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Their implementation is expected to create investment owing to improving ease of doing business as well as initiating pro-worker measures.
The long-awaited introduction of four labour codes, originally scheduled to happen at the beginning of the current fiscal year, may take at least three more months because all states have not framed rules on them. Officials said the introduction could drag at least until the end of June.
Their implementation is expected to create investment owing to improving ease of doing business as well as initiating pro-worker measures.
“Labour is on the Concurrent List of the Constitution. As many as 23 states have framed rules on the codes. Seven states are left,” a key government source said.
The Concurrent List is the one with items on which the Centre and the states can enact laws. However, in the case of a conflict between Central legislation and a state law, the former prevails.
In the case of the labour codes, apart from the states, the Centre too is required to frame rules. The government wants to introduce all four labour codes -- the code on wages; on industrial relations; on occupational safety, health and working conditions (OSH); and on social security -- at one go. Experts said while quick implementation would draw in investors, a few months’ delay would not scare them away, either.
Madan Sabnavis, chief economist at Bank of Baroda, said: “Problems of labour were well known even in the past. Expediting the labour codes will hasten investor interests. A temporary delay in their introduction to my mind should not create any problem.”
After taking a severe beating during Covid-affected 2020-21, gross fixed capital formation (GFCF), which denotes investment, is projected to grow 14.5 per cent in the current fiscal year. However, when seen on the base year of 2019-20, at the end of which the pandemic arrived, growth would be just 2.54 per cent. GFCF contracted 10.40 per cent during 2020-21.
The Union ministry of labour and employment has been holding consultations with states and India Inc on the codes. Among the four, the most controversial is the one on wages. One of its provisions says if all payments other than wages (basic and dearness allowance) exceed 50 per cent (of the total) or such other percentage as may be notified by the government, then the excess will be included in wages. This means wages will need to be at least 50 per cent of the remuneration of the employee.
As a general industry-wide practice, wages do not constitute 50 per cent of the remuneration. They are in the range 30-35 per cent because remuneration is increasingly based on performance incentives, bonuses, and other allowances.
In a recent meeting, the Confederation of Indian Industry (CII) expressed the fear that the definition will lead to a sudden increase in the wages on a cost-to-company (CTC) basis.
Given the current financial stress, many employers may be forced to pass on some impact of it to employees in the form of reduced cash in hand in spite of an increase in overall wages on a CTC basis.
“This would mean less disposable income in the hands of the workforce, impacting consumption demand. Given the industries are still trying to recover from the impact of Covid, the additional financial impact will only be adding to their financial woes,” the CII said.
