I. hub of the world due to rigidities



in the labour market aimed at increasing flexibility of labour use by bringing
about changes in legislative framework has been a subject of debate for over 20
years now. Labour reforms have often been associated with competitiveness.
However, attempts at reforming Indian labour market have been rather slow. Even
the globalization and liberalization process that began in India in 1991
impacted labour market in limited manner. No wonder, India missed the opportunity
of being manufacturing hub of the world due to rigidities in labour market,
archaic labour laws and glaring skill deficit. In last twenty-five years, the
government of India has tried to bring in sporadic changes in labour laws aimed
at lablour flexibilization.

labour market in India remains pokerfaced when it comes to attracting foreign
direct investments especially in labour-intensive sectors such as leather
goods, textiles (apparel,accessories, etc.), gems and jewelry, sports goods,
weapons and ammunitions, furniture, rubber products, fabricated metal products
etc. It is imperative that labour reforms are viewed in a holistic manner so
that India is able to gain demographic dividends by becoming manufacturing
destination of the world owing to higher labour productivity, flexible labour
market practices and lower labour cost without compromising on labour

labour market is spoiled by over-arching complexities of archaic labour laws,
unmindful bureaucratic control and corrupt inspectorate having unlimited
abilities to exploit the susceptible factory owners at the cost of welfare of
the workers. Hence, labour market liberalization is urgent need of the day. It
is imperative that labour laws are progressive, bureaucratic control is
substituted by transparent governance and self-reporting and disclosure as well
as voluntary adoption of labour standards take over the flawed system of

and compliances. It goes without saying that labour market liberalization is
likely to augment employment flexibility, skill development and job creation on
a wide scale. However, free market evangelists put excessive emphasis on the
amendments in labour laws enabling the employers to hire, fire and regulate the
terms and conditions of employment of the working population according to
exigencies of emerging market scenarios. Such extreme position is not only
misplaced but also a major roadblock in converting labour reforms as foundation
of competitiveness in manufacturing and service sectors.



Historical Backdrop

is no doubt that the measures to regulate employment of labour–laws, rules and conventions—have
their origin in India in the recognition of unequal power balance between labour
and capital. Labour has been considered to be a weaker party vis-à-vis the
employer and therefore susceptible to exploitation and in need for protection.
The motivation to protect labour has been further strengthened by ideas of
equity and social justice that the national movement for Independence espoused
and which were finally also enshrined in the Indian Constitution (Singh, 2003).

of International Labour Organisation (ILO) in 1919 was a landmark event in the
annals of labour history internationally, mandating the necessity of labour
legislations to protect the interests of workers. It has developed conventions
and recommendations on labour standards for facilitating improvements in labour
conditions, 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 member
of the ILO Governing Body since 1922. Dr. Shankar Dayal Sharma,

President of India, speaking on the release of a commemorative stamp on the
occasion of the 75th anniversary of the ILO said that “The Constitution of of
treatment between men and women workers, ensuring a living wage and the social
security of workers. These are indeed laudable aims which we, in India, have
tried to secure through various constitutional and legislative mechanisms.”

with the birth of ILO, the All India Trade Unions Congress (AITUC) also came
into existence in India in 1920, which spearheaded the movement for legislation
to alleviate the conditions of workers. Since then, the trade union movements
in the country have played an important role in sharpening the scope and
content of regulatory measures.

ILO and the Declaration of Philadelphia have as their objectives social
justice, equality


Labour Regulations in India

need to legislate to protect the interest of workers and also to ensure the
smooth process of production in enterprises was recognised by the British
rulers of India. The colonial government passed the Factories Act in 1880 laying
down the minimum conditions of work in terms of hygiene, safety and hours of
work, etc. Several revisions were followed in the pre-Independence period in
1891, 1911, and so on. The Trade Union Act passed in 1926 set out procedures
for registration of unions and protection of unions from harassment. The
pressure for protection of workers against risks at work and life mounted in
the 1920s. As a result, several legislations were passed regulating work and
providing social security before Independence. The provision of compensation to
workmen for any injury during the course of employment was made in the Workman’s
Compensation Act passed in 1923. Payment of Wages Act was passed in 1936, to regulate
intervals between successive wage payments, over-time payments and deduction
from the wage paid to the worker. In the sphere of industrial relations, the
Trade Disputes Act of 1929 aimed to create an institutional framework to settle
disputes. The Great Depression and its effects on the Bombay industry with large-scale
wage cuts and resulting disputes led to some important regulations such as the
Bombay Industrial Dispute Act of 1932. The Act provided that an industrial
worker has the right to know the terms and conditions of his employment and the
rules of discipline he was expected to follow. The “general aim of the Bombay
legislations was to allow collective bargaining in a bilateral monopoly
situation” (Pages and Roy, 2006).

and dominant unions were recognised as the sole representatives of the workers.
Thus, the emergence of labour regulations in India can be traced back to the
period of British rule in India. Crucial labour laws governing various aspects
of work were, however, passed in quick succession of each other after
Independence. And since 1947, there has been a complete change in the approach
to labour legislation. The basic philosophy itself underwent a change and the
ideas of social justice and welfare state as enshrined in the Constitution of
India became the guiding principles for the formulation of labour regulations
(Thakur, 2007). The Constitution made specific mention of the duties that the
state owes to labour for their social regeneration and economic upliftment. One
of the significant duties which has a direct bearing on social security
legislation is the duty to make effective provision for securing public
assistance in the case of unemployment, old age, sickness, disablement and
other cases of undeserved want (Papola et al., 2007).

an independent democratic country, it was considered necessary that the rights
of employers to hire, dismiss and alter conditions of employment to the
workers’ detriments were subjected to judicial scrutiny. Accordingly, the
Industrial Disputes Act (IDA) enacted in 1947 provided protection to the
workmen against layoffs, retrenchment and closure and for creation, maintenance
and promotion of industrial peace in industrial enterprises. This Act was later
amended in 1972, 1976, and in 1982 seemingly giving progressively greater
protection to workers. Factories Act 1948, which replaced the one passed in
1884, aims at regulating the conditions of work in manufacturing establishments
and to ensure adequate safety, sanitary, health, welfare measures, hours of
work, leave with wages and weekly off for workers employed in ‘factories’
defined as establishments employing 10 or more workers using power and above 20
workers without use of power. Similarly, the Minimum Wage Act 1948 is the most
important legislation that was expected to help unorganised workers survive despite
the lack of bargaining power. The minimum wages for scheduled employment are to
be fixed and periodically revised by the central and state governments in their
respective spheres. The Act may be applied to every employment in which
collective bargaining did not operate and purports to fix the minimum wages in
such a manner as to enable the concerned workers subsist at least above the
official poverty line.

Industrial Employment (Standing Order) Act 1956 is another legislation
regulating the conditions of recruitment, discharge and disciplinary action
applicable to factories employing 50 or more workers. It requires the employers
to classify workers into different categories as permanent, temporary,
probationers, casual, apprentices and substitutes. The Contract Labour (Regulation
and Abolition) Act 1970 regulates the employment of contract labour and
prohibits its use in certain circumstances. It applies to all establishments
and contractors who currently or in the preceding year employed at least 20
contract workers. The idea behind this Act is to prevent denial of job security
in cases where it is feasible and of social security where it is legitimate
legal entitlement.

the sphere of social security, Employees State Insurance Act (ESIA) was
introduced in 1948, providing compulsory health insurance to the workers. The
Act provides for a social insurance scheme ensuring certain benefits in the
event of sickness, maternity and employment injury to workmen employed in or in
connection with, the work of non-seasonal factories. The Act has prescribed
self-contained code in regard to the insurance of employees covered by it.

the above major laws there are several others that have been enacted for
improving the condition of employment and protecting the overall welfare of
industrial workers after Independence in India.

must be recognised that even though the protection of labour has been the
primary motivation in introducing various measures of labour regulation, there
is an implicit assumption in case of most of them that they are good for
industry as well (Basu, 1995). There seemed to be a clear recognition and
understanding that humane treatment, well-being and security make the workforce
more efficient and productive and it is, therefore, in the interest of the
industry to provide good working conditions, social security against the risks
at work and in life and an assurance that a worker will not be removed from job
unfairly or without adequate notice and compensation. It is also obviously in
the interest of both workers and industry to have industrial peace and
therefore a mechanism for redressal of grievances and settlement of disputes
should be welcome to both. Thus, regulation of different aspects of employment,
conditions of work, social security, job security and industrial relations are
deemed to be parts of social contract and generally accepted and honoured both
by workers and employers.


3. Why Reforms are needed:

employment: Because India still does
not use its vast labour force productively or judiciously. In 2014, India’s
labour force was estimated to be about 490 million, or 40 per cent of the
population, but 93 per cent of this force was in the unorganised sector,
ranging from vegetable vending to diamond trading. Over the last decade, the
compounded 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 14.9

limited to Organised Sector only: These labour laws apply to organised sector which employs only 8
to 9 percent of workforce leaving vast
majority of Indian workforce
remain unregulated. The workers under unorganised sector have limited rights
and are faced deplorable working conditions.

Complexity and Rigidities: The multiplicity of labour laws and difficulty in coping with them
are the impediment to industrial
development in India. Many of
the laws are obsolete and are required to be reviewed to align them with
current economic situation.

of Doing Business is affected: Employers contend that labour laws in India are excessively
pro-worker in the organized sector. There is too
much of inspection, and
industries are looked upon with suspicion when comes to enforcing labour laws.

The legal provisions of job
security and institutional factors like the pressure of trade unions make
adjustment of the workforce of enterprises difficult, and discourage organised
sector enterprises from expansion. The small size of labour-intensive firms
prevents them from reaping economies of scale, thereby lowering India’s
comparative advantage in labour-intensive manufacturing.

Growth: economists, industry
associations believe deceleration in employment growth in India is due to
inflexibility in the labour market. The existing labour laws designed to
protect employment and do not encourage employability.

Development: The industries play crucial
role in skill development. However, these laws discourage firms from employing
a large number of permanent workers and steer them towards employing more
casual or contract workers.

Competitiveness: The
Restrictive labour regulations prevent firms from making the required
adjustments to their inputs in response to shocks to demand and technology. It
makes them difficult to compete with firms in countries where labour market
rigidity is not a problem.


4. What Reforms are needed:

to be shifted to ‘State List’: Labour being in the concurrent list of the constitution, both
central and state government legislate on it. But the State Governments have
limited space to enact labor laws to address their own requirements – promoting
investment and employment generation. It is in best interest of all to shift
labor in State list.

of archaic laws: the
Government has undertaken the exercise of rationalisation of the 38 Labour Acts
by framing 4 labour codes viz Code on Wages, Code on Industrial Relations, Code
on Social Security and Code on occupational safety, health and working

A separate set of simple labour laws should apply to enterprises employing less than 50 employees to promote micro and
small enterprises with
a self-contained code covering laws on employment relations, wages and social

The penal provisions in all
labour laws need to be revisited and the penalty of imprisonment, wherever it
appears, should be converted into pecuniary fines. It will reduce the
compliance cost and fear in the employers.

independent judicial system:
Due to already overburdening of judicial system, a separate independent
judicial system for labor issues may be created. It should be entrusted with
interpretation of all the labor laws and regulations.


5. Improving Enforcement
of Labor Laws:

of enforcement machinery:  Increased
manpower, improved infrastructure is essential for effective implementation of
labor laws. All India Service for labor administration must be formed that will
provide 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 registered
job seekers should be made mandatory for all Employment Exchanges.

mechanism: An insurance scheme should be
started for the retrenched workers from the time the industry commenced
operations, so that workers were not put to hardship later.


6. Recent Steps taken by Government:

Central Government

Shram Suvidha Portal: That would allot Labor Identification
Number (LIN) to units and allow them to file online compliance for 16 out of 44
labor laws.

Inspection Scheme: To eliminate human discretion
in selection of units for Inspection, and uploading of Inspection Reports
within 72 hours of inspection mandatory.

Account Number: Enables 4.17 crore
employees to have their Provident Fund account portable, hassle-free and
universally accessible.

Protsahan Yojana: Government
will support manufacturing units mainly and other establishments by reimbursing
50% of the stipend paid to apprentices during first two years of their

Rashtriya Swasthya Bima Yojana: Introducing a Smart Card for the workers in the unorganized sector
seeded with details of two more social security schemes.

The National Career Service is being implemented as a mission mode project to provide various
job-related services information on skills development courses, internships

State Government

Madhya Pradesh, Gujarat,
Maharashtra and Rajasthan have taken positive steps towards reforming labour

For instance, Madhya Pradesh
has expedited the process for registration and grant of licences under several
legislations by introducing a maximum time period of 30 days within which, if
an application is not rejected, it will be deemed to be registered.

Rajasthan Government initiated
reforms in labor statutes. Companies can retrench up to 300 employees, up from
100 without seeking government permission. Now, it requires membership of 30
per cent of the total workforce for a union to obtain recognition in Rajasthan.


Imperatives for India

in the archaic labour laws has been central theme of labour reforms discourse
in India. Planning Commission (2001) has captured the essence of this debate in
the following words: ‘A comprehensive review of all these laws is definitely
needed. They need to be simplified and brought in line with contemporary
economic realities, including especially current international practice. At
times, the problem is not so much with the law itself as with the lengthy
almost interminable nature of legal proceedings which contribute greatly to the
cost of hiring labour and the associated “hassle factor”. There are also
problems with the enforcement machinery i.e. the various inspectors responsible
for enforcing the law. Complaints are frequently voiced by industry that this
machinery uses the extensive powers at its disposal to harass employers with a
view to extract bribes, a process which imposes especially heavy costs on small
entrepreneurs. Equally, an opposite view is expressed by trade unions that the
labour enforcement machinery needs to be further strengthened in the interest
of better enforcement of labour laws.’

is important to eliminate absurdities, dualities and ambiguities from existing
labour laws so that industry is in a better position to leverage full potential
of labour market in the country without any fear of the law. Rather, labour
laws should foster an enabling environment so far as

practices are concerned. Sooner we overcome ‘compliance mindset’ (a consequence
of labour law rigidities), better is our chances enhancing global
competitiveness in manufacturing as well as service sector. It is high time
that the government should focus on coalescing all the existing labour laws
into one unified piece of legislation with specific sections

labour-management relations, wages, social security, safety at workplace,
welfare provisions, terms and condition of employment, recognition of trade
unions, provisions regarding collective bargaining, and above all, enforcement
of international labour standards.

a legislative marvel will be a model for provincial governments. It is likely
that the provincial governments may adopt the central legislation or come up
with identical ones with little variation in order to accommodate regional
specificities. Moreover, such a legislation will be effective only if it is
universally applicable –covering all the workers in formal as well as informal

radical legislative intervention in labour market will be impossible without
developing a broad-based and holistic national labour policy. Hence, the
government of India should first focus on developing a consensus on national
policy framework on labour issues rather than continuing with an ad hoc
approach 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 to
changes in demand when necessary. The Government admits that the labour laws
lack flexibility. Further, those laws focus on job protection and thus inhibit
employment. The labour market is required to be made more flexible in the days
to come so that labour force shifts gradually from the unor­ganised sector to
the organised ones.

However, trade unionists as well as
work­ers of the organised sector are of the opinion that labour market reform
is anti-labour. But as far as labour laws are concerned, workers of the
organised sector, especially in PSEs, enjoy virtually ‘complete’ job security.
But protective labour policies may cause damages in the long run in the midst
of rising number of unemployment.

Further, if employers enjoy more
bargain­ing power, interests of the workers may be at jeopardy. Indeed, this is
what we observe in the rising incidence of contract- based employ­ment leading
to conflicts with the more gen­eral requirement that society must ensure ‘de­cent
work’ for all. With growth rate picking up, a harmonious balance between
efficiency and the quality of employment involving the relationship between
management and labour and welfare aspects needs to be maintained.