The timing of two recent Bills, introduced hastily and passed equally hastily by Parliament, has puzzled most observers. What prompted the ruling party to suddenly implement the Labour Codes which were enacted in 2019 and 2020? Why was there such hurry and stealth to replace the MGNREGA with VB-GRAM-G? They did not make much sense beyond the usual rhetoric of structural reforms and modernising the economy.

The objective of both these acts is, however, becoming clearer — they diminish the bargaining power of labour and depress wages. Workers, farmers and the opposition have been quick to join the dots, prompting nationwide protests. With over 600 million workers in rural and urban India, their resistance could become formidable if mobilised effectively.

Some key questions persist: will there be adverse political consequences for the ruling party? Can rural and urban workers do what the farmers did? Can they force the government to roll back the twin changes designed to weaken them?

The Labour Codes curtail the bargaining power of workers, weaken trade unions and strip individual workers of protection from exploitation by employers.

The MGNREGA, though imperfect, did bolster rural poor employment and incomes. Despite low wages (often less than minimum wage) and a limit of a maximum of 100 days of work per adult member of a family (approximately 20 days of wages per family member per year), it supplemented incomes in times of crises, like the Covid-19 pandemic. Though it offered only 50 days of work on average as against the promised 100 — due to underfunding — it still offered relief to marginalised communities.

The government, while justifying the changes, now argues that the Labour Codes will protect workers’ rights and the VB-G-RAM-G will benefit farm workers by increasing workdays from 100 to 150. The Centre has proposed raising the allocation to Rs 95,692 crore from Rs 86,000 crore in 2024-25.

But if the states are unable to spend Rs 55,590 crore, given their weak budgetary position and high debt, the Centre will also spend less, effectively reducing the total allocation to well below that of 2024-25.

In effect, this transition from a demand-driven MGNREGA to a supply-constrained scheme will allow the Centre to decide on allocations and subject the states to its political whims. Despite giving a pro-labour spin to the changes, the reforms are inherently designed to weaken labour both in the agriculture and non-agriculture sectors.

Historically, workers’ movements in India have been weak, with 94 per cent of the workforce in the unorganised sector. They lack bargaining power to demand increase in wages in line with inflation — the data of which itself is suspect since it is outdated. The low and declining share of wages in output tells its own tale. Technological advances are further reducing work availability.

****

Why then the sudden move to weaken labour? The elephant in the room is US President Donald Trump’s bullying and its consequences for the Indian economy. On the one hand, labour-intensive exports are getting impacted while on the other the US is demanding opening up of much of the Indian agriculture sector which, once conceded, will adversely impact the income of around 50 per cent Indians.

The changes strive to address these two threats to the Indian economy. The new Labour Codes address the non-agriculture sector while VB-GRAM-G addresses the challenge to agriculture. In both cases, the Indian government is seeking to put the burden of Trump’s demands on labour.

Indian businesses are keen on an early trade agreement with the US. But Trump’s demand that India reduce Russian crude imports and open up the agriculture sector are politically fraught issues.

Yet, India has been caving in to Trump’s demands. Last year’s budget saw a cut in several import duties, increased import of energy from the US, mention of increase in import of defence equipment, and suspension of import duty on cotton.

The SHANTI Bill, passed hastily in the recent winter session of Parliament, reduces the liability of nuclear equipment suppliers to enable US suppliers to sell to India. The current buzz in Washington is to levy up to 500 per cent tariff on countries importing Russian oil. No trade will then be possible.

High tariff (up to 50 per cent) on India’s exports to the US have made them uncompetitive, forcing exporters to slash profit margins and/or cut wages. Exporters are routing part of their trade through third countries like the UAE, with lower tariffs. But this requires paying intermediaries. This impacts profit margins.

Exporters have been hurting due to the declining trend of exports in the last few months. They have, however, been helped a little by the decline in the value of the rupee since it leads to a decline in the dollar price without cutting the rupee price. It is through this prism that one has to understand why the RBI is enabling the fall of the rupee versus the dollar.

But none of this would be required if Trump reduces tariffs on Indian goods. Sanctions on Russian oil companies have led to cuts in the import of crude oil (a partial compliance with US demand) but tariff reduction still remains elusive. This suggests there is no escaping a trade agreement with the US and that almost certainly requires opening up of the agriculture sector. Would policy makers under pressure from businesses sacrifice the interest of Indian agriculture and milk markets?

****

Can Indian farmers compete with heavily subsidised EU and US farmers? Cheap imports will drive agriculture prices below the MSP, worsening farmers’ losses. That is why squeezing wages and increasing input subsidies become a strategic move.

The VB-GRAM-G Bill reduces real farm wages. This is in line with the demand of well-off farmers for dilution of MGNREGA which, according to them, caused shortage of labour and higher wages. The new Bill caters to this demand by giving exemptions in the peak harvest and sowing seasons.

Should the wealthier farmers be happy then? Not really, since the gain from lower farm wages will be far less than what the farmers will lose due to cheaper imports.

Finally, there is no certainty that Trump, in his current antagonistic mood towards India, will lower tariffs at par with India’s competitors. The US has been drifting away from a strategic partnership with India. Given this ambiguity, should the government even think of opening up the agriculture markets?

The weakening of labour is, therefore, no accident. It is designed to prepare the ground, and is possibly a signal for the eventual capitulation to Trump. Depressed real wages and the likely opening up of Indian agriculture will widen inequality in India, weaken demand, and adversely impact investment, employment and rate of growth of the economy. This will obviously harm workers and farmers. However, instead of coming to their rescue, the ruling party has chosen to protect the interests of business.

Arun Kumar taught Economics at JNU and is the author of Indian Economy’s Greatest Crisis: Impact of the Coronavirus and the Road Ahead. Get more of his writing here