Perhaps the most complex piece of reform needed to be made to the Indian labour laws is to make them simpler
The new government has emphasized on amending the archaic labour legislations present in the country and the Prime Minister himself has spoken at length about the need to revive the manufacturing sector and open up more jobs by reforming labour laws.
Many of the labour laws of the country have proven to be irrelevant and do not echo the needs of the industry. One of the major reasons for this is that labour is a subject on the concurrent list, which means that both the Central and State Governments can pass legislation on it. This has led to a large number of laws regarding different aspects of labour. There is a serious problem of multiplicity of laws and every new amendment or new legislation only serves to increase the complexities of the already existing labour laws. There are currently about 44 central laws and more than 150 state laws on the subject. To say that there is an overlap would be an understatement. Multiple laws regulating a single area has led to redundancy.
A lot of the existing labour laws in India were created back during the Colonial period in the early 20th century by the British primarily for the purpose of protecting the British Industrialist and employers. Some of these laws are still being followed, albeit with various amendments over the decades.
It is not at all farfetched to say that some of the labour laws that are still followed are outdated. The Factories Act, for example, states that “In every factory there shall be provided a sufficient number of spittoons in convenient places and they shall be maintained in a clean and hygienic condition…” and it also provides for “suitable places for keeping clothing not worn during working hours and for the drying of wet clothing”. The Act even goes on to clarify exactly how many times a factory must be painted and when.
The fact is that this and many other similarly absurd and archaic laws still exist not only in the Factories Act, but also many of the other important labour legislations such as the Industrial Disputes Act. These “welfare provisions” are in no way relevant but make the already extremely cumbersome labour laws even more complex and difficult. It is shocking how such irrelevant laws have not been removed.
Another problem is that even though there are hundreds of legislations created to protect the workers, yet a lot of them are not actually protected. Though some of the laws such as The Minimum Wages Act, Equal Remunerations Act, etc apply to all workers, but there are some laws which do not. For example, the Payment of Wages Act applies only to those enterprises which employs 10 or more workers, and only to those workers getting wages of less than Rs. 18000 a month. Similarly according to the Industrial Disputes Act, any establishment employing more than 100 workers need to ask for prior approval from the Government before it can affect any layoffs, retrenchments or closures. It is fairly easy to see how this loophole can be used effectively by the employers to their advantage and to exploit the workers.
According to the Committee on Unorganized Sector Statistics (2012) report, 90% of the labour force in the country is working in the informal (unorganized) sector. Many of the labour laws do not apply to them. Take the case for a unit that employ less than 10 workers, and they are many employed in such small enterprises, but they practically get very little protection under the labour laws. The irony of the fact is that there are so many labour legislations, yet over 90% of the labour force is not protected, is seemingly lost on the government.
The new government has sought to give a shot in the arm to the country’s manufacturing sector which currently only accounts for about 13% of the National GDP and is quite low for a country with a such massive labour force. The only country India second to it in terms of the size is China, whose manufacturing sector accounts for more than 30% of its GDP.
One of the main reasons why the manufacturing sector has failed to expand is again due to the rigidity in the nations labour laws. The Industrial Disputes Act’s tough rules regarding hiring and layoffs lead to many problems for the employers. Often, laying-off an employee can be very expensive for the employer. Furthermore, trade unions can dispute such company decisions and go into long drawn out litigation. This impedes growth as it motivates the firms to remain small instead of expanding employment.
The inflexibility of the labour laws is also evident in the issue of multiplicity of trade unions. The Trade Unions Act requires a minimum of 7 workers to create a union. This leads to the creation of many different trade unions in any large factory, due to which the whole purpose of collective bargaining is defeated. In many other countries, the requirement for forming a union is much higher, which decreases the possibility of multiple unions.
Contract labour is another issue that has come up due to the stringent rule regarding layoff in the Industrial Disputes Act. Companies naturally find it easier, cheaper and more flexible to use contract labour as they can be hired and fired without any problems. However, if every company were to only use contract labour, then there would be no permanent employment and very low wages for those who do get work. Contract labour has increased dramatically in recent times as a cost cutting measure by large companies. The Contract Labour Act, 1970 is not sufficiently equipped to deal with the present situation. The fines imposed for non-compliance are not large enough to deter big companies from using contract labour on menial wages.
There is a need for a major overhaul of the existing outdated labour laws. Recently, the Centre has approved a few reforms in the labour laws in order to ease regulations, but more needs to be done, and quickly. The new government has to take the initiative and start making major changes in the existing laws at the Centre in order to improve the manufacturing sector as well as protect the interests of the employees.
Vikram Gupta and Rohan Shridhar, joint authors have developed this artilce from a research project that these law students did for their college