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CURRENT AFFAIRS FOR UPSC IAS

Mains (/Current -Affairs/Mains-Archive)

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Why India Needs Labour Reforms?
Context
Recent ly, Indust rial Relat ions Code was int roduced in t he Parliament ary by Minist er of Labour.

Background

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Labour reforms essent ially mean t aking st eps in  increasing product ion, product ivit y, and
employment opport unit ies  in t he economy in such a manner t hat t he int erest s of t he
workers are not compromised.
Essent ially, it means skill development , ret raining, redeployment , updat ing knowledge base
of workers-t eachers, promot ion of leadership qualit ies, et c. Labour reforms also include la-
bour law reforms.
Labour laws are concerned wit h t he t rade union right s of t he workers, indust rial relat ions
and job securit y and policies relat ing to wages, bonus and ot her incent ive schemes.
Labour reforms are of great import ant as t he laws enact ed in t he labour market aim at
regulat ing t he market , prot ect ing employment and ensuring social securit y of workers.

Analysis
Problems of Labour Market in India

Indian labour market is charact erised by a sharp dichotomy.

Organised sector is st ringent ly regulat ed while t he unorganized sector is virt ually free
from any out side cont rol and regulat ion wit h lit t le or no job securit y.
Wages are ‘too high’ in t he organised sector and ‘too low’, even below t he subsist ence
level in t he unorganised sector. T his dualist ic set up suggest s how far t he Indian
labour market is segment ed.

Poor Social Securit y:

Social securit y to organised labour force in India is provided t hrough a variet y of
legislat ive measures.
Workers of small unorganised sector as well as informal sectors remain out side t he
purview of t hese arrangement s.

Mult iplicit y of Archaic Labour Laws

Labour Laws govern t rade unions, indust rial re lat ions, and job securit y
Labour is a concurrent subject
 and more t han 40 Cent ral laws more t han 100 st at e
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feedback.

Trade Union Issues:

 Trade Union Act , 1926 provide t hat any seven employees could form a union.
During t he freedom st ruggle, Indian t rade union cont ribut ed handsomely. It is now
bet t er organized.
Frequent St rikes: Indust rial Disput es Act , 1947 aims at promot ing good relat ions
bet ween employers and workmen, prot ect ing workers against re t renchment and
set t ling disput es t hrough conciliat ion, arbit rat ion or adjudicat ion. However, indust rial
relat ions climat e were far from sat isfactory when t rade unions resort ed to milit ancy
in t he 1960s and early 1970s. Bet ween 1972 and 1981, t he average number of work
days lost per year per employee in t he manufact uring sector stood at 4.070. T his
figure went up to 5.736 bet ween 1982 and 1992—a very high figure compared to
ot her count ries in t he cont emporary period.
Mult iplicit y of t rade unions hamper disput e resolut ion.
Int er-union rivalry and polit ical rivalries are considered to be t he major impediment s to
have a sound indust rial relat ion syst em in India.
Indian labour laws are highly prot ect ive of labour, and labour market s are relat ively
inflexible. As usual, t hese laws are applicable in t he organised sector only.

Rigid Laws:
India’s labour laws for t he workers in t he organised sector give workers permanent
employment , of course, aft er a probat ion pe riod ranging from 6 mont hs to 2 years.
Job securit y in India is so rigid t hat workers of large privat e sector employing over 100
workers cannot be fired wit hout government ’s permission.

Unskilled labour
Lack of enough skilled workers is a common concern raised by t he employers in
defence of t heir inabilit y to hire more.
T hey resort to cont ract employment
T hey adopt hire and fire policy.

Gender gap
Low female labour force part icipat ion
71% of men above 15 years are a part of t he workforce as compared to just 22
percent women (Labour Force Survey)

Low labour Product ivit y:

Promot ions are based on seniorit y and t hus workers get fixed annual wage
increment s unrelat ed to work perform ance.
T he labour market policies followed in India in t he past have led to serious problems
due to low labour product ivit y even in t he cont ext of an economy where t he firms
were shielded from bot h int ernat ional compet it ion (by t he very high import t ariffs)
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and domest ic compet it ion (by t he licensing policies).
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T his, in t urn, creat ed an inefficient and int ernat ionally uncompet it ive indust rial sector which
event ually led to lower wages (for example, Indian wages in t he manufact uring sector are only
sevent h t he Singaporean wages), fewer jobs, and higher unemployment .

Labour market regulat ions operat ing since 1947 have t ended to discourage bot h t he growt h of
employment and product ivit y. Fur t her, it has pushed many act ivit ies into t he unorganised
sector. T his is evident from t he fact t hat annual growt h rat e of employment in t he unorganised
sector was much higher (2.73 p.c.) t han t he organised sector (1.58 p.c.) during 1981-91.

Agenda for labour Reforms

Consolidat ion and simplificat ion of numerous St at es’ and Cent re labour laws
St reamlining of Minimum Wages in t he count ry and ensuring t hey reach t he beneficiaries.
Int roduct ion of fixed t erm employment , to curb t endency for employing (socially insecure)
cont ract labour.

St eps Taken by Government

Four Labour Codes aims at simplificat ion, amalgamat ion and rat ionalisat ion of Cent ral
Labour Laws
Child labour (prohibit ion and Regulat ion) Amendment Act , 2016 provides complet e ban on
employment of children below 14 years of age.
Mat ernit y Benefit Amendment Act , 2017 has increased paid mat ernit y leave from 12
weeks to 26 weeks

 T he 2nd Nat ional Commission of labour had recommended simplificat ion, amalgamat ion and
rat ionalisat ion of Cent ral Labour Laws. T he cent ral government is compressing of 44 cent ral
labour laws into four ‘codes’ or broad cat egories — wages, social securit y, indust rial relat ions
and occupat ional healt h and safet y.

Labour Codes on wages Bill, 2019

Need
It arises in t he absence of st at utory Nat ional Minimum Wage for different regions,
which impedes t he economic prospect .
It seeks to consolidat e laws relat ing to wages by replacing- Payment of Wages Act ,
1936; Minimum Wages Act , 1948; Payment of Bonus Act , 1965 and Equal
Remunerat ion Act , 1976.

Key Feat ures

T he Code will apply to any indust ry, t rade, business, manufact uring or occupat ion
including government est ablishment s.
Wages include salary, allowance,
 or any ot her component expressed in monet ary
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among ot hers.
 It different iat es t he cent ral and St at e Jurisdict ion in det ermining t he wage relat ed
decision for est ablishment such as Railways Mines and oil fields.
A concept of st at utory Nat ional Minimum Wage for different geographical areas has
been int roduced. It will ensure t hat no St at e Government fixes t he minimum wage
below t he Nat ional Minimum Wages for t hat part icular area as not ified by t he Cent ral
Government .

Concerns
T he definit ion of worker is not clearin t he Wage Code Bill.
T he calculat ion of t he level of minimum wage by an expert commit t ee is at variance
wit h ILO paramet ers.
A  ‘nat ional minimum wage’  is a good idea, but it s comput at ion is cause for
concern. Inst ead of a single nat ional minimum wage, t he bill proposes  mult iple
minimum wage st ruct ure at different geographical zones.
T he economic survey 2018-19 had also ment ioned t hat a nat ional mandatory
minimum wage is a requirement .

Labour Code on Indust rial relat ions, 2019

Need
It aims to creat e great er labour market flexibilit y and discipline in labour – to improve
upon ease of doing business and also to encourage ent repreneurs to engage in
labour-int ensive sectors.
It would replace t hree laws i.e. Trade Unions Act , 1926; Indust rial Employment
(St anding Orders) Act , 1946 and t he Indust rial Disput es Act , 1947.

Key Feat ures

It seeks to allow companies to hire workers on fixed-t erm cont ract of any durat ion.
T he code has ret ained t he t hreshold on t he worker count at 100 for prior government
approval  before ret renchment , but it has  a provision for changing ‘such number of
employees’ t hrough not ificat ion. T his provision has been crit icized sharply by t he
labour groups and t rade unions as any not ificat ion may change it lat er.
It also provides set t ing up of  a t wo-member t ribunal  (in place of one member)
wherein import ant cases will be adjudicat ed joint ly and t he rest by a single member,
result ing speedier disposal of cases.
It has vest ed  powers wit h t he government officers for adjudicat ion of disput es
involving penalt y as fines.
Int roduces a feat ure of ‘recognit ion of negot iat ing union’ under which a t rade union
will be recognized as sole
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‘negot iat ing union’ if it has t he support of 75% or more of
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As several t rade unions are act ive in companies, it will be tough for any one group to
manage 75% support , hence t aking away t heir negot iat ing right s. In such a case, a
 negot iat ing council will be const it ut ed for negot iat ion.
Underlines t hat  fixed-t erm employees will get  all st at utory benefit s on a par wit h t he
regular employees who are doing work of t he same or similar nat ure.
Under t he code, t erminat ion of service of a worker on complet ion of t enure in a fixed-
t erm employment will not be considered as ret renchment .
Proposes set t ing up of a “re-skilling fund” for t raining of ret renched employees. T he
ret renched employee would be paid 15 days’ wages from t he fund wit hin 45 days of
ret renchment . 
While t his means workers can be hired seasonally for six mont hs or a year it also
means t hat  all workers will be t reat ed at par wit h regular workers for benefit s.

Concerns
T he  Indust rial Relat ions Code of 2019  has evoked st rong react ions, as t he right to
form unions and accord t hem powers of represent at ion has been severely curt ailed.
It provided t hat a minimum of 10% of workers or 100 workers employed in an
est ablishment or indust ry would be needed - from seven at present - to regist er a
t rade union.

Labour Code on Social Securit y & Welfare, 2017

Need
Almost 90% of t he current workers are not covered under any social securit y.
T he current t hresholds for wage and number of workers employed for a labour law to
be applicable creat es t enacious incent ives for t he employers to avoid joining t he
syst em which result s in exclusions and distort ions in t he labour market .

Key Feat ures

Definit ion of employee and cat egorizat ion of workers covers all kinds of employment
including part -t ime workers, casual workers, fixed t erm workers, piece rat e/ commission
rat ed workers, informal workers, home-based workers, domest ic workers and seasonal
workers.
A proper percent age-based st ruct ure for cont ribut ion, vis-à-vis socio economic cat egory
and minimum not ified wage, has been put in place under t he Code.
It int roduces new approaches to ensure a t ransparent and fair financial set up, such as,
T ime bound preparat ion of Account s wit hin six mont hs of t he end of t he financial
year;
Provision for social audit of social securit y schemes by St at e Boards aft er every five
years;
Account s of Int ermediat e Agencies to be subject to CAG Audit on t he same lines as
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t hat of Social Securit y Organizat ions.
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Wage Ceiling and Income T hreshold: T he t erm 'wage ceiling' is for t he purpose of
det ermining a maximum limit on cont ribut ion payable; whereas t he t erm 'income
 t hreshold' is for t he purpose of enabling t he government to provide for t wo different kind
of schemes (for same purpose) for t wo different class of workers.
Cont ribut ion Augment at ion Funds would be est ablished t hrough which government s could
cont ribut e to t he social securit y in respect of workers who are unable to pay cont ribut ion.
Nat ional St abilizat ion Fund will be used for harmonizing t he Scheme Funds across t he
count ry and will be managed by t he Cent ral Boards.

Labour Code on Occupat ional Safet y, Healt h & Working Condit ions, 2018

Need
T he proposed code is t he first single legislat ion prescribing st andards for working
condit ions, healt h and safet y of workers and it will apply on factories wit h at least 10
workers.
It will amalgamat e 13 labour laws including t he Factories Act , 1948; t he Mines Act ,
1952; t he Building and Ot her Const ruct ion Workers (Regulat ion of Employment and
Condit ions of Service) Act , 1996; t he Cont ract Labour (Regulat ion and Abolit ion) Act ,
1970 et c.

Key Feat ures

Cent re has been empowered to prescribe st andards on occupat ional safet y and
healt h
Annual healt h check to be made mandatory in factories and it s charge will be borne by
t he employers
Appoint ment let t ers for all workers (including t hose employed before t his code),
underlying t heir right s to st at utory benefit s
At least 50% of penalt y levied on employers could go towards providing some relief to
families of workers who die or are seriously injured while working
Nat ional Occupat ional Safet y and Healt h Advisory Board at nat ional level and similar
bodies at st at e level, have been proposed to recommend st andards on relat ed
mat t ers.
Appoint ment of facilit ators wit h prescribed jurisdict ion for inspect ion, survey,
measurement , examinat ion or inquiry has been proposed
Mandatory license for every cont ractor who provides or int ends to provide cont ract
labour. Also, license is needed for indust rial premises as well.
Concerns
“T he Occupat ional Safet y, Healt h and Working Condit ions Code, 2019” is also being
prot est ed by t rade unions for allegedly dilut ing workers’ safet y provisions inst ead of
st rengt hening t hem.
All t he cent ral t rade unions have expressed t heir displeasure and have demanded
t horough consult at ion and
 recast ing of t he Code. T hey want it to be reviewed by t he
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Way Forward

Reforms should be made wit h  consensus amongst workers and t heir unions, and
employers and t heir associat ions.  Trust bet ween workers and employers should be
increased.
A nat ional policy for domest ic workers needs to be brought in at t he earliest to recognise
t heir right s and promot e bet t er working condit ions.
Apprent iceship should be promot ed. T he government should form Nat ional Apprent iceship
Corp. by merging t he Regional Directorat e of Skill Development and t he Ent repreneurship
and Board of Apprent iceship Training to achieve t he object ive of t raining t he 10 million
apprent ices and finding jobs t hrough an exclusive job port al.

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