Labour reforms for Digital India

By Vivan Sharan

Recent reports suggest that the implementation of the four Labour Codes enacted by the Centre may be delayed for want of state-level rules. This is an opportunity to better align them to the exigencies of digital markets. India consolidated its erstwhile fragmented and scattered labour law regime into four Codes on industrial relations, occupational safety, wages, and social security. Among other changes, this new framework recognises novel forms of employment such as ‘gig work’. The Code on Social Security, for instance, extends employment-related benefits to gig workers, which makes India a leader in labour reforms for the digital economy. We now stand apart even from developed countries like the UK, where courts have stepped into the realm of policy. Such decisions as the one pronounced by UK’s Supreme Court in February on the rights of Uber drivers, tend to be based on immediate factual matrices placed before courts, rather than holistic policy objectives. Further, judicial proceedings can be long drawn out and create uncertainty for all parties during their pendency. It is encouraging that India has charted a course for workers’ rights in the digital economy, and that domestic courts cannot similarly intervene.

However, Indian policymakers must still overcome impulses to apply legacy thinking to digital markets. While the recognition of gig work is a welcome development, strictures that prioritise compliance over longer term developmental objectives are not. For example, the Occupational Safety, Health and Working Conditions (OSHWC) Code characterises activities of an enterprise as ‘core’ and ‘non-core’. Contract labour cannot normally be employed in ‘core’ activities. But, the very idea of a prescriptive ‘core’ is antithetical to the digital economy, which exemplifies the Schumpeterian doctrine of ‘creative destruction’. That is, online businesses must constantly mutate to survive.

Indeed, the core business of most online platforms is to build networks of users or consumers, through which they can provide innovative and competitive bouquets of digital services. These networks provide the online equivalent of economies of scale. Each additional node in a network increases its overall utility to all participants. A good digital network is akin to a captive market—where heterogenous services can be offered at low marginal costs.

The OSHWC Code does outline exceptions to limitations on the use of contractual labour. However, this is left to State discretion. The history of labour laws in the country is chequered precisely because of legal drafting that lends itself to unpredictable interpretation. At the same time, it can be nobody’s case that the State renege its responsibilities towards gig workers. Uttar Pradesh and Madhya Pradesh threw the baby out with the bathwater by revoking labour laws under the pretext of economic resilience at the peak of the Covid-19 pandemic. Similarly, there are close to 1.5 lakh labour and industrial cases pending before district and taluka courts that deserve attention. Since state capacity for oversight of markets is low, social and economic objectives can only be met through smart policies.

PM Narendra Modi has consistently championed the need for reducing compliance burdens on industry, while ensuring that businesses maintain a high level of stakeholder responsibility. In a recent industry interaction, he emphasised that “self-regulation and self-certification is the way ahead”. While his remarks were in the context of manufacturing at scale, they lend themselves to broader interpretation , especially in the case of services which are best placed to leverage technology to grow responsibly. Digital businesses can be subject to greater transparency requirements than offline counterparts, as long as State discretion is minimal. This is a trade-off that most such businesses would willingly accept, because data collection and reporting for them is innate.

The reporting of workplace data can enable the State to adopt a ‘comply-or-explain’ approach as opposed to the traditional ‘comply-or-else’ standard for digital businesses. They can be mandated to submit relevant data and make disclosures explaining the exceptional nature of their activities. A comply-or-explain regime can accommodate dynamic modifications to compliance requirements, to suit the needs of technology-driven business and gig workers alike. For instance, online platforms would have the flexibility to self-classify activities into core and non-core. They can also be asked to justify their declarations based on data and facts, when subject to external audits or whistle-blower complaints.

In 2014, India adopted a comply-or-explain approach to determine whether companies met their corporate social responsibility (CSR) targets. This provided an opportunity for both the private and public sectors to navigate the CSR regime when it was first mandated for large firms. It also allowed the private sector to focus on the substantive objective of CSR rather than get bogged down by compliance. An analogous light-touch approach can prove effective in the extant case of fast-moving businesses. After dialogue with digital businesses, the ‘comply-or-explain’ template can form the basis for an effective, transparent and proportionate regulatory regime for the burgeoning digital economy—as worthy a developmental goal as any.

The author is Partner, Koan Advisory Group