Need for labour reforms in india


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Need for labour reforms in india

  1. 1. Need for Labour Reforms in IndiaBackground- HistoryINDUSTRIAL RELATIONSIndustrial relations are a bonding between the Employer and the Employee to improve theirmutual relationship, interaction and maintaining harmony and peace in the work place. Manya times Industrial Relations add many other relations which are chain of previous relations.The primary objective of the Industrial relations is to bring about a positive and healthyrelationship between the employee and the employer, the two partners in the Industry. In thewords of "The state of Industrial relations in the country is intimately connected with theforms of its political government and the objectives of an Industrial Organization may changefrom economic to political ends"LABOUR LAWS IN INDIA: AN HISTORICAL VIEWThe History of Indian Labour Laws is naturally interwoven with the history of BritishColonialism. The industrial/labour legislations enacted by the British were framed in light ofthe Industrial development in the United Kingdom. The laws were primarily intended toprotect the interests of the British employers and Industrialist. The welfare or the interests ofthe British Political Economy were of the paramount importance while drafting those laws.The earliest Indian statute that regulated the relationship between the Employees andEmployer was the e Trade Dispute Act, 1929 (Act 7 of 1929). Provisions were made in thisAct for restraining the rights of strike and lock out but no machinery was provided to takecare of disputes. This act was hugely biased in favour of the British Employers. The originallegislation underwent substantial modifications after the demise of British Colonialism asthere was a huge demand of the clear and unambiguous partnership of the Labour and Capitalfrom the Independent India. The content of this partnership was agreed on a tripartiteagreement in December 1947, the year of Indias Independence. The main agreements werethat the labour would be given the fair wages and fair working conditions and in return thecapital or the employer will receive the full commitment and co-operation in terms of highproductivity and no interruption for the capital to maximize the profits. Ultimately theIndustrial Relations Act was put into force repealing the Indian Act Trade of 1929.This act is
  2. 2. in the Indian statute till date. The Central and State Governments enacted several laws forvarious categories of Labour and classifications of problems ever since independence.REFORMS – ARE THEY THE NEED OF THE HOUR?There is a strong call from Indias strongest and influential quarters for the need of the labourreforms in India. The argument provided for the reforms is that many of the labour laws arequite irrelevant and do not reflect the current requirements and needs of the Industry. Thereare several reasons for this. Under the Constitution of India, Labour is a subject in theconcurrent list where both the Central and State Governments are competent to enactlegislations. As a result, a large number of labour laws have been enacted catering to differentaspects of labour namely, occupational health, safety, employment, training of apprentices,fixation, review and revision of minimum wages, mode of payment of wages, payment ofcompensation to workmen who suffer injuries as a result of accidents or causing death ordisablement, bonded labour, contract labour, women labour and child labour, resolution andadjudication of industrial disputes, provision of social security such as provident fund,employees’ state insurance, gratuity, provision for payment of bonus, regulating the workingconditions of certain specific categories of workmen such as plantation labour, beedi workersetc. Therefore, there are 44 labour legislations at central level and almost four times of themat State level. As a result, it created a lot of redundancy and loopholes in the legal systemwhich paves way to exploitation of labour. Implementation of this complex system of lawshas also become a challenge to limited number of Labour Enforcement Officers in India. India has emerged as an outsourcing hub in the present day world. But did that benefitIndian Labour? No. Because of the predominantly heavy handed labour regulations (alsocalled as Inspector Raj) with exploitable gaps, the MNCs and domestic organizations haveresorted to alternate ways i.e. employing contract labours at less than half the payroll of apermanent employee. In the subsequent pages we give staggering examples to illustrate theurgency for the reforms. India has 94% of its workforce in its unorganized sector. With a second highestworkforce of 487 million workers (next to China), Indian GDP is grossly under generated.The reason is that this 94% of unorganized workforce accounts for 57% of GDP while theremaining 43% comes from the meagre 6%. This huge workforce getting trapped inunorganized sector is largely attributed to our stringent labour laws.
  3. 3. Having illustrated couple of several reasons that demand the need for reforms we setout with the various implications, challenges and recommendations necessary for the presentday system backed by relevant data and analysis.Impact of Labour Reforms Implementation: The Labour Reforms if not implementedsoon, it would take a gross hit on India as an investment destination. Also it would incur hugeloss to the economy due to undervalued GDP production.The following is the data that reveals growing labour unrest in India. Workers involved in strikes and lockouts 3000000 2500000 2000000 1500000 1000000 500000 0 2002 2003 2004 2005 Strikes 900386 1010976 1903054 2722784 Lockoouts 179048 804969 169167 190817Two examples that took the extreme turn in recent past are 1. Maruti lockout in Gurgaon 2.Regency Ceramics plant lockout in Yanam, Andhra Pradesh. The two cases have taken livesof Management people. Such a kind of extreme unrest can only be attributed to archaicLabour laws existent in India. That gives the dire need for reforms.The other reason we quoted was economic loss. The data shows that 94% of Labour force inIndia is in unorganized sector and that shows how grossly Indian GDP is undervalued. This isso because the income of these people in workforce is very much less than the permanentworkforce for the same output. The improper regulations coupled with complexity have led tomisuse of vast Labour of India. The data below reveals the contrasting rankings and the needfor reforms.Compensation of employees > % of expense 9.88% [126th of 135]Economic activity > Both sexes aged 10-14 12.07 [61st of 89]Economic activity > Men aged 65 plus 52.67 [54th of 162]Female economic activity growth 4% [73rd of 156]Firing cost > weeks of wages 55.9 weeks of wages [58th of 164]force with tertiary education > % of total 4% [9th of 52]force, total 43,50,35,700 [2nd of 184]Labor force > By occupationagriculture 60%, industry 17%, services 23%Regulation 51 [72nd of 123]Regulation > Employment Conditions 75 [65th of 123]
  4. 4. Rigidity of employment index 41 [73rd of 166] Total work time > Males 391 minutes [20th of 29] Unemployment, female > % of female labor force 5.30% [61st of 95] Unemployment, male > % of male labor force 4.90% [62nd of 95] Unemployment, total > % of total labor force 5% [59th of 101] Work time > Market-oriented 61% [6th of 29] Workers remittances and compensation of employees, paid > US$ 1,008,000,000 $ [31st of 149] Workers remittances, receipts > BoP, current US$ 21,595,100,000 BoP $ [1st of 115]Fundamental Challenges in framing Labour Laws in India:The Indian Labour is a very diverse workforce with different requirements for each cognateset. Each stakeholder i.e. Labour, Employer, Central Government and State Governmentshave different views about the reforms to be brought in. Their interests are often conflictingand the policy makers have the challenge of balancing that when enacting reforms in Labourlaws. The long term effects are to be considered while doing this. We briefly give the viewpoints of Trade Unions, Employers and Governments compiled in a recent Governmentreport to illustrate few of the conflicting challenges that arise for the policy makers.Contract Labour: One of the main reasons for today’s labour upsurge in India is the conceptof contract labour. Trade Unions suggest that this concept itself should be removed. ButEmployers suggest that employing the entire workforce is not possible in the advent dynamicbusiness cycles. Another reason that is attributed is the stringent hiring and firing processdefined in Industry Disputes Act. It makes it mandatory for the organization to seekGovernment permission before removing an employee. This highly regulated firing processunlike in U.S. would motivate Employers and MNCs to hire contract labour.Balancing this has become a challenge to Government. The reasons are given the challengesof huge workforce in unorganized sector, easing the IDA Act would lead to employment inorganized sector is a mere speculation. Easing of firing rules would also have a detrimentaleffect on collective bargaining power of employees as it makes easier for employers to firethe employees and harass them in the event of encouraging the union formations. But on theother side, having a strong labour policy would make the nation a more socialist country.This would be detrimental to Investment and Industry growth rate.This has become a fundamental menace in the present day economy. We illustrate the blatantexploitation from a live example covered by Newyork Times article here
  5. 5. Mr. Manish Sabharwal runs Team Lease, a Bangalore-based agency that has createdthousands of jobs by fielding temporary workers for companies in India that want to expandtheir work force while skirting India’s stringent labor laws, which businesses say discouragethe hiring of permanent employees. Many labor leaders and left-leaning politicians accusehim of running the nation’s largest illegal business. Walk into any of India’s shining newshopping malls that sell expensive brands, like Gucci and Satya Paul, and many of the storeclerks, janitors and security guards will be on the payrolls of outsourcing companies, notthose of the owners of the mall or stores in it. Team lease boasts many clients like Whirlpool,Videocon, Maruti Suzuki, Mitsubushi etc Their only argument is it’s better to have some jobthan no job at all.The practice highlights a fundamental tension between India’s socialist past and a newfreewheeling, private sector that is increasingly powering the economy while chafing at whatmany companies say are laws so protective of workers that they blunt hiring and stiflegrowth.So contract labour has become a thriving business in India and it deserves urgent addressal.Equal Benefits for Contract and Permanent labour: Trade Unions demand for this.Employers oppose this. The argument being provided is that the selection process and skillset of employers greatly varies between Contract and Permanent Labour. The Governmenthas to address this because the grossly unequal payrolls are motivating organizations tofollow Contract hiring process and that’s the reason for recent Labour unrest.Collective Bargaining: Trade Unions have condemned the recent declaration of Strikes asillegal by Supreme Court. They are seeking a provision by which the strikes cannot bedeclared illegal in the event that certain percentage of workforce opts for it. Investments cantake a hit if there are frequent strikes as it would halt the production and Employers have tooperate in an environment of constant insecurity. Governments are recommending nonassociation of trade unions with political parties and looking for a smoother mechanism fordispute resolving other than strikes.Uniform Definitions and Consolidation of Laws: The current Constitutional frameworkputs Labour as a Concurrent Subject and has 45 laws enacted at Central level and over fourtimes of them at state level. These were created to cater to various cognate levels ofworkforce and their diverse needs. But this has created widespread confusion andimplementation ambiguities. For ex: Minimum Wages in Andhra Pradesh for a Plougher isRs 126 per day. In Haryana, it is Rs 216 for a skilled agricultural labour. The way labourers
  6. 6. are classified in Andhra Pradesh are totally different from the way it is in Haryana. Thewages are also different. Therefore, a uniform definition is desired by Trade Unions. ButEmployers and Government are of the view that uniform definitions are impossible as skillsets varies according to the jobs. But everyone agree to the fact it is time for consolidation ofall the existing laws and provide equitable justice to every stakeholder.Enforcement of Labour Laws: the enforcement of Labour laws is always a major problemin India. For ex: the field survey done in state of Karnataka about the minimum wageimplementation at a work place shows the following data.Though the contract workers are supposed to get above Rs 4000 as per law, the reality is agross violation. Not even 1.1% is getting that wage. The State Governments are demandingfor more funds for creation of stronger Labour Enforcement Departments and imposinggreater penalties for violation. This would add additional burden on Central Government.Payment through Cheques or Bank Accounts: All the stakeholders agree that this has to beimplemented. But employers state that RBI should bring in a change in policy to allowexistence of zero balance accounts.Social Security Net: India doesn’t have a social security net for Unemployed workforce.Though we have it for old and disabled, we don’t have security for job seekers. This is one ofthe major bottlenecks for easing the IDA Act. If workers have a minimum social cover
  7. 7. during retrenchment, they would not panic till they find another job. Without a social net andeasing of firing policies would make lives miserable for workers.Data from World bank shows the coverage of India when compared to other countries likeBrazil, Mexico and Russia. ASPIRE: The 2011 Atlas of Social Protection BRA BRA IDN IND MEX MEX RUSCoverage (%) (2006) (2009) (2009) (2005) (2008) (2010) (2007)Social Protection 63.11 58.16 69.00 44.08 78.21 86.32 73.24Social Insurance 9.21 11.10 14.82 4.03 59.44 75.71 45.56Old Age contributory pensions 9.21 11.10 - - 2.13 2.71 42.53Social Security/Health Insurance - - 14.82 4.03 59.25 75.57 5.07Labor Market programs:unemployment benefits and 5.75 6.74 - 1.75 - - -ALMPSocial Safety Nets 55.44 47.91 65.81 40.10 54.75 57.42 46.79Cash Transfer programs/Last resort - - - - 9.61 13.55 0.78programSocial Pensions 2.27 1.47 - - 6.16 8.71 3.72Other cash transfers programs: - - - - - - 39.45family, child or disability allowancesConditional Cash Transfer program 51.89 47.05 - - 48.37 48.64 -In-kind food programs - - - 39.00 - - -School Feeding - - - - - - -Public Works & Food for work - - - 3.04 - 0.37 -Other social assistance programs 5.07 - 65.81 - 6.04 5.68 12.37Private transfers 4.44 2.95 - - 19.89 17.83 -Please note the Conditional cash transfer program is totally non-existent in India.RecommendationsConsolidation and Simplification of Labour Laws and Definitions: There are few sets oflaws which can be replaced by one law and implemented more effectively. For ex:Laws governing Wages The Equal Remuneration Act, 1976 The Minimum Wages Act, 1948 The Payment of Bonus Act, 1965
  8. 8. The Payment of Wages Act, 1936The above four Acts may be consolidated into one Act i.e. Payment of Wages Act.Simplification and rationalization of labour laws will require examination of labour lawsindividually. In the process provisions which have outlived their existence may be deleted. Ifnecessary, certain laws may be considered for being repealed. A consensus will have toemerge from the stakeholders regarding this. Similarly, few common definitions can beprovided for things like classification of work force etc.Urgent need for changes in Contract Labour Act: Prof Kaushik Basu stated the need forflexible employment contracts. Some workers may sign a contract for a high wage but onethat requires them to quit at short notice; others may seek the opposite. This would allowfirms to employ different kinds of labour depending on the volatility of the market theyoperated in. This would be an equitable idea for both Unions and Employers. Also the wagedifference between contract and temporary should have a ceiling.Effective Enforcement of Existing Laws: The need of the hour is the emphasis on how theimplementation of labours could possibly be improved. Over 13626 cases are currentlypending in the central tribunal (Source: Business Line). Steps to make the grievance redressalprocess more effective and simultaneously more efficient so that the labours get themaximum possible benefit of its purpose. Most importantly, ways to improve collectivebargaining and ways to improve solving disputes. Holding Lok Adalats should also beencouraged to enable faster disposal of cases. A database should be built on all aspectsrelating to industrial relations and the officers of the Labour Departments should have accessto such database through computer connectivity. Codification and simplification of LabourLaws it is also suggested for creating online single window system for making compliance asuser friendly, simple and for bringing transparency. Employers can seek the registration,license etc. online and can also file returns etc. online.Creation of an All India Service for labour administration to provide professional experts inthe field of labour administration, autonomous bodies and labour adjudications could help.Most of the labour laws have lost their efficacy because of very meagre penalties. There is aviewpoint that penalties should be graded depending on the seriousness of offence, thenumber of times the offence has been committed and the capacity to pay. Often organizationschoose to violate than implement because the latter is more costly.
  9. 9. Indexing of Benefits and Penalties: Instead of amending the Acts for wages, penalties etcperiodically by the Government, Indexing can be done by evaluating a formula that isconnected to Inflation. As a result, the laws need not be reviewed by the Government andemployers need not wait till they are enacted. Employees can easily benefit and it would leadsustainable life styles even though laws are archaic. For ex: the gratuity payment was revisedfrom Rs 3.5Lakh to Rs10Lakh in 2009. Again the policy makers have to sit on it and bring inamendments through a rigorous process which would take a lot of time. Indexing would helpovercome the problem.Digitization of Employment Exchanges and Easing of Regulatory Compliances: Thehuge unorganized sector if moved to Organized sector would increase Indian GDP greatly.For that to happen, mandatory registration and tracking of Labour force is necessary.Provisions of Social Security for the unemployed registered at the exchanges should beprovided in long run. Also the Regulatory compliances for employers should be transparentand easy to follow. A clear policy would always motivate better investment.Conclusion: Indian Labour Laws need many reforms failing which would lead to a great economicand social loss to the country. Economic loss occurs because of labour unrests and lesser GDPoutput. Social loss occurs because of deteriorating life styles due to raising inflation and stagnantwages, increasing insecurity among workers and management. Given the complexity in the legalsystem that evolved in the past 50 years, there is an urgent for consolidation and betterimplementation for the holistic benefit of the country.Bibliography:
  10. 10.,_1947,_1947,,contentMDK:23173110~pagePK:148956~piPK:216618~theSitePK:282761,00.html