LABOUR ISSUES AND NEED FOR LABOUR

REFORM IN INDIA
LABOUR LAW-II

Submitted by:
RUPAK KUMAR
2013094
Submitted to:
MADHU RANA MAAM
SEMESTER V

DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

Visakhapatnam
OCTOBER 2015

Table of Contents
ACKNOWLEDGEMENT.........................................................
List Of Abbreviations.........................................................
Labor Issues and Need for Labor Reforms in India.......................................
Abstract...........................................................................
Hypothesis.......................................................................
Research questions:..........................................................
Research methodology......................................................
Introduction......................................................................
Historical Background.......................................................
Labour Laws in India.........................................................
1.Regulations on Wages and Earnings....................................11
MinimumWagesAct1948..............................................................11
2.Regulations of Conditions of Work...................................................13
Factories Act.............................................................................13
Shops and Commercial Establishments Act (SCEA)...................................14
3.Social Security Regulations...........................................................14
4. Job Security and Industrial Relations Regulations.................................16
Contract Labour Act (CLA).............................................................16

Industrial Dispute Act......................................................17

Factories Act...................................................................19
Problems with the Labour Regulatory Mechanism.............20
Too Many Laws..........................................................................20
Limited Coverage of Labour Regulations..............................................21

Challenge to Labour Regulations in Recent Years..............22

Law wages Limited Security.............................................23
Reforms at Slow Pace......................................................24
Recent Proposed labor amendment by Central and state
govt...............................................................................26
National Policy for Domestic Workers.................................................26
Amendment to child labour law........................................................26
Single Compliance Return for Eight Labour Laws can now be filed by Companies
............................................................................................27
Merging of Four wage-related labour laws............................................27
Rajasthan labour reforms...............................................................27
Labour reform in Madhya Pradesh....................................................27
A single window system for labour law compliance, provident fund (PF) number
portability and a revamped inspection system for companies.........................28
Tamilnadu................................................................................28
Karnatka.................................................................................28

Conclusion......................................................................29
2

Bibliography...................................................................31

ACKNOWLEDGEMENT
I have endeavored to attempt this project. However, it would not have been feasible
without the valuable support and guidance of Madhu Rana maam. I would like to
extend my sincere thanks to her.
I am also highly indebted to Damodaram Sanjivayya National Law University
Library Staff, for their patient co-operation as well as for providing necessary
information & also for their support in completing this project.
My thanks and appreciations also go to my classmates who gave their valuable
insight and helping in developing this project.

List Of Abbreviations

Section

Sections

Paragraph

UOI

Union of India

A.P.

Andhra Pradesh

A.C.

Appellate Cases

AIR

All India Reporter

Anr.

Another

Bom.

Bombay

CP.C.

Civil Procedure Code

K.B.

Kings Bench

Mad.

Madras

n.

Note

Ors.

Others

SC

Supreme Court

SCC

Supreme Court Cases

Sd/-

Signed

Supp.

Supplementary

U.P.

Uttar Pradesh

U.S.

United States

U.T.

Union Territory

v.

Versus

Labor Issues and Need for Labor Reforms in India

Abstract
Since the 1991 economic reforms, growth in India has quadrupled but the rate of
good
quality jobs has stagnated. Indias labor legislation has become increasingly
inflexible and restrictive over time. The costs imposed by such regulation forces
businesses to remain in the informal or unorganized sector, where regulation is little
or absent but social security is also non-existent. As a result, 93 percent of the
Indian workforce is employed in low-quality, low-paid jobs, with hardly any social
security cover. On the other hand, there is evidence of productivity being higher in
the formal sector. So is formalization the immediate solution? In the long run, yes,
but it is not desirable until statutory costs decline and service quality of social
security mechanisms is improved. In the face of mounting fiscal and political
challenges, which are also opportunities to exploit, it is now increasingly important
to undertake reforms that boost the rate of good jobs and growth even if its in the
informal sector for now. However, reforms related to labor market and labor
legislation have historically stalled, as they are politically sensitive, and only
applicable to the 7 percent formally employed. There is an immediate need to move
the reform narrative to the informal sector in addition to the formal sector. Labor
reforms suggested by analysts and businessmen are usually drastic in nature, failing
to consider stakeholders with vested interests in an inflexible labor market. Through
this it is an aim to bring forth a workable approach or a middle ground by taking
into Account the perceived short-term interests of those in favor of status quo and
those who tend to favor immediate reform. It endeavors to carefully consider the
political Economy aspects of the situation, and identify the low-hanging fruits,
which could bring about significant benefits for most stakeholders employers,
employees, trade unions and the government while also preparing the transition of
social and economic structures of the labor market to modernization. This report
proposes how we could think about a workable approach to labor market reform;
different from the polarized debates we have seen so far. It recommends that
making small tweaks to social security administration, increasing federal freedom
and competition, and engaging meaningfully with trade unions could start such an
5

approach. One of the primary messages is to move the reform narrative to the
informal sector. Analysts and policymakers have long been pushing the cause of
flexible labor markets in India. On the other hand, such proposals have been met
with staunch resistance from those whose interests are vested in an inflexible labor
market, including employees, trade unions, and the labor ministry. After almost six
decades of impasse on this issue, it is time to find a workable approach that could
be acceptable to both parties as marginal progress is better than a standstill.

Hypothesis: Are Indian Labor Laws totally outdated and out of synch
with present need?

Research questions:
1. How to harmonies the labor reforms between keeping the interest of
workers and industrial growth
2. Whether the latest labor reforms are pro industry or pro Workers.

Research methodology: The method of doctrinal Research

has been used. With the help of various law commissions, labor commissions,
Planning Commission and Labor ministrys report has been analyzed.

Introduction
In India, the relationship between economic growth and job creation has often been
6

Inconsistent. To the extent that even when jobs are added to the economy, they have
been mainly in the informal sector. A growing informal sector often affects potential
for business productivity and workforce security, highlighting the shifting
relationship with economic growth. The interaction amongst these arguments can
be clearly illustrated in the Indian context. Informal sector in India can be best
defined in three ways: First, there is a definition in terms of exemptions from
paying indirect taxes. Second, there is a definition in terms of small-scale industry
(SSI), which again is defined in terms of threshold levels of investment in plant and
machinery. Third, there is a definition in terms of labor laws. That is, an enterprise
is unorganized if it uses power and employs fewer than 10 people or does not use
power and employs fewer than 20 people. The last definition is the one that is used
most often. Informal sector workers can be identified by occupations like small
farmers, fishermen, beedi packers, and/or bonded laborers, migrant workers,
contract and casual laborers. Scavengers, loaders and unlades also belong to this
category (Planning Commission, 2001)1. Who are also called informal and
unorganized interchangeably?

Historical Background
There is no doubt that the measures to regulate employment of labourlaws, rules
and conventionshave their origin in India in the recognition of unequal power
1 Planning commission report on informal sector in india
7

balance between labour and capital. Labour has been considered to be a weaker
party vis--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). Establishment of International Labour Organization (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. 2 Dr. Shankar
Dayal Sharma, then 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 the ILO and the Declaration of Philadelphia have as their objectives
social justice, equality 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. Along 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.

Labour Laws in India

Labor Regulations in India The need to legislate to protect the interest of workers
and also to ensure the smooth process of production in enterprises was recognized
by the British rulers of India. The colonial government passed the Factories Act in
2 Bhattacharjea, Aditya (2006), Labour Market Regulation and Industrial
Performance in India: A Critical Review of the Empirical Evidence, The Indian
Journal of Labour Economics, Vol.49, No. 2, pp. 211-232.
8

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 Workmans 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. 3 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 . Large 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). In an independent democratic
3 Datta Chaudhuri, Mrinal (1994), Labour Markets as Social Institutions in
India, CDE Working Paper, No. 16, Delhi School of Economics
9

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.4 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. Similarly, 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. In 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
4 Anant, T. C. A. and Sundaram, K. (1998), Wage Policy in India: A Review, The
Indian Journal of Labour Economics, Vol. 41, No. 4, pp 815-34.
10

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. Besides 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. It 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. 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.

1.Regulations on Wages and Earnings

MinimumWagesAct1948

ThemostimportantlegislationonfixationofwagesistheMinimumWagesAct
1948.Industrywisewageboardsandcommitteeswereoftenusedinthepastfor
wage fixation in the organised sector. This practise, however, has now been
virtually given up. The Minimum Wages Act (MWA) requires the appropriate
government, central or state, to fix the minimum wages for certain types of
employment.TheActisapplicabletoanypersonemployedforhireorrewardto
doanywork,skilledorunskilled,manualorclerical,inanemploymentspecifiedin
thescheduleandinrespecttowhichminimumratesofwageshavebeenfixed.This
includesanoutworkertowhomanyarticlesormaterialsaregivenoutbyanother
persontobemadeup,cleaned,washed,altered,finished,repairedorotherwise
processed for sale. Having said this, it should be noted that the MWA is not
applicabletoallworkersandemploymentinthecountry. 5Whilethereisnolimiton
5 (1995), Do Indias Labor Laws Hurt Indian Laborers? A Theoretical
Investigation, Working Paper, No.95- 12, Center for Analytical Economics (CAE),
11

enterprisesizeornatureofworkcontract(permanent/temporaryorregular/casual),
the Act is applicable only to employments that are included in the schedule
appendedtotheAct.TherelevanceoftheMWAfortheorganisedsectorisgreatly
reducedinsofarasenterprisesinthissegmentoftheeconomyaregenerallyfound
topaywageshigherthanfixedundertheAct.1Inotherwords,wagefixationina
largepartoftheorganisedsegmentoftheIndianindustryis,byandlarge,lefttothe
marketatpresent.Consequently,theorganisedindustryhasnoparticularproblem
withthispieceoflegislation.TheActthusisprimarilyrelevantfortheunorganised
sector.Enterprisesintheunorganisedsectoralsodonotappeartohaveanybasic
problemwiththelaw,ifonegoesbytheopinionsexpressedbytheminvarious
surveys,butdofindthewageratefixedundertheActsometimesunrealistically
highItis,however,foundthatthemajorityofworkers,particularlythoseinthe
ruralareasand,women,receivesignificantlylowerwagesthanprescribedunderthe
law fordifferent employments The otherimportant Actrelated towages is the
PaymentofWagesAct(PWA).

Payment of Wages Act (PWA).

ThisActisapplicabletoaclassofworkersinfactoriesandestablishmentslistedin
theAct.Itaimstoensurethatworkersreceiveregular,promptandtimelypayment
ofwagesforworkdone.Italsoprohibitsarbitrarydeductionfromworkerswagesin
theformoffinesandpenalties.SomestatessuchasMaharashtrahaveextendedthe
scopeoftheActandincludedallshopsandcommercialestablishmentsunderits
purview.Again,asinthecaseoftheMWA,theorganisedindustryhasnoproblem
withthePWA.IntheunorganisedsectorwhereverthisActisapplicable,boththese
conditions are widely violated: Payment of wages is not regular by the period
specifiedinthecontractanddeductionsandcutsareimposedononepretextor
another.6

Cornell University.
6 Bhattacharjea, Aditya (2006), Labour Market Regulation and Industrial
Performance in India: A Critical Review of the Empirical Evidence, The Indian
Journal of Labour Economics, Vol.49, No. 2, pp. 211-232.
12

2.Regulations of Conditions of Work

Factories Act
Onconditionsofwork,theFactoriesActisthebasiclegislationprescribingthe
physicalconditionsofworkatworkplace,hoursofwork,restandholidaysand
safety,andsoon.TheActprescribessuchconditions,whichcouldbeconsideredto
beminimumnecessaryforhumanbeingforthesafeguardoftheirhealth,efficiency
andsafetyatwork.TheActprohibitstheemploymentofwomenandyoungpersons
in certain employments. 7The Factories Act is applicable to any manufacturing
activitywhere10workersormoreareemployedandusepowerforproductionor
20workersareinvolvedwithouttheuseofpower.TheFactoriesAct1948has
provisionsforlicensingandregistrationoffactories.BydefinitiontheActdoesnot
apply to the unorganised sector. As such, industry should have no particular
problemincomplyingwiththeprovisionsoftheFactoriesAct(FA).Itis,however,
feltthatprovisionsaretoodetailedandsometimesantiquated,andleavelargescope
forunscrupulousofficials,particularlytheinspectorswhohaverelativelyunfettered
powers under the Act, to harass the employers and extract monetary or other
favours.SincetheActdoesnotapplytosmallerenterprises,itisarguedthatthe
existenceofthisdistinctionoftendiscouragesenterprisestoexpandemploymentto
hitthisthresholdsoastoavoidhasslesandcostsofapplicationandcomplianceof
theFactoriesAct.Theyeitherdonotexpandtheirbusinessbeyondwhatrequires
nineorlessworkersorreportfewerworkersthantheyemploy,byhiringthemona
contract basis. Data do give credence to these observations: there is a sizeable
number of enterprises in the employment range close to and lower than the
thresholdoftenworkersandalso,oflate,anincreasinglylargeruseismadeofthe
contractlabourbyenterprisesinthissizerange.

7 Debroy, B. (2005), Issues in Labour Law Reform, in Debroy and Kaushik

(eds.), pp. 37-76. and Kaushik, P.D. (eds.) (2005), Reforming the Labour
Market, Academic Foundation, New Delhi
13

Shops and Commercial Establishments Act (SCEA).

TheotherimportantlegislationthataimstoregulateconditionsofworkistheShops
and Commercial Establishments Act (SCEA). The conditions of work for the
provisionsoftheSCEAgovernemployeesinshopsandcommercialestablishments
passed by various state governments and rules framed under the Act. The Act
applies to shops, commercial establishments, restaurants, hotels and places of
amusement.TheActisnotapplicableinthewholecountrybutonlyincertain
notifiedurbanareas.Establishmentsareissuedalicenseundertheactforaperiod
of one year. The license needs to be renewed every year. The SCEA aims to
regulatedailyandweeklyhoursofwork,paymentofwages,overtimework,weekly
dayoffwithpay,otherholidayswithpay,annualleave,employmentofchildren
andyoungpersons,andemploymentofwomenworkers.Itprovidesforanotice
periodofonemonthforterminationofserviceofaworker.Alargenumberof
smallenterprisesintheurbanmanufacturingsectordesiringalegalstatusregister
underthisAct(Singhetal.,2004;Pais,2004).2TheActismoreoftenobservedin
violationthanincompliance:itisnotevenconsideredtobealabourlawbymany
stategovernments;theytreatitasamechanismofrevenuegenerationforthelocal
bodies,throughregistrationandrenewalfees!Tosomeextent,theActisalsoused
asatoolforurbanplanning(Gaga,2003).Forexample,licensesund

3.Social Security Regulations

Social Security Regulations coming to the provisions of social security, an
important regulation is the Employees State Insurance Act (ESIA) providing
comprehensive protection against the risk of accidents and injury at work, sickness,
maternity, and old age. The ESI covers both workers and their families. There are
two types of insurance benefits provided under the scheme. First is medical care, in
which the insured workers and their families are provided medical care through a
vast network of panel clinics, ESI dispensaries and hospitals generally not far from
the residence of the worker. Second, cash benefits are also provided in case of
sickness, maternity, disablement, benefits of retirement, funeral expenses, and so
14

on. Other laws like Employees Provident Fund Act (EPFA), Maternity Act (MA)
and the Workmens Compensation Act (WCA) also provide some of the benefits
under the Act.8 In the absence of a comprehensive pension scheme that will take
care of the future of industrial workers on retirement or of the dependents of the
worker in case of early death, a system of provident funds for certain the
government through The Employees Provident Funds and Miscellaneous
Provisions Act, 1952, established category of workers. 9 Under this Act, in certain
establishments, including factories, employing twenty persons and more, workers
and employees are provided with provident fund benefit. Not all industrial sectors
are covered under the Act. The industries/classes in which the Act applies are listed
in the Schedule 1 of the Act. A wage ceiling exists for coverage under the EPF
scheme. WCA provides mainly for relief to the workers against disability and death
arising out of accidents and injury at work. The Act applies to all workmen as
defined in the Schedule 2 of the Act. The central or the state governments may add
to the Schedule 2 of the Act any class of persons employed in any occupation which
it is satisfied is a hazardous occupation. Workers covered under the ESI for similar
provisions are excluded. In most of the schemes of social security, employers make
a contribution, and, therefore, these regulations have a cost to industry. This has,
however, not been a major item of contention between industry and labour,
probably because the social security regulations mostly apply to the organised
sector, where enterprises do not find their cost to be onerous. Still such cost is often
indirectly avoided by employing workers in non-regular, casual and contract basis
which makes them ineligible for such benefits. Workers in the unorganised sectors
are, however, generally outside the purview of social security regulation: according
to the estimate made by National Commission for Enterprises in the Unorganised
Sector (NCEUS) only 6 per cent of the unorganised workers, who constitute 86 per
cent of the total workers, are covered by any social security legislation (NCEUS,
2006).

8 GoI (2006), Economic Survey 2005-06, Ministry of Finance, Government of

India, New Delhi
9 Planning Commission (2001), Report of the working group on social security,
Government of India, October 2001.
15

4. Job Security and Industrial Relations Regulations

The aspects of labour regulation, which have proved most contentious, relate to job
security and forms of labour use. In this respect, the focus has primarily been on
two pieces of legislation, namely the IDA and the Contract Labour Act (CLA). 10

Contract Labour Act (CLA).

Let us first take up the contentious parts of the CLA. The aim of the Act was to
provide for the regulation of contract labour in certain economic activities and for
abolition in other circumstances. Under this Act, contract labour has been
prohibited in certain category of jobs. For example, with a notification in 2001,
contract labour was prohibited in handling of food grains including loading and
unloading, storing and stacking in the godowns and depots of the Food Corporation
of India (FCI). The Act also bars use of contract labour in core and perennial
activities and regulates employment of contract labour in other activities.3 The Act
applies to (a) every establishment in which 20 or more contract workers are/were
employed, and (b) to every contractor who employs or who has employed 20 or
more contract workers, on any day in preceding 12 months. In the debate on labour
market reforms, the employment of contract labour has been one of the most
contested issues. It is argued that the nature of the core and perennial activities
has changed in the wake of globalised production systems and production based on
orders. So even in its core activity, an enterprise does not have same amount of
work throughout the year and requires varying magnitude of labour from season to
season. Greater flexibility in the use of contract labour is, therefore, necessary. 11 It
seems illogical not to allow an enterprise to employ workers on a non-regular,
contract basis if the work that it carries out is not of a regular nature and varies in
volume from time to time. At the same time, absence of restriction on the practice
of contract labour may result in greater use of this form of employment by
employers primarily to deny job security and other benefits to workers. Regulation
10 Dutta Roy, S. (2002), Job Security Regulations and Worker Turnover: A Study
of the Indian Manufacturing Sector, Indian Economic Review, Vol. 37, pp. 141-62.
11 How Long Can Delhi Stay Awake?, CCS Internship Working Paper No.167,
www.ccsindia.org/interns2003/chap17.pdf.
16

on the use of contract labour notwithstanding, the extent of contract labour has
significantly increased in Indian industry since early 1990s. According to an
estimate, the share of contract labour in the organised factories sector in the country
increased from about 12 per cent in 1985 to about 23 per cent in 2002 (Pages and
Roy, 2006). In this period the increase in the share of contract labour varied across
states, declining in very few such as Assam and Karnataka, while increasing in most
others. Among the states, Andhra Pradesh had the highest increase in the share of
contract labour in the organised sector, an increase from 33.8 per cent in 1985 to 62
per cent in 2002.12

Industrial Dispute Act

The other equally, if not more, controversial issues relate to the IDA. The Act as a
whole applies to enterprises employing 10 workers and more. There are, however,
certain restrictive provisions of job security relating to layoffs, retrenchment of
workers and closures of enterprises that apply only to enterprises provides
employing 100 workers, or more. The IDA, passed in 1947, was in fact adopted as a
comprehensive measure by the central government with a view to improving
industrial relations.13 It stipulates elaborate mechanism for settlement of disputes
through conciliation, arbitration and adjudication and also lays down procedures for
making changes in conditions of employment and separation of workers. The Act
introduced the concept of compulsory arbitration and prohibits strikes without
notice in public utility services. Under the provisions of the Act, in order to ensure
industrial peace, the government can intervene in industrial disputes. However, a
large part of the provisions of the Act are aimed at voluntary arbitration or
collectively negotiated settlements. Chapters V-A and V-B are the most contentious
of the different chapters in the IDA. These sections define the conditions under
which layoffs and retrenchments are permitted in industrial establishments. The
12 Sundar, K. R. S. (2005) Labour Flexibility Debate in India Economic and
Political Weekly pp-2224-2285
13 AITUC (1997), Amendments to the ID Act: Proposals by AITUC, Trade
Union Record, 20 Dec. 1997, pp. 56. (Undated), Views of National Trade
Union Centres (AITUC, CITU, HMS, TUCC, AICCTU, and UTUC) on Certain
Important Matters Covered by 2nd National Labour Commission, AITUC, New
Delhi
17

Chapter V-A applies to relatively smaller industrial establishments employing fewer

than 100 workers and within this Chapter, certain sections apply only to enterprises
employing between 50 and 99 workers. The provisions of Chapter V-B on the other
hand apply to relatively larger establishments employing on an average not less
than 100 workers.14 Under Chapter V-A, in enterprises with 50 or more workers,
employers are permitted to layoff workers provided they are provided adequate
compensation, which is defined as at least half the average wages received by the
workers.4 For retrenchment of workers, under ChapterV-A, the employer is
expected to give the worker one months notice, provide a retrenchment
compensation that is equal to 15 days average pay at the time of retrenchment, for
each year of completed service and give a notice to the appropriate government
about the impending retrenchment. Further, the procedure for retrenchment
specifies that within a category of workers, the one who is inducted last or the
newer workers should be retrenched first. In other words the principle of last in
and first out holds for retrenchment. Also when the establishment makes new
recruitment, the retrenched workers who offer themselves for work are to be given
first priority. If an establishment covered under this Chapter intends to close down,
the Act provides for the procedure for closure which includes 30-day notice period
to workers, compensation package to workers similar to those for retrenchment and
a 60-day notice to the appropriate government. The provisions of the Chapter V-B
applicable to establishments with over 100 workers are more stringent than those in
Chapter V-A. Under Chapter V-B, no employer is permitted to layoff or retrenches
any worker or close down operations of the establishment without prior permission
from the government. Except in the case of a natural calamity or shortage of power
or in the case of a mine, accident or fire, explosion or floods, when an employer
under the Chapter V-B intends to lay-off a worker, he is required to obtain prior
permission from the government. The employer is required to apply in the
prescribed format to the government and at the same time serve a copy of the
application to the worker concerned.

14 Sharma, A. N. (2006) Flexibility, Employment and Labour Market Reforms in

India Economic and Political Weekly, pp-2078-2085.
18

Factories Act
Applicability
TheFactoriesAct,1948appliestoamanufacturingunitemploying10workersif
theworkisbeingdonewiththeaidofpower,oremploying20workerswithoutthe
aidofpower.
Thislimitwasfixedmorethan60yearsback,andsincethenmanysafeandhazard
free technologies/processes have been developed and are being used. Yet, even
smallerunitsemployingaslowas10workersaresubjectedtothesameelaborate
andharshprovisionsoftheFactoriesAct,1948.
Inordertoescapetherigorousprovisionsofthelegislation,manytimesthesmall
manufacturing units employ less than the threshold limit and employment is
directlyaffected.FICCIthereforerecommendsthatthedefinitionoffactoryunder
section 2(m) of the Factories Act be amended to cover a manufacturing unit
employing20workersifworkingwiththeaidofpoweroremploying40workersif
workingwithoutpower.
ii.

DefinitionofOccupierSection2(n)Occupiershallbeapersonwhohasultimate
controlovertheaffairsofthefactorybutrestrictingthedefinitionofOccupier
onlytoaDirectorinthecaseofPrivatesectorwithmultiplefactories,whomay
not be stationed at the site of the factory all the times, puts unreasonable
restrictions. Rather the definition of occupier need to be extended to any
managerialpersonvestedwiththeultimatecontrolofthefactorybyaresolutionof
theBoardofDirectors.

iii.

AnnualLeavewithWages(Section79) Theproposalforreducingthequalifying
periodofworkeddaysfrom240to90daysforavailingannualleavewithwages
willpromoteunnecessaryabsenteeismamongtheregularworkers.However,the
proposalcanbemadeapplicableforthebaadli/casualworkerbymentioningitina
specificclause.Incaseofregularworkerstheexisting240daysmaycontinue.

19

Problems with the Labour Regulatory Mechanism

Too Many Laws
A repeated comment on the labour regulations in India is that there are too
many labour laws. Quoting the Report of the Commission on Review of
Administrative Laws, Debroy (2005) notes that in all there may be up to
2500 central laws and as many as 30,000 state-level laws in India. Of
course, this also includes laws other than those relating to labour and
industry. In the same article, Debroy lists 45 central acts and 16 associated
rules that are directly related to labour. Anant et al. (2006) list 47 central
laws and 200 state laws. According to Labour Bureau there are 236
important labour acts as on March 2003 (Labour Bureau, 2004). Of these
76 are in the central sphere and 160 in the state sphere. In India, under the
constitution, labour-related laws can be enacted both by the central as well
as the state governments, as it is a subject placed in the concurrent list of
the constitution. A large number of items related to labour and employment
are placed in the concurrent list, for example item 22 on trade unions,
industrial and labour disputes; item 23 on social security and social
insurance, employment and unemployment; item 24 on welfare of labour
including conditions of work, provident funds, employers liability,
workmens compensation, invalidity and old age pensions and maternity
benefits, and item 36 on factories. However, there are some items such as
the item 55 on regulation of labour and safety in mines and oilfields; item
61 on industrial disputes concerning Union employees and item 61 on interstate migration on the central list. While the central legislation is binding on
the states, any state legislation that runs counter to the central legislation is
valid only if it is passed and receives the presidential assent on a date that is
later than that of the central legislation. An issue in the debate of reforms in
the legislative framework, including the debate on labour regulations
reform, is that that there are too many laws and there is a need for
rationalization, elimination of multiplicity and overlap in laws. There has
also been a feeling in some quarters including the employers that the large
number of laws is a result of placing labour in the concurrent list. This has

20

led to a demand that labour be removed from the concurrent list and placed
in the state list (TeamLease, 2006). Not only are the laws numerous, they
overlap, there is multiplicity of laws, detailed and elaborate stipulations and
many definitional and conceptual inconsistencies. Multiplicity of laws often
covering the same subject makes compliance difficult for the employers
and also gives scope for exclusion of many workers. Varying definitions of
key items in different statutes further compounds the problem. Worker,
employee, factory, child, wages, and so on, are defined differently in
different Acts.

Limited Coverage of Labour Regulations

The most important limitation of the existing labour regulation lies in its
limited coverage. Most laws apply only to relatively bigger establishments
employing beyond a certain number, usually 10 workers. Thus, there is no
regulation of conditions of work and no provision for social security of any
kind for the workers working in establishments employing less than 10
workers. And they constitute an overwhelming majority92 per cent of all
workers and 84 per cent of all wage earners. The degree of flexibility for
this category of workers is so high that they are left completely unprotected
from vagaries of the market and any arbitrary actions of the employers.
Table 2 gives the 10 important central labour regulations and estimates of
their coverage by definition and in practice. Of all the labour laws, the
MWA has the widest coverage by definition. About 38 per cent of the
workforce or 83 per cent of hired workers are technically covered under the
Act. The large coverage of the Act is because, unlike other labour
regulations, it also covers workers in agriculture. The actual coverage of the
Act is, however, a different story. Estimates from the report on the
functioning of the Act show that in 19992000, only about 8 per cent of
hired workers in India were actually covered under the Act.5 .15IDA, PWA,
CLA, SEA, FA, WCA, MBA, ESIA and the EPFA. Except the EPFA, none
of the labour regulations listed above cover more than 3 per cent of the
workforce and 6 per cent of the hired workforce. Thus, the table shows that
15 Ginneken, W. V. (ed.) (1998) Social Security for All Indians Oxford University
Press, Delhi.
21

the whole debate on labour market reforms is centred on less than 3 per
cent of the workforce in India. While loud protests are made about the
excessive rigidity in the labour use, there is great validity in the less
frequently and rather meekly expressed view that the Indian labour market
is, by and large, completely unregulated!

Challenge to Labour Regulations in Recent Years

Thesepropositionsseemtohavecomeunderseriouschallengeinrecentyears,
particularlyoverthepastoneandahalfdecadeofeconomicliberalisationAreasof
disagreementseemtohavewidenedaswellasgotsharpened.Industrynowfinds
several regulatory provisions highly restrictive adversely affecting growth of
industryandemployment;and,demandschangesinlawsenablingmoreflexible
useoflabourUnionshaveresistedanysuchmoveand,infact,protestedagainstthe
relaxation in practices of labour use that, they observe, has been allowed to
employersinrecentyearsEventheGovernmentofIndiaappearsnowtoformally
takethestandthatthelabourregulationsinthecountryarehighlyprotectiveof
labourandthereforecauseinflexibilityinthelabourmarkets.Itappearsthatthe
seriousdivergenceinviewsonlabourregulationhasarisenoutofthecompulsions
ofcompetitionaccompanyingeconomicliberalizationandglobalizationAndinso
faraseconomicreformshaveledtohighereconomicgrowthandgreaterprosperity
andtotheextentcertainmeasuresoflaborregulationposeobstaclestosustainthis
process,thereisobviouslyacaseforreformsinlabourregulation. 16 Whatwould
these reforms constitute, however, depends on the provisions and laws that are
identified and established to be adversely affecting investment, growth, and
employment.Intheoryalllabourlawsfallinthiscategorybecausetheyaimat
providingprotectionandfacilitiestoworkers,whichinevitablyresultinsomedirect
andtransactioncosttoindustry.Itis,however,presumedthattheindustryabsorbs
thiscostinitsnormalbusinessandisabletomakeprofitevenafterincurringthe
costofcomplianceoflabourregulation.Itisforthisreasonthatoftenadistinction
ismadebetweenmoreresourceful,largerandlessresourceful,smallerenterprises
16 Sen, T (2007) 41st Indian Labour Conference, New Delhi in Peoples
Democracy Vol. XXXI(18)
22

inrespectoftheaspectsandextentoflabourregulationtobeapplicable.Thus,most
ofthelabourlawsareapplicableonlytounitsthatemploy10ormoreworkers,and
smaller units are exempt from their application. This distinction can, however,
providedisincentivetoenterprisestoexpandbeyondthethresholdsizeandresultin
proliferationofenterprisesbelowthatsizeleadingtoincreaseinemploymentonly
inunregulatedconditions.Letusexaminewhateverempiricalevidenceisavailable
to identify which provisions of regulatory legislation have adversely affected
growthandefficiencyofenterprisesandexpansionofemployment.

Law wages Limited Security

Average daily wage rates are quite low, in rural and urban areas. The average daily
wage rate in September 2014 for ploughing was just Rs.267.70 for men and
Rs.187.17 for women. Any sowing work done by children would earn a further
Rs.124.17 per day. A fisherman earns between Rs.268 and Rs.311 a day, depending
on his catch, while animal husbandry workers earn around Rs.150.17
Rurban jobs dont offer much better. Electricians and construction workers average
around Rs.367.16 and Rs.274.06, respectively, while non-agricultural labourers
average Rs.237.20. An entry-level worker in cotton textile mills in Vadodara can
aspire to Rs.6,488.09 per month, with his fortunes improving to Rs.7,558.52 in
Kolkata and Rs.9,769.20 in Chennai. Consumer inflation eats at this, with
agricultural and industrial labourers affected by a doubling of the consumer price
index (332 in 2004 to 764 in 2014).
Benefits are equally minimal. Women, in particular, have difficulty participating in
the industrial labour force. The Maternity Benefit Act (1961) is largely
underutilised. In 2012, just 2,441 women claimed maternity benefits across 84,956
factories. Only 3,289 factories provide crches, with 58 in Gujarat and 2,389 in
Tamil Nadu.

17 Unni, Jeemol (1998), Wages and Employment in the Unorganized Sector:

Issues in Wage Policy, The Indian Journal of Labour Economics, Vol. 41, No. 4,
pp 875-92
23

Railway and mine workers have faced 1,082 and 32 accidents, respectively, mostly
fatal, while their dependents receive an average compensation of Rs.2.6 lakh and
Rs.9 lakh, respectively. Around 93 per cent of casual workers and 66 per cent of
salaried employees have no written contracts, while only 22.7 per cent have
reported receiving paid leave.

Reforms at Slow Pace

Indias labour law regime has always been at loggerheads with industrial
development and the ease of doing business. Over the past year, the government has
attempted to reconcile this by amending the Apprentice Act (1961), making it more
responsive to industry and youth, and substituting complex inspection regimes with
technology friendly portals. ShramSuvidha, a unified labour portal scheme, has
been launched to provide timely redress of grievances and facilitate selfcertification by industry. This also encourages a more transparent labour inspection
regime, with inspection reports uploaded within 72 hours.18 A focus on cutting
down red tape, by amending nearly 40 Central and 150 State labour laws, has been
launched, with significant consequences on hiring and firing. Draft proposals for
exempting small-scale industries, employing up to 40 workers, from 14 basic laws,
including the Factories Act, the Industrial Disputes Act and the Maternity Benefits
Act, are being considered. Rajasthans relaxation of the applicability of the
Industrial Disputes Act to establishments with 300 workers or more will allow
employers to carry out workforce optimization.
Labour reforms must be linked to the ease of doing business, creating a habitat
where jobs can be fostered. Reforms must be linked to worker benefits, while
simultaneously easing the compliance burden on small and medium enterprises.
The labour law must be rationalised by defining minimum wages and linking them
to inflation. Minimum wages ought to be revised annually, with penalties for their
violation dramatically raised.
According to the National Skill Development Corporation (NSDC), we need 120
million skilled people in the non-farm sector. Amendments to the Apprenticeship
Act are welcome. With no labour laws applying to apprentices, care must be taken
18 Thakur, C.P. (2007), Labour Policy and Legal Framework in India: A Review,
Institute for Studies in Industrial Development, New Delhi.
24

to ensure that they are not transformed into contract labour. MGNREGA should be
restructured and linked to apprenticeship programmes in industry and agriculture.
Women workers require legislation too. Female employees of government schemes
like Indira Kranti Patham or Anganwadi Worker remain out of the purview of laws.
Scheme-based workers should be treated as regular employees and offered decent
wages and social security. Equally, contract labourers must be protected. They
should be covered by the Workmens Compensation Act (1923) for accidents, with
inflation-linked wages and limited social security benefits from the Employees
State Insurance Act (1948) and Maternity Benefits Act (1961) extended to them.
While retrenchments are socially difficult experiences, Indias current labour policy
provides little incentive for industrial employers to hire. Instead, to avoid
complications, hiring contractual labour without social security benefits or
termination protection is encouraged. A modern labour law that encourages
employers to keep more workers in formal roles, with work-linked wages and social
security benefits is vital. Flexibility to undertake layoffs, ensuring adequate benefits
and a reasonable notice period, is needed.

Recent Proposed labor amendment by Central and state

govt.
National Policy for Domestic Workers

25

Tosafeguardtheinterestofdomesticworkers,theNDAgovernmentisreadyinga
nationalpolicyincorporatingthesefeatures,besidesahostofbenefits,including
socialsecuritycoverandprovisionsagainstsexualharassmentandbondedlabour.
Domesticservants,whostareatanuncertainfuturewhentheygrowweakwithage
andarethrownoutoftheirjob,willnowhavethecushionofasocialsecurity
schemeunderwhichtheemployerwillhavetomakeamandatorycontribution.The
policy envisages the right to domestic helps to pursue education, a safe work
environment and a mechanism for redress of their grievances. Workers and
employerswillalsohavetherighttoformgroupsandengagewitheachotherfor
collectivebargaining.
ThepolicyframeworkisonparwiththestandardsoftheInternationalLabour
Organisation. India has adopted the ILO convention on domestic workers and
thereforewehavetomakeapolicyforthissegmentofthesociety.
Oncethepolicytakeseffect,itwillbemandatoryfortheemployer,theemployee
and the intermediary agency that connects the two, to enter into a tripartite
agreement,whichwillhavelegalsanctity.Thedraftpolicyrecommendsminimum
monthlywageforunskilled,semiskilled,skilledandhighlyskilledcategoriesof
thedomesticworkers.
Highlyskilledandthosegivingfulltimeserviceshouldbeeligibletogetasalary
of at leastRs.9,000 per month, an official said, adding the policy seeks to
empowerdomesticworkersbymakingthislargeworkforceaservicesindustryover
time.

Amendment to child labour law

Thecabinetapprovedaproposaltoamendthechildlabourlawtoimposestricter
punishmentonthoseemployingchildrenbelowtheageof14butallowedminorsto
work in nonhazardous family enterprises. The cabinet approved a proposal to
amend the child labour law to impose stricter punishment on those employing
childrenbelowtheageof14butallowedminorstoworkinnonhazardousfamily
enterprises.
26

Single Compliance Return for Eight Labour Laws can now be filed by
Companies
Industries from now on will file just one labour compliance return for eight key
labour laws ranging from the Industrial Disputes Act to Minimum Wages Act, the
labour ministry said on 25th April 2015 after easing the compliance process. The
process has been taken online, making it smoother. Until now, industries have had
to file one labour compliance return every year under each of these laws in a
manual process that has involved numerous inspections, leading to delays in
securing government clearances and tying up personnel in paperwork.

Merging of Four wage-related labour laws

Thegovernmentis lookingtomergefourcentrallabourlawsrelatedtowages,
including the Minimum Wages Act of 1948, and create one consolidated
legislation.Themove,whichisinkeepingwiththisgovernmentseffortstoreform
Indiaslabourlaws,willeasecomplianceandimprovemonitoring.TheMinimum
WagesAct,thePaymentofWagesAct,1936,thePaymentofBonusAct,1965,and
theEqualRemunerationAct,1976,aretheonesbeingconsideredforthemerger.

Rajasthan labour reforms

TheamendmenttotheIndustrialDisputeActwillallowcompaniestoretrenchup
to300employeeswithoutseekinggovernmentpermission.Earlier,itwasrestricted
to 100. It has also introduced a time limit of three years for raising industrial
disputes.Themodificationsalsomakeittoughertoregisterlabourunionsinstead
of15%ofworkers,now30%ofworkersinafactoryneedtojoinhandstoforma
union.

Labour reform in Madhya Pradesh

Thestategovernmentseekstoexempttinyindustriesfromcomplyingwithseveral
centrallaws,includingtheContractLabourActandtheFactoriesAct,accordingto
twoUniongovernmentofficialswhodeclinedtobenamed.
MadhyaPradeshhasamendedatleast20labourlawsincluding17atthecentral
level.TheseincludetheIndustrialDisputeActandtheFactoriesAct

27

stategovernmenthasaprovisiontoexemptmicroindustriesfromcomplyingwith
atleastthreecentrallawsandwhetherthestatehaskeptinmindtheInternational
LabourOrganizationssafetyrequirements.
The state govt. has proposed that micro companies with an investment of a
meagreRs.15lakhsshouldbeexemptedfromcomplyingwiththreecentrallabour
lawsTradeUnionAct,ContractLabourActandFactoriesAct.

A single window system for labour law compliance, provident fund (PF)
number portability and a revamped inspection system for companies.

Throughthesinglewindowsystem,companieswillbeabletofilejustonereturn
online for 16 labour laws, replacing the current system where returns are filed
manuallyforeachofthelaws.ThePFnumberportabilityschemeisexpectedto
helpmillionsoforganizedsectoremployees whocontribute12%oftheirbasic
salary to EPFO as part of their retirement savings. The employer matches the
contribution. Once number portability is in place, an employee would get a
permanentPFaccountnumberjustlikeabankaccountanditwillstaywith
themdespitejobchanges.ThiswillalsohelpemployeestracktheirPFcorpusin
realtime.ThePFcontributionandclaimsettlementwillbebecomeautomaticand
online.

Tamilnadu

(1.) Combined annual return for Factories Act, Contract Labour and Regulation
Act Maternity Benefit Act, Payment of Wages Act and Minimum Wages
Act.
(2.) Self-certification under Shops and Establishment Act, Minimum Wages
Act, Payment of Wages Act and Maternity Benefit Act for IT / Software
establishments.
(3.) Software establishments exempted from the provisions of opening and
closing hours and holidays under Shops and Establishment Act.

Karnatka

(1.)

Combined annual return for Factories Act, Contract Labour and

28

Regulation Act Maternity Benefit Act, Payment of Wages Act and

(2.)

Minimum Wages Act.

Exemption of establishments in the software industry from the
Standing Orders Act.

Conclusion
Labour market reform is an important yet politically sensitive matter in most
countries. Flexibility and security for employers and employees boosts livelihoods
and the rate of good quality formal sector jobs. However, there are several
stakeholders employees and trade unions who have a vested interest in keeping
the labour market inflexible. Many of them think that a globalising world means a
weakening of their rights for the last two years trade unions have been going on
national strikes to demand permanent jobs and declare an end to contract labour.
This paper identifies several potentially compatible reforms that could enable the
political class to make a strong case for labour market reforms to all the
stakeholders. Reforms are discussed in three areas of the labour market that could
help on this front social security and livelihoods, federal freedom to amend
legislation, and engaging with trade unions resistance: One, extending social
security coverage to the informal sector could be made possible by offering the less
expensive National Pension System to employees. The NPS would serve as a
competitor to poor quality services of the EPF and ESI thereby forcing them to
reform, bring prices down and improve service delivery. This would also enable to
bring down costs from the formality-informality trade-off for businesses. Creating
sustainable livelihoods in the informal sector is a stepping-stone to economic
progress and future expansion of the formal sector, where productivity is often
higher. Two, there is increased evidence that competition between different Indian
states could spur reforms with positive outcomes. However, the presence of labour
legislation in the Concurrent List serves as a boCleneck for States to exercise
complete freedom in amending laws with respect to their prevailing political
economy. Moving such legislation to the State List would not only add context
specificity through State control, but also make labour laws less convoluted. Three,
29

engaging with trade unions is perhaps the most sensitive area of reform. It requires
understanding the latest trends in unionism, encouraging organisation for credible
demands, and designing benefits for employees that making bargaining and
unionising unnecessary in the first place.
This is not a laundry list of reforms but a combination of suggestions to push the
dynamics in the labour market to force regulatory practices to adapt to evolving
structures as without adaptability welfare cannot be advanced. In the face of
sluggish growth rates, a rising fiscal deficit, and a forthcoming demographic
dividend, Indias political elite must remember that boosting good quality jobs is a
maCer of top priority. On the other hand, simply discussing reform of the labour
market in terms of labour law reforms has not brought any results over the years
almost 60 years of reform concentration in the formal sector has not brought many
results. Even if it is the intention of the government to reform in this area, selling
those reforms in a way that compensates the reform losers is an extremely difficult
task. It is time we start a nuanced discussion on how to develop the labour market:
to think about small reforms, which are compatible with the current political
economy, and include the informal sector in the reforms dialogue.

30

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