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LABOUR LAWS IN INDIA AND THE NEED FOR REFORMS

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transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise,
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Labour laws in India and the need for reforms

Index
Introduction
Amendments proposed by Union government
Who wants what?
Phases of labour reforms in India
Pros and Cons of reforms in Labour laws
Conclusion
Other reforms required
References

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Introduction
Labour legislations come under concurrent list under Schedule VII of the Constitution of India.
State governments can make the necessary amendments to the law made by the central government provided
they gain the assent of the President of India.
In 2011, the government set up an expert panel headed by Planning Commission member Narendra Jadhav.
In 2014, the Rajasthan government has taken the lead in bringing about drastic changes to central labour laws. It
has introduced far-reaching amendments to crucial labour legislations. The history of Indian labour legislations
shows that most of them were made due to strong demands by the working class from the Bengal, Bombay, and
Madras presidencies.
The Union government has proposed amendments to three central government labour legislations
1. Labour Laws (Exemption from Furnishing Returns and Maintaining Registers by Certain Establishments)
Act, 1988.
2. Apprenticeship Act, 1961
3. Factories Act, 1948

Applicable to establishments having 20 workers

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Before Amendment

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CLRA changes

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Steel Authority of Indias Supreme Court rejected the claims of workers and virtually legalised outsourcing of
case (2001)
labour

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CLRA Act do not provide automatic absorption of contract labour on issuing a

notification prohibiting employment of contract labour and the principal employer
cannot be required to absorb those contract labour.
Applicable to establishments having 50

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After amendment

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Raising the strength for the application of the Act to larger establishments has no significant effect in the present
scenario. The engagement of contract workmen is larger in ratio than permanent workmen in not only the
private sector, but also PSUs.

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No trade union seeks a government notification on abolishing contract labour as it will eliminate the workforce
in question by providing it no employment.

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Factories Act changes

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Aim of this law is to take care of the safety, health, and welfare of workers.
Before amendments

-applicable to premises with more than 10 workers with power and 20 without
power
-maximum overtime of 50 hours/quarter

R Vasanthas
(2001)

case The Factories Act prohibition on employing women for work at night was struck
down by the Madras High Court
The state did not effectively challenge the judgment.

After amendments

-applicable to premises with more than 20 workers with power and 40 without
power
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-increase in maximum overtime work to 100 hours/quarter

-improving safety of workers
-lifting relaxations on night shifts by women in factories
-The changes also aim to prohibit pregnant women and persons with disabilities
from being assigned to machinery-in-motion and reducing the eligibility for
entitlement of annual leave-with-wages to 90 days from the current 240 days.
For the last six decades, employers have evaded the Act by having less than nine or 19 workers as the case may
be. In Tamil Nadu, power-loom owners have divided looms in the same shed among their family members and
registered each loom separately, thereby avoiding the provisions of the legislation. The proposed amendments
only legalise the ingenious methods used by factory owners, still leaving out a large section of workers.

Apprentices Act, 1961 changes

Under the Act, in no case have employers absorbed trained apprentices as regular workmen. After the successful
completion of training, apprentices are left high and dry.
State government will be sharing the cost of apprenticeship after amendments to the Act.
state will absorb half the cost
the state government will absorb a fourth of the cost

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company having <250 workers hires apprentices

company having >250 workers hires apprentices

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Amendments to this Act are expected to help in implementation of Skill India as 500 new trades, including ITenabled services, would be included in the scheme, allowing more employers to participate in training and
employment of such workers.

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Significantly, a draconian provision that called for arrest and imprisonment of employers who did not implement
the Apprenticeship Act will now be dropped.

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Comparing the size of the Indian economy, the performance of the Apprenticeship Training Scheme is not
satisfactory and a large number of training facilities in the industry are unutilised. In fact, of the 4.9 lakh seats
available for apprenticeship, just about 2.8 lakh apprentices are trained.

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Controversial provisions on retrenchment are expected to be taken up later. The ministry is also in talks with
trade unions to make changes in the Industrial Disputes Act for enabling easier hiring and firing of workers in the
National Investment and Manufacturing Zones.

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IDA [Industrial Disputes Act (IDA), 1947] changes (proposed by Rajasthan government)

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1976 amendment

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According to the changes proposed to the IDA, the governments prior permission will not be required for
effecting retrenchments in establishments engaging up to 300 workers.
firms employing 300 workers to obtain permission for retrenchments, layoffs, and closures

1982 amendment

100 workers

1991 (proposed)

An exit policy was suggested that would allow industries to close down without
invoking the provisions of IDA
could not be implemented because the national trade union federations
opposed it

Meenakshi Mills case (1992), Employers: provisions are arbitrary and unconstitutional
Madura Coats case (1994),
Supreme Court: rejected this contention
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Orissa Textiles case (1994)

2014 amendments

increased the percentage of workers needed for registration as a

representative union from 15% to 30%
reverts to 300 workers policy

Today, vast sections of unorganised labour are not covered by any labour legislation. Even where legislation
operates, large numbers of casual workers are unable to get legal protection.

Who wants what?

Trade unions
Employers

-seek a comprehensive labour legislation

-deregulations or exemptions from the law

Phases of Labour Reforms in India

Royal Commission of Labour opined in
its report (1929)
First phase of labour legislations (192345)
Second phase after World War 2 (194651)
Third phase after Constitution of India
was enacted (1952-86)

the unionisation of workers alone would improve their economic

conditions
Regulatory

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affected the relationship between capital and labour

were as a result of unionisation in a particular sector
number of welfare legislations were enacted (in accordance with
DPSP)

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Pros and Cons of reforms in Labour laws

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Arguments against Labour reforms-

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Universalising laws is not a solution- So far, the government made sector-wise and segment-oriented laws
relating to plantation labour, mine workers, beedi and cigar workers, motor transport workers, and so on. Each
of them had their own peculiarity and the service conditions for each industry were unique. Attempts to
universalise the law should not result in workers in unique segments losing their hard-earned rights.

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Deregulation without study is ad-hocism- The present attempts by the Rajasthan government and Central
government are an attempt to deregulate the sector without conducting any worthwhile studies on the issue.

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Issue of SEZ workers- SEZs that have allowed industries to be set up with special incentives to improve the
export of goods are hardly regulated by labour laws. This has resulted in demoralisation of the workforce. These
developments have also sometimes led to individual violence against officers/managers (for example, at Maruti
Suzukis plant on the outskirts of Gurgaon).

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Nearly 80 per cent of the factories in the most industrialised state in the country would fall outside the ambit of
the IDA, if the number of workers employed is increased to 250.
Issue of Trade Unions- The Rajasthan proposals have evoked strong reactions among all the trade unions,
including the Bharatiya Mazdoor Sangh (BMS), an affiliate of the BJP. This shows that the representatives of
labour are clearly opposed to any move that will reduce the security of workers.
Today many states do not have a law obliging employers to compulsorily recognise any trade union for the
purpose of collective bargaining.
Lack of proper enforcement of laws.

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Litigation is costly and tiring- Normally, a contested industrial dispute takes a minimum of 20 years to reach the
finality of a conclusion. A survey of the disputes that come up for adjudication before labour courts shows that
90% of them had to do with the dismissal of individual workers. Gone are the days when adjudicating forums
dealt with collective disputes related to workers, wages, bonuses, and work norms. No trade union worth its
name now wants to go for adjudication and would rather settle matters around the negotiating table. The trade
unions operating in large units hardly go to court for adjudication.
Quality of employment- There is no doubt that if labour laws granting protection to workers are liberalised,
employment would increase. However, one must ask, what type of employment? Employment propagated by
any civilised government must fit into the criterion of decent work put forth by the International Labour
Organisation. The four pillars of decent work are: rights at work, adequately paid employment, social protection
and social dialogue. Work should be a source of dignity.
Better facilities for workers=less unemployment- It would be a folly to believe that secure employment, better
wages and greater social protection could increase costs of production and thus deter investors. A recent book
by Jody Heymann and Alison Earle, Raising the Global Floor, published by Stanford University Press has studied
working conditions in 70 countries. Their findings show that countries with low unemployment (with the
exception of the US) are also those that provide maximum facilities for their workers. They argue that costs of
decent employment are offset by higher labour productivity.

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State is the guardian- Most people want permanent jobs because it guarantees security of employment, decent
living conditions, health and sanitation benefits, education of children and retirement benefits. If the state can
provide these forms of social protection then labour can be flexible. The focus should be on social protection for
all rather than on labour reforms alone. This will lead to a healthier and skilled workforce that would be highly
productive.

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Effects of liberalisation- The economic reforms and the dilution of labour legislations have brought
unprecedented misery to the working masses in our country. Ever rising prices have eroded the real value of
their wages, which have put their health in jeopardy. Fast shrinking public health services + lack of medical
insurance for the poor.

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Mostly contractual or casual work- long hours, terrible work conditions, and no security (no sustainable income).

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Pro Labour Reforms arguments-

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Unnecessarily complex laws- India has the lengthiest labour legislations in the world- there are as many as 50
central laws, besides each state having umpteen local labour legislations.

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Dymanic labour
laws

Generate
employment

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Attract investment

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Key to generating jobs- Policymakers who say that labour laws dont matter for job creation have obviously
never had a child who is unable to find a job despite merit, never been responsible for finding the money in a
small organisation to pay salaries and never tried to pass a labour inspection without paying a small bribe.
Labour reform is the key to generating organised sector jobs.
100 per cent of net job creation since 1991 has happened informally. Informal employment, the slavery of the
21st century, is a child of our labour laws.
Judiciarys Support- The governments policy of privatisation received strong support from the higher judiciary.
Challenges made to the disinvestment of public sector units were rejected and judicial reviews were prohibited
in the Balco Employees Union case (2002) and the Devans Modern Breweries case (2004). The Supreme Court
observed-

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Socialism might have been a catchword from our history. It may be present in the preamble of our Constitution.
However, due to the liberalisation policy adopted by the Central Government from the early nineties, this view
that the Indian society is essentially wedded to socialism is definitely withering away.
The Court also ruled,
Globalisation has brought a radical change in the economic and social landscape of the country. Its impact on the
Constitution and constitutionalism is significant. Often the economic changes in the country relating to
regulation of markets brought about by competition law leading to substantial erosion of administrative law by
private law are matters which eventually would fall for our decision. The Court will have to take a realistic view
in interpretation of the Constitution having regard to the changing economic scenario.
Archaic- These restrictive laws were written for a colonial, agrarian and stagnating India.
Current laws breed corruption- Because they are written so badly, it is impossible to comply with 100 per cent
of the laws without violating 10 per cent of them.
Stagnation in various sectors- Manufacturing employment is the same as that of post-industrial US at 12 per
cent of workers, 240 million Indian farmers produce the same amount of food as six million Americans, and 200
million Indians in subsistence self-employment want wage employment but the jobs drought means that the
poor cannot afford to be unemployed and are therefore self-employed.
Innovative reforms- The amendments to the Industrial Disputes Act, Factories Act and Contract Labour Act
proposed by Rajasthan represent political, social and economic innovation.

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Political because the concurrent list of our Constitution creates many policy orphans, since the state and Central
government rarely agree on every detail. As Socrates said, a slave who has two masters is free.

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Social because it will create a fertile habitat for job creation.

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And economic because Chinas genius in getting 400 million people off farms lay in the decentralisation of job
creation.

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Easy enforcement- Our laws must be clearer and fewer but enforced.

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Aspirations of youth- The 100 million new young voters of 2014 will be joined by another 100 million new voters
in 2018. Jobs will become more important than poverty alleviation programs. The only sustainable way to meet
their aspirations is an explosion of private, non-farm, formal sector, decent-wage jobs.

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Conclusion- The existing labour laws have undoubtedly failed to deliver and they require revamping.

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It is about fixing Indias three flawed geographies of work:

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1. Physical geography- more urbanisation and more job creation in the north and east of India
2. Sectoral geography- less informal, agricultural and self-employment and more manufacturing
employment
3. Firm size distribution geography- most of our companies are dwarfs, not babies, and the missing middle
means that 85 per cent of our manufacturing comes from companies with less than 49 employees.
The total number of jobs will increase with policy moves in infrastructure, urbanisation and lower regulations.
But without labour reform, we will not increase formal employment or take advantage of China running out of
farm labour by developing labour-intensive manufacturing.
However, ad-hocism should not be brought about in such reforms.

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Other reforms required:

There is usually a 49% difference in gross salary in the appointment letter and take-home salary credited to the
bank account for low-wage employees. They must have the option to discontinue the 12% employee
contribution to Provident Fund.
The next phase must cluster laws and rationalise definitions, for example, wages are defined differently in the
Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965, the Payment of
Gratuity Act, 1972, the Provident Fund and Miscellaneous Provisions Act, 1952, the ESI Act, 1948, the
Workmens Compensation Act, 1923, and the Industrial Disputes Act, 1947. The Central government must
recognise that todays German manufacturing genius has many fathers (apprenticeships, social norms,
Mittelstand etc) but an important contribution was made in the 1990s by the Hartz Commission, headed by
the former human resource head of Volkswagen, which overhauled Germanys labour law regime. India needs a
similar overhaul.

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Besides overhauling antiquated labour laws, we must create opportunities by dismantling hurdles to private
investment in infrastructure and retail.

Copyright by Vision IAS

All rights are reserved. No part of this document may be reproduced, stored in a retrieval system or
transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise,
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