Effect of Demonetization on Labour Reforms!!

As the nation grapples with the Demonetization move, the focus of the media and opposition is on the woes of the common man and how difficult it is for them to get their hard-earned money converted. All the high octane campaign by the politicians both inside and outside the parliament has been centered on this aspect of Demonetization. A more careful look at the impact of this move on the Indian society as a whole shows how wide reaching this move is.

Labor Reforms

Today, I would like to cover one important aspect that was briefly highlighted by Arun Jaitley in his speech but has been widely ignored by the media. This aspect is related to labor reform that is initiated by this move. There are three major problems at the lowest level of labor in India. The first and foremost is the problem of minimum wages, the second is the problem of child labor and finally the problem of not enough employment. All these problems are inter-related in a manner of speaking, but are unique in their own way. Many of the past governments tried to take measures to eradicate these and the Left parties have used this as their constant sales pitch for the past 70 years.

Why have these measures and parties failed to address the problem? The biggest reason is how to track this as India is a cash economy. So when an owner pays the employee by cash how do we find out if he is violating the minimum wages or not? If the owner pays a child by cash how does the government detect the problem? To try to address these problems, most of the previous efforts were to try and address the symptoms. So we had more inspectors or organizations which were setup to watch the employee rights. Labor unions sprung up, more departments in government offices came up to look after these issues. The problem was that soon the companies learned to grease the hands of these officers and labor union leaders. Of course, there were some honest individuals, but a majority decided to grow rich at the cost of the laborers.

Now how does demonetization drive address this issue? First of all, as 86% of all money is now useless and needs to be taken to the bank, so these companies now have basically no means to pay the laborers in cash. So they will now have to opt to pay the laborers in their bank account and, voila, now it is easier to track whether they are paying the minimum wages or not. Again this will make it easy to track child labor and address this. As child labor goes out of the market, more and more eligible workers will start to get the jobs. Of course, some companies will reduce the workforce, but at least what this ensures is the gap between the rich and poor does not increase exponentially as has been happening in the past few years. Some of the hardest hit due to this would be beedi karkhanas, small tobacco houses and mining operations which have a huge amount of child labor and unorganized labor. Thus apart from the economic aspect of demonetization, this could have real social improvement in lifestyle for the labor class of India.

Political Payout

It is this aspect, which makes it difficult to understand the Left parties’ opposition to this move. And they have been all over the place with their opposition. First they opposed demonetization, and then they said that it the implementation is poor, now they are talking about the impact of this on the GDP. Since when have the Left parties really worried about the GDP?

Given the fact that Mamata Banerjee came out completely against Demonetization, this was a golden chance for Left to re-assert itself in West Bengal. Had they slammed the Government on the lousy implementation, but said that they support the move due to the above mentioned benefits to their main vote bank. Then they could have taken a step forward by urging their supported labor unions to help the laborers with the money exchange either by providing snacks or tea to people in queue or in guiding them how to deposit this money in the bank. If they had done so, they would have seen a re-emergence of the relevance of the Left in the society.

Instead, they went against the move and even sided with Mamata’s show for as long as it lasted. In this they not only anguished their cadres who do not want to have anything to do with Mamata, but also ended up giving the government a gilt edged chance to take over the legacy of labor concerns thus risking exposing their biggest vote bank to BJP. Now we are seeing the surreal situation of a bandh that has been called by Mamata but now she has backed off and hence now Left has called it’s own bandh in West Bengal.

This move by the Prime Minister is labeled a gamble by a few. But looking at these various aspects with the added bonus of introducing uncertainty within the established vote banks of political opponents, the move more and more looks like a master stroke. The key would be what follows after this especially the next Union Budget. If Jaitley can offer something to the common man who has cooperated whole heartedly with this move despite difficulties, then it might reap a huge political bonanza along with the economic cleanup that this move was aimed for.


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