📰 Major stimulus package for MSMEs
TDS, TCS rates cut by 25% for next year; PF payments reduced from 12% to 10% for three months
•Union Finance Minister Nirmala Sitharaman on Wednesday announced a Rs. 3 lakh crore collateral free loan scheme for businesses, especially micro, small and medium enterprises (MSMEs), as part of a Rs. 20 lakh crore economic stimulus package to deal with the COVID-19 pandemic.
•For salaried workers and taxpayers, some relief was provided in the form of an extended deadline for income tax returns for financial year 2019-20, with the due date now pushed to November 30, 2020. The rates of tax deduction at source (TDS) and tax collection at source (TCS) have been cut by 25% for the next year, while statutory provident fund (PF) payments have been reduced from 12% to 10% for both employers and employees for the next three months.
NBFCs get attention
•Apart from MSMEs, other stressed business sectors which got attention were non-banking finance companies (NBFCs), power distribution companies, contractors and the real estate industry.
•This is the first tranche of the Atmanirbhar Bharat Abhiyan announced by Prime Minister Narendra Modi on Tuesday as a Rs. 20 lakh crore economic package. That package includes the ongoing Pradhan Mantri Garib Kalyan Yojana, meant to support the poorest and most vulnerable communities during the pandemic, as well as several measures taken by the Reserve Bank of India to improve liquidity. More tranches are expected in the next few days.
•Ms. Sitharaman side-stepped queries on the actual cash outgo for the government, as well as how the Centre intends to raise the needed funds.
•Ernst and Young’s chief policy advisor D.K. Srivastava estimated that the measures announced on Wednesday amounted to Rs. 5.94 lakh crore, which include both liquidity financing measures and credit guarantees, although the direct fiscal cost to the government in the current financial year may only be Rs. 16,500 crore.
•MSMEs will get the bulk of the funding. The Rs. 3 lakh crore emergency credit line will ensure that 45 lakh units will have access to working capital to resume business activity and safeguard jobs, Ms. Sitharaman said. For two lakh MSMEs which are stressed or considered non-performing assets, the Centre will facilitate provision of Rs. 20,000 crore as subordinate debt. A Rs. 50,000 crore equity infusion is also planned, through an MSME fund of funds with a corpus of Rs. 10,000 crore.
•The definition of an MSME is being expanded to allow for higher investment limits and the introduction of turnover-based criteria. In a bid to fulfil the Prime Minister’s vision of a self-reliant or “atmanirbhar” India, global tenders will not be allowed for government procurement up to Rs. 200 crore.
•NBFCs, housing finance companies and microfinance institutions — many of which serve the MSME sector — will be supported through a Rs. 30,000 crore investment scheme fully guaranteed by the Centre, and an expanded partial credit guarantee scheme worth Rs. 45,000 crore, of which the first 20% of losses will be borne by the Centre.
Won’t surrender the Kalapani region, he said at an all-party meeting in Kathmandu
•Nepal’s Prime Minister K.P. Sharma Oli on Wednesday proposed a solution to the ongoing border tension saying that Nepal can allow India to use the link road to the Lipulekh Pass as part of an agreement, but will not surrender the Kalapani territory on which India has been carrying out construction.
•Addressing an all-party meeting in Kathmandu, Prime Minister Oli said that he was against India’s unilateral actions in the region but agreed that a solution can be found that will preserve Nepal’s territorial integrity and sovereignty. His observations came on a day when Nepal deployed a contingent of soldiers in the westernmost part of the country near its border with India.
•“The government will save the land that was added to Nepal by our ancestors. PM urged the leaders not to make their positions based on things that have come from outside,” Foreign Minister Pradeep Gyawali was quoted as saying in online publication Setopati.
‘Diplomatic solution’
•Wednesday’s meetings were attended by a large number of political parties, and also several former Prime Ministers. Mr. Gyawali said that the leaders sought a diplomatic solution to the crisis that involves the territory of Kalapani that India depicts as a part of the easternmost region of the State of Uttarakhand. A similar meeting was also held earlier after India depicted the contested region as its territory in a new set of political maps published in November 2019.
•Nepal expressed regret after Defence Minister Rajnath Singh inaugurated the link road that will cut travelling time to the Tibetan plateau and the Kailash Mansarovar. Kathmandu maintains that the territories to the east of Mahakali river are a part of its domain, as agreed in the Treaty of Sugauli of 1816 between the East India Company and the King of Nepal.
📰 Vocal about local, but no snub to globalisation
There are at least four discernible strands in Prime Minister Modi’s speech of Tuesday
•Prime Minister Narendra Modi’s speech on May 12 sought to outline his vision for India in a post-coronavirus world order. It was a reiteration of his worldview and his faith in India’s Manifest Destiny, seeking validation in the crisis of the old order.
•Mr. Modi’s pro-market supporters and his Left critics both understood him as an ally of global capitalism in 2014. Stephen Bannon, the ideologue of the Trump uprising in the U.S., termed Mr. Modi’s politics as anti-globalism — a point that he reiterated in a recent interview to an Indian channel. There are at least four discernible strands in Mr. Modi’s speech.
•First, import substitution, an objective that drove nationalist economic policies in the 20th century, is back. Profit-driven globalisation had brought to the fore multiple insecurities of countries already when the pandemic struck, and it multiplied these fears manifold overnight. The biggest superpower’s struggles with procuring enough masks and paracetamol, for instance, has exposed its vulnerabilities. Self-reliance is suddenly not a bad idea again. Mr. Modi’s policies had already reflected this thinking earlier, but the new context has given him the courage to be “vocal about local”. In a crisis, only the local capacities can be useful.
•Second, this is not a rejection of globalisation, but a call for a new form of globalisation. Mr. Modi said, from profit-driven to people-centric. He believes that India is the repository of such a wisdom, it’s the “Vishwa Guru”, teacher of the world. “The global brands of today were sometimes also very local like this….they became global from (being) local.” He elaborated further on India-led globalisation — on climate, on being helpful to other countries by offering them supplies in a time of crisis, led by the principle of “Vasudhaiva Kutumbakam”.
•Third, the manner in which he brought China into the picture, without naming it. India’s self-reliance can only be at the cost of China. The current crisis could work to China’s advantage further if it is business as usual. His speech obliquely questioned the Chinese grip over global supply chains, and was an invitation to western partners such as the U.S. for closer partnerships. Whether he could continue with his hyper-nationalist policies while actively being allied with the West is an open question.
•Fourth, his notion of reforms for self-reliance, not for globalisation. The word reform is an ambiguous one but widely used as a code for pro-capital measures. In 2016, in his keynote speech at 41st AGM of U.S. India Business Council (USIBC), in Washington DC, he explained his views on “reforms”. “I have said several times that my aim is to reform to transform. For me, reforms are those policies that transform the lives of ordinary citizens. In the last two years, we have taken a comprehensive package of reforms which go beyond mere economic reforms,” he said, adding that “policies to ensure that growth benefits the poor and the weaker sections” and “a frontal attack on corruption”, were reforms. On the same lines, on Tuesday, he counted as a reform, the government’s ability to make cash payments to the poorest. “Bold reforms to create a self-reliant India,” he said, will now be “broadened, giving a new height”. His list of reforms overlaps substantially with the demands of owners of capital — rational tax system, simple and clear rules-of-law, good infrastructure, etc. But the slant clearly is state support for the national capitalists. Read with the emphasis on local companies going global, it becomes clearer. Trade liberalisation is unlikely; in fact, there could be more protectionist measures.
•Additionally, his speech narrows the gap between the government and the rest of the Sangh Parivar. “Small scale industries, farmers and labourers are the three pillars of the Indian economy. The emphasis of the PM’s speech was on these three,” said Saji Narayanan, president of the Rashtriya Swayamsevak Sangh affiliated Bharatiya Mazdoor Sangh (BMS). The BMS has been scathingly critical of the changes in labour laws made by the Bharatiya Janata Party governments in Madhya Pradesh and Uttar Pradesh in recent days, but Mr. Narayanan does not expect anything similar coming from the Centre. “There are still advisors within the government who have different views, and we will wait for the details in new announcements. But the political vision in the PM’s speech is very encouraging,” he said. The Swadeshi segments within the Parivar are buoyant.
•But this is not an easy act to pull off. India has severe limitations in capital, technology and human resources. Balancing the interests of capital and labour is not easy. But as a political statement, this could not have been clearer or stronger, though his vocal, free-market interpreters are unlikely to make Mr. Modi’s case this time.
📰 Rs. 3,100 crore from PM CARES allocated for COVID-19 relief
Money to be used for ventilators, migrants, vaccine R&D
•The Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund, better known as PM CARES, will allocate Rs. 3,100 crore to COVID-19 relief, including funds for ventilators, migrant workers and vaccine development, according to an official statement from the Prime Minister’s Office on Wednesday evening.
•The announcement comes one-and-a-half months after the Fund was set up on March 27. There is no indication in the statement or on the PM CARES website how much money the Fund has collected from donors in that time.
50,000 ventilators
•In order to augment the health infrastructure needed to tackle the pandemic, the PM CARES Fund Trust has decided to spend Rs. 2,000 crore to buy 50,000 Indian-made ventilators, which will be provided to government-run hospitals designated for COVID-19 treatment in all the States and Union Territories, said the statement.
Rs. 1,000 cr. for migrants
•Another Rs. 1,000 crore will be used to support the States’ welfare measures for migrant workers, and will help provide accommodation, food, medical treatment and transport. State-wise allocations will be determined on the basis of population (50% weightage), the number of positive COVID-19 cases (40% weightage) and a 10% share split equally to ensure a basic minimum sum for all States. The money will be released to the district administration through the State Disaster Relief Commissioners, said the statement.
•PM CARES will give Rs. 100 crore to support those in the Indian academia, start-ups and industry who are working on designing and developing a vaccine against COVID-19. The money will be spent under the supervision of the Principal Scientific Adviser.
•The PM CARES Fund Trust, which decided these allocations, is headed by Prime Minister Narendra Modi in his official capacity.
📰 Full guarantee may push banks to lend
Non-banking financial institutions expect an increase in banks’ appetite for lower rated papers
•Risk-averse banks may now have the appetite to resume lending operations, with the government deciding to provide full guarantee for the loans extended by them to borrowers to kick start the economy paralysed by the COVID-19 lockdown.
•Finance Minister Nirmala Sitharaman announced a Rs. 3 lakh crore emergency working capital facility for businesses, including micro, small and medium enterprises, as part of the Rs. 20 lakh crore financial package announced by Prime Minister Narendra Modi on Tuesday.
•This 100% credit guarantee will mean that banks do not have to make any provision for the loans, that is, they do not have to set aside capital in case the account turns non-performing.
•Bankers said they will wait for operating guidelines from the Reserve Bank of India (RBI) to understand whether the government will directly provide the guarantee or via agencies like the SIDBI. In case the government is directly providing the guarantee, there will be no risk weight attached to the loans. “The measures for MSMEs through guarantees, equity infusion and debt support will incentivise bank lending to MSMEs as well as providing crucial support to stressed entities in the current situation,” SBI Chairman Rajnish Kumar said.
•On banks’ reluctance to lend, which is evident from over Rs. 8 lakh crore being parked by these lenders with the RBI’s reverse repo window, Ms. Sitharaman said a lot of borrowers were not fully drawing up to the sanctioned loan limits due to the lockdown. As a result, banks have no other option but to keep the funds with the RBI.
Liquidity for NBFCs
•With the government announcing a Rs. 30,000-crore special liquidity scheme for NBFCs, which will be provided by the banks, the non-banking finance companies now expect bank funding to start. While announcing the scheme, the government said investment would be made in primary and secondary market transactions in investment grade debt paper of NBFCs, HFCs and MFIs. Such investments will be 100% guaranteed by the government.NBFCs expect that banks will now be more willing to tap the RBI’s special window for liquidity exclusively meant for them. Banks were reluctant to borrow in the first such auction — only about 50% amount was availed by them out of the notified amount of Rs. 25,000 crore. “Under the full and partial guarantee scheme, we expect a boost to liquidity into the NBFC ecosystem which, in turn, would help MSMEs to resume their operations,” said Umesh Revankar, MD and CEO, Shriram Transport Finance.
•NBFCs also expect partial credit guarantee scheme will boost banks’ confidence to lend. The scheme will cover the borrowings of lower-rated NBFCs, HFCs and micro finance institutions (MFIs) and the government will provide 20% first loss sovereign guarantee to public sector banks. “The special liquidity support to lower-rated NBFCs will mean banks do not have to take credit risk and NBFC papers are likely to be lapped up,” said Sanjay Chamria, VC & MD, Magma Fincorp.
📰 Liquidity lifeline
The Finance Minister did well to try and break the confidence logjam in the credit market
•From an overall perspective, the first tranche of announcements made by Finance Minister Nirmala Sitharaman under the Atmanirbhar Bharat Abhiyan on Wednesday is impressive indeed. There are, and will be, many issues in the details but taken as a whole, the measures announced will go a long way in lifting the spirits of the two key and troubled sectors of MSMEs and non-banking finance companies. While for the former it is an existential crisis, for the latter it is one of liquidity. The massive Rs. 3-lakh crore collateral-free assistance handed out to MSMEs will help them crank up their operations. Ms. Sitharaman has done well in extending a sovereign credit guarantee for the complete amount as banks may otherwise have been reluctant to support troubled borrowers. The government could have specified the interest cap on these loans without leaving it to individual lenders as each of them has its own rate structure. Again, the scheme could have been extended until the end of this financial year instead of until October 31. India is now entering the monsoon season when activity is traditionally dull, so it is not clear how many borrowers will get the benefit. The Rs. 20,000 crore partially guaranteed subordinated debt programme and the Rs. 50,000 crore fund of funds scheme will help boost the equity portion on MSME finances but again, the finer details need to be clear.
•NBFCs, housing finance firms and micro finance entities get a much required liquidity boost in the form of a Rs. 30,000 crore scheme wherein their debt paper will be fully guaranteed by the government. With this, and the partial credit guarantee scheme of Rs. 45,000 crore, the government has broken the logjam wherein banks were unwilling to extend credit despite the RBI’s strong push. This should largely attenuate the liquidity crisis in the non-banking space for now. The Minister has also done well in addressing the liquidity issues of power distribution companies through a Rs. 90,000 crore infusion that will be securitised on their receivables and backed by a State government guarantee. Wednesday’s announcements are focused on the liquidity part of the crisis. While the headline numbers appear big, the reality is that the government will be called upon to bear the liability only if the economic situation becomes hopeless; it may not come to that. What the announcements do is to break the confidence logjam in the credit market and give the assurance to lenders and borrowers that the government is willing to backstop their commitments. This is the signal that MSMEs and their lenders needed as liquidity was always there but only for the most credit worthy of borrowers. Here, the government has played its role to perfection.
📰 A plan to revive a broken economy
There are clear, implementable steps the Centre can take in fiscal terms to revive the economy and support livelihoods
•The Prime Minister has just announced Lockdown 4.0. Despite some resulting increase in economic activity, vast numbers of working people will remain without their regular incomes. He also announced a package of Rs. 20-lakh crore, but this includes already allocated money of Rs. 6-lakh crore and monetary policy directives to banks and non-banking financial companies. The announcements by the Finance Minister thus far involve no additional public spending, even though this is urgently required to revive the economy and prevent further contraction. Here we discuss what the government should do immediately in fiscal terms for reviving the economy and supporting livelihoods.
Food and cash transfers first
•The immediate need is to provide free food and cash transfers to those rendered incomeless. Providing every household with Rs. 7,000 per month for a period of three months and every individual with 10 kg of free foodgrains per month for a period of six months is likely to cost around 3% of our GDP (assuming 20% voluntary dropout). This could be financed immediately through larger borrowing by the Centre from the Reserve Bank of India. The required cash and food have to be handed over to State governments to make the actual transfers, along with outstanding Goods and Services Tax compensation.
•This is easily doable for several reasons. First, foodgrains are plentiful, as the Food Corporation of India had 77 million tonnes, and rabi procurement could add 40 million tonnes. Second, because of the lockdown restrictions, the multiplier rounds of such expenditure are heavily truncated at present and would not generate as much demand as in normal times. Third, cash transfers in many spheres will only enable current demand to continue (such as payment of house rent to continue occupancy) and not create any fresh demand. Fourth, when greater normalcy finally allows pent-up demand to surface, output could also expand because of resumed economic activity. Finally, putting money in the hands of the poor is the best stimulus to economic revival, as it creates effective demand and in local markets. Hence, an immediate programme of food and cash transfers must command the highest priority.
Revamp MGNREGA work
•But the post-lockdown world will be different for several reasons. First, millions of migrant workers have endured immense hardships to trudge back home, and are unlikely to return to towns in the foreseeable future. Employment has to be provided to them where they are, for which the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) must be expanded greatly and revamped with wage arrears paid immediately. The 100-day limit per household has to go; work has to be provided on demand without any limit to all adults. And permissible work must include not just agricultural and construction work, but work in rural enterprises and in care activities too.
•The revamped MGNREGS could cover wage bills of rural enterprises started by panchayats, along with those of existing rural enterprises, until they can stand on their own feet. This can be an alternative strategy of development, recalling the successful experience of China’s Township and Village Enterprises (TVEs). Public banks could provide credit to such panchayat-owned enterprises and also assume a nurturing role vis-à-vis them.
•The second change is the palpable unsustainability of the earlier globalisation, which means that growth in India in the coming days will have to be sustained by the home market. Since the most important determinant of growth of the home market is agricultural growth, this must be urgently boosted.
•The MGNREGS can be used for this, paying wages for land development and farm work for small and medium farmers; apart from government support through remunerative procurement prices, subsidised institutional credit, other input subsidies, and redistribution of unused land with plantations. Agricultural growth in turn can promote rural enterprises, both by creating a demand for their products and by providing inputs for them to process; and both these activities would generate substantial rural employment.
The urban focus
•In urban areas, it is absolutely essential to revive the Micro, Small and Medium Enterprises (MSMEs). Simultaneously, the vast numbers of workers who have stayed on in towns have to be provided with employment and income after our proposed cash transfers run out. The best way to overcome both problems would be to introduce an Urban Employment Guarantee Programme, to serve diverse groups of the urban unemployed, including the educated unemployed. Urban local bodies must take charge of this programme, and would need to be revamped for this purpose.
•“Permissible” work under this programme should include, for the present, work in the MSMEs. This would ensure labour supply for the MSMEs and also cover their wage bills at the central government’s expense until they re-acquire robustness. It should imaginatively also include care work, including of old, disabled and ailing persons, educational activities, and ensuring public services in slums.
•These measures are in direct contrast to those that seek to entice private investors by easing labour laws. The humanitarian crisis of the lockdown reveals the imperative for more, not less labour protection. Such measures, far from reviving investment or employment, would also further reduce domestic demand.
The ‘care’ economy
•The pandemic has underscored the extreme importance of a public health-care system, and the folly of privatisation of essential services. The post-pandemic period must see significant increases in public expenditure on education and health, especially primary and secondary health including for the urban and rural poor.
•The “care economy” provides immense scope for increasing employment. Vacancies in public employment, especially in such activities, must be immediately filled. Anganwadi and Accredited Social Health Activists/workers who provide essential services to the population, including during this pandemic, are paid a pittance and treated with extreme unfairness. We must improve their status, treat them as regular government employees and give them proper remuneration and associated benefits, and greatly expand their coverage in settlements of the urban poor.
•These could easily come within the total package announced by the Prime Minister, which could be financed by printing money. But in the medium term, public revenues must be increased. This is not because there is a shortage of real resources which, therefore, has to taken from other existing uses through taxation. Rather, since much unutilised capacity exists in the economy, the shortage is not of real resources; the government has to just get command over them.
•A combination of wealth and inheritance taxation and getting multinational companies to pay the same effective rate as local companies through a system of unitary taxation will garner substantial public revenue. They will also reduce wealth and income inequalities which have become horrendous. A 2% wealth tax on the top 1% of the population, together with a 33% inheritance tax on the wealth they bequeath every year to their progeny, could finance an increase in government expenditure to the tune of 10% of GDP.
•It would be argued that this might cause large financial outflows, which the country can ill-afford. Contrarily, even foreign capital is more likely to be attracted to a growing economy than one in sharp decline because of lack of stimulus. Also, a fresh issue of special drawing rights by the International Monetary Fund (which India has surprisingly opposed along with the United States) would provide additional external resources.
•These additional resources, we estimate, would suffice to finance the institution of five universal, justiciable, fundamental economic rights: the right to food, the right to employment, the right to free public health care, the right to free public education and the right to a living old-age pension and disability benefits. The broken economy must be rebuilt in ways to ensure a life of dignity to the most disadvantaged citizen.
📰 Provide income support, restore jobs
On the contrary, scrapping labour laws will only reduce wages, lower earnings and reduce consumer demand
•Following the adage, “never waste a crisis”, the government of Uttar Pradesh, last week, introduced an ordinance that has scrapped most labour laws for three years — ostensibly for creating jobs and for attracting factories exiting China following the outbreak of the novel coronavirus. These laws deal with the occupational safety, health and working conditions of workers, regulation of hours of work, wages and settlement of industrial disputes. They apply mostly to the economy’s organised (formal) sector, that is, registered factories and companies, and large establishments in general. Madhya Pradesh and Gujarat have quickly followed suit. Reportedly, Punjab has already allowed 12-hour shifts per day (72 hours per week) in factories without overtime payment to overcome worker shortage after the migrants have left in the wake of the national lockdown.
Shock point
•Snatching away labour rights in the midst of a global pandemic and national lockdown is distressing and shocking. Over the course of the last seven weeks, we have witnessed unheard of human distress as lakhs of migrant workers continue to desperately trudge to their villages after losing their jobs, livelihoods, and toeholds in cities. Despite overflowing food grain stocks, governments have been miserly in providing adequate food security. Income support to workers to retain them in their places of work has also been lacking. Significantly, migrant labour will be critical to restore production once the lockdown is lifted. In fact, factories and shops are already staring at worker shortages. Instead of encouraging workers to stay back or return to cities by ensuring livelihood support and safety nets, State governments have sought to strip workers of their fundamental rights.
•Employers’ associations have urged the central government to do away with most labour rights to address temporary labour shortages. Trade union leaders from the Bharatiya Mazdoor Sangh to the Centre of Indian Trade Unions, and Opposition leaders in Uttar Pradesh have condemned the ordinance. It will face a challenge in courts, legal experts say.
•The abrogation of labour laws raises many constitutional and political questions. But will it expand employment and output growth, as claimed by its proponents? Such a step, by popular belief, will reduce wage costs, increase profits and augment productive investment and growth. Improved supply is expected to create demand (following Say’s Law in economics). Such (simplistic) reasoning assumes that labour laws are the binding constraints on expanding output.
•Surely, the lockdown has disrupted supply, but only temporarily. There are no inherent shortages at the moment as the inflation rate remains moderate. Agricultural produce is rotting in farms for lack of transport. Industrial production is held up as migrant workers have fled for their lives.
•Before the lockdown, annual GDP growth rate had plummeted to 4.7% during October-December quarter of 2019-20, from 8.3% in the full year of 2016-17. The slowdown is due to lack of demand, not of supply, as widely suggested. With massive job and income losses after the lockdown, aggregate demand has totally slumped, with practically no growth. Therefore, the way to restart the economy is to provide income support and restore jobs. This will not only address the humanitarian crisis but also help revive consumer demand by augmenting incomes. Scrapping labour laws to save on labour costs will do just the opposite: it will reduce wages, lower earnings (particularly of low wage workers) and reduce consumer demand. Further, it will lead to an increase of low paid work that offers no security of tenure or income stability.
•The rationale for scrapping labour laws to attract investment and boost manufacturing growth poses two additional questions. One, if the laws were in fact so strongly pro-worker, they would have raised wages and reduced business profitability. But the real wage growth (net of inflation) of directly employed workers in the factory sector has been flat (2000-01 to 2015-16) as firms have increasingly resorted to casualisation and informalisation of the workforce to suppress workers’ bargaining power, evidence suggests. Two, is it right to blame the disappointing industrial performance mainly on labour market regulations? Industrial performance is not just a function of the labour laws but of the size of the market, fixed investment growth, credit availability, infrastructure, and government policies. In fact there is little evidence to suggest that amendment of key labour laws by Rajasthan and Madhya Pradesh in 2014 took them any closer to their goal of creating more jobs or industrial growth. The role of labour market regulations may be more modest than the strong views expressed against them in the popular debates.
Rationalise labour laws
•Surely, India’s complex web of labour laws, with around 47 central laws and 200 State laws, need rationalisation. However, now more than ever before, reforms need to maintain a delicate balance between the need for firms to adapt to ever-changing market conditions and workers’ employment security. Depriving workers of fundamental rights such as freedom of association and the right to collective bargaining, and a set of primary working conditions (such as adequate living wages, limits on hours of work and safe and healthy workplaces), will create a fertile ground for the exploitation of the working class.
•Presently, over 90% of India’s workforce is in informal jobs, with no regulations for decent conditions of work, no provision for social security and no protection against any contingencies and arbitrary actions of employers. Abrogation of labour laws, as proposed by the Uttar Pradesh government, will free more employers from the obligations they currently hold for ensuring the job security, health, and social protection of their workers. It will increase informal employment in the formal sector instead of encouraging the growth of formal work.
•As India battles the economic and social consequence of the COVID-19 pandemic, many State governments have seized the opportunity to scrap labour laws on the pretext of encouraging employment. Such a decision makes little economic sense currently, as it will reduce share of wages in output, thereby reducing growth in domestic demand and hurting output expansion. Significantly, exports cannot be an option for now as the global economy is staring at the possibility worse than the Great Depression. Hence, the Uttar Pradesh government’s move will only result in a race to the bottom on workers’ pay and labour standards, making workers worse off, without creating additional jobs, as it is a lack of demand that is currently holding up output growth. The Uttar Pradesh ordinance needs to be revoked, lock, stock, and barrel.
