Labour law reform in India.

AuthorSodhi, J.S.
PositionBy Invitation - Abstract


Universally the power structure in the society has been and is weighed towards the haves and therefore, the weaker sections of the society need protection. India has been no exception. That was the primary motivation for organization of workers and formulation of labor laws by the governments across the world. In India, except for four decades 1950-90, the balance of power has remained with the employers. Since the 1990s, however, the state has been soft in implementing labor laws in its letter and spirit. It realizes that the labor law regime is out of sync with the realities of the economic environment and it has not been able to restore cordial industrial relations and peace.

Industrial relations had worsened during the last decade which witnessed managements' aggressiveness towards the workers and trade unions. They have been resisting formation of unions at the enterprise level and coercing the unions, wherever they exist, to terminate their political affiliations and insist on not to have outside leadership. Employment of contract labor has increased manifold much of which is in violation of the Contract Labor (Regulation & Abolition) Act, 1970. Such workers are paid much less wages compared to a permanent worker doing the same job and have no security of job (Sodhi-ILO, 2010).

Strangely enough, Government of India has also been an active player in the employment of contract labor in contravention of the Contract Labor Act. In fact it is the largest employer of contract labor. The violation of other labor laws is happening under its very nose. Labor law enforcement in Export Promotion Zones is negligible. The position is similar in the IT sector. State governments like Kerala have passed orders restricting the functioning of trade unions. Haryana State Government had passed a similar order preventing its employees from going on strike.

The Legal Framework

The country has plethora of labor laws. Since labor in India is on the concurrent list, the Central and the state governments are competent to enact legislation. There are 44 Central and a Large number of State laws in the country. The Central laws are categorized in to three viz: those enacted and enforced by the Central Government (12 in number); those enacted by the Central and enforced both by the Central as well as the State governments (16 in number); and, those enacted and enforced by the various State governments which apply to respective states (16 in number). The most critical laws were enacted before or just after Independence (the Trade Union Act, 1926, Industrial Disputes Act, 1947, Workmen Compensation Act 1923, Payment of Wages Act 1936 and the Industrial Employment-Standing Orders-Act, 1948). Amongst others, majority were enacted 30 years back. Chronologically, sixteen of the forty four Central laws were enacted before or immediately after Independence, nine in the late 1950s and the 1960s, ten in the 1970s, six in 1980s, two each in the nineties and one in the last decade. (Annex 1)

Changing Labor Laws

Obviously, the laws are too old. While the age of the law per se may not be an indicator of its relevance or otherwise, it is important to mention that liberalization and globalization, which began in the 1990s, had totally changed the the economic paradigm in the country. The context in which these laws were enacted has, therefore, undergone a metamorphosis.

With these laws in the background, doing business in India is a cumbersome vocation particularly for an upright entrepreneur. The multifarious labor laws, with varying connotations and definitions, force the employer into submission to the labor inspectorate, multiple trade unions and rigidities in which it cannot retrench any employee once employed (subject to the completion of 240 days of continuous work). The laws bind him to not even close the enterprise. Government permission is required to effect these changes.

The object of formulating labor laws was laudable but the changing economic environment has made them outdated. The malady is well recognized at the highest levels. The former Prime Minister Dr Manmohan Singh had repeatedly stated that labor laws needed to be changed. He had said (ILC 40th Session) "the process of doing business with India has to become less intimidating, less cumbersome and less bureaucratic to attract more investment. Many of the legacies of the past have not much relevance today. Indeed, some of them have become counterproductive today and may well be hurting the very people they are meant to benefit". He further stated that the country needed new laws which provided safety standards catered to the basic needs of workers, took care of their welfare and were flexible enough to create rather than destroy jobs.

The plea for changes in the labor laws had gathered momentum with the present government's commitment to create a conducive environment for investors and liberate the entrepreneurs from the tyranny of myriad labor laws. Equally important is the fact that India needs to create 80 million jobs during the next 10 years while at present it has created only two million jobs every year during 2005-12. Almost five million persons lost jobs in the labor intensive manufacturing like the textiles and apparels and electronics during 2005-10. According to Goldman Sachs, it is because firms are substituting capital for labor largely because of fear of coming into the ambit of a large number of labor laws.

Despite the felt need, the noise and commitment have almost never been followed through with any concrete action. The logic given for no major changes in the laws is that any change in Central legislation has to be approved by both houses of the Parliament and the States (labor is on the concurrent list) can bring in appropriate regulations given in the broad structure of labor laws (Panagariaya, 2014). The President of India has the constitutional authority to amend the laws as sent by the State governments under section 254 (2) of the Constitution. However, despite this, only states like Gujrat, Maharashtra, Andhra Pradesh and Rajasthan (proposed amendments), amongst others have addressed the issue to some extent.

Amendments have also been made during the last four years to the Central laws. The Employees Compensation Act (earlier known as Workmen's Compensation Act) had been changed with respect to the wage ceiling limit, which was increased from Rs. 4000 to Rs 8000 per month for purpose of calculating compensation along with other minor changes; Employee State Insurance Act, 1948 was amended to improve the quality of service under the scheme; the Plantation Labor Act, 1951 was amended to provide safety and occupational health care to plantation workers and the Industrial Disputes Act, 1947 was amended in 2010 to: amplify the term 'appropriate government' defined under section 2(a) of the Act; enhance the wage ceiling from Rs. 1600/- to Rs. 10000/ --per month to cover workmen working in supervising capacity; provide direct access to workman to the labor court or tribunal in case of disputes arising out of Section 2 (a) of the Act; establish grievance redressal machinery; and, empower labor courts or Tribunals to execute Awards. Some of the proposed amendments are with various committees of the Parliament and at various stages of discussions.

Amendments by State Govenments

Some of the state government's have been active in making amendments. For example, the Gujarat government had made changes allowing the SEZ's to lay off redundant workers without seeking the permission of the government. It mandaded the SEZ's to give a formal notice, severance pay and a compensation of 45 days for a year of work rather than the 15 days given to other workers. It also allowed "Fixed Term Employment" under the Industrial Standing Order Act 1946 and Gujarat Rules 1955 which defines conditions of employment, Self consolidation--cum-consolidated Annual Return scheme; keeping a maximum of two inspection registers and, following the Supreme Court verdict, no pay for no work was also introduced.

The State of Rajasthan has recently proposed changes in the Industrial Disputes Act, 1947 to the effect that government permission will now not be required for retrenchment in companies employing up to 300 (up from 100 under the Central Act) workers. Other amendments relate to the change in the Factories Act regarding the applicability of the Contract Labor Act, 1970 to establishments by raising the limit of number of workers to 20 and 40 with or without power up from the present 10 and 20 workers. These amendments though have to be ratified by the President of India.

Andhra Pradesh government had made amendments in the Contract Labor Act, 1970 which were hailed as a model for other states to follow. It had introduced a clause restraining the employment of contract labor in core activities of any establishment if the same was prohibited by notification. However, wide ranging exemptions were made such as the normal functioning of the establishments such that the activity is ordinarily done through contractors; or the activities are such that they do not require full time workers for the major portion of the working hours in a day or for longer periods as the case may be; and any sudden increase of volume of work in the core activity which needs to be accomplished in a specified time. The amendments amply clarified the core activity meaning as any activity for which establishment is set up which includes any activity essential or necessary...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT