Damodaram Sanjivayya National Law

University
Visakhapatnam, A.P., India

LABOUR POLICY AND ITS LEGAL AND ECONOMIC ISSUES IN INDIA

ECONOMICS

MR. ABHISHEK SINHA SIR

ANKIT MOHANTY
3rd semester
2015009

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ACKNOWLEDGEMENT

I would sincerely like to put forward my heartfelt appreciation

to our Economics Lecturer, ABHISHEK SINHA for giving me a
golden opportunity to take up The project LABOUR
ITS LEGAL AND ECONOMIC ISSUES IN INDIA

POLICY AND

I have tried my best to

collect information about the project in various possible ways to

depict clear picture of given project topic.

.
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TABLE OF CONTENTS:

1. INTRODUCTION---------------------------------------------------4
2. IMPORTANT LABOUR LAWS----------------------------------5
3. LABOUR LAW AND ITS PROBLEMS ------------------------7
4. LABOUR LAW AND ITS LEGAL STATUS-------------------10
5. SUGGESTED REFORMS ------------------------------------------12
6. CONCLUSION ------------------------------------------------------13
7. BIBLIOGRAPHY----------------------------------------------------14

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INTRODUCTION:
Indian labour law refers to laws regulating labour in India. Traditionally, Indian governments
at federal and state level have sought to ensure a high degree of protection for workers, but in
practice, legislative rights only cover a minority of workers. India is a federal form of
government and because labour is a subject in the concurrent list of the Indian Constitution,
labour matters are in the jurisdiction of both central and state governments; both central and
state governments have enacted laws on labour relations and employment issues.
Labour policy in India has been evolving in response to specific needs of the situation to suit
requirements of planned economic development and social justice and has two fold
objectives, namely maintaining industrial peace and promoting the welfare of labour
Labour policy in India has been evolving in response to the specific needs of the situation in
relation to industry and the working class and has to suit the requirements of a planned
economy. A body of principles and practices has grown up as a product of joint consultation
in which representatives of Government, the working class and employers have been
participating at various levels. The legislation and other measures adopted by Government in
this field represent the consensus of opinion of the parties vitally concerned and thus acquire
the strength and character of a national policy, operating on a voluntary basis. Joint
committees have been set up to assist in the formulation of policies as well as their
implementation
The Constitution of India provides that the central government as well as the state
government be vested the power to enact and amend rules and regulations related to labour
policy in the country. Regulations that address labour and safety in mines and oil fields and

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Union agencies and institutions for vocational are governed by the central government
whereas laws and regulations on trade unions; industrial and labour disputes are governed by
central as well as state laws.
The labour laws of India originated and express the socio-political views of leaders such
as Nehru from pre-1947 independence movement struggle. These laws were expanded in part
after debates in Constituent Assemblies and in part from international conventions and
recommendations such as of International Labour Organisation. The current mosaic of Indian
laws on employment are thus a combination of India's history during its colonial heritage,
India's experiments with socialism, important human rights and the conventions and
standards that have emerged from the United Nations. The laws cover the right to work of
one's choice, right against discrimination, prohibition of child labour, fair and humane
conditions of work, social security, protection of wages, redress of grievances, right to
organise and form trade unions, collective bargaining and participation in management.

Indian labour law makes a distinction between people who work in "organised" sectors and
people working in "unorganised sectors".[citation needed] The laws list the different industrial
sectors to which various labour rights apply. People who do not fall within these sectors, the
ordinary law of contract applies.[citation needed]
India's labour laws underwent a major update in the Industrial Disputes Act of 1947. Since
then, an additional 45 national laws expand or intersect with the 1948 act, and another 200
state laws control the relationships between the worker and the company. These laws mandate
all aspects of employer-employee interaction, such as companies must keep 6 attendance
logs, 10 different accounts for overtime wages, and file 5 types of annual returns. The scope
of labour laws extend from regulating the height of urinals in workers' washrooms to how
often a work space must be lime-washed.[3] Inspectors can examine wok in jirkspace anytime
and declare fines for violation of any labour laws and regulations.

Important labour laws in India:

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1.

a) Apprentices Act, 1961

2.

b) Employees State Insurance Act, 1948

3.

c) Employees Provident Fund And Misc. Provisions Act, 1952

4.

d) Factories Act, 1948

5.

e) Industrial Disputes Act, 1947

6.

f) Payment of Bonus Act, 1965

7.

g) Payment of Gratuity Act, 1972

8.

h) Workmens Compensation Act, 1923.

Current Situation
Indian Labour Organisation in the Indian Labour Market Update published in August, 2015
has reported about the current statistics on labour. In 2011-12, 2.2% of the Indian population
was unemployed. It shows the huge number of population that is directly or indirectly under
the ambit of Indian labour laws. Addition to this, 82.2% of the working population is in the
unorganized sector. The main focus of the Indian labour laws since its inception,
manufacturing and construction sector employs 24.3%. Many service sectors are excluded
from labour laws at the moment. 1

1 http://www.india-briefing.com/news/overview-indian-labor-law-policy2980.html/
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LABOUR LAW AND ITS PROBLEMS:

Too many laws

In India there are 45 laws at the national level and close to four times that at the level of state
governments that monitor the functioning of labour markets.
Some of these date almost as far back as the founding of the
Great Eastern Hotel. They were meant to control conflict and
keep the labour market efficient.
Unfortunately, the experience has been to the contrary. According to recent World Bank
estimates, in 2004, there were 482 cases of major work stoppages, resulting in 15 million
human days of work loss.
Between 1995 and 2001 around 9% of factory workers were involved in these stoppages. The
figure for China is close to zero.
On the other hand, the wages of Chinese workers are rising much faster than that of Indias.
These facts are not unrelated.
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Short-sighted policy
Most of Indias labour laws were crafted with scant respect for market response. If X
seemed bad, the presumption was that you had to simply enact a law banning X.
But the fact that each law leads entrepreneurs and labourers to respond strategically, often in
complicated ways, was paid no heed.
In a poor country no one with any sensitivity wants workers to lose their jobs. So what does
one do?
The instinct is to make it difficult for firms to layoff workers.
That is exactly what Indias Industrial Disputes Act, 1947, did, especially through some later
amendments, for firms in the formal sector and employing more than 100 workers.
But in todays globalised world, with volatile and shifting demand, firms have responded to
this by keeping their labour forces as small as possible.
It is little wonder that in a country as large as India less than 10 million workers are employed
in the formal private sector.
Some commentators have argued that Indias labour laws could not have had much of a
consequence since most of them apply to only the formal sector.
What they fail to realise is that one reason the formal sector has remained miniscule is
because of these laws (and also the culture that the laws have spawned).
Need for flexibility
What is needed now is not a law that allows employers to fire workers at will but one that
allows for different kinds of contracts.
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.

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Flexibility in hiring and firing is not the only problem. Indias complex web of legislation
leads to a system of dispute resolution that is incredibly slow.
Data from the Ministry of Labour reveal that in the year 2000 there were 533,038 disputes
pending in Indias labour courts; and of these 28,864 had been pending for over 10 years.

The problems around the Indian labour laws are mainly because of its age. The preindependence era laws are now being amended but the process is very slow. The need is so
because of the technological advances and changed working conditions. There are 44 central
laws and more than 150 state laws on the subject. There are multiple laws on the similar topic
like 19 laws governing conditions of work and industrial relations and 14 laws on social
security and labour welfare.

Labor protection legislation is one of the basic features of welfare state and aims at providing
social justice. The main aim of such laws should be to create more, safer, and rewarding jobs
for the labor. This includes standards on minimum wages, working conditions, overtime
controls, right against unjustified retrenchment, strengthening of Labor unions, Right of
worker to compensation in case of accident at work place, post-retirement benefits, Personal
progress , skill development ,Social security and Dignified and respectful job etc. Issues
which arise from point of workers and industries

The main controversy is around the three acts: Industrial Disputes Act (1947), Contract
Labour(1970) and Trade Union Act(1926). Chapter V-b and section 9-A of The Industrial
Disputes Act says that if a company involves more than 100 people it must take approval
from the government for layoff of even single employee and if you quickly need to redeploy
the employees to meet certain time bound targets, you cant do that. Also if the board is going
to change the wage and allowances, a 21 days before notice is must. In the amended Trade
Union Act, it is mentioned that while forming an union it is necessary to have 25% of
members not of the same organization which is absurd. And in the Contract Labour Act the

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Supreme Court in its ruling has said that even for the work of regular nature the employer
should term the worker as permanent employee. 2

LEGAL STATUS IN INDIA

Our constitution has many articles directed toward their interests for eg. Article 23
forbids forced labor, 24 forbids child labor (in factories, mines and other hazardous
occupations) below age of 14 years. Further, Article 43A was inserted by 42nd
amendment directing state to take steps to ensure workers participation in
management of industries. (Gandhi ji said that employers are trustees of interests of
workers and they must ensure their welfare.)
Labor laws are under concurrent list. There are approx. 144 central and state laws, most
or all of which seek compliance from industries.
Important laws related to Industrial relations are
1.

Employee state insurance Act ESI card is issued, insuring worker against any
accident at work. Theres also ESI corporation

2 http://articles.economictimes.indiatimes.com/keyword/labour-policy
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2.

Employees Provident Fund and Miscellaneous provisions Act Provident fund is one
in which employee pays part of his wage ( 12 % in most cases) and equal contribution by
employer. This is mandatory for establishment employing more than 20 people

3.

Factories Act ,1948

4.

Child Labor (prohibition and regulation) Act prohibits children below age of 14 to
work in hazardous jobs. There are demands for complete ban on child employment

5.

Industrial Disputes Act One important provision Industries employing more than
100 people can not terminate employment before approval of government. There is
strong demand from industry to revise this limit, to facilitate easy entry and exit.

6.

Minimum Wages Act

7.

Bonded Labor system ( Abolition) Act System in which onetime payment was made
by employer to supplier or leader of group and whole seasons or years services of labor
was taken. Still rampant in some businesses like Brick Kilns

8.

Contract Labor (Regulation and Abolition) Act, 1970 Contract labor is indirectly
employed by an establishment through a contractor or agency. So their relation with
principal organization becomes ambiguous. They are generally discriminated against
direct employees in terms of wages, job security, status etc. This act attempts to abolish
it in certain circumstances and to bring them at par with direct employees.

9.

Apprentices Act, 19613

3 http://www.insightsonindia.com/2014/10/20/labor-issues-and-need-for-reforms/
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SUGGESTED REFORMS
Labor Law should be moved to State List to promote investment and give more freedom to
state governments to address the issues according to their requirements. Rajasthan and
Madhya Pradesh have started taking some steps in this direction, and if more states follow
their lead the reforms can be brought to the micro level in a more systematic manner.

Grouping of various laws should be done on the basis of their function. As of now, the acts
are scattered under various headings which can be consolidated under a single heading. For
example, EPF and Miscellaneous Provisions Act (1952), ESI Act (1948) and Payment of
Gratuity Act (1972) can be consolidated under social security of labour. Also, this would help
in decreasing the number of registers that the employer needs to maintain.

Reasonable amount of notice period should be given to the companies before the employees
go on a strike/lock-out. Apart from public utility services, there is no other sector where a
notice is given to the concerned company before going on a strike.

ESICs proposed limit of Rs. 25,000/- should be decreased back to Rs. 15,000/- to lower the
burden on employer since this might have an impact on the employment generation of the
employer. Also, the facilities that the dispensaries under ESI provide lack important
medicines, doctors, paramedical staff etc.

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CONCLUSION
In the context of above discussions, there are many things needed to be looked upon. The first
is that of the whole question of whether improving the status of the organized sector
manufacturing by reforming the labour laws would practically make a difference to the
growth of employment considering that labour in the organized sector forms only 6 per cent
of the total labour force the rest being in the unorganized sector. Secondly, whole debate on
whether rigidity of the labour laws is hindering growth of the manufacturing sector and hence
employment generation in this sector seems vague if large scale flouting or violations of
labour laws are taken into consideration. Again, even though steps involving greater
flexibility in labour laws making it easier to implement greater flexibility in the labour market
are taken leading to creation of greater employment opportunities, one need to know whether
this would lead to long term generation of employment creation or would it result in just a
short term planning. And above all any step should take into account the interests of both the
employers and the workers with greater emphasis on social protection of workers. Because
labour in the new industries would face different types of insecurities like job security in the
wake of contractual 20 work, lack of minimum wages legislation, housing and health
facilities and most importantly old age benefits. Emphasis should first and foremost be laid
on decent work practices along with proper implementation of minimum wages in both
formal and informal sectors which call for commitment from he employers side as well. For
instance, if a small level trader in the informal sector hires a handful of workers we do not
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know whether the trader himself is capable enough to provide minimum wages to its handful
of employees. Another instance cited by Datta (2001) where he points out the fact that in
Mumbai since the Mathadis8 did not have an employer and because their work did not fall
under any Scheduled Employment, they were bereft of the benefits of the Minimum Wages
Act. Another important issue is the enforcement of labour laws which is of particular concern.
So any alternative framing of labour laws need to reconsider and assess these aspects before
moving forward with the conception of rigid labour laws and its hindrance to employment
growth.

BIBLIOGRAPHY:

Breman, J. (2004), The Making and Unmaking of an Industrial Working Class (New
Delhi: Oxford University Press).
Anant, T. C. A, R. Mohapatra, R. Nagaraj and S. K. Sasikumar (2006), Labour
Markets in India: Issues and Perspectives
Labour

Markets

in

India:

Issues

and

Perspectives

(Basingstoke:

Macmillan).

Online Sources:
http://articles.economictimes.indiatimes.com/keyword/labour-policy
http://www.thehindu.com/opinion/op-ed/unlocking-growth-through-labourreforms/article7016165.ece
http://www.legalindia.com/question/what-are-the-labour-policy-of-india/
http://www.india-briefing.com/news/overview-indian-labor-law-policy-2980.html/

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Palgrave