INDIA’S labour laws are archaic, complex and often meaningless, which discourage entrepreneurs from expanding their workforce for fear of attracting the attention of greedy labour inspectors.

Small and medium enterprises run by industrialists, traders and other entrepreneurs prefer not to hire additional staff, even if the business demands taking in new people, as they fear they would come under the radar of labour inspectors, who can make life miserable for top executives.

The multiplicity of labour laws in the country — both central and state — has discouraged generation of new jobs. Yet, many existing businesses including factories and shops blatantly disregard labour laws, often bribe the inspectors and continue to exploit workers.

There are countless instances when new companies are set up, employees are hired and they are paid way below the minimum wages. The firms deduct a portion of the wages as the contribution of the employee to Provident Fund, a state-supervised social welfare scheme. Shockingly, many of the companies do not actually transfer the money deducted from the worker’s salary to the Provident Fund account.

This is a criminal offence, but the perpetrators manage to stay out of trouble by bribing the labour inspectors. The worker is deprived of the amount, and even companies that have to make a matching contribution to PF swindle the employee. Labour laws in India have never prevented the exploitation of workers; they have only generated a new class of rent-seeking labour inspectors, who can cripple the functioning of a factory or office.

As with most of the antiquated laws legislated during the height of the British Raj, governments have not bothered to reform these acts. Companies that try to follow the rules are harassed by the inspectors, while those indulging in sharp practices can get away with their crimes.

While the economic reforms of 1991, initiated by then Indian finance minister Manmohan Singh — who later became the prime minister for two consecutive terms, before being replaced by the BJP’s Narendra Modi a few months ago — brought an end to the licence raj in the issue of licences, there were many laws that impacted the lives of small and medium enterprises, but the government failed to address them.

The existing labour laws have resulted in severe harassment of businesses. For instance, there are several Acts that are seen to deter the creation of millions of new jobs. These include the Industrial Disputes Act, the Contract Labour Act, the Factories Act and the Boilers’ Act.

The BJP-led government at the centre now wants to simplify the rules and also ensure that India’s ranking in the World Bank’s ‘Ease of doing business’ index, also improves. Currently, India is placed 134 out of 189 countries in the World Bank’s publication. Modi, who had earlier launched an ambitious ‘Make in India’ now wants to reform the labour laws, making them more employer and employee friendly.

BRINGING about changes in labour laws is a formidable challenge and left trade unions have already raised a hue and cry about these reforms. But Modi, who is known to be tough and does not succumb to the whims of business lobbies or trade unions, wants the labour ministry and the various state governments to go full steam ahead with the changes.

The prime minister vowed recently that he would bring an end to ‘inspection raj’ in the labour ministry. The centre has a limited role in bringing about these changes, as state governments have to endorse these changes.

Modi also announced the setting up of a single-window compliance process for companies on labour-related issues. “Let’s start with trust,” said Modi, “Ease of business is the first and foremost requirement if Make in India has to be made successful.”

At present, there are about 1,800 labour inspectors with the central government; Modi has said they will be prevented from swooping arbitrarily on companies; a computerised system would replace arbitrariness and random surveys will be undertaken, as is being done by the Income-Tax department now.

After the inspections are done, the officials have to upload their reports within 72 hours; these cannot be modified later by the inspectors, who obviously often do such things to speed up the process.

Business units can now register online at a government portal and file self-certified, single compliance reports for 16 central labour laws. Business lobbies have for years been seeking changes in India’s labour laws, but governments have been reluctant to bring these about, fearing a backlash from the unions.

Tapan Sen, general secretary, Centre of Indian Trade Unions, dismissed the initiatives of the Modi government, describing them as ‘cheating’ workers. Other unions have also been critical of the changes sought in the labour laws.

But some state governments are eager to bring about changes to the laws. The Rajasthan government, which is led by the BJP’s Vasundhara Raje, is determined to push for dramatic changes and to initiate skills development training progammes. The government is making changes to the Boilers’ Act, which is misused by inspectors in many cases.

The central government has also written to other state governments, asking them to simplify rules relating to the Boilers’ Act, enabling self-certification by the management. With the BJP government laying emphasis on skills development, the government also wants changes in the Apprentices Act, which has failed miserably in enhancing the number of apprentices.

India has just 300,000 apprentices, while countries like Germany have 3m. China and Japan have about 10m apprentices each. India’s poor showing on the apprentices front is despite the country having a draconian act, which envisages that the CEO or managing director can be jailed if a company refuses to hire an apprentice.

Published in Dawn, Economic & Business, October 27th, 2014