Need for Labour Reforms in India

Industrial relations are a bonding between the Employer and the Employee to improve their mutual relationship, interaction and maintaining harmony and peace in the work place. Many a 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 healthy relationship between the employee and the employer, the two partners in the Industry. In the words of “The state of Industrial relations in the country is intimately connected with the forms of its political government and the objectives of an Industrial Organization may change from economic to political ends” LABOUR LAWS IN INDIA: AN HISTORICAL VIEW

The History of Indian Labour Laws is naturally interwoven with the history of British Colonialism. The industrial/labour legislations enacted by the British were framed in light of the Industrial development in the United Kingdom. The laws were primarily intended to protect the interests of the British employers and Industrialist. The welfare or the interests of the British Political Economy were of the paramount importance while drafting those laws.

The earliest Indian statute that regulated the relationship between the Employees and Employer was the e Trade Dispute Act, 1929 (Act 7 of 1929). Provisions were made in this Act for restraining the rights of strike and lock out but no machinery was provided to take care of disputes. This act was hugely biased in favour of the British Employers. The original legislation underwent substantial modifications after the demise of British Colonialism as there was a huge demand of the clear and unambiguous partnership of the Labour and Capital from the Independent India.

The content of this partnership was agreed on a tripartite agreement in December 1947, the year of India’s Independence. The main agreements were that the labour would be given the fair wages and fair working conditions and in return the capital or the employer will receive the full commitment and co-operation in terms of high productivity and no interruption for the capital to maximize the profits. Ultimately the Industrial Relations Act was put into force repealing the Indian Act Trade of 1929.This act is in the Indian statute till date. The Central and State Governments enacted severallaws for various categories of Labour and classifications of problems ever since independence. LABOUR REFORMS – ARE THEY THE NEED OF THE HOUR?

There is a strong call from India’s strongest and influential quarters for the need of the labour reforms in India. The argument provided for the reforms is that many of the labour laws are quite irrelevant and do not reflect the current requirements and needs of the Industry. There are several reasons for this. Under the Constitution of India, Labour is a subject in the concurrent list where both the Central and State Governments are competent to enact legislations.

As a result, a large number of labour laws have been enacted catering to different aspects of labour namely, occupational health, safety, employment, training of apprentices, fixation, review and revision of minimum wages, mode of payment of wages, payment of compensation to workmen who suffer injuries as a result of accidents or causing death or disablement, bonded labour, contract labour, women labour and child labour, resolution and adjudication of industrial disputes, provision of social security such as provident fund, employees’ state insurance, gratuity, provision for payment of bonus, regulating the working conditions of certain specific categories of workmen such as plantation labour, beedi workers etc.

Therefore, there are 44 labour legislations at central level and almost four times of them at State level. As a result, it created a lot of redundancy and loopholes in the legal system which paves way to exploitation of labour. Implementation of this complex system of laws has 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 benefit Indian Labour?

No. Because of the predominantly heavy handed labour regulations (also called as Inspector Raj) with exploitable gaps, the MNCs and domestic organizations have resorted to alternate ways i.e. employing contract labours at less than half the payroll of a permanent employee. In the subsequent pages we give staggering examples to illustrate the urgency for the reforms. India has 94% of its workforce in its unorganized sector. With a second highest workforce of 487 million workers (next to China), Indian GDP is grossly undervalued.

The reason is that this 94% of unorganized workforce accounts for 57% of GDP while the remaining 43% comes from the meagre 6%. This huge workforce getting trapped in unorganized sector is largely attributed to our stringent labour laws. Having illustrated couple of several reasons that demand the need for reforms we set out with the various implications, challenges and recommendations necessary for the present day system backed by relevant data and analysis. IMPACT OF DELAY OF LABOUR REFORMS:

The Labour Reforms if not implemented soon, it would take a gross hit on India as an investment destination. Also it would incur huge loss to the economy due to undervalued GDP production. The following is the data that reveals growing labour unrest in India (Ref 23).

Two examples that took the extreme turn in recent past are1. Maruti lockout in Gurgaon2. Regency Ceramics plant lockout in Yanam, Andhra Pradesh. The two cases have taken lives of Management people. Such a kind of extreme unrest can only be attributed to archaic Labour 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 in India is in unorganized sector and that shows how grossly Indian GDP is undervalued.

This is so because the income of these people in workforce is very much less than the permanent workforce for the same output. The improper regulations coupled with complexity have led to misuse of vast Labour of India. The data below reveals the contrasting rankings and the need for reforms (Ref 22). Compensation of employees > % of expense| 9.88%| | [126th of 135]| Firing cost > weeks of wages| 55.9 weeks of wages| | [58th of 164]| force, total| 43,50,35,700| | [2nd of 184]|

Labor force > By occupation|agriculture 60%, industry 17%, services 23%|Regulation > Employment Conditions| 75| | [65th of 123]| Rigidity of employment index| 41| | [73rd of 166]|Unemployment, total > % of total labor force| 5%| | [59th of 101]| Work time > Market-oriented| 61%| | [6th of 29]|

FUNDAMENTAL CHALLENGES FACING LABOUR LAWS IN INDIAThe Indian Labour is a very diverse workforce with different requirements for each cognate set. Each stakeholder i.e. Labour, Employer, Central Government and State Governments have different views about the reforms to be brought in. Their interests are often conflicting and the policy makers have the challenge of balancing that when enacting reforms in Labour laws. The long term effects are to be considered while doing this. We briefly give the view points of Trade Unions, Employers and Governments compiled in a recent Government report 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 concept of contract labour. Trade Unions suggest that this concept itself should be removed. But Employers suggest that employing the entire workforce is not possible in the advent dynamic business cycles. Another reason that is attributed is the stringent hiring and firing process defined in Industry Disputes Act. It makes it mandatory for the organization to seek Government permission before removing an employee. This highly regulated firing process unlike 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 challenges of huge workforce in unorganized sector, easing the IDA Act would lead to employment in organized sector is a mere speculation.

Easing of firing rules would also have a detrimental effect on collective bargaining power of employees as it makes easier for employers to fire the employees and harass them in the event of encouraging the union formations. But on the other 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 blatant exploitation from a live example covered by New York Times article here (Ref 7). Mr.

Manish Sabharwal runs Team Lease, a Bangalore-based agency that has created thousands of jobs by fielding temporary workers for companies in India that want to expand their work force while skirting India’s stringent labour laws, which businesses say discourage the hiring of permanent employees. Many labour leaders and left-leaning politicians accuse him of running the nation’s largest illegal business.

Walk into any of India’s shining new shopping malls that sell expensive brands, like Gucci and Satya Paul, and many of the store clerks, janitors and security guards will be on the payrolls of outsourcing companies, not those of the owners of the mall or stores in it. Team lease boasts many clients like Whirlpool, Videocon, Maruti Suzuki, Mitsubishi etc. Their only argument is it’s better to have some job than no job at all.

The practice highlights a fundamental tension between India’s socialist past and a new freewheeling, private sector that is increasingly powering the economy while chafing at what many companies say are laws so protective of workers that they blunt hiring and stifle growth. 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 skill set of employers greatly varies between Contract and Permanent Labour. The Government has to address this because the grossly unequal payrolls are motivating organizations to follow Contract hiring process and that’s the reason for recent Labour unrest. Collective Bargaining:

Trade Unions have condemned the recent declaration of Strikes as illegal by Supreme Court. They are seeking a provision by which the strikes cannot be declared illegal in the event that certain percentage of workforce opts for it. Investments can take a hit if there are frequent strikes as it would halt the production and Employers have to operate in an environment of constant insecurity. Governments are recommending non association of trade unions with political parties and looking for a smoother mechanism for dispute resolving other than strikes. Uniform Definitions and Consolidation of Laws:

The current Constitutional framework puts Labour as a Concurrent Subject and has 45 laws enacted at Central level and over four times of them at state level. These were created to cater to various cognate levels of workforce and their diverse needs. But this has created widespread confusion and implementation ambiguities. For ex: Minimum Wages in Andhra Pradesh for a Plougher is Rs 126 per day. In Haryana, it is Rs 216 for a skilled agricultural labour. The ways labourers are classified in Andhra Pradesh are totally different from the way it is in Haryana. The wages are also different. Therefore, a uniform definition is desired by Trade Unions.

But Employers and Government are of the view that uniform definitions are impossible as skill sets varies according to the jobs. But everyone agrees to the fact it is time for consolidation of all the existing laws and provides equitable justice to every stakeholder. Enforcement of Labour Laws: the enforcement of Labour laws is always a major problem in India. For ex: the field survey done in state of Karnataka about the minimum wage implementation at a work place shows the following data(Ref 3).

Though the contract workers are supposed to get above Rs 4000 as per law, the reality is a gross violation. Not even 1.1% is getting that wage. The State Governments are demanding for more funds for creation of stronger Labour Enforcement Departments and imposing greater 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 be implemented. But employers state that RBI should bring in a change in policy to allow existence 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 of the major bottlenecks for easing the ID Act. If workers have a minimum social cover during retrenchment, they would not panic till they find another job. Without a social net and easing of firing policies would make lives miserable for workers. Data from World Bank shows the coverage of India when compared to other countries like Brazil, Mexico and Russia. ————————————————-

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Bottom of FormASPIRE: The 2011 Atlas of Social ProtectionCoverage (%)| BRA(2006)| BRA(2009)| IDN(2009)| IND(2005)| MEX(2008)| MEX(2010)| RUS(2007)||Social Protection| 63.11| 58.16| 69.00| 44.08| 78.21| 86.32| 73.24| | Social Insurance| 9.21| 11.10| 14.82| 4.03| 59.44| 75.71| 45.56| | Old Age contributory pensions| 9.21| 11.10| -| -| 2.13| 2.71| 42.53| | Social Security/Health Insurance| -| -| 14.82| 4.03| 59.25| 75.57| 5.07| | Labour Market programs: unemployment benefits and ALMP| 5.75| 6.74| -| 1.75| -| -| -| | Social Safety Nets| 55.44| 47.91| 65.81| 40.10| 54.75| 57.42| 46.79| | Cash Transfer programs/Last resort program| -| -| -| -| 9.61| 13.55| 0.78| | Social Pensions| 2.27| 1.47| -| -| 6.16| 8.71| 3.72| | Other cash transfers programs: family, child or disability allowances| -| -| -| -| -| -| 39.45| | Conditional 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| 12.37| | Private transfers| 4.44| 2.95| -| -| 19.89| 17.83| -| | Source: World Bank(Ref 11)

Please note the Conditional cash transfer program is totally non-existent in India.

RECOMMENDATIONSAs part of the study done till now, the required Labour Reforms are very comprehensive. Here few recommendations are suggested which are of utmost importance in present day. Consolidation and Simplification of Labour Laws and Definitions: There are few sets of laws which can be replaced by one law and implemented more effectively. For ex: Laws governing Wages

The Equal Remuneration Act, 1976The Minimum Wages Act, 1948The Payment of Bonus Act, 1965The 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 laws individually. In the process provisions which have outlived their existence may be deleted. If necessary, certain laws may be considered for being repealed. A consensus will have to emerge from the stakeholders regarding this. Similarly, few common definitions can be provided for things like classification of work force etc.

Urgent need for changes in Contract Labour Act: Prof Kaushik Basu stated the need for flexible employment contracts (Ref 5). Some workers may sign a contract for a high wage but one that requires them to quit at short notice; others may seek the opposite. This would allow firms to employ different kinds of labour depending on the volatility of the market they operated in. This would be an equitable idea for both Unions and Employers.

Also the wage difference between contract and temporary should have a ceiling. Effective Enforcement of Existing Laws: The need of the hour is the emphasis on how the implementation of labours could possibly be improved. Over 13626 cases are currently pending in the central tribunal (Source: Business Line). Steps to make the grievance redressal process more effective and simultaneously more efficient so that the labours get the maximum possible benefit of its purpose.

Most importantly, ways to improve collective bargaining and ways to improve solving disputes. Holding Lok Adalats should also be encouraged to enable faster disposal of cases. A database should be built on all aspects relating to industrial relations and the officers of the Labour Department’s should have access to such database through computer connectivity. Codification and simplification of Labour Laws it is also suggested for creating online single window system for making compliance as user 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 in the 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 a viewpoint that penalties should be graded depending on the seriousness of offence, the number of times the offence has been committed and the capacity to pay. Often organizations choose to violate than implement because the latter is more costly.

Indexing of Benefits and Penalties: Instead of amending the Acts for wages, penalties etc periodically by the Government, Indexing can be done by evaluating a formula that is connected to Inflation. As a result, the laws need not be reviewed by the Government and employers need not wait till they are enacted. Employees can easily benefit and it would lead sustainable life styles even though laws are archaic. For ex: the gratuity payment was revised from Rs 3.5Lakh to Rs10Lakh in 2009. Again the policy makers have to sit on it and bring in amendments through a rigorous process which would take a lot of time. Indexing would help overcome the problem. Digitization of Employment Exchanges and Easing of Regulatory Compliances:

The huge 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 be provided in long run. Also the Regulatory compliances for employers should be transparent and easy to follow. A clear policy would always motivate better investment. CONCLUSION:

Indian Labour Laws need several urgent reforms failing which would lead to a great economic and social loss to the country. Economic loss occurs because of labour unrests and lesser GDP output. Social loss occurs because of deteriorating life styles due to raising inflation and stagnant wages, increasing insecurity among workers and management. Given the complexity in the legal system that evolved in the past 50 years, there is an urgent for consolidation and better implementation for the inclusive growth and holistic benefit of the country.



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