Commendable Contract

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Nepal has been successful in initiating important economic reforms, ahead at least of her South Asian peers. The process of economic liberalization began in 1984, eight years before India began its first generation of reforms. The financial sector reform too was undertaken with a reasonable success a decade ago. The latest agreement between the employers and the trade unions of Nepal to execute much awaited labour law reforms is another milestone. While Indian Prime Minister Narendra Modi has just making a case to change their 1949 Labour Law, Nepal's success can set an example on how highly contentious issue of industrial relations could be amicably resolved through right initiatives, with confidence building arrangements in the background.
The creation of the Social Security Fund under the tripartite agreement among the government, the Employers' Council headed by the FNCCI vice-president and all trade unions (there are some eleven at present) four years ago paved the way for the recent understanding. Among others, there were two major issues, one each from the employers and the workers. The employers wanted the hiring-and-firing rights and the employees wanted certainty of financial security. Both of these issues got resolved albeit in rather surprising pace. The employers exhibited a great deal of generosity to agree to contribute to twenty percent equivalent of the wages towards the Fund on top of employees' contribution of eleven percent. This really constitutes a substantial sum that gives confidence to the workers. The employers have also secured the right to hire-and-fire, without seeking prior approval from the Labour Ministry, a legal provision still effective. The agreement to categorize the workers into four groups depending on the nature and necessity of the production process has also eased the labour market risks to the investors and entrepreneurs.
The two pending issues to be agreed, namely sectorial bargaining rights and no-work-no-pay should not be as difficult to resolve as other host of issues already agreed. The latter issue partially gets addressed by the hiring and firing rights of the employers. But, the sectorial bargaining norms, when agreed with a sectorial umbrella body deemed applicable to the entire sector (the industry), could be agreed with some exception of new entrants or loss-making businesses. Again, as the fair-market norm, such sectorial umbrella organizations tantamount to cartel and thus employers should also need to rethink their position in the long run.
Undoubtedly, the agreement to amend the labour laws to these effects is a welcome step. But, Nepal's political leadership must first desist to use the trade unions as the political tools. When this agreement actually becomes a law, the scope of using these trade unions as the political instrument drastically reduces. This warrants for a cautious approach that these agreed issues do not become victim of political machinations again. Nepal has also seen several such agreements and enactment of many important laws. But their enforcement and adherence have always been the problem. Therefore, all necessary institutional and logistic arrangement must be in place for desired outcome of these agreements, which in due course become law. A few of such 'must' arrangements are: proper database of the workers, automated accounting of the Security Fund given the potential high mobility of labourers, timely deposit of the promised amounts by the employers and updated records of the same, and credible institutional set-up to ensure timely delivery of all these services.
It is also not enough just to have these laws in place. If Nepal is expecting enhanced foreign or domestic investment, she should be able to communicate this as an achievement that has put a decades-long problem of industrial relations conclusively to an end. The trade unions affiliated to all political parties have signed this agreement, which adds one more powerful reason to invest in Nepal. Needless to say, to achieve this success in a country, which has one of the cheapest labour costs is indeed in the interest of all potential investors. 

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