Making Sense of State-Level Labor Law Changes
Plus, Nepal's objections to India's "Link Road" through Lipulekh Pass.
Hi there, I’m Aman Thakker. Welcome to Indialogue, a newsletter analyzing the biggest policy developments in India. The aim of this newsletter is to provide you with quality analysis every week on what’s going on in India.
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Uttar Pradesh, Madhya Pradesh, and Gujarat Roll Back Labor Laws
Three state government in India have announced that they would limit the applicability of labor laws in their states in an attempt aimed at boosting economic productivity after India’s lockdown ends.
Somesh Jha of Business Standard reported on the draft ordinance by the Uttar Pradesh government, which has not been made public yet. However, it states that “all factories and establishments engaged in manufacturing process shall be exempt from the operation of all labour laws for 3 years.” The only laws that will continue to apply are, laws mandating minimum wages, as well as specific health and safety regulations under The Factories Act, 1948 and The Building and Other Construction Workers Act, 1996.
Gujarat and Madhya Pradesh have taken similar steps, exempting business from all but a handful of India’s labor laws which specifically govern minimum wages and health and safety. Madhya Pradesh has also included provisions to increase shift hours and overtime regulations, as well as steps to suspend factory inspection for 3 months, and going so far as halting inspection entirely for firms with less than 50 employees. While these ordinances have been announced at the state-level, they will need approval from the central government, specifically the President of India, before they go into force. This is because labor falls under the “concurrent” list of jurisdictions — a topic on which both the central and state governments are empowered to make laws.
These moves have evoked equally strong reactions of support and opposition from different corners of society. Key industry associations and business executives have welcomed the moves, celebrating that India has moved forward on these long-pending reforms, which they see as part of the incomplete process of India’s liberalization since 1991. However, others have pointed out these regulations take away key protections for workers, opening the door to exploitation and mistreatment.
However, while it may be easy to see this as a pro-capitalist BJP (UP, MP, and Gujarat are all ruled by BJP-led state governments) vs. socialist opposition parties, it’s not that simple. The labor wing of the Rashtriya Swayamsevak Sangh, the BJP’s ideological parent, has already denounced the move, calling it “a bigger pandemic than coronavirus” and that “[These amendments] will not create more jobs, but will lead to harassment of workers and unemployment.”
Having engaged with the multiple sides of this issue in my professional and academic life, I tend to fall somewhere in the middle. It is no question that India’s labor laws are onerous, and overly complicated. It’s also hard to ignore research that demonstrates how lifting some of these regulations can create jobs (see this World Bank study, which found that “lifting chapter V-B [of the Industrial Disputes Act, 1947] could add about 880,000 registered manufacturing jobs.”)
However, I can’t say that blanket exemptions to labor laws for a period of three years is a “reform.” The way I see it: the free market, left to itself without oversight and regulation, will find the most efficient solution. In such a conception, worker’s rights and protections come in the way of “efficiency.” However, that’s where the role of policy comes in — to move beyond an “efficient solution” to an “optimal solution,” where a balance is struck between between protection of employees, and the ability of business to operate and scale. This is extremely hard to do. I don’t deny that. But reaching that balance is, regardless, the job of policymakers. These current steps, in my opinion, don’t strike that balance.
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India and Nepal Tussle Over Tri-Junction Road
On May 8, India’s Defense Minister Rajnath Singh inaugurated a new 80-km road from Dharchula, Uttarakhand to Lipulekh, at the border with China. The Ministry claimed that the road not only advanced the Prime Minister’s “special vision for the development of remote areas,” but also makes the pilgrimage to Kailash-Manasarovar, a sacred pilgrimage in Hinduism, Buddhism, and Jainism, shorter and easier.
However, Nepal has objected to the building of this road, claiming that the road “passes through Nepali territory.” The Ministry of Foreign Affairs of Nepal, in its statement, outlined specifically that:
The Government of Nepal has consistently maintained that as per the Sugauli Treaty (1816), all the territories east of Kali (Mahakali) River, including Limpiyadhura, Kalapani and Lipu Lekh, belong to Nepal. This was reiterated by the Government of Nepal several times in the past and most recently through a diplomatic note addressed to the Government of India dated 20 November 2019 in response to the new political map issued by the latter.
This unilateral act runs against the understanding reached between the two countries including at the level of Prime Ministers that a solution to boundary issues would be sought through negotiation.
India’s Ministry of External Affairs maintained in response that “the recently inaugurated road section in Pithoragarh district in the State of Uttarakhand lies completely within the territory of India.”
Since these developments, Nepal’s Foreign Minister, Pradeep Gyawali, has said that Nepal will increase its armed presence on the border with India, and that Nepal wants a"fixed boundary" with India. However, since then, reports indicate that both countries are in the process of “scheduling foreign secretary-level talks,” likely to be held after both countries have dealt with the spread of COVID-19.
This development is important for a number of reasons. The Indian view is that Lipulekh is a tri-junction area - where the boundaries of Nepal, India, and China meet. As Indrani Bagchi, the Diplomatic Editor at The Times of India, notes “India has been very wary of keeping tri-juntion points unprotected or unclaimed after the Doklam crisis with China in 2017.” The below map shows the location of Lipulekh (although it’s not the greatest map):
However, India needs to balance these security considerations with its relationship with Nepal, who sees Lipulekh not as a tri-junction, but as its own territory. Furthermore, the development also has broader implications for India’s Neighborhood First strategy, and India’s desire to prioritize relations with its neighbors. Finally, while India’s Neighborhood First policy is independent of Chinese actions, China’s inroads in Nepal remain a factor for India to maintain strong and friendly ties with Nepal.
All of this is to say that we are still in the early stages of seeing where this will go, and that we should continue to watch this space.
In Other News
Prime Minister Modi and Australian Prime Minister Scott Morrison are planning to hold a bilateral “virtual summit” soon. While exact dates are still being worked out, Australia’s High Commissioner-designate to India, Barry O’Farrell, told Dipanjan Roy Chaudhury of The Economic Times that “Our Prime Ministers have agreed to schedule a virtual summit very soon given they will not be able to meet in person.” The two leaders had earlier planned a summit in January, which was cancelled due to the bushfire crisis in Australia.
The Indian Army confirmed that Indian and Chinese troops faced off along the border at Naku La in Sikkim. The confirmation came after reports broke of a similar stand-off in Ladakh, which led to a “physical fight” between Indian and Chinese soldiers. While these types of stand-offs are common as the India-China border remains unresolved and both countries patrol along the border, they do attract media attention. However, in most cases, including the ones last week in Sikkim and Ladakh, local commanders are able to resolve such stand-offs.
Indian security forces in Jammu and Kashmir announced they had killed Riyaz Ahmed Naikoo on May 6, 2019, in a village in the district of Pulwama. Naikoo was a senior leader in Hizbul Mujahideen, a terrorist organization. Following news of his death, violent protests broke out in Pulwama, resulting in the injury of 14 people.
The Ministry of Defence signed a contract for the “Modernization of Air Field Infrastructure” for 37 airfields for the Indian Air Force, Navy, and Coast Guard with TATA Power SED. The contract is worth $158 million (Rs. 1200 crore).
The Ministry of Environment, Forestry, and Climate Change has drafted a discussion note that suggests India ends mandatory coal washing, claiming it does not does not reduce the ash content in coal. The government, as part of its climate change commitments, had made coal washing mandatory for any coal being transported to thermal units further than 500 kms or more from the coal mine in 2014.
The Jammu and Kashmir administration has extended by three months the detention of former Chief Minister of Jammu and Kashmir, Mehbooba Mufti, under the Public Safety Act (PSA). She has been under detention since August 5, 2019. Along with her, the detentions of Ali Mohammd Sagar of National Conference and Sartaj Madani of the People’s Democratic Party of Jammu and Kashmir have also been extended under the PSA.
13 people died and more than 1,000 were left sick after a chemical plant near Vishakhpatnam, Andhra Pradesh, leaked toxic gas to villages in a 5-km radium from RR Venkatapuram village, where the plant was located. The plant was operated by LG Polymers/LG Chem. The Andhra Pradesh government has announced payment of Rs. 1 crore (~$132,000) for each of the deceased. LG chem announced it is “investigating the exact cause of the incident and scope of damage with the authorities, and will announce the findings as we have more concrete information.”
Four to Read
From cogent analysis to potentially big news that you should keep an eye on, here are a few commentaries and other pieces of writing that I found particularly enlightening.
Amb. Shivshankar Menon, former National Security Advisor of India and Distinguished Fellow at Brookings India, argues: “ India’s history makes it clear that it has been most prosperous and successful when most connected to the world. And India’s resource endowment, location, and objectives require it to engage with the world. If India is to transform, it cannot be insular. When it tried autarchic development, it did not work. Look at the record of economic development over the last seven decades. India has done best when most open to the world, after 1991.”
Suhasini Haider, Diplomatic Affairs Editor at The Hindu, interviewed Zalmay Khalilzad, U.S. Special Representative for Afghanistan Reconciliation, in which he said: “I do think engagement between India and all the key players in Afghanistan, not only in terms of the government but also in terms of political forces, society and the Afghan body politic, is appropriate given India’s regional and global position. India is an important force in Afghanistan and it would be appropriate for that [India-Taliban] engagement to take place.”
Dr. Raghuram Rajan, former Chairman of the Reserve Bank of India and currently professor at the University of Chicago, writes about the implications of monetization of the fiscal deficit: “There is no alchemy here, unlike the views of some — so called monetization is neither a game changer in stressed times not a catastrophe. It helps a little at the margin, but does not solve the government’s fiscal problems nor does it lead to runaway inflation. If used in the wrong way, it could however be problematic.”
Lt. Gen. H.S. Panag (retd.), who served as General Officer Commanding-in-Chief (GOC-in-C) of the Northern Command and Central Command of the Indian Army, argues: “It would be prudent for the government to shed the ideological fantasies and face the strategic reality. It must put the ‘hard’ strategy on the back burner until we have created overwhelming technological military superiority. Prime Minister Narendra Modi must use his political acumen to reach out to the alienated people of Kashmir to win their hearts and minds. Elections should be held in Kashmir and the Central government must assist any party that comes to power to focus on the agenda of development.”
Thanks for reading this latest edition of Indialogue. Please let me know if you have any thoughts or feedback by emailing me at aman@amanthakker.com.