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Insights into Editorial: Labour law reforms are a necessity

Insights into Editorial: Labour law reforms are a necessity

23 May 2016

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Over 25% of the world’s workers are Indian. And 300 million young people are set to enter the labour force by 2025. With an average age of 29, India’s population is in the middle of a demographic boom. By 2020, when the global economy is expected to run short of 56 million young people, India, with a youth surplus of 47 million, could fill the gap. It is in this context that labour reforms are often cited as the way to unlock double-digit growth in India.

Why reforms are needed?

Because India still does not use its vast labour force productively or judiciously. In 2014, India’s labour force was estimated to be about 490 million, or 40% of the population, but 93% of this force was in the unorganised sector, ranging from vegetable vending to diamond trading. Also, over the last decade, the compounded annual growth rate (CAGR) of employment has slowed to 0.5%, with 13.9 million jobs created in 2012 when the labour force increased by 14.9 million.

Problems with Indian labour laws:

There are eight core ILO Conventions against forced labour. India refuses to ratify four of those: C87 (Freedom of Association and Protection of the Right to Organise Convention); C98 (the Right to Organise and Collective Bargaining Convention); C138 (Minimum Age Convention), and C182 (Worst Forms of Child Labour Convention). India also refuses to ratify another major convention, C131, or the Minimum Wage Fixing Convention.

The Annual Global Rights Index, published by the International Trade Union Confederation (ITUC), rates 141 countries on 97 indicators derived from ILO standards. The rating is on a scale of 1 to 5-plus, based on the degree of respect accorded to workers’ rights. In 2015, India had a rating of 5, the second-worst category. It denotes “no guarantee of rights”. Despite being a constitutional democracy, on the matter of worker rights, India is in the same club as Saudi Arabia, UAE and Qatar, all dictatorships.

What has been the government doing in this regard?

  • India’s labour law regime has always been at loggerheads with industrial development and the ease of doing business. Since its inception, 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 self-certification by industry. This also encourages a more transparent labour inspection regime, with inspection reports uploaded within 72 hours.
  • 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.
  • 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.

What else is needed?

  • 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.
  • With no labour laws applying to apprentices, care must be taken 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 Workmen’s 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, India’s 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.


Given the current political and economic scenario, it is very difficult to expect a political consensus emerging at the national level. However, states such as Rajasthan, Madhya Pradesh and Gujarat have made positive moves with respect to labour reforms. Given the emerging competition between states to attract investments, one may hope that other states also are likely to follow suit sooner rather than later.