I.INTRODUCTIONReformsin the labour market aimed at increasing flexibility of labour use by bringingabout changes in legislative framework has been a subject of debate for over 20years now. Labour reforms have often been associated with competitiveness.However, attempts at reforming Indian labour market have been rather slow. Eventhe globalization and liberalization process that began in India in 1991impacted labour market in limited manner. No wonder, India missed the opportunityof being manufacturing hub of the world due to rigidities in labour market,archaic labour laws and glaring skill deficit.
In last twenty-five years, thegovernment of India has tried to bring in sporadic changes in labour laws aimedat lablour flexibilization.Nevertheless,labour market in India remains pokerfaced when it comes to attracting foreigndirect investments especially in labour-intensive sectors such as leathergoods, textiles (apparel,accessories, etc.), gems and jewelry, sports goods,weapons and ammunitions, furniture, rubber products, fabricated metal productsetc. It is imperative that labour reforms are viewed in a holistic manner sothat India is able to gain demographic dividends by becoming manufacturingdestination of the world owing to higher labour productivity, flexible labourmarket practices and lower labour cost without compromising on labourstandards.Indianlabour market is spoiled by over-arching complexities of archaic labour laws,unmindful bureaucratic control and corrupt inspectorate having unlimitedabilities to exploit the susceptible factory owners at the cost of welfare ofthe workers. Hence, labour market liberalization is urgent need of the day.
Itis imperative that labour laws are progressive, bureaucratic control issubstituted by transparent governance and self-reporting and disclosure as wellas voluntary adoption of labour standards take over the flawed system offactoryinspectionsand compliances. It goes without saying that labour market liberalization islikely to augment employment flexibility, skill development and job creation ona wide scale. However, free market evangelists put excessive emphasis on theamendments in labour laws enabling the employers to hire, fire and regulate theterms and conditions of employment of the working population according toexigencies of emerging market scenarios. Such extreme position is not onlymisplaced but also a major roadblock in converting labour reforms as foundationof competitiveness in manufacturing and service sectors. II.ISSUES IN THE LABOUR REGULATIONS DEBATE IN INDIA1.
Historical BackdropThereis no doubt that the measures to regulate employment of labour–laws, rules and conventions—havetheir origin in India in the recognition of unequal power balance between labourand capital. Labour has been considered to be a weaker party vis-à-vis theemployer and therefore susceptible to exploitation and in need for protection.The motivation to protect labour has been further strengthened by ideas ofequity and social justice that the national movement for Independence espousedand which were finally also enshrined in the Indian Constitution (Singh, 2003).
Establishmentof International Labour Organisation (ILO) in 1919 was a landmark event in theannals of labour history internationally, mandating the necessity of labourlegislations to protect the interests of workers. It has developed conventionsand recommendations on labour standards for facilitating improvements in labourconditions, which have been adopted by its member countries including India.India is one of the founding members of the ILO and has been a permanent memberof the ILO Governing Body since 1922. Dr. Shankar Dayal Sharma,thenPresident of India, speaking on the release of a commemorative stamp on theoccasion of the 75th anniversary of the ILO said that “The Constitution of oftreatment between men and women workers, ensuring a living wage and the socialsecurity of workers. These are indeed laudable aims which we, in India, havetried to secure through various constitutional and legislative mechanisms.
“Alongwith the birth of ILO, the All India Trade Unions Congress (AITUC) also cameinto existence in India in 1920, which spearheaded the movement for legislationto alleviate the conditions of workers. Since then, the trade union movementsin the country have played an important role in sharpening the scope andcontent of regulatory measures.theILO and the Declaration of Philadelphia have as their objectives socialjustice, equality 2.Labour Regulations in IndiaTheneed to legislate to protect the interest of workers and also to ensure thesmooth process of production in enterprises was recognised by the Britishrulers of India. The colonial government passed the Factories Act in 1880 layingdown the minimum conditions of work in terms of hygiene, safety and hours ofwork, etc. Several revisions were followed in the pre-Independence period in1891, 1911, and so on. The Trade Union Act passed in 1926 set out proceduresfor registration of unions and protection of unions from harassment.
Thepressure for protection of workers against risks at work and life mounted inthe 1920s. As a result, several legislations were passed regulating work andproviding social security before Independence. The provision of compensation toworkmen for any injury during the course of employment was made in the Workman’sCompensation Act passed in 1923. Payment of Wages Act was passed in 1936, to regulateintervals between successive wage payments, over-time payments and deductionfrom the wage paid to the worker. In the sphere of industrial relations, theTrade Disputes Act of 1929 aimed to create an institutional framework to settledisputes. The Great Depression and its effects on the Bombay industry with large-scalewage cuts and resulting disputes led to some important regulations such as theBombay Industrial Dispute Act of 1932.
The Act provided that an industrialworker has the right to know the terms and conditions of his employment and therules of discipline he was expected to follow. The “general aim of the Bombaylegislations was to allow collective bargaining in a bilateral monopolysituation” (Pages and Roy, 2006).Largeand dominant unions were recognised as the sole representatives of the workers.Thus, the emergence of labour regulations in India can be traced back to theperiod of British rule in India. Crucial labour laws governing various aspectsof work were, however, passed in quick succession of each other afterIndependence.
And since 1947, there has been a complete change in the approachto labour legislation. The basic philosophy itself underwent a change and theideas of social justice and welfare state as enshrined in the Constitution ofIndia became the guiding principles for the formulation of labour regulations(Thakur, 2007). The Constitution made specific mention of the duties that thestate owes to labour for their social regeneration and economic upliftment. Oneof the significant duties which has a direct bearing on social securitylegislation is the duty to make effective provision for securing publicassistance in the case of unemployment, old age, sickness, disablement andother cases of undeserved want (Papola et al.
, 2007).Inan independent democratic country, it was considered necessary that the rightsof employers to hire, dismiss and alter conditions of employment to theworkers’ detriments were subjected to judicial scrutiny. Accordingly, theIndustrial Disputes Act (IDA) enacted in 1947 provided protection to theworkmen against layoffs, retrenchment and closure and for creation, maintenanceand promotion of industrial peace in industrial enterprises. This Act was lateramended in 1972, 1976, and in 1982 seemingly giving progressively greaterprotection to workers.
Factories Act 1948, which replaced the one passed in1884, aims at regulating the conditions of work in manufacturing establishmentsand to ensure adequate safety, sanitary, health, welfare measures, hours ofwork, leave with wages and weekly off for workers employed in ‘factories’defined as establishments employing 10 or more workers using power and above 20workers without use of power. Similarly, the Minimum Wage Act 1948 is the mostimportant legislation that was expected to help unorganised workers survive despitethe lack of bargaining power. The minimum wages for scheduled employment are tobe fixed and periodically revised by the central and state governments in theirrespective spheres.
The Act may be applied to every employment in whichcollective bargaining did not operate and purports to fix the minimum wages insuch a manner as to enable the concerned workers subsist at least above theofficial poverty line.Similarly,Industrial Employment (Standing Order) Act 1956 is another legislationregulating the conditions of recruitment, discharge and disciplinary actionapplicable to factories employing 50 or more workers. It requires the employersto classify workers into different categories as permanent, temporary,probationers, casual, apprentices and substitutes. The Contract Labour (Regulationand Abolition) Act 1970 regulates the employment of contract labour andprohibits its use in certain circumstances. It applies to all establishmentsand contractors who currently or in the preceding year employed at least 20contract workers. The idea behind this Act is to prevent denial of job securityin cases where it is feasible and of social security where it is legitimatelegal entitlement.Inthe sphere of social security, Employees State Insurance Act (ESIA) wasintroduced in 1948, providing compulsory health insurance to the workers. TheAct provides for a social insurance scheme ensuring certain benefits in theevent of sickness, maternity and employment injury to workmen employed in or inconnection with, the work of non-seasonal factories.
The Act has prescribedself-contained code in regard to the insurance of employees covered by it.Besidesthe above major laws there are several others that have been enacted forimproving the condition of employment and protecting the overall welfare ofindustrial workers after Independence in India.Itmust be recognised that even though the protection of labour has been theprimary motivation in introducing various measures of labour regulation, thereis an implicit assumption in case of most of them that they are good forindustry as well (Basu, 1995). There seemed to be a clear recognition andunderstanding that humane treatment, well-being and security make the workforcemore efficient and productive and it is, therefore, in the interest of theindustry to provide good working conditions, social security against the risksat work and in life and an assurance that a worker will not be removed from jobunfairly or without adequate notice and compensation.
It is also obviously inthe interest of both workers and industry to have industrial peace andtherefore a mechanism for redressal of grievances and settlement of disputesshould be welcome to both. Thus, regulation of different aspects of employment,conditions of work, social security, job security and industrial relations aredeemed to be parts of social contract and generally accepted and honoured bothby workers and employers. 3. Why Reforms are needed:· Lowemployment: Because India still doesnot use its vast labour force productively or judiciously. In 2014, India’slabour force was estimated to be about 490 million, or 40 per cent of thepopulation, but 93 per cent of this force was in the unorganised sector,ranging from vegetable vending to diamond trading.
Over the last decade, thecompounded annual growth rate (CAGR) of employment has slowed to 0.5 per cent,with 13.9 million jobs created in 2012 when the labour force increased by 14.9million.· Benefitslimited to Organised Sector only: These labour laws apply to organised sector which employs only 8to 9 percent of workforce leaving vastmajority of Indian workforceremain unregulated.
The workers under unorganised sector have limited rightsand are faced deplorable working conditions.· Multiplicity,Complexity and Rigidities: The multiplicity of labour laws and difficulty in coping with themare the impediment to industrialdevelopment in India. Many ofthe laws are obsolete and are required to be reviewed to align them withcurrent economic situation.· Easeof Doing Business is affected: Employers contend that labour laws in India are excessivelypro-worker in the organized sector.
There is toomuch of inspection, andindustries are looked upon with suspicion when comes to enforcing labour laws.· The legal provisions of jobsecurity and institutional factors like the pressure of trade unions makeadjustment of the workforce of enterprises difficult, and discourage organisedsector enterprises from expansion. The small size of labour-intensive firmsprevents them from reaping economies of scale, thereby lowering India’scomparative advantage in labour-intensive manufacturing.· JoblessGrowth: economists, industryassociations believe deceleration in employment growth in India is due toinflexibility in the labour market.
The existing labour laws designed toprotect employment and do not encourage employability.· SkillDevelopment: The industries play crucialrole in skill development. However, these laws discourage firms from employinga large number of permanent workers and steer them towards employing morecasual or contract workers.· GlobalCompetitiveness: TheRestrictive labour regulations prevent firms from making the requiredadjustments to their inputs in response to shocks to demand and technology.
Itmakes them difficult to compete with firms in countries where labour marketrigidity is not a problem.· 4. What Reforms are needed:· Laborto be shifted to ‘State List’: Labour being in the concurrent list of the constitution, bothcentral and state government legislate on it. But the State Governments havelimited space to enact labor laws to address their own requirements – promotinginvestment and employment generation. It is in best interest of all to shiftlabor in State list.· Simplificationof archaic laws: theGovernment has undertaken the exercise of rationalisation of the 38 Labour Actsby framing 4 labour codes viz Code on Wages, Code on Industrial Relations, Codeon Social Security and Code on occupational safety, health and workingconditions.· A separate set of simple labour laws should apply to enterprises employing less than 50 employees to promote micro andsmall enterprises witha self-contained code covering laws on employment relations, wages and socialsecurity.
· The penal provisions in alllabour laws need to be revisited and the penalty of imprisonment, wherever itappears, should be converted into pecuniary fines. It will reduce thecompliance cost and fear in the employers.· Separateindependent judicial system:Due to already overburdening of judicial system, a separate independentjudicial system for labor issues may be created.
It should be entrusted withinterpretation of all the labor laws and regulations. 5. Improving Enforcementof Labor Laws:· Strengtheningof enforcement machinery: Increasedmanpower, improved infrastructure is essential for effective implementation oflabor laws. All India Service for labor administration must be formed that willprovide professional experts in the field of labor administration.Dispute resolution: Regular Lok Adalats could enable faster disposal of cases.
· Digitization of the Employment Exchanges, digital sharing of data on registeredjob seekers should be made mandatory for all Employment Exchanges.· Insurancemechanism: An insurance scheme should bestarted for the retrenched workers from the time the industry commencedoperations, so that workers were not put to hardship later. 6. Recent Steps taken by Government:Central Government· DedicatedShram Suvidha Portal: That would allot Labor IdentificationNumber (LIN) to units and allow them to file online compliance for 16 out of 44labor laws.
· RandomInspection Scheme: To eliminate human discretionin selection of units for Inspection, and uploading of Inspection Reportswithin 72 hours of inspection mandatory.· UniversalAccount Number: Enables 4.17 croreemployees to have their Provident Fund account portable, hassle-free anduniversally accessible.
· ApprenticeProtsahan Yojana: Governmentwill support manufacturing units mainly and other establishments by reimbursing50% of the stipend paid to apprentices during first two years of theirtraining.· RevampedRashtriya Swasthya Bima Yojana: Introducing a Smart Card for the workers in the unorganized sectorseeded with details of two more social security schemes.· The National Career Service is being implemented as a mission mode project to provide variousjob-related services information on skills development courses, internshipsetc.State Government· Madhya Pradesh, Gujarat,Maharashtra and Rajasthan have taken positive steps towards reforming labourlaws.· For instance, Madhya Pradeshhas expedited the process for registration and grant of licences under severallegislations by introducing a maximum time period of 30 days within which, ifan application is not rejected, it will be deemed to be registered.
· Rajasthan Government initiatedreforms in labor statutes. Companies can retrench up to 300 employees, up from100 without seeking government permission. Now, it requires membership of 30per cent of the total workforce for a union to obtain recognition in Rajasthan. 7.Imperatives for IndiaChangein the archaic labour laws has been central theme of labour reforms discoursein India.
Planning Commission (2001) has captured the essence of this debate inthe following words: ‘A comprehensive review of all these laws is definitelyneeded. They need to be simplified and brought in line with contemporaryeconomic realities, including especially current international practice. Attimes, the problem is not so much with the law itself as with the lengthyalmost interminable nature of legal proceedings which contribute greatly to thecost of hiring labour and the associated “hassle factor”. There are alsoproblems with the enforcement machinery i.e. the various inspectors responsiblefor enforcing the law. Complaints are frequently voiced by industry that thismachinery uses the extensive powers at its disposal to harass employers with aview to extract bribes, a process which imposes especially heavy costs on smallentrepreneurs.
Equally, an opposite view is expressed by trade unions that thelabour enforcement machinery needs to be further strengthened in the interestof better enforcement of labour laws.’Itis important to eliminate absurdities, dualities and ambiguities from existinglabour laws so that industry is in a better position to leverage full potentialof labour market in the country without any fear of the law. Rather, labourlaws should foster an enabling environment so far asemploymentpractices are concerned. Sooner we overcome ‘compliance mindset’ (a consequenceof labour law rigidities), better is our chances enhancing globalcompetitiveness in manufacturing as well as service sector.
It is high timethat the government should focus on coalescing all the existing labour lawsinto one unified piece of legislation with specific sectionscoveringlabour-management relations, wages, social security, safety at workplace,welfare provisions, terms and condition of employment, recognition of tradeunions, provisions regarding collective bargaining, and above all, enforcementof international labour standards.Sucha legislative marvel will be a model for provincial governments. It is likelythat the provincial governments may adopt the central legislation or come upwith identical ones with little variation in order to accommodate regionalspecificities. Moreover, such a legislation will be effective only if it isuniversally applicable –covering all the workers in formal as well as informalsectors.Aradical legislative intervention in labour market will be impossible withoutdeveloping a broad-based and holistic national labour policy.
Hence, thegovernment of India should first focus on developing a consensus on nationalpolicy framework on labour issues rather than continuing with an ad hocapproach to amend a few provisions of labour laws to please the industry. III. Conclusion:Thus, in the current scenario,greater flexibility in labour laws must be ensured so that firms can adjust tochanges in demand when necessary. The Government admits that the labour lawslack flexibility. Further, those laws focus on job protection and thus inhibitemployment. The labour market is required to be made more flexible in the daysto come so that labour force shifts gradually from the unorganised sector tothe organised ones.However, trade unionists as well asworkers of the organised sector are of the opinion that labour market reformis anti-labour. But as far as labour laws are concerned, workers of theorganised sector, especially in PSEs, enjoy virtually ‘complete’ job security.
But protective labour policies may cause damages in the long run in the midstof rising number of unemployment.Further, if employers enjoy morebargaining power, interests of the workers may be at jeopardy. Indeed, this iswhat we observe in the rising incidence of contract- based employment leadingto conflicts with the more general requirement that society must ensure ‘decentwork’ for all. With growth rate picking up, a harmonious balance betweenefficiency and the quality of employment involving the relationship betweenmanagement and labour and welfare aspects needs to be maintained.