The Myth of Inspector-Raj in India

As the Bharatiya Janata Party (BJP) party swept to power, labour law and governance reforms are back in the news.  The news items once again celebrate official proposals and announcements to “end” the “much dreaded” “fishing expeditions” of rent seeking by labour inspection officials.  These have been accompanied by applause if not a salute to the policy-makers.

Guidelines of the ILO

Labour inspection is integral to the International Labour Organisation’s (ILO) scheme of workplace governance and the ILO has emphasised this from day one of its operations.  The ILO’s convention on labour inspection, C. 48, 1947, which India has ratified provides the details of the regulatory system which the country being a signatory can ill-afford to contravene.  The main substance of the convention is to provide for a system of governance characterised by as frequent inspections as possible by as many independently placed and well-equipped officials as necessary and at any time. 

By ending license-raj in the product market, economic liberalisation demands termination of inspector raj in the labour market. Is this justified by facts?  Are workplaces safer even when overly-governed? Have experiments of liberalisation of governance system succeeded?

We are far from reaching the ILO-prescribed labour inspector-working population benchmark ratio of 1:40,000 for the under-developed countries thanks largely due to the squeeze on government recruitment. For implementation of the Minimum Wages Act, 1948, during 2012, an estimated 3171 inspectors were expected to cover an estimated 7.70 million establishments in the country, giving a ratio of 2428 establishments per inspector (calculated from the data in the Annual Review of the Act for 2012 that is posted in the Labour Bureau website). 

Factory inspection in India

The all-India proportion of the sanctioned posts that was filled up in 2011  for the implementation of the Factories Act, 1948 was 76.44 % and for select industrialised eight states (like Gujarat, Maharashtra, Rajasthan, Tamil Nadu, etc.) it was 58.39 %.  Further, the multiplicity of labour laws combined with a poorly integrated inspection system, the absence of adequate transport and communication facilities and the geographical spread of the establishments make inspection coverage a hugely difficult task. 

Fig. 1 Percentage of Registered Factories Inspected in India, 1986-2008

Source: Indian Labour Statistics (various issues)

It is no wonder that the inspection rates, ie the proportion of registered factories that have been inspected, has declined steeply from 63.05 % in 1986 to 17.88 % in 2008. Notwithstanding data limitations, this decline is symptomatic of the poor state of inspections.

It is perfectly possiblethat labour inspectors have acted rather over-zealously and made extortionist demands on the factories which the latter were happy to meet as it made economic sense to compromise with the monitors of laws rather than implement them. 

The low penal monetary provisions in the law on inspections and the virtual non-enforcement of imprisonment provisions make the “rent-seeking” accusations coming from economists a little irrational; though on a strict moral assessment, low or high, a compromise is a “bad”.  In fact, self-certification failed primarily because of the “escape route” provided by rent-seeking.  

Irony of Self-regulation

On the regulation side, a few states like Punjab, Gujarat and Maharashtra had introduced the much-touted “self-certification” system making inspection under a clutch of labour laws mandatory once in five years, provided the employers self-declared that they had complied with those labour laws.  This scheme had few takers allegedly due to the inherent limitations in the very labour laws under which it was to be introduced.  

However, self-certification has been implemented in special sectors like special economic zones (SEZs), information technology (IT) and IT-enabled sectors (ITES), bio-tech and so on successfully.  Governance responsibility has been shifted from the Labour Department (specialist) to the Development Commissioner (a non-specialist) in the case of SEZs. The SEZs are absolutely without any form of labour regulation nor do they have any trade unions.  In some states, inspections are done only in the “selectively” covered sectors. In Uttar Pradesh inspections cannot be done without prior permission from a labour commissioner or a district magistrate. In some states third party accredited inspections are done.   In sum, there is already a huge liberalisation of governance systems.

Risk of industrial disasters

Neo-classical economic theory which the pro-reformers bank on absolutely should predict that profit-maximising employers must take sufficient measures to ensure the safety and health of the workers at the workplace to ensure their productivity.  However, reports of fatal accidents occur at a high frequency creating a sense of unease in the minds of the public.   Notwithstanding serious limitations of official data, the secular rising trend shown in Figure 2 should indicate the “actual gravity” of the problem.   

Fig.2 Number of Fatal Injuries per One Lakh Work Days Worked in the Manufacturing Sector in India, 1980-2009

Source: Indian Labour Statistics (various issues)

It is frightening to imagine the escalation in fatal accidents in the absence of inspections and if permission was provided for third party accredited inspections, a process which does not really inspire confidence. 

The recent guidelines issued by the Department of Industrial Policy and Promotion (DIPP) speak of on-line compliance and e-governance system with respect to labour laws.  The Government of Maharashtra’s e-governance initiative, Maharashramm, was started to cover four components, viz labour registration and financial inclusion; departmental automation and computerisation; e-services to businesses; and creation of a network of business correspondents (BCs).  It was even projected proudly in the International Labour Conference in ILO in Geneva. It has run into some serious problems and is presently non-operative for various reasons. 

The success stories of provident fund and employees’ state insurance are often cited in favour  of e-governance. But there are reasons to doubt major schemes of e-governance given the poor telecommunication strength and limited e-education of the stakeholders. For example, how comfortable are shop owners and micro and small industries with these e-governance mechanisms? Especially when they often complain that as entrepreneurs they are ill-equipped to single-handedly discharge most of the diversified functions that are possible in a large firm?

The rapid decline in labour regulation and governance in the country in the post-reform period in fact prompted a discussion in the tripartite body, Indian Labour Conference in its 41^st Session in 2007.  As ratifiers of the ILO Convention on Labour Inspection, India has the extra responsibility to be careful in the matter of labour governance. Further, the argument that labour standards and governance would by ensuring a safe workplace and happy workforce lead to higher productive efficiency and a path towards sustainable development needs to be critically studied by policy-makers.  Can Rana Plaza type models aspire to achieve sustainable development? If they could, would not Bangladesh be a larger player in the apparel sector than India?  The answer lies in the soundness of labour governance systems, other things being equal.