India's Labour Law Reform: Where Are We And Where Do We Go Next?

It is an open secret that restrictive labour laws decrease the competitiveness of small Indian firms. Companies have to manoeuvre a labyrinth of 200 central and state labour laws to ensure compliance, with nearly one-fourth being central laws. High compliance cost has led companies to shift to capital intensive sectors and techniques. Complex labour laws are one of the biggest reasons for India to lag in manufacturing of labour-intensive entry-level products such as watches, toys, furniture, footwear, kites and candles.


Consider this. The Industrial Disputes Act requires companies with 100 or more workers to seek government permission to lay off a worker. Similarly, another law requires employers with over 100 workers to request government permission even to reassign a worker from one task to another. According to Indian laws, any seven employees can together form a trade union. The list is endless. Restrictive labour laws have incentivised companies to stay small. Entrepreneurs, businessmen and even trade unions have been asking for labour law reforms for a long time, albeit for different reasons. Trade unions want improved labour protection in the age of mechanisation and automation, while businessmen want easier compliance.

Source: IZA World of Labor

Successive governments have been trying to revamp the restrictive labour laws in the country. Many state governments have made progressive changes to their respective labour laws. The current government in its last term had forcefully pushed labour reforms. The basic premise is to amalgamate all the central laws into four codes—relating to wages, social security and welfare, industrial relations and occupational safety, health and working conditions—to ensure ease of doing business. The Code on Wages Bill was passed by both the houses of the parliament in August, becoming the first among a set of proposed reforms. The government had tried to pass the bill in 2017 but had faced strong opposition from trade unions from across the country. Let us take a look at the key changes proposed in the new labour laws.

The Code on Wages Bill

The new bill on wages has eliminated 17 labour laws, some even dating back to pre-independence days. The biggest change proposed by the bill is the inclusion of workers in the unorganised sector into the ambit of minimum wages. Under the wages code, the minimum wage fixed by the centre will depend on geography and skills, rather than employment. It will also ensure the timely payment of salaries by specifying a date of the month for salary payment. However, experts have pointed out several flaws with the bill. The bill does not specify a national minimum wage, instead, Labour Minister Santosh Gangwar said a tripartite committee will decide on the minimum wage. The bill also fails to specify measures to reduce gender discrimination in salary payments.


Code on Occupational Safety, Health and Working Conditions

While presenting the Code on Occupational Safety, Health and Working Conditions bill in the lower house of the parliament, the labour minister had proposed one license, one registration and one return for companies. The bill after becoming law, will significantly reduce the cost of compliance for establishments. The bill seeks to integrate 13 labour laws into a single code. The bill is expected to reduce required registration to one from the ten required currently, in order to comply with all labour laws. The code will cover all establishments that hire at least 10 workers, including those in services sectors. The code on occupational safety is currently awaiting green signal from the upper house of parliament.

Code on Social Security & Welfare

The bill on social security and welfare is in the final stages of development. The labour minister had held comprehensive consultations with trade unions, state governments and employer’s association in 2018 and had also circulated a draft bill. The bill seeks to club 15 central labour laws into one. One of the sticking points of the bill is to merge all social security funds like Provident Fund and Employees State Insurance. The bill proposes to provide social security cover to unorganised sector workers, and then merge it with existing covers like PF. Trade unions are opposing the move as it may affect the performance of well-performing existing schemes.

Source: Financial Express

Code on Industrial Relations

The code on industrial relations bill has been sent for the approval of the cabinet. The bill had several contentious provisions, some of which have been rolled back in the revised bill. The industrial relations bill had proposed to raise the limit for prior government permission to lay-off workers to 300 from 100 currently. This clause has reportedly been withdrawn after strong protests from labour unions. Another sticking point of the bill is stricter requirements to form a trade union.


The government has taken a commendable step to simplify labour laws. But simultaneously, state governments will also have to untangle the mess of state-level labour laws. The government will also have to ensure that the laws are followed in spirit and do not just remain on paper.