“Mr Modi and the working poor” by Alessandra Mezzadri

By Heewon Kim|March 24, 2015|Development, General, India|0 comments

One thing should be said: the Modi government can hardly be accused of idleness. Since his coming to power last year, Mr. Modi has promised systemic changes to ameliorate the lives of India’s working poor. Not an easy task, considering that India’s informal labour accounts for 86% of total employment in non-agricultural activities and 93% if one considers all economic activities instead (NCEUS, 2008).

One of the first systemic changes proposed was a ‘financial revolution’. Immediately after it was elected, the new government announced a scheme rolling over bank accounts for over 1.2 billion people, to ‘include’ the working poor in formal credit markets. By the end of 2014, it was the turn of labour reforms. To cut a long story short, the plan is to revolutionize labour markets through changes in labour laws, the abolition of the ‘inspection Raj’ system companies are ‘subject’ to, and the introduction of the portability of social contributions. Altogether, according to Modi, through these labour reforms, ‘Shramev Jayate’ (labour triumphs). Does it, really?

Let’s first look at the key recipe for labour laws. Rather unsurprisingly, for a government that is getting the high five from the World Bank, the government is planning to introduce hire and fire practices, so longed for by Indian industrialists. In some states, this move has already been smoothened by the amendment of the Contract Labour Act. With contract labour in a number of core activities becoming a legal practice, companies will see their responsibility towards workers considerably diminished. Effectively, this obsession with laws allowing the hire and fire of workers could be seen as somewhat paradoxical, as labour in India is mainly temporary or casual. However, there is no paradox here. Mr. Modi is leading India to the institutionalisation of its ‘informality-based labour regime’. Simply put, a process of labour informalisation has always been de-facto at work in India; now it will also work de-iure. It is hard to see how this policy can benefit the working poor. In India, working poverty was never due to ‘rigidities’ in the labour market, as India’s labour laws were not implemented in the first place. Hence, arguments suggesting that the institutionalisation of the status quo will produce something different from the status quo seem disingenuous at best.

Moving on to the ‘inspector Raj’, its dismantling is justified on the ground of legalist understanding of informality, stressing bureaucracy and corruption. Firstly, it is needed to reduce the enormous and unjustified amount of paperwork companies are faced with, which may push them ‘underground’ to engage in illegal or semi-legal practices. Secondly, it is also needed to boost transparency. For too long, the argument goes, the system has been highjacked by greedy local bureaucrats harassing companies in exchange of bribes. Under these circumstances, companies cannot but voluntarily ‘choose’ informality to escape the heavy (and corrupted) hand of the state. While one can easily accept the weakness of the factory inspection system, representing companies as the main victims of this system is hugely inaccurate. In fact, many companies have also greatly benefited from this system, as it allowed them to continue eschewing responsibilities towards their workforce. In fact, it is this workforce who has been wronged by the ‘inspection Raj’, and not the companies. However, to an extent the Modi government is right. With hire and fire practices now legal, there is hardly any need for inspectors to guarantee the circumvention of labour laws.

The third measure proposed by the Modi government is the introduction of the portability of social contributions. In a context where labour informalisation increasingly gains ground in formal domains and labour ‘attrition rates’ (i.e. rates of labour turnover) are astonishingly high across many sectors, social contributions have long gone wasted, due to their lack of portability. Focusing on the Provident Fund scheme, whose members are over 80 million, transfers of social contributions are so difficult that the Government has estimated that over 4 billion US$ lie idle in state’s accounts. The introduction of universal accounts numbers should enable Mr Modi to ‘return the money to the poor’.

If demolishing the pro-labour pathos of the first two measures is far too easy, this third one can hardly be easily criticized. The sheer waste in social contributions funds – where have they gone is in fact the million dollars’ question – should have been stopped ages ago. Effectively, this is the most revolutionary measure proposed. There is little doubt that this could greatly benefit the working poor. However, one should also note that the net effect and rationale of the new policy should only be addressed in the context of the broader contours of what is happening to social security and public spending in India in general. With cuts planned in a number of key areas ranging from health to education and funding to a number of key social programmes also slashed – see for instance the death by stealth of the National Rural Employment Guarantee Act (NREGA) – this move to ‘empower’ the poor by finally facilitating access to social entitlements risks to become a sort of Pyrrhic victory. It can become the Trojan hoarse to justify a far larger combo of policies aimed at neoliberal self-regulation, in the context of which the working poor will maybe get some dues in terms of social entitlements, only to realize how little far these can go in filling the gap left by the withdrawal of the state for its most vulnerable citizens. None of this really tastes of labour triumph, really. In fact, quite the opposite, it looks like deploying pro-labour rhetoric to institutionalize labour’s umpteenth defeat to capital. 

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