Labour, farm Bills signal the end of inspector raj, freedom for farmers

The web of 44 central labour laws has been dismantled. (Express Photo: Amit Mehra)

“If one were to view economic activity in terms of factors of production — land, labour, capital and enterprise — it can be said that market forces have been unleashed in the last 25 years mainly in the last two. The unfinished task of reforms is really in the land and labour markets.” These words of wisdom, in an Indian Express editorial (July 2, 2016), were as much advice as they were an anguished appeal to understand that “reforms are broadly about leaving resource allocation and production decisions to market forces rather than know-all ministers and bureaucrats.” That is why, what has been achieved during the just concluded special session of Parliament is not just momentous but in many ways historic.

The Indian farmer, even seven decades after Independence, had been treated in exactly the same exploitative way that the colonial British had treated them — as captive sources of producing cheap food grain while living at subsistence levels. There was no freedom to choose the point of sale for his produce, he could not decide the price of his product and had no say in selecting the buyer. At the other end of the chain, the end consumer was equally short-changed with frequent cycles of persistent high inflation. The only beneficiaries of this perverse system were middlemen who thrived under political protection.

In the labour market, there were 44 different labour laws with more than 1,200 sections and clauses that demanded compliance if one even thought of becoming an entrepreneur. Different inspectors and departments administered these laws and the tyranny of “inspector raj” stunted many entrepreneurial journeys from taking full flight while many were killed at the conception stage itself.

The Companies Act of 2013 was one peculiar law which soon after its passage had parked itself in the basket of “must reform”. The Bill had many perverse provisions, one of which was to criminalise even otherwise normal civil infractions of routine nature. The Bill completely paralysed risk-taking and quick decision-making among the private wealth creators.

There were a large number of organisations that called themselves “banks” but were completely outside the ambit of RBI regulation. They served millions of ordinary people, but had no standard governance norms or binding regulations to protect customer interest. The politicians who controlled these banks were the primary obstacles in introducing any reforms in these sectors.

Indian mainstream banks, contrary to international norms, had a peculiar practice of “grossing” their bilateral liabilities rather than “netting”. As per estimates, this locked anywhere between Rs 50,000 to Rs 70,000 crore funds, which could otherwise have been available for lending to consumers and would have also helped lower interest rates.

But this is the “summer of 2020” and the times are changing. Reform nerds may look back at this period as “the best days of my life”. The bilateral banking netting law has been passed and a large corpus of unproductive capital has been freed to be deployed in the market. Cooperative banks will now be regulated by the RBI and its customers will have the same protections as those of other regular banks. The perverse sections of the Companies Act 2013 have been done away with and the fear of criminal prosecution that hung over every corporate decision is now history.

The web of 44 central labour laws has been dismantled. The Parliament has now put in place four labour codes that are much simpler — the Code on Wages, the Industrial Relations Code, the Social Security Code and the Occupational Safety, Health and Working Conditions Code. On the one hand, they universalise minimum and timely payment of wages among a host of other labour-friendly measures and on the other, they enable ease of doing business by bringing in a regime of one-registration, one-licence and one-return. The tyranny of “inspector raj” is finally over.

The Indian farmer finally has his 1947 moment in the true sense. He can now sell his produce wherever he wants, to whomsoever he wants and at whatever price he can command. If he gets a higher price in the market, then he is free to take it else the security of MSP anyhow exists. The stifling nature of the Essential Commodities Act and the APMC Act have both been neutered. Contract farming is now nationally enabled, allowing private investment to come in, which will bring in technology, modern equipment, better seeds, know-how for in-between-season crops, improved yields, better logistics and freer access to national and international markets. The Indian farm sector will now finally begin to see the benefits of economies of scale.

In a matter of just a few weeks, Prime Minister Narendra Modi has achieved what five prime ministers before him could not attempt in over 25 years for multiple reasons — from lack to conviction to fear of political blowback. What is even more significant is all these reforms have been pushed in what are still the early months of a second five-year term for Prime Minister Modi. This gives ample time to use the well-established execution skills and ensure that by 2024, the fruits of these reforms reach the last mile. While the economy as a whole will get a fillip from these reforms, the “summer of 2020” definitely belongs to the Indian farmer who finally knows what it is to live and breathe free.

This article first appeared in the print edition on October 3, 2020 under the title ‘Summer of 2020’. The writer is CEO, Bluekraft Digital Foundation and earlier director (content) MyGov.

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