Reforms

SUBMITTED BY:
ANURAG MAHAJAN
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GAURAV CHAUDHARY 14PGDM017
KRITI SUMAN
14PGDM026
MEENU JAIN
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PARUL GOYAL
14PGDM037
S SASANK
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SHEEN JACOB
14PGDM048

The Segmented Labour Market

90% are employed in low productivity Informal Sector Jobs in

India (World Bank,2010)

In 2004-05, Indias Labour market is described as :

LABOUR
FORCE
385 million

LABOUR
FORCE
420 million

RURAL
303 million

URBAN
116 million

RURAL
278 million

Secondary occupation outside agriculture

Variations across states.
Pace of decline varies across states
Gender differences
Farmers consider themselves as self- employed.

URBAN
107 million

Outside of agriculture, informality can be defined in

terms of labour laws i.e. an enterprise is unorganized if it

uses power and employs fewer than 10 people or does
not use power and employs fewer than 20 people.
Unorganized sector
92.4% employment (52.9 million wage workers)
No Labour rights
No Protective legislation( safety, minimum wages, social

security)
Unorganized labour exits within organized sector (76.7
million)

All informal non-agricultural employment is not based on

employer-employee relationship.

Informal employment (Non-agricultural) -83%

Self-Employment (53%)

Wage Employment

The Dichotomy
Organize
d Labour
segment

UnOrganize
d Labour
segment

Laws have resulted in rigidity in organized segment whereas they are non existent

in unorganized segment.
India is de jure signatory to the seven human and labour rights
instruments(genocide, racial discrimination, civil and political rights, economic,
social and cultural rights , discrimination against women and rights of child)
India has ratified 41 ILO conventions, out of them the important ones related to
minimum wages related are (5,15,26,123).
Most of these conventions are predicted on an employer-employee relationship
existing and this does not address the self employment problem.
In 2004-05, 56.5% of workforce reported itself as self-employed.
The higher the degree of self employment the lower seems prosperity of state, it
suggests that it is a subsistence level occupation because people cannot afford to
remain un employed.

Self employment category is extremely heterogeneous. But some of the self

employed workers who are in relatively low income category would be better
off in wage employment.
In 2004-05 ,84.9% of own account enterprises were not registered .
The sole reason for such high number was not lack of information but because
the benefits from registration were not commensurate with the costs.
Registration had its share of problems associated with it such as bribery and
rent seeking from government machinery as reflected from study conducted on
rickshaw pullers, street vendors etc.
Avoidance of taxes, complicated transaction costs associated with registration
also contributed in the spillover of non registration to un organized sector.
According to 2001 census , 16.89% of unregistered units were found in UP,
Andhra pradesh, Tamil nadu, west bengal, bihar , rajasthan.
In the organized labor market, monitoring the implementation is close to
impossible.
Also measurement should be based on tangible improvements in outcomes or
performance but since there are not specified metrics, obtaining objective data
is impossible . Hence, one relies on subjective responses to questionnaires
administered to respondents

Various surveys to rank Indian labour market are Freedom house,

the fraser Institutes Economic freedom of the world(EFW)(in 2010

India scored 7.9),Heritage Foundation and wall street journal's
Index of Economic freedom is eqvilant to EFW(In 2011 India scored
67.2)
The non- salary cost of employing the worker is moderate but
dismissing an employee is costly.
According to the Economic survey 2004-05:
Number of establishments in un organized sector remain outside the

purview of any regulation whereas organized sector has been

regulated stringently.
Job security is more in organized sector as compared to unorganized.
Consequently it has been observed that these laws have restricted
labor mobility, have led to capital intensive methods for organized
sector and adversely affected sectors long term demand for labour.

Labour Laws In The Organised

Sector
Article 246 of the Constitution Seventh Schedule
Union List, State List, Concurrent List
It is often said that the labour laws are often on

the Concurrent List mostly because of Entry 22,

23, 24 and 36.
However there are a few entries like 55 and 61 in
Union List that concerns labours.
National Commission to Review the Working of
Constitution:
Suggestions to remove Concurrent List and forming
Union List, State List and a Local Body List

Continued
Statutes: Provide an enabling framework administrative

law is framed, consisting of rules, orders and regulations

Two kinds of statutes in the area of labour as far as the
state - level statutory law is concerned:
Basic

Central Statute: there can be State Level

Amendments
de novo State Statutes: in areas where there are no central
statutes (Kerala Labour Laws Act 2002)

But Labour Laws are not only about statutes.

Example: Factories Act 1948 is a statutory but the rules

under this act are a part of administrative law.

There are around 45 central labour statutes

Continued

Administrative Laws:
Have to be placed before the relevant legislative body

(Parliament or Legislative Assembly)

It is neither enacted upon nor scrutinised by the legislative
body to the extent of statutory laws
Can be both central and state level
Over the period of time, due to changing definitions and

concepts, there is created a lack of unanimity about definitions

of wages, workman, employee, factory, industry, adolescent,
child, contract labour.
Second National Commission (2002) argued for unification
under 5 heads:
(1) Industrial Relations (2) Wages (3) Social Security
(4) Safety and Welfare (5) Working Conditions

Continued
A classification with different heads is also possible:
1. Industrial Relations
2. Wages
3. Working Hours, Conditions
4.
5.
6.
7.
8.
9.

of

Service

and

Employment
Laws Related to Women
Laws for Deprived and Disadvantaged Sections of
Society
Social Security
Labour Welfare
Employment and Training
The Residual Category

Continued
Common perception Labour Laws do not

apply to the unorganised sector

However as the nomenclature of the
legislation in the above heads shows, they do
apply to unorganised.
Several labour laws are derived from the
Factories Act, in the sense that if Factories Act
is applicable, other laws also become
applicable to the enterprise.
However this is not universally true and
labour laws vary in their application.

Multitude of Labour laws

Labour falls in the concurrent list, which allows both state and

central government to make laws related to it

Currently there are 52 central government acts and 150 state level
laws which are not entirely consistent with each other and
compound to massive confusion
For example:
Any firm with seven or more employees has to follow Trade Unions

Act,1962 which allows workers to form trade unions

Factories engaged in manufacturing and employing more than ten
workers are subject to Employees State Insurance Act,1948 which
provided them benefits related to sickness, disability, dependents etc
The Contract Labour Act aims to regulate the employment of contract
labours
Factories Act,1948 for factories employing more than ten workers with
power and 20 workers even without power

Continued..
The Factories Act 1948
Specifies trivialities such as the number of toilets to be built
or provisions to be provided for clothes to be hung,
availability of lunchrooms etc
Rules also feature whitewashing, fire extinguishing
mechanisms etc
Other examples include Minimum Wages Act 1970,

Payment of Gratuity Act, Workmens Compensation Act,

Industrial Employment Act
Increases the cost of hiring labour and requires extensive
paperwork which proves an obstacle for small firms
Sometimes even forces establishments to shut down as
they are enable to let go of people even if they are proving
unprofitable since it requires permissions from labour
departments

Inspector Raj
Refers to the corruption and rent seeking malpractices that exist as a

result of administrative loopholes that are present in statutes and rules

For example
A system of single inspector for all labour laws does not exist
Time periods for keeping records updated are also not specified
Manual records have to be maintained, electronic records are not

permitted

Issue is not so much related to the number of inspections made but

the opportunity of corruption that it gives rise to

Certain recommendations of 11 th five year plan
A system of certified third party inspections that could exempt them from

routine inspection
Joint inspections and annual calendar of inspection to reduce number of
inspectors
System of self cerification, with random scrutiny of small samples

Reasons behind non-implementation

Resistance on the part of trade unions . Believe it will lead to

exploitation of vulnerable workforce

No effort by the central government to generate consensus
through Annual Labour Conference and show them the
benefits
Such arguments have only been emanated through Planning
Commission and Prime Ministers Council on Trade and
Industry and not the Ministry of Labour and Employment
The 2005 bill was drafted in a legally bad way
Will only benefit enterprises that employ less than 40
workers
Since labour is on the concurrent list, the governments pass
on the buck to each other

State Government
Initiatives
Some state governments such as Gujarat, MP, Karnataka etc

wished to make flexible labour laws especially in SEZs and

special enclaves
For example greater flexibility in working hours, fixing minimum
wages, night shifts for women
Shot done by centre as would involve changes in central
legislation
States such as UP, Punjab, Odisha have tried to reduce number
of inspectors and have introduced self certification
Inspection can be carried out only after consent from higher
authority in UP
Rajasthan and AP have exempted certain enterprises from
labour inspections such as IT
The number of labour inspections have declined in some states

Industrial Relations
India is transforming from state driven economy

towards market driven economy.

Commitment towards privatization, liberalization
and globalization.
In this regard industrial relations addresses some
of the important aspects like collective
bargaining, employee wages, social security etc.
Three Statutes
Contract Labour Act 1970
Trade Unions Act
Industrial Disputes Act

Industrial Relations
Contract Labour Act 1970
Allows flexibility and permits outsourcing.
Differentiates core activities from those that are non
core example gardening, dusting, waste disposal etc.
Trade Unions Act 1926
Any 7 people can form and register a trade union.
Basic problem of multiplicity and non
representativeness plagued the industry.
Ministry of labour identifies 12 central trade union
leading among them are BMS, INTUC, CITU, AITUC.
Shift of importance from unions in organised sector
to unorganized sector.

Industrial Relations
Industrial Disputes Act 1947
Law deals with firing of workers, strikes and
closure of firms.
Has held back growth of Indias
manufacturing sector than any other policy.
Compensation were introduced for lay offs
and retrenchments.
A factory job is not a voluntary contract
between an individual and an employer, but a
tripartite arrangement with the government.

Issues
Labor intensive organized sector is not expanding(demand

of labor declined by 17.5 %after introduction of 1976 IDA)

Large firms are concentrated in capital intensive sectors
In Indian labor intensive apparel sector, around 93% workers
are working in firms with 49 or less workers contrasting with
china in which 87.7.% of the apparel employment is in
medium or large scale firms
Exporting capability in labor intensive industry and
manufacturing industry is adversely affected
Stringent labor laws don't work in line with liberalization of
economy
Increased production cost and decreased flexibility and
efficiency

Necessary
Transformations
Movement of workers out of agriculture into

manufacturing and services.

Progressive shift of workers from informal
sector to formal sector
Rapid urbanisation
Indias demographic dividend.

Proposed rectifications
With investment and export license abolished and trade opened

up, domestic firms face intense competition today. Thus

provision for ultra high protection of workers in certain acts
should be done away with
Definition of retrenchment under IDA needs to be tightened
Independent authority should be established to solve industrial
disputes quickly within the rules under which retrenchment is
permitted
Sec 9A and Chapter V-B of IDA should be relaxed
Formation of multiple trade unions under trade union act,1926
should be prohibited
Various provisions under 1948 factorys act should be done
away with, which will give opportunity for smaller firms to
emerge as successful larger firms in future
Investment in skill creation to make workers employable in
better paid jobs