The Flaw in India’s Maternity Benefit Law

The law was hailed as “a step forward” – but it is anything but.

The Maternity Benefit (Amendment) Act, that came into effect in April 2017, was hailed as “a step forward” when it was tabled before the Parliament. It was praised for “making India proud around the world” and “bringing women in the workforce closer to workplace equality”.

This is because the Act, among other things, increased the paid maternity leave available for employed women from the 12 weeks to 26 weeks. It also made it mandatory for every establishment with at least 50 employees to provide a crèche facility for working mothers.

While these provisions seem, on the face of it, progressive and pro-women, two recent independent surveys, published in May, conducted about the impact of the Act on SMEs and start-ups, bring to light how the Act harms the prospects of employed women instead of helping them.

What the Surveys Say

According to a survey conducted on 350 start-ups and SMEs by employment services company, TeamLease Services, more than a quarter of all respondents expressly admitted that they preferred hiring men. Two-fifth of the remaining respondents claimed that they will consider the additional cost of the paid maternity leave while hiring women.

This means that 66 percent, that is, two-thirds of all respondents disclose that the maternity benefit law adversely impacts their decision to hire women. Only 22 percent of the respondents declared that the new maternity leave provisions won’t impact their hiring decisions at all. Additionally, a whopping 35 percent of all respondents also revealed that they see a negative impact of the Act on both costs and profitability.

The survey by citizen engagement platform LocalCircles gives similar results. From among the 2,987 respondents belonging to the SME and start-up sector, 11 percent respondents admitted to having hired only male employees over the last one year since the Act came into place. An additional 43 percent admitted to having hired more men than women in the same period. This means that a clear bias against women crept into the actual hiring practice of well over half of all respondents ever since the Act came into place.

How ironic that an Act that was meant to benefit female workers has ended up reducing their likelihood of being employed in the first place.

The Act Isn’t Helping Women

As well-intentioned as it may be, the Act is a classic case of the law of unintended consequences. Ill-thought out government regulation often imposes perverse and unforeseen consequences that far outnumber any potential benefits. This was perhaps first (and best) explained by the liberal French economist Frédéric Bastiat in his essay, What is Seen and What is Not Seen, thus:

There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

By increasing the period of paid maternity leave for female workers and squarely putting the entire burden of financing the paid leave on private businesses, the Parliament failed to take into account that businesses will shirk from hiring female workers because of the associated costs. By merely proclaiming an order for private businesses and expecting them to meekly follow suit as per their wishes, the parliamentarians failed to account for effects that must be foreseen and betrayed themselves as bad economists.

Are Businesses Anti-Women?

Providing 26 weeks of paid maternity leave to female workers is certainly a socially desirable goal. Is there a way to do that without burdening businesses with the entire cost?

The best way to do that could be to fund the costs either partially or fully through public funds, rather than impose the entire liability on employers.

According to a 2014 ILO report on maternity laws and practices around the world, 58 percent of all countries provide paid maternity leave funded through social security (including fellow BRICS nations Brazil, Russia and South Africa), and a further 16 percent countries fund the same through a mixed model where costs are shared jointly by the individual employer and the State.

Only 25 percent, or a quarter of all countries, impose the funding liability only on the employer. Additionally, in the period between 1994 and 2013, the percentage of countries funding maternity leave through the social security and mixed models has risen by a combined 11 percent, while the same for countries funding it through employer liability has reduced by 7 percent. Clearly, the trend of the state bearing some, if not all, cost of paid maternity leave has been catching on internationally.

Another popular regulatory model in this regard, followed by many countries is to provide a proportion of the full salary of the employee during maternity leave, and/or paying salary for a certain portion of the maternity leave period.

The 2014 ILO report details, for instance, that Canada gives paid leaves for 15 out of the 16-17 weeks of total maternity leave, while countries like Albania, Thailand, and the UK pay different percentages of the wages for different chunks of the maternity leave period.

Other ideas worth exploring while thinking about alternative maternity leave regulations are the provision of economic or tax incentives to businesses that provide generous paid maternity leaves, and exempting enterprises with moderate turnovers from providing paid maternity leave or publicly funding it for them.

Either ways, in the absence of support or incentives, our current maternity leave policy with their employer liability model will continue to push a lot of enterprises from hiring women. In a country with a 50 percent gender gap in its workforce where women face entry barriers such as discrimination, fear of sexual violence and lack of skills, the last thing we need is a misguided law that deters businesses from hiring women.

(The writer is with the Centre for Civil Society, a Delhi based liberal think-tank. This is an opinion piece and the views expressed are the author’s own. The Quint neither endorses nor is responsible for the same)