Law of unintended consequences

The law of unintended consequences, often quoted, refers to actions of individuals or societies — and with particular reference to government policies — that can have effects that are unforeseen or unintended. 

While economists have constantly argued that this concept is one of the building blocks of economics, for just as long, politicians and policymakers have blatantly disregarded it. 

The Maternity Benefit Reforms recently was clearly seen gambling with this law. According to the World Bank, India ranks 120 among 131 countries in female labour force participation rates. 

It is no more just a debate on social equality and women’s independence, but the key to economic progress. In India, women constitute 48.5% of the total population. Importantly, 96% of working women are employed in the informal sector. 

India’s female labour force participation rose to 31% when India started reforms in 1991. It dropped abysmally low to 19% and it’s now up to 26 %, which is less than half of China’s 60%. 

As per a research conducted by McKinsey in 2015, statistics reveal that India can increase its 2025 gross domestic product (GDP), estimated at $4.83 trillion, anywhere between 16% and 60% by increasing women participation in the labour market.

At the same time, no single policy measure can improve the outcomes for women in India. When The Maternity Benefit Act was amended in 2017 to increase maternity leave entitlement from 12 weeks to 26 weeks for the first two children, it had dual objectives — prevent declining women labour force participation and improve the quality of labour market opportunities. 

However, good intentions don’t always make good laws, while seemingly reformist - by placing the responsibility of providing benefits solely on the employer, it turned the tide and women participation in the labour force slumped further.  

Manufacturing (estimated 23,266 lakhs), education (about 14,494 lakhs) and retail (12,450 lakhs) are the top three sectors with the highest number of women workforce participation in India and keeping in mind the amendments of Maternity Benefit Act, it can lead to significant job losses for women in India. 

Most start-ups, small and medium enterprises (SMEs) and medium-sized multinationals perceive the amendment as a deterrent and are likely to reduce intake of women. 

Given the growth challenges, resource constraints and margin pressures, the forecasted job losses in sectors like manufacturing and retail are expected to be between 3-5 %, while real estate will see a moderate job loss of 1-2.5%. 

Sectors like IT/ITES, e-Commerce and banking, financial services and insurance (BFSI) have witnessed a positive impact and are expected to drive a constructive demand in the next fiscal as well.

A 2014 ILO Report on maternity laws and practices around the world, states that 58% of all countries including Brazil, Russia, and South Africa provide paid maternity leave funded through social security whereas, in 16% countries, the costs are shared jointly by the employer and the state. Only 25% of all countries impose funding liability solely on the employer.

The government should consider some measures for mitigating the limitations, which could be funding the costs partially through public funds, tax rebates for maternity wages or set up an insurance scheme to pay maternity wages, sharing the premium with the employer. 

Another option could be breaking up the 26 weeks into 13 months of maternity and 13 months of paternity leave, to negate any possibility of gender bias where work is being shared equally by both parents.

The government is now mindful of the unintended consequences of the amendment. Its recent proposal to bear the cost of an extended 14 weeks of maternity leave, up from the current mandated seven weeks, is a welcome step forward. 

Further, the government is also contemplating removing the salary cap of Rs 15,000 for benefit entitlement and reduce the pre-condition of having worked for at least 80 days in the past 12 months. If these proposals are implemented, it will ease the concerns of employers, who see maternity leave as a financial burden. 

However, its acceptance is likely to cost the exchequer an additional Rs 400 crore. We strongly believe that at least some of the extra liability should be transferred to the paternal employer to make it equitable and prevent a situation where expecting mothers are not discriminated on these grounds.

To conclude, investing in women empowerment and ensuring fair representation will play an important role in the economic growth and sustainable development of our country at large. 

This will require a determined effort both by the government and the industry to bring more women employees in the scheme’s fold, without which the endeavour will remain futile. 

As long as half the population of India is at a disadvantage in the labour ecosystem, it will obliterate dignity at work and work opportunities for women across social strata. We still have a long way left to go, but we’ve certainly come pretty far from where we once were.

The author is co-founder & EVP TeamLease Services Ltd and President, Indian Staffing Federation