Labour Law Reforms in India: Mythical or Ethical?

An Examination of Labour Contribution, Crises and Concerns in India

Abstract

The 7th Schedule of the Indian Constitution categorises issues related to labour as a subject of the Concurrent List. This gives both the Union and the States of India power to legislate over the subject, albeit with the Union having the ultimate power of decision over any topic of conflict. In 2002, the NDA government despatched a Labour Commission to study labour laws in China and provide recommendations for the Indian context. These recommendations were designed with the aim of providing for worker welfare. In September 2020, the NDA government notified 4 new labour codes that subsumed 29 previously existing labour laws. This paper discusses the nature of these changes and examines whether the underlying philosophy governing these codes furthers or hampers the tradition of labour welfare, as envisioned by the Drafting Committee of the Indian Constitution.

Labour Law Reforms in India: Mythical or Ethical?
Photograph by Rahul Kashyap on Unsplash

Introduction

The ‘workforce’ in a nation, by definition, includes all the employed and unemployed citizens of the nation who are able and willing to work. In a country like India, with a population exceeding 1.4 billion people, it is natural to have a large and abundant workforce. However, it becomes the duty of the State to create and design policies that can best activate, mobilise and utilise this immense potential of human resources. Poorly designed labour laws can severely hamper the rights of workers and hamstring the economy of a country in the long run. Foresight and wisdom in the planning of labour laws can contribute to the strengthening of the economy by improving the quality of human life within the country.

Issues regarding the harnessing of the power of labour usually concern the present sources of employment available. Laws are designed to act as a form of regulation between employers and employees. These laws can help enforce systems that prevent various forms of exploitation of labour, usually related to issues such as wages, working hours, working conditions, medical benefits and dignity and honour.

Enshrined in the Constitution of India, Articles 38.1, 38.2, 39, 41, 42 and 43 endeavour to provide certain commitments concerning the income security and welfare of the citizens of the Indian state. These articles clearly demonstrate the commitment of the early leaders of the country towards the protection of the workforce against exploitation [1].

In 2020, against the backdrop of the rigid physical constraints created by the Covid-19 pandemic, and also against the backdrop of the nationwide protests concerning agricultural laws which had led to the Opposition boycotting parliamentary sessions, the NDA government successfully promulgated ordinances aimed to redesign the laws concerning labour issues enshrined in the Constitution. While the ethical considerations surrounding the nature of such a radical move will not be discussed here, it is nevertheless important to examine whether the reformulated labour laws, newly organised under ‘4 labour codes’, have the potential to be beneficial to the workforce of the country in particular, and to the economy of the nation in general.

Labour Laws in the Constitution 

The Constitution of India establishes certain foundational guidelines surrounding the issues of labour participation and welfare in the India economy. These guidelines can be interpreted from the language employed in various articles of the Constitution. They give a clear picture of the ideals and morals that provided the impetus for the leaders of the nation to safeguard the workforce of the country.

Article 38.1 states that the State shall strive to promote welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic and political, shall inform all the institutions of the national life. A major part of national life is undoubtedly the topic of employment for a significantly large portion of the Indian population. ‘Economic justice’ as mentioned in the Article, establishes the need to have a fair and just workplace that can allow for the building of consensus between employers and employees.

In continuation of this idea, Article 38.2 states that the State shall, in particular, strive to minimise the inequalities in income, and endeavour to eliminate inequalities in status, facilities and opportunities, not only amongst individuals but also amongst groups of people residing in different areas or engaged in different vocations. Clearly, the founding fathers of the nation recognised the importance of social mobility that could be achieved by participating in an economy governed by laws promoting fair trade and a secure market to advertise labour skills. The text in this article directs the State to design policies that can empower the labour force to best monetise their skills and abilities without falling prey to labour traps created by employers. 

Towards the achievement of such an economic climate, Article 39 outlines certain principles of policy to be followed by the State: The State shall, in particular, direct its policy towards securing

(c) that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment;

(d) that there is equal pay for equal work for both men and women;

(e) that the health and strength of workers, men and women, and the tender age of children are not abused and that citizens are not forced by economic necessity to enter avocations unsuited to their age or strength;

The three sub-points emphasised above are the first signs of the specific nature of the directives issued by the Constitution with respect to the laws governing labour rights. They are self-explanatory in nature, and firmly establish the role of the State in balancing the forces that churn the economic machine. In the present context, it also provides justification for the State to rein in the profit-motivated actions that employers may undertake to gain competitive advantages, if these actions contribute to the detriment and loss of rights of their workers.

Furthermore, Article 41 states that the State shall, within the limits of its economic capacity and development, make effective provision for securing the right to work, to education and to public assistance in cases of unemployment, old age, sickness and disablement, and in other cases of undeserved want. Similarly, in Article 42, the State shall make provision for securing just and humane conditions of work and for maternity relief. Thus, the Constitution guides the State towards not just championing the rights of the workforce, but also towards empowering individuals entering and leaving the workforce. The State is expected to monitor issues of safety and security within various workplaces and set high standards for businesses to adhere to. Even issues of gender within the workforce are addressed in these articles.

Lastly, Article 43 states that the State shall endeavour to secure, by suitable legislation or economic organisation or in any other way, to all workers, agricultural, industrial or otherwise, work, a living wage, conditions of work ensuring a decent standard of life and full enjoyment of leisure and social and cultural opportunities and, in particular, the State shall endeavour to promote cottage industries on an individual or co-operative basis in rural areas. Laid out clearly and specifically in the text, the directive to enforce workplace standards promoting the health and development of the workforce can be found. All the articles discussed above, when taken as a whole, provide ample evidence to justify the role of the State as a protector and promoter of labour rights. The State cannot be solely motivated by the engines of profit and consumption; it must also actively seek the holistic welfare of the workforce contributing to the economy [1].

Historical Context

Before India achieved independence in 1947, conditions of work prevailing under colonial rule were characterised by instances of worker exploitation, non-existence of worker rights and harsh working conditions enforced by the threat of violence. After decades of struggling against the prevalent malpractices, Dr. B. R. Ambedkar, the chief architect of India’s Constitution, managed to acquire a guarantee of working rights in the form of an 8-hour workday. This was attained on November 27th, 1942.

In continuation of this important breakthrough, further emphasis on worker rights was also woven into the fabric of the Constitution when it came into force on January 26th, 1950. Over the next few decades, as India experienced the growing pains of a large, newly-independent nation, the economic forces shaping the country concentrated over 90% of the country’s workforce into the unorganised sector. Till today, this sector contributes 50% of the national GDP.

India’s 1st National Commission on Labour, acting in the years 1966 – 1969, was set up to study issues relating to labour reforms. The recommendations made by the Commission were focused on welfare, and showed that India needed to commit more ways to enforce welfare in the labour market. The Commission recommended the reduction of weekly working hours in a phased manner. According to them, the work week which was 48 hours long, needed to be reduced to 40 hours long. Additionally, apart from compensation that is to be paid to workers for work-related injuries, the Commission recommended that employers must also be made to pay compensation to workers for any financial losses arising due to the closure of factories or establishments due to various reasons. Two other key recommendations made by the Commission involved the provision of unemployment insurance for workers, and also advocating for contract-based workers to be entitled to receive welfare facilities.

Post Liberalisation in India’s economic policies in 1991, the entry of foreign firms brought additional scrutiny on India’s Labour Laws. In a country with a burgeoning population, questions constantly arose regarding the nature of poverty and protection of worker rights. Population and labour theories by economists such as Thomas Malthus predicted that India’s growing population would contribute to a collapse in worker rights. The 2nd National Commission on Labour was formed in 1999 to anticipate and deal with such labour issues and to suggest rationalisation of existing Laws relating to labour in organised sector and umbrella legislation for unorganised sector. 

The Commission made a study tour to China to understand how labour laws contributed to the explosive growth of the Chinese economic engine. It was discovered that despite being an authoritarian government, Chinese labour law was highly acclaimed and liberalized, giving workers much greater rights and protections.

The recommendations made by the 2nd National Commission on labou recognised the success of welfare-oriented labour laws prevalent in China, and recommended reformation in India’s labour laws accordingly. The Commission identified that companies are not completely free to ‘hire-and-fire’ workers at will and also setup and close enterprises in an unchecked manner. The Commission identified the need of umbrella legislation wherein government should meet welfare cost also social security may be made as Fundamental Right by amending the Constitution of India and earmark 2-3% of GDP for social security. Further, government should ratify ILO conventionno.102 on social security [2]. 

The on-ground situation in India in recent years has been far from the ideals of labour welfare identified in the Constitution. According to the ‘Ease of Doing Business’ study published by the World Bank in 2014, only a little over one-tenth of the respondent firms in India perceived labour regulations as being a major constraint in their operations. The International Trade Union Confederation’s (ITUC) Global Right Index (GRI) for 2016 – 19 gave India a poor rating of 5 on a scale of 1 – 5+, which indicates that the country has ‘no guarantee of right’ [3].

Importance of Labour Laws

The transformative power of human resources in a society cannot be underestimated. When human energy is applied sensibly, in conjunction with technological progress and availability of capital, economies can become supercharged. However, there are certain conditions and limitations that apply to this equation. It is not a one-dimensional, directly proportional relationship. 

For human energy to be harnessed effectively to achieve societal transformation, the focus of the energy must not be solely directed towards the attainment of calories. What this means in actual practice is that human beings who are concerned only with livelihood and a daily struggle to feed themselves and survive, can never truly be an asset contributing to the transformation and development of a society. After all, how can a man or woman obsessed with hunger ever think beyond their own survival?

This is the juncture at which the question of labour and its welfare arises. A human being can offer their services to an employer, but if the State does not enforce affirmative public policies to actively combat status inequalities, then labour rights possess no value and can be exploited. These laws provide an avenue for equality amongst individuals and groups by standardising a 48-hour work-week, ensuring occupational safety, social security, minimum wages and leaves, while also provisioning for other rights like maternity leave.

By guaranteeing certain basic rights to the labour force, the State creates a blanket of safety under which workers remain enthused and motivated. An indirect consequence of these laws is also that labour is empowered to migrate and has freedom of choice in deciding where to offer their skills for employment. This results in a situation of geographical equilibrium, both regionally and nationally, with respect to development. 

In a country like India, where a majority of the workforce contributes to low-skilled labour tasks, conditions favouring such flexibility in geographic mobility and migration are especially important. A key piece of evidence supporting this is the phenomenon of reverse migration witnessed during the period of lockdown necessitated by the Covid-19 pandemic. Large numbers of unskilled and low-skilled workers left metropolitan areas in large numbers to move back to rural areas and find other forms of work. Highly skilled workers do not have the same flexibility because the facilities required for their employment are more specific and usually found only in specialised environments within larger cities.

Labour Law Reforms: Ethical or Mythical?
A woman holds a poster with a slogan saluting B.R.Ambedkar at a protest (“Stop Killing Us”) demanding an end to the practice of manual scavenging (2018, Delhi, India). Wandering Indian

The Role of Trade Unions

Migration within a country plays a crucial role is shaping labour forces. Apart from skills and opportunities available in hot-spots of development like metropolitan centres, other factors can also influence the movement of employment-seeking human beings from region to region. In particular, under normal conditions, migration is usually observed from rural areas to the cities. The factors spurring such movement can also be conflict-based.

For example, identity-based, caste-based or community-based conflicts can cause friction in the fabric of rural communities and pressure individuals and families to relocate to areas that offer more protection and rights. Usually, cities offer superior security to those seeking to escape conflict.

However, migration causes new problems within cities. The growth of the labour force available creates more pressure upon civic supplies and disrupts the resource availability within cities. In line with Malthusian economics, the presence of a surplus labour force generates a situation that is ripe for exploitation by employers.

This situation manifests through instances of lower wage payment, longer working hours, unpaid overtime work, absence of employee benefits etc. This sort of sustained pressure on workers finds a release valve only through creation of labour and trade unions. These organisations can collate various labour rights issues and become a voice through which demands can be put forward.

Even the Core Labour Standards formulated by the International Labour Organization (ILO) recognise the need to produce better human capital. This can be achieved by implementing measures such as eliminating child labour and bonded labour. By creating conditions that can enhance the labour cost – productivity nexus, more social and political stability for workers can be developed by ensuring that they have freedom of association and the power of collective bargaining. In the same vein, Freeman and Medoff have argued that trade unions contribute to the productive efficiency of a firm through voice channels and also contribute equitable outcomes in them.

Margaret McMillan and Albert Zeufack (2022) in their recent publication in JEP titled ‘Labour productivity growth and Industrialisation in Africa’ calculated labour productivity growth, according to that structure changes contributes to growth highest in Combodia, Bangladesh while overall highest growth in China that is more than double the India [4].

Figure 1

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When discrimination and loss of rights is persistent in the society these unions have the ability to mobilise workers to fight for their rights. Labour issues have often been the underlying cause for revolution in various countries. Revolution is a means that can establish greater democracy in all forms throughout a society, especially in the political and social sphere. When labour unions are plagued with politics and ignore worker rights by elevating ideological matters, workers become alienated. This form of discrimination results in decreased industrial output and loss of efficacy of labour unions, which is a sure symptom of economic decline as depicted in Figure 1 above.  Thus, it is in everybody’s interest to promote unions and create a smooth situation where economic and social justice prevails in workplaces.

Chinese Model of Labour Welfare

In the report submitted by the delegation sent by the 2nd National Commission on Labour to China, observations about the status of labour rights and laws were made. By comparatively studying the Indian context, it is possible to deduce how certain differences in labour laws can play a role in shaping the economic growth of countries.

It was observed in China that restrictions were placed by the State on the operations of firms with respect to hiring and firing policies. Labour laws in China were of a more uniform nature and oriented towards the upholding of labour welfare. For example, for part-time employees working 4 hours a day, an oral contract was not a long-term solution. After a month of part-time employment, the employer was obligated to provide a written contract carefully stating the terms of employment and the benefits entitled to the worker. Failure to do so would compel the employer to double the wages for the worker after the period of one month, and in extreme cases where no written contract was offered even after a year of service, the employee would be given the right to a permanent job. In addition, a short-term contract could only be renewed twice after which the employee was entitled to a permanent job.

Written contracts create a legally enforceable safety net for employees and provide them with greater job security and satisfaction. In the Indian context, written contracts are generally available to only the highly-skilled workers, thus excluding the majority of the workforce from benefits and labour rights.  In China, written contracts have to clearly state the conditions prevalent at the workplace, the nature of the job and the responsibilities involved, working hours, leave policies, retrenchment compensation, insurance, workplace safety and other relevant factors.

Other security measures in China to protect workers relate to the implementation of standardised procedures for mass lay-offs. Although firms do not require official permission for lay-offs (thus giving them some amount of flexibility), mass lay-offs require consultation with state-owned trade unions for 30 days. Companies also need to inform local labour authorities before the implementation of any such plan is carried out. 

Issues relating to Labour Codes

When the Indian context is studied and the labour rights are carefully examined, certain problems emerge. Constitutional guidelines have attempted to mould Indian labour laws in a manner that promotes labour welfare. These overarching principles lead India towards the creation of a labour market that shares its spirit with the practices espoused by the Chinese.

Over the decades, however, firms in the corporate world, along with the economists who support ‘free-market principles’, have been constantly pushing for the adoption of policies that favour unregulated hiring and firing of labour. Today, these policies basically act in a manner that makes the affirmative policies of the State ineffective in practice.

Historically, between 1991 and 2020, only 19 nationwide strikes relating to labour reforms occurred in India. This shows the historically weak bargaining power of the various trade and labour unions. The low levels of agitation have given the central government the confidence to encourage state governments to handle and implement labour reforms. Since labour law reforms are much easier in practice at the regional level due to the fragmented nature of the working class movement in India, such an approach appears to be more sensible in practice.

However, the phenomenon of reverse migration over the course of the Covid-19 pandemic has created a problematic situation for employers in larger metropolitan centres. Previously, where they could exploit the surplus availability of labour in the job markets, they were now forced to deal with labour shortages.

In order to bypass this issue, employers have seemingly worked in conjunction with the State in facilitating the passing of the labour reforms in the form of the four new labour codes. These codes contain language that twists the recommendations of the 2nd National Commission of Labour, with the purpose of serving the exploitative tendencies of the employers and manufacturers.

It has been argued that India needs to offer labour flexibility to firms quitting China if the vacated produce market space has to be captured by Indian firms. Suspension of labour laws for a period of 3 years has been advocated for in order to catalyse this process and assist the industry in overcoming the crisis of labour shortage. Without flexibility in labour laws, it has been argued that employers would find it difficult to generate employment. In addition, employer organisations have also demanded the nationalisation of a ’72-hour’ workweek for employees.

Out of 4 new labour codes 3 have recently passed in the Indian parliament in a questionable manner are a step towards accommodating these employer demands and further increasing the burden on unprotected workers. The new labour codes are disguised in clothing that portrays labour reforms, but in reality are designed to impose conditions of virtual slavery on workers. They also make the formation and functioning of unions difficult, further hampering the rights and freedoms of workers.

In India, the labour codes subsume and overhaul various Acts that have offered meagre protections to workers. These include the Employees State Insurance and Gratuity Norms, which have been in place for companies hiring a minimum of 10 workers; the Employee Provident Fund (EPF), which is mandatory for firms employing a minimum of 20 workers; the Factory Act, which establishes work standards for manufacturing units employing a minimum of 10 or 20 workers depending upon the usage of power; the Contract Labour Act, which is activated for firms employing a minimum of 20 contract workers; and the Industrial Dispute Act, which mandates the provision of severance pay to workers employed in large numbers by firms under certain conditions. These Acts provided a modicum of support to workers present in numbers employed at various firms. If these laws are arrested under the developments proceeding from the new labour codes, workers would lose even these minimal negotiating powers [5].

Using the powers offered by the new labour codes, several states including Madhya Pradesh, Uttar Pradesh, Himachal Pradesh, Odisha, Rajasthan, Gujarat and Punjab have amended laws during the period of lockdown with the motive of increasing the stipulated maximum working hours from 8 hours a day to 12 hours a day. The Madhya Pradesh government even goes so far as to leave the decision of working hours upon employers.

These developments, in conjunction with the fact that Indian law already does not require ‘written contracts’ and also permits some of the lowest severance packages for laid-off workers, reflect an alarming situation unfolding. 12-hour workdays effectively ensure that employees no longer have access to a work-life balance. When hours are further adjusted to account for transit, chores and sleep, one is forced to face the daunting reality of unsustainable workplace ethics. A 72-hour workweek is fundamentally against the cardinal principles laid out in the ILO conventions C001 and C1919. Both the ILO and the Indian Constitution call for a transition to ‘decent working times’ in order to achieve the vision of transformational societies.

A 12-hour workday also severely heightens gender imbalances in the workplace as women are no longer motivated to work. This leads to skewed participation by gender in the workforce. Laws that discriminate in such a manner are in fact indirectly imposing a ‘gender penalty’. Under the new labour codes, it also becomes easier for employers to influence female workers to work before 6 A.M. and after 7 P.M.

Under the new legislation, employers also are motivated to discriminate at multiple levels. These include hiring practices, fissured work places where work is outsourced to other firms that deny worker rights and crony capitalism, where firs focus on achieving oligopolistic ambitions. ‘Gig workers’, or skilled workers classified as those outside traditional employer-employee relationships, are now abundant in the economy as they allow employers to circumvent the need to provide basic worker rights.

Furthermore, the new labour codes create avenues for employers to retrench up to 300 workers without any checks or regulations. In a country where 98% of establishments employ less than 10 workers, it is indeed a step that moves away from any ideals of worker welfare. Under the new legislations, the legality of using strikes as a means of negotiation has also been severely curtailed. Employees are now obligated to give notice of strikes to employers during a fixed time period, thus negating the power of strikes as a coercive tool.

Moreover, the changes enforced through the amended legislation has not ratified certain important conventions regarding occupational safety, health, freedom of association and collective bargaining as enshrined in the ILO. State governments did not also consult trade unions before announcing changes, thus violating India’s commitments to social dialogue. Overall, these laws and amendments have worked only to hamper and negate the historical struggle for labour rights.

Conclusion

The Constitution of India talks about equality of citizens irrespective of their socio-economic status. However, the State may take affirmative action to ensure no one is left behind and minimise the gap between actual and potential, a sine-qua-non for the development of any peaceful society. Recent changes made to the worker’s laws like increasing their working hours, promoting fissure workplace culture, shedding responsibilities of social security, making hire-fire easy at will of owners and the complex system of labour grievance redressal mechanism will only make them helpless and hopeless. Nowadays, there is increasing trend of gig workers and those who have skills and are well connected may reap the benefits of new wave of employment. This paper shows that the new labour codes are not mythical but to make them more effective and ethical, we will need to focus on skill development rather than laws. Ultimately, it’s the education and skills that come first and make the highest populated country like China the most productive labour country across Asia. India must follow suit.

References

  1. https://legislative.gov.in/constitution-of-india
  2. https://labour.gov.in/sites/default/files/39ilcagenda_1.pdf
  3. https://www.ituc-csi.org/IMG/pdf/ituc_globalrightsindex_2020_en.pdf
  4. Margaret McMillan and Albert Zeufack (2022). “Labour productivity growth and Industrialisation in Africa” Volume 36, Number 1—Winter 2022—Pages 3–32
  5. https://labour.gov.in/

dilip

Dilip Singh Aswar

Dilip is an ITS officer in the Ministry of Communications, Government of India. His views are purely personal.

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