Is Contract Labor Under Modi's Administration Undermining the Welfare State?

The Modi Administration's Approach to Employment

The Modi Administration does not seem to prioritize hiring people on regular rolls. Everywhere, there is a tremendous emphasis only on what we call "contract labor." Is this a healthy sign? Can we have millions on contract and allow a very small section to enjoy all the benefits of a regular job? What will happen to the concept of a welfare state if the present conditions are allowed to continue?

Let us not criticize the Modi Administration alone. The contracting out of jobs has become the norm across all governments, including the left ones. Now the increasing trend is to award work on a contract basis; at least the work will be done, or else the job will not be there.

Example of Outsourcing in Government

For instance, until almost the beginning of the 21st century, the transport department used to be in-house and was a constant irritant for the administration. Now, almost all offices have outsourced this activity; the contractor provides the vehicle, the driver, the running expenses, the maintenance, etc., for a defined fixed sum payable after a definite period of time. The system now works, and there are very few problems.

Dear Apadharna Sivakumar,

You have raised a query on contract workers. Your query is not specific to any industry or company as such, but it concerns the welfare of contract workers as a whole. My reply is as follows:

Genesis of Contract Staffing

a) Let us look at the genesis of contract staffing. In Europe and the USA, as wages started rising, it became difficult to keep all the workers on the company's roll. To save costs, low-level service jobs were outsourced. Over time, outsourcing went beyond the borders of the parent country, and jobs started getting outsourced to Asian countries. The outsourcing wave generated millions of jobs in Asian countries, leading to economic upliftment. A classic example is Bangladesh, whose economy thrives on outsourced work.

b) However, businesspersons in a few countries like India realized the importance of outsourcing, and low-level service jobs were outsourced. Whether it really saved their working capital is not known, as I have yet to come across any systematic study on this subject. However, the outsourcing industry started booming as it became easy to hire and fire contract workers.

Management Science Perspective

c) Nevertheless, rather than looking at this issue through the prism of social welfare, let me examine it from a management science point of view. Human resources are an important resource. Far from depreciating, the value of this resource appreciates. It is essential for companies to grow their human resources. Growing human resources does not just mean training or promoting them; it also means showing faith in their capabilities and motivating them. Most big corporations have grown not only because of strategic planning but also because of suggestions from ordinary workers.

Transactional Relationship with Contract Workers

d) The relationship with contract workers is transactional. Companies do not invest in the contract workers for their growth. Since companies keep them on the fringe, there is no commitment from the outsourced workers. While business owners may derive delight from the flexibility to remove contract employees easily, their failure to generate commitment results in unquantifiable losses. Living under the false assumption that they do not lose anything, the losses remain unaccounted for.

The Way Forward

e) What is the way out? When will business owners understand that the disadvantages of outsourcing outweigh the merits? To know this, we may have to wait for one more generation. There is a cycle of economic activities. If there were a cycle of outsourcing, there would be a cycle of insourcing too, though the term "insourcing" is used for convenience.

Impact of COVID-19 Pandemic

f) The fallout of the COVID-19 pandemic was the realization by European countries and the USA of the disadvantages of outsourcing. Due to disruptions in supply chain and business activities, the realization of self-reliance or dependence on home-grown activities has dawned, albeit arising from external factors rather than internal ones.

Modi Government's Economic Policies

g) Now let me address the Modi government's attitude towards business. Whether to make economic policies "business-friendly" or "businessman-friendly" is a difficult choice for a political leader. The former may improve common citizens' well-being but may not guarantee sustained political power. In contrast, the latter is always beneficial as alignment with businesspersons aids in receiving a continuous flow of political funds. A news report titled "At Rs 1,450 cr, BJP got 61% funding via Electoral Bonds before LS polls" speaks volumes, requiring no further explanation.

Thanks,

Dinesh Divekar

I don't agree that the Modi government is pro-contract labor. If you go through the new labor codes, it clearly defines core activities and excludes contract labor from core activities. Therefore, you cannot employ millions of contract laborers under the labor code proposed by the Modi government. The old Contract Labor Act passed by the socialist Congress government did not protect the interests of the workers.

Thank you.

Yes, it is a fallout of the gig economy. It has come to stay. The concept of permanent employment will go for a toss, and contract workers/fixed-term contracts will dominate the scene.

Regards,
Vinayak Nagarkar
HR and Employee Relations Consultant

I think a worker on a contract has been misunderstood as contract labor. The author had apprehensions about employment for a certain period or Fixed-Term Contract.

Fixed-Term Contracts and Employment

By including Fixed-Term Contracts as a group of employees by the central government, permission has been given to employ people for a certain period in jobs of a permanent nature. Now, most employers have stopped offering jobs on regular rolls but are offering one-year employment. State Bank of India, which used to appoint thousands of clerks every year, has stopped employing clerks but will appoint only Apprentices for certain periods, i.e., three years. Even if the job is of a permanent nature, everybody is employing on a fixed-term contract basis only. It is true that at the end of the fixed term, when an employee's contract is not renewed, they should be paid gratuity. Who is bothered about 15 days' pay? The employer? Or the employee on a Fixed-Term Contract? For an employer, it is not the 15 days' gratuity that is going to make his nights sleepless, but he will be happy to pay it if he can terminate an employee. For an employee, what is required is permanency in employment. If he goes to a bank and asks for a loan, will he get it if he is on employment for a fixed term? No, he will not. Even in the marriage market, his rating will become POOR when he is on a contract for a certain period. This will invariably reduce his productivity as well.

Government Policies and Labor Codes

I think what Apadharna-Sivakumar has said is true. The government has been pro-employer over the last few years. The Codes on labor are not really attractive for the workers but are beneficial to employers only.

KK has said that "The contracting out jobs has become the norm across all governments, including the left ones." Which Left Government has supported the contract work? Only Kerala has left in power. There is no such situation. The Contract Labor Act has been an Act that remains on paper in many states but not in Kerala. There is a system of regulating employing people through contractors. But in states like Gujarat, you can see people being engaged in core activities completely rejecting what is written in the CLRA or the new Labor Codes (yet to be implemented).

Contract Workers and the New Codes

Now coming to Aswat1302, I would say that though workers engaged through a contractor have been given a definition under the new Codes, there has been no measure to identify their number in terms of permanent workmen. The interesting thing is that they will come out of the definition of a contract worker once they get annual increments. It would have been better if the government had maintained the old Act (like other Labor Laws) and enforced it properly through administrative measures.

Impact on Workforce and HR's Role

This is not at all a healthy sign. With the Union Government's decision to have apprentices, employees on FTC, and workers through contractors, the very purpose of a welfare state has been defeated. You are creating a workforce that is totally discontent due to insecurity and a bad social status. If you want to make it healthy, you HR Managers should first of all raise and object to the management decisions rather than keeping quiet and experimenting more and more means of keeping employees on temporary rolls.

In support of the views of the originator of the post, I came across a table that shows the decline of regular employees and the rise of temporary workers. Please check the attachment.

Thanks,

Dinesh Divekar

The problem is more related to the cost of labor and the restrictions on removing them. Businesses need flexibility. They should be able to hire quickly when needed but should not be forced to keep employees indefinitely if the business declines or if workers are not productive.

The rise of contract labor

Contracting of core labor has grown because business cycles are no longer as stable as they once were. No company can be sure its factory will continue to run at 90% capacity for the next 10 years. So, they seek flexibility, which comes from using contract labor.

Challenges with permanent employees

Permanent employees remain even if they are unproductive or too costly. Unions will force salary increases for all permanent labor. I have seen issues in Tata Power with a salary of ₹45,000 a month, plus LTA of a month, and a compulsory paid bonus of 20% of the annual salary. Tell me how this makes economic sense and why the company would not opt for outsourcing the entire housekeeping function as soon as it can?

Government policies on contract labor

I am not sure why you are picking on PM Modi, so I would like you to tell us what previous governments have done to stop or discourage the use of contract labor. The only thing Modi has done is change the licensing term from 20 to 50 workers. However, licensing never deterred the use of contract labor; it only provided government officers a source to make money.