Reducing Criminal Provisions in State Employment Laws will further fuel the economic engine by enhancing Job Creation
Karnataka’s current progress in creating high-wage jobs compared to other states is deeply rooted in historical investments in human capital, supported by the collective vision of C.V. Raman, Visvesvaraya, Jamsetji Tata, Mirza Ismail, Madhav Rao, and chief ministers who prioritised expanding engineering education. To further strengthen this lead, Karnataka has the unique opportunity to spearhead a groundbreaking national initiative aimed at decriminalising 1,175 provisions in state employment laws and regulations.
Public policy operates with a bird’s eye view but high-wage job creation requires a worm’s eye view that acknowledges and accommodates the vision of job creators. A report titled Jailed for Doing Business by Gautam Chikermane at the (ORF) and Rishi Agrawal at TeamLease Regtech, meticulously documents the jail provisions embedded within 1,536 laws across seven categories: labor, secretarial, environment, health and safety, finance and taxation, industry-specific, commercial, and general. These 843 laws contain 26,134 criminal provisions of which 55% include more than one year in jail, 38% with five jail provisions, and one law—The Factories Act of 1948,has more than 700 jail provisions.
Karnataka’s job creators must function within the purview of 5,239 criminal provisions in central laws apart from the 1,175 criminal provisions found in state laws—where 52% of the compliances have jail provisions. Among the 2,195 compliances for businesses, 54% are with imprisonment clauses. Of these, approximately 67% prescribe sentences up to three years, while 39% impose sentences from three months to more than 1 year.
The Factories Act of 1948, combined with the Karnataka Factories Rules of 1969, contains 706 imprisonment clauses. Similarly, the Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act of 1979 with the Karnataka-specific rules, 1981 includes 127 imprisonment clauses.
Counterintuitively, excessive regulatory cholesterol is a mere burden for small employers than big employers. This compliance burden portrays what economist Shamika Ravi vividly describes as “tyranny without a tyrant.” Tyrannical power fosters corruption through the gaps created in the laws.
Karnataka boasts a high-wage economic landscape, with 47% of non-farm workers in the formal sector and 7.5 million monthly provident fund payers. It is home to over 5,500 IT/ITES and 750 other companies, contributing to more than $58 billion in exports. The IT industry alone accounts for over 25% of Karnataka’s GDP, and the state ranks first among Indian states with 41% of the nation’s software exports ($155 billion) and 21,000 plus DPIIT-recognized startups (47% are women-led). This thriving demand is supported by 90 higher education institutions and 10.6 million school students.
Karnataka’s challenge in achieving our $1 trillion GDP goal is not a lack of land, labour, or capital, but rather the effective combination of these resources—what economists refer as Total Factor Productivity, often synonymous with entrepreneurship or innovation. To confine Karnataka’s poverty, we must boost productivity across our regions (many in Northern Karnataka remain tied to agriculture and urbanisation is lagging), our firms, (where there is a 24-fold difference in productivity between the largest and smallest manufacturing companies) and among individuals (salary disparities with a fourfold difference for same-age workers with similar qualifications).
An effective employer law addresses issues of information asymmetry, market power, and negative externalities while fostering entrepreneurship to nurture formal firms that pay high wages. However, our current employer regime encourages small firms to stay still rather than to grow. The case for decriminalization also hinges on issues of justice. Courts often view penalization through the lens of legislative wisdom, but academics like Andrew Ashworth and Joel Feinberg advocate for criminalization standards grounded in common sense, such as “harm to others.” Adopting a few strict laws rather than multiple laws would empower the powerless for in the words of philosopher John Ruskin, “Punishment is the last and least effective instrument for crime prevention.” The addition of 300 jail provisions annually for 70 years in labour laws has failed to safeguard our workers.
The timely and fair prosecution of wrongdoers can remove the perception that honest individuals are fools who encourage deals over rules. Karnataka can initiate change by establishing a commission for decriminalizing state laws through a novel approach known as ‘Reversing the Gaze.’ This methodology involves identifying a few areas that require criminal provisions while removing this provision from others. Possible areas for decriminalization could include:
a) Physical harm to other individuals,
b) Intentional defrauding of employees, lenders, shareholders, and government,
c) Externalities to societies that the violator cannot compensate such as public order, national integrity, or trust in property rights,
There need not be any criminal provisions for delayed or inaccurate filings, procedural infractions, incorrect calculations, and wrong formats as deterrence for these can be implemented by instituting heavy fines and penalties. These guidelines should be applied retrospectively to existing laws and adopted in the forthcoming legislation.
The excessive criminalization of employer compliance reflects an outdated ‘tug-of-war’ between job creators and the government, which unfairly vilifies entrepreneurs. Our current employer compliance laws foster poor economic outcomes by encouraging corruption, allowing low wages, and undermining opportunities.
You might also be interested to read: Decoding The Labour Codes
