Various Issues Related to Labour in India

The Article 246 (with 7^th schedule) of the Indian constitution puts the issues related to labour and labour welfare under the concurrent list. However, the exceptional matters related to labour and safety in mines and oilfields and industrial disputes concerning union employees come under Union List. The irony of putting labour in concurrent list is that today we have around 47 central labour laws and 200 state labour laws. For instance, we have separate laws for cine workers, dock workers, motor transport workers, sales promotion employees, plantation labour, working journalists and workers in mines. There are varied definitions on child, contract labour, wages, employee, workman, factory, industry, etc. Though most of these laws are archaic, yet many of them are relevant for welfare of the laborers.

The three major central laws that have been centre of reform talks are

• Industrial Disputes Act (1947)
• Contract Labour (Regulation and Abolition) Act (1970) and
• Trade Union Act (1926).

A brief Discussion about them is given here

Issues with Industrial Disputes Act (1947)

This legislation was enacted in 1947 to provide for a machinery and procedure for investigation and settlement of industrial disputes. It applies to all industries irrespective of size. It also has provisions regarding conditions for layoffs (suspension or termination of employment), retrenchment (reduce the overall size of operations) and closure of an industry. The most controversial part of this act is its Chapter VB, which has been amended from time to time, particularly in 1982. This act / chapter provide that:

• If an industrial establishment employs more than 50 persons, it needs to give 60 days’ notice, citing reasons of closure, to the appropriate government before the closure of the industry. This requirement of days of notice was increased to 90 days in 1982.
• If the industrial establishment employs more than 300 people, it must take prior approval of the appropriate government for layoffs, retrenchment and closure. This limit was lowered to 100 in 1982.

The above two provisions in the Chapter V-B of IDA act are construed as causing rigidity in the labour market. These provisions simply say that you cannot simply hire and fire at will because even if you want to fire a single employee, you need to seek the permission of the labour commissioner (in case of factories employing more than 100 workers). Further, since the subject is under concurrent list, the states have further made stringent conditions so that lay off, retrenchment and closure becomes even more difficult.

The results are:

• Lower output by labour
• Lower productivity
• Hesitation in hiring
• Lower investments
• Lower overall manufacturing performance
• Foreign investors are deterred from investing in India.

What the industry demands is that this law needs rationalization as per demand of current era of globalization. The arduousness of this act is what they hold responsible for the fact that only 6 per cent of the total labour force is employed in organized manufacturing, rest is in unorganized sector.

Apart from Chapter V-B, the Section 9-A is also a cause of concern. This section says that if you are modifying the wages and other allowances, hours of work rest intervals and leave of a laborer, you need to give him / her at least a 21 days’ notice before. Thus, if you quickly need to redeploy the employees to meet certain time bound targets, you can’t do that. This disallows industrial restructuring and technological upgrading.

The challenge for the governments (centre / state) to make a delicate balance between the labour welfare and industry welfare, because it is argued that if these conditions (chapter V-B and section 9-A) are dissolved, it will give the industrialists a free hand to ‘hire and fire’ thus snatching away the sheltered environment in which laborers work presently.

Issues with Contract Labour (Regulation and Prohibition) Act (1970)

The Contract Labour (Regulation and Abolition) Act 1970 was enacted to regulate the practice of contract labour to avoid exploitation of laborers. Section 10 of this act empowers the government to prohibit contract labour in certain situations at the discretion of the government.

Contract Labour refers to the laborers who do not work directly for a firm but are employed by another firm which has a contract to do particular work. This type of labour allows flexibility for the firm and permits outsourcing the work. The issues with this act are as follows:

• A Supreme Court Judgement said that if the factory employs contract labour for a work, which also happens to be its main activity, then contract labour should be abolished. This simply means that if you want to do your main activity via contract labour, it’s illegal; and you need to employ regular labour.
• This further implies that the act requires abolishing of contract labour for all services that are of ‘regular nature’. A further Supreme Court judgement made an employer using contract labour to perform regular services on the factory premises liable to absorb such labour permanently.

Although no firm would like to use contract labour for its regular work but the legal tangle is such that some services which are not related to the core activities but are of regular nature (such as canteen, gardening, loading-unloading etc.) may be treated as contract labour and firms may be forced to keep such labourers on permanent roll. Due to these issues, the industry expresses disappointment with this act because its provision defeats the purpose of employing contract labour. The implications are as follows:

• Employers are always apprehensive about contract labour
• They frequently change the personnel / services of contract labour so that nobody claims for permanent absorption
• Companies use the outside labour to do core/ regular work but don’t do any paper work to avoid hassle of their getting a contract worker status. Such workers are low-paid and get no benefits of employment in organized sector.

What is needed?

There is a need to amend the contract labour act. The act needs to allow employers to outsource all peripheral activities to specialized companies, even if it means these employees work on their premises. The legitimate interests of workers engaged in these activities can be easily protected by defining minimum responsibilities for health, safety and remuneration.

Trade Union Act (1926)

Although there is a right to form an association or form a trade union; yet in our country, there is no nationwide law recognizing the trade union. For an employer, there is no compulsion to enter into a collective bargaining with laborers and it is also not mandatory to recognize it.

The Trade Union Act was enacted in 1926 and it legalizes the trade unions. Any seven workers could form a trade union and seek registration to take part in collective bargaining negotiations. This act allowed unionization in both organized and unorganized sector. By various amendments it is now established that:

• A minimum of 10% of the labour workforce, or 100 workers are required to form a trade union.
• 75% of the officers in a trade union must be employed in the corresponding industry.

The second condition mentioned above makes it sure that 25% officers of the Trade Union are permitted to be members of unions despite being outsiders. This implies that the workers who are not directly employed under a particular employer also can stand against that employer in case of a dispute.

The concept of outsiders poking their nose in the matters of an organization exists in India only.

The implications of such provisions include:

• Hampers productivity and economic growth.
• Lack of democracy in trade unions, leading to inexplicable behaviour of the unions and their office bearers.
• Loss of person days in strikes and lock outs
• Management needs to discuss with those who have nothing to do with the organization.
• The process of registration of a trade union is not transparent. The right to register a trade union was at the heart of the Maruti strike, which went on for more than a month.

Reforms in Labour Laws: Rationale

For a long time, the demand to reform the labour laws was in place both from the Industry side as well as labour side. In early 2000s, during the NDA government two reports, one from planning commission and second from Second National Commission on Labour (SNCL) had come up with some recommendations, which included:

• Problems exist Chapter V-B and Section 9A of the IDA act and they need to be addressed.
• Broader interests of the employers and the workers should be taken into consideration, to use contract labour in non-core activities and also to some extent in core activities. The first requirement was that a clear distinction between core and non-core activities was needed.
• Multiplicity of the labour laws should be addressed.
• Unification and harmonization of the labour laws should be done.

The forerunner among states towards relaxing the labour laws was Rajasthan, where the state legislative assembly unanimously cleared amendments in three key labour laws. Reform of the labour law is vital for the revival of manufacturing sector in India, without which the Make in India campaign is doomed to fail. However, expecting big changes in productivity and job creation simply as a result of such reforms does not seem to be logical. This is because majority of the manufacturing in India comes from MSME sector, most of which have a small number of employees. The labour laws in India come into force when the firms have at least 100 (300 in Rajasthan now) employees. Such relaxations don’t even matter till a firm which has 10 employees expands till it employs 99^th laborer.

Chapter V-B of IDA act was relaxed earlier by the Gujarat and Andhra Pradesh for the Special Economic Zones. It is hard to prove that they had any jump in job creation in manufacturing sector. Most of the growth in Gujarat was in petrochemical and refineries sector, which are capital intensive.

The labour laws are not followed religiously in states. On ground, many factories employed contract workers; thus expecting a jump in job creation due to a change in a law which was not even followed seems to be doubtful.

The reforms need inclusive growth, so that its various implications on laborers are also addressed.