who need the most help. Meanwhile delays in refunds add to the working capital difficulties of small firms.

Formalising the economy signifies different things depending on the problem under discussion. It might refer to the financial aspect of a business firm – whether or not it pays tax or files paperwork, for example. Or it might refer to conditions of work and the status of workers employed in it. Interestingly, the Modi government’s attempts to reshape the economy lie entirely in the financial realm. Indeed, they come on the back of concerted efforts to strip workers of legal protection even in the formal sector. In other words, they do absolutely nothing to mitigate the informal and precarious existence of labour.

Formalisation in the financial sense does little or nothing for workers in a firm. In the absence of labour formalisation (which involves extending legally enforceable rights to them), the effect is merely to exacerbate the hardships of the informal sector. Its sheer size indicates a basic failure of economic policy: by some estimates, more than 90% of India’s workforce does not enjoy any form of legal protection. The history of labour laws shows how this situation was created, through deliberate choices made by the state.

The first substantial body of labour legislation in India dates from the 1940s and early ’50s, just before and after independence: the division between the formal and informal sectors was crystallised during this period. The economy grew rapidly during the Second World War, when both manufacturing output and the number of small and large-scale enterprises expanded under the stimulus of war demand. An increasing number of workers also began to unionise during this period. After the war, demand contracted sharply, putting pressure on previously abundant profits. Strikes and protests broke out in a range of industries – beedi-making, tanning, handlooms, small engineering workshops, textile mills – and services (transport, sanitation etc.). Workers called for higher wages, trade union representation and welfare measures. Well before this, several commissions, including the Royal Commission on Labour, had criticised working conditions in small industrial enterprises, where most of the workforce was concentrated: women and child workers suffered acutely in particular. The necessity of extending legal protection to them had been under discussion for some time.

The central government dragged its feet, but in states where industrial workers formed a vocal constituency, attempts were made to address their concerns. In the Madras Presidency (comprising modern Tamil Nadu, Andhra Pradesh, and parts of Karnataka and Kerala), the provincial government headed by the Congress party proposed two new bills in 1947 – the Madras Non-power Factories Act and the Madras Shops and Establishments Act – aimed at protecting workers outside large factories. The first general elections based on universal suffrage were around the corner.

The debates in the Madras Legislative Assembly during the passage of these bills, and their progressive dilution in subsequent years, exemplifies a much wider trend – the chronic failure of labour legislation aimed at vulnerable workers because of flaws built into it from the very beginning. The first sticking points in our case comprised the very definition of ‘non-power factory’, ‘shop’, and the ‘worker’ to whom the laws would apply.

It was proposed that a non-power factory be defined as any enterprise employing ten or more workers that did not use electric machinery in the production process. Several legislators pointed out that this would undercut the very purpose of the bills, for owners could simply split up their establishments into smaller units so as to show less than ten workers in each. This was already happening in large beedi-making factories that the Madras government had tried to bring under the purview of the Factories Act of 1934. A committee set up to review the act pointed out that classifying enterprises by number of workers made little sense. Nevertheless the threshold of ten workers was adopted – predictably factory owners immediately began sub-dividing their establishments. Another favoured strategy was to claim that only a fraction of workers came under the definition of the law.

This claim was made possible by ambiguities built into the legislation. Although both bills defined ‘worker’ or ’employee’ in broad terms, their key provisions applied only to those who had worked ‘continuously’ in an establishment for at least six months. This created an obvious loophole, for most workers in small industries (handlooms, beedi-manufacturing, jewellery-making, tanning etc.) were kept on piece-rates. In the case of service industries (such as hotels and shops), where workers were usually hired on daily wages, owners argued the employment contract was limited to a day and therefore continuity of service could not be claimed.

The rights of women workers came under sharp attack. Owners claimed that they lacked skill (except for ‘deft fingers’), only acting as helpers to male workers to earn extra money in their ‘spare time’. Politicians joined them in arguing that labour laws would prevent women working from home, for no one would be willing to employ them. In other words, women were seen as needing protection from labour legislation! The Non-power Factories Act was withdrawn in a matter of months. During the course of the next decade, a series of official exemptions were introduced into the Madras Shops and Establishments Act forbidding its application to family run establishments, shops and firms employing less than three workers, and to all workers employed on piece-rates or short contracts. In the end, virtually every kind of small establishment, whether shop or factory, came to be exempted from it.

A close look at the archival record reveals that behind this systematic dilution lay active lobbying by owner associations and individual legislators. Associations of beedi manufacturers, tannery owners, master weavers, hotel owners etc. and various chambers of commerce demanded exemptions and changes in the legislation. They went to court, obtaining favourable rulings thanks to the opacity of provisions written into law. Chronic delays in court procedure helped maintain the status quo, for trade unions had far fewer resources in terms of time and money to fight legal cases than factory owners.

Both owners and politicians harped on the need to protect small industry. Any attempt to regulate them by improving working conditions and wages was invariably portrayed as a threat to the very existence of these enterprises. Several legislators made this argument when the bills were debated on the floor of the Madras assembly, defending the small entrepreneur and petty trader (and implicitly their right to exploit workers without restraint). It was argued that Madras province, as the home of cottage industry, should safeguard its interests instead of bringing hardship upon ‘small people’, who were, in the words of one fulsome speech, ‘the real backbone of trade, they are the entrepreneurs, they are the agencies of industry and commerce of our Province. They are men of self-reliance and self-effort. I do not know why the government instead of coming to their rescue should propose measures restricting the scope of industry…’

Another reaction was indignation at the idea that the work-places of professionals like lawyers and doctors could be subject to any kind of regulation. Even before the bills were passed, lawyers’ offices, doctors’ clinics and nursing homes were exempted from their provisions.

Ironically, protection for the small entrepreneur and professional was deemed possible only at the expense of the worker. Patently dishonest and self-serving arguments were advanced to justify this viewpoint: workers in small establishments were a happy lot unlike their counterparts in large factories; they were better left to the care of their employers; regulation would cause unnecessary strife. Legislators spent considerable time discussing the right to paid holidays granted by the new legislation. What would workers do with so many holidays? Idleness could only lead to mischief!

Please click here to read more.

TheWire.in, 8 February, 2018, https://thewire.in/222027/formalising-economy-workers/


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