Tamil Nadu’s ‘race to the bottom’ in increasing working hours comes from a misplaced notion of competitiveness to attract investment

The Tamil Nadu Assembly recently passed a bill to amend the Factories Act, 1948 to effectuate a 12-hour working day in case of 4-day work week opted for by employees. After widespread various protests by unions saying that this amendment opens doors for severe exploitation of employees by the employers, the government has put the bill on hold.[1]

In this context, it becomes important to understand why states-even countries-are in a hurry to increase the working hours or give more leeway to companies. Since these kinds of laws not only allow exploitation but also exert undue pressure on an already stressed workforce, it is important to understand the logic behind the laws, whichever side of the argument, pro or against that you favour.

Labour, and wage for such labour are essential elements of today’s economic system. The economy grows with more available labour; consumption increases as the wages increase-so on and so forth. This phenomenon is however not that simple, nor is it uniform for all regions across the world. Due to various reasons, some countries have better pay packages for the same working hours, if not lesser. Apart from this dichotomy in terms of pay between different countries, there is another alarming difference. It is a race in which developing and developed countries ensure that their labour laws and regulations are flexible whereas developed nations experiment with shorter work weeks with shorter workdays. In India too, various states have issued notifications or passed laws, increasing the work hours, over the last few years including states like Uttar Pradesh, Assam and Gujarat.[2] Many of these were arbitrarily passed without adequate consultation during the pandemic-caused lockdown.

Why do the governments “liberalise” labour laws?

Land, Labour, Enterprise, and Capital are factors of production. If a person needs to set up a manufacturing unit, she will need land to build her facility on. She would also need money as initial investment for raw material, machinery, salaries etc. And finally, she would need skilled/unskilled labour depending on the type of facility that she wants to run.

The State usually provides incentives to investors so that they can set up their facilities easily and gives various tax incentives for some periods so that the companies can concentrate on production and profitability. Since the government does not engage much in business, it relies on private investors to boost economic activity and growth. For example, in India, a startup may apply for tax exemption under section 80 IAC of the Income Tax Act. Post getting clearance for Tax exemption, the Startup can avail tax holiday for three consecutive financial years out of its first ten years since incorporation.[3] In Telangana, any company applies for a licence and unless rejected within a period, the company automatically gets a licence to operate under the industrial policy of the state.  Reforms in land acquisition, easy availability of credit from Banks and other financial institutions, make it easy for companies to establish their units and contribute to the economic activity. These kinds of measures are taken by governments to increase the “ease of doing business.”

Within this subset of measures to increase the ease of doing business falls the “liberalisation of labour laws.” For example, startups, as recognised by the Department for Promotion of Industry and Internal Trade, are allowed to self-certify themselves for compliance of labour laws. They are also exempted from any inspection visits by the labour inspector, unless a credible and verifiable complaint of violation if filed in writing and approved by at least one level senior to the inspecting officer. The intent behind these kinds of provisions is so that the companies can concentrate on production and not worry about compliance. Additionally, the labour market, especially in India, is a huge one. Labour Market essentially means the pool of labour the companies can choose from. The supply of labour is high, and the demand is not as much, therefore attendant unemployment. Some of the unemployment is also attributable to the lack of skills required. The companies look for cheap labour, as entities for profit do and therefore do not want to be bound with employees they don’t want to employ. For example, if a company gets a huge project it needs to complete this within say, six months, it will need additional labour to meet the deadline and after the deadline, it will not need such additional workforce. In this scenario, if there exists a law saying that no employee shall be fired from a company without giving two months’ pay, the company would be apprehensive of taking up the huge project in the first place since it would incur costs when it must let go of the employees. Or it would use methods like individual contracts with hiring talent to go around (evade) the law and in process, might not give any protection such as insurance etc, to the talent. To make sure the company does not go through this hassle, the newly passed and yet to be implemented Code of Industrial Relations, 2020 regularises fixed-term employment. Fixed term employment may allow employers the flexibility to hire workers for a fixed duration and for work that may not be permanent in nature.

It is important at this point to note that the boosting of economic activity is important for a nation’s growth. For a developing country like India, especially in the current globalised and capitalist paradigm, investment of capital from private entities-both domestic and foreign-becomes an important way of generating economic activity.

Due to all, these reasons, governments tend to “liberalise labour laws”. However, most of the measures discussed above are measures taken by the union government. The states further bring in their changes.

States and Labour Laws

Under the Constitution of India, Labour is a subject in the Concurrent List where both the union and state Governments are competent to enact legislation subject to certain matters being reserved for the union. India is not a homogenous country; we have united and competing units within the nation i.e., states. The competition is for resources and investments. Within this competition lies the reason for the states to liberalise the labour laws within their territory.

States have two kinds of advantages when it comes to investments. First, is the natural advantage: this could be their geography like being close to the sea and therefore having a logistical advantage, or having land or other such resource to produce raw material for certain kinds of industries etc. For example, costal states tend to attract more investment since the ports could be used to export produced/finished goods; states with ability or the culture of producing agricultural commodities attract companies dealing with such products. For example, sugar cane in Maharashtra and Uttar Pradesh; tobacco in Telangana.

Another set of advantages is how better positioned they are to make it easy for a business to operate like provision on electricity, intra-state infrastructure like roads, water etc. This includes availability of labour. The availability of labour, the ease to hire and fire at will also decides where a company would set its shop at. Since states are competing for investments, they tend to incentivise investors-better than the rest of the states. One of the ways is to have flexible labour law and allow for more working hours to be norm etc.

This leads to a situation in which states end up “racing to enact” the least possible stringency in labour laws, to accommodate the companies.

India’s story is such that even when the labour laws were relatively strong, there was poor implementation. Labour exploitation was rampant in both organised and unorganised sectors. When such stringency is removed all together, there is no safety net for employees.

So, two points have so far been established. One is that governments, both at the centre and in the states look at private investment-domestic and foreign- as means to generate economic activity. Second, that states in the country are in competition with each other to attract investments, prompting them to engage in a race to bottom regarding different compliances that they deem to be a “burden for companies”.

Now, it is important to discuss the implications of this race to the bottom.

Why is it bad to go on liberalising labour standards?

In the context of long working hours, even for five days of a week, such practice leads to prolonged periods of stress and other health conditions. In India, commuting to work also takes a lot of time since the places of manufacture and places of residence are also at great distance from each other. If we add this together, the time a person spends at work becomes higher than 12 hours which would affect their health and personal lives. Workers with bad mental and physical health, cannot be productive for longer periods. An average Indian employee spends over two hours commuting. Long working hours have been proven to be hazardous to the occupational health of workers.[4] Allowing a low wage labour market to flourish would boost production but decrease the consumption power of the workers, leading to a case of increased economic activity but stagnant or lowered standard of living for workers.

What steps could be taken instead?

By improving education and skills training, developing countries can create a more productive and skilled workforce. This can help attract higher-paying jobs compelling industries to increase the overall quality of life for workers. Developing countries can work to create a stable and predictable business environment that encourages investment. This can involve reducing corruption, simplifying regulations etc.

Moreover, since India is a large market with the highest population in the world, it is in a unique position to negotiate the terms unlike other developing countries. There is a large push (incentive) from the governments towards the Micro, Small and Medium Enterprises Sector (MSME Sector). Since this sector is largely unorganised and is not as compliant of labour laws as the organised sector probably would be, it is important to provide incentives to the MSME sector to be fair in terms of their employee engagement. This will prompt both MSME sector growth and better conditions for workers.[5]

The race to the bottom in labour standards is a phenomenon that has gained attention –and criticism– in recent years, particularly in the context of globalisation and the increasing importance of global supply chains. While the concept of lowering labour standards to attract foreign investment may seem appealing at first, it can lead to a number of negative consequences for developing countries. Therefore, alternative measures to attract investments should be adopted rather than racing to the bottom.

(The author is a legal researcher with the organisation)