The call for reforms in the labour laws in the country became strong with the liberalisation of the economy in the 90’s.  The Second National Commission on labour was set up in 1999 which recommended among many other things consolidation of various laws on labour.   India strict labour laws and regulatory business environment have been a point of critique by the business as they are subject to 50 central government laws and regulations dealing with wages, industrial relations, social security, employment condition and the like.

International Finance Institutions like IMF and World Bank[1] have criticized the country for a large number of labour laws which according to them increase the difficulty for employers to adhere with regulations and have demanded rationalization and simplification of its labour laws.  The International Monitory Fund[2] has also urged India to introduce policies to reduce labour and product market rigidities.  The World Economic Outlook 2017 has identified simplifying and easing labour market regulations and land acquisition procedures as long-standing requirements for improving the business climate.

The argument that removing legal protection to labour and allowing business to function according to market laws can also be seen in other documents of World Bank including the World Development Report 1995.  When the Ease of doing business was first brought out in 2003, it had a chapter on Hiring and Firing workers.  Various indicators such as ease of hiring, firing and conditions of employment were part of the index.  These indicators will look into easy to contract (part-time contracts), fixed minimum wage, premiums for overtime work, severance pay etc.  The less you pay as minimum wage, the easy it to hire with little severance pay will place you high in the index.  Countries who do away with regulations can improve the rank in ease of doing business. India has been criticized in the report for having one of the most regulated labour markets

What is changing?

The National Democratic Alliance who won in 2014 had emphasized economic development as a core agenda of their manifesto.  The government wanted to simplify the regulatory environment and reduce the number of laws.

The Ministry of labour administers 44 labour laws which are enforced by central and enforcement agencies.  The Ministry wants to consolidate these laws and consolidate it into four codes namely, the labour code on wages, Industrial relations, Social Security & Welfare and labour code on Safety and Working Conditions.  Apart from consolidation, the move is to do away with the inspection process towards self-certification and third-party certification.    However, the reforms which came from the perspective of simplification and consolidation as suggested by the commission on labour to include provisions which will reduce labour bargaining power and hard-earned labour rights.

The central government has brought about a new bill in Lok Sabha which will  (a) enhance the limit of overtime hours from the present limit of fifty hours per quarter to one hundred hours per quarter  (b) further increase the limit of overtime hours to maximum of one hundred and twenty-five hours per quarter in public interest  (c) empower the Central Government, in addition to the State Governments, to make exempting rules and exempting orders in respect of total number of hours of work on overtime in a quarter, which would ensure uniformity in its application by various State Governments and Union territories.

The central trade unions have earlier questioned the government proposal to change the definition of the factory and to increase the threshold limit for coverage of factories under the Factories Act.

Exceptions from Inspection

Likewise, the labour ministry has expressed its intention to make amendments in the labour laws and to reduce the numbers of laws (40 of them now) to four codes which dwell on wages, Industrial relations, social security and welfare, and labour code on safety and working conditions.  The ministry has also notified a compliance regime based on self-certification for startups where they will be exempted from inspection from 9 labour laws in the first year and from second year onwards, they are expected to give self-certification up to 3 years and there will be no inspection until a credible and verifiable complaint of violation is filed.  These measures give absolute authority to bypass labour laws and rights in the name of avoiding harassment. In liberalising labour inspection systems India has violated the ILO Labour Inspection Convention (081) which it has ratified — the convention states that the establishment should be inspected as often as possible and at any time even without prior intimation.

Penalties on strikes

The proposed code on Industrial relations attempts to consolidate and amend the law relating to registration of trade unions, conditions of employment, investigation and settlement of disputes.  The new act raises the threshold of a number of workers needed to register a trade union and has prescribed penalties of minimum Rs 20000/-  up to Rs 50000/- per worker for an illegal strike while the management gets only a collective punishment of the same amount in case of the industrial lockout.  The workers are bound to loose their wages in case of both lockout and strike and more than proportionality penalises workers for their rights on collective bargaining.  These punishments have been extended not just to workers but also to trade union leaders and people who provide monitory support to the struggling workers.

Rajasthan experience on easing labour relations

Rajasthan was the first to legislate on the line of proposals from the central government.  The industrial disputes act was amended to raise the cap to at least 30% of the workforce to form a union from the existing 15%. The amendment is aimed at making labour unions difficult.  The amendment also allows companies for retrenching, laying off or shutting down of units for factories if they employ less than 300 workers.  The earlier the threshold was 100 workers and required government permission. The rise in the cap is intended to provide relief to companies to easily exit a business.  The Rajasthan government also amended the factor act to change the definition of a factor to that of a unit which employs more than 40 people (earlier it was 10) thus allowing easing of compliances.  Many other states including Madhya Pradesh, Andhra Pradesh and five other states.

Trade Unions in the warpath

The trade unions in the country have been extremely critical of the changes which are being brought in the labour laws.  They have gone on massive strikes and marches against the proposed amendment and privatization push of the government.  About 150 million workers went on strike in 2016 against the government policies to retract labour laws.  This was followed by a massive three-day protest in the national capital by all the central trade unions from all sectors which are seeing a massive push for neo-liberal policies.

The labour code on wages was introduced in parliament on the last day of the monsoon session through a supplementary list of business. The bill, which is intended to codify 45 existing labour laws,  was circulated only on the last day and that too at 9.00 am in the morning denying the opportunity for members to question the constitutional validity of the introduction of the bill.  The code bill on wages is now before the parliament and discussions will happen when it is taken up for passing.  The code was subsequently sent to the parliamentary standing committee on labour for further deliberation.

At a global level, the ease of doing business and labour indicators was challenged both by trade unions and also by independent evaluations.  The International Confederation of Trade Unions has said that the Doing Business indicators are being used to drive a one-sided and harmful approach to labour market reform in developing and transition economies ignoring its costs and had demanded the topic of labour regulations should be removed from the preview of Doing Business Report.

The Employing workers indicator was discontinued in 2009 after global criticism.  The Independent panel condemned the indicator particularly for assigning higher rankings to countries with less stringent labour regulations, thereby encouraging a “race to the bottom” in the area of worker protection in contravention of International Labour Organisation (ILO) standards.  However, the indicator is still used in the doing business report as an annexe.  The Doing Business report 2017 flagged the number of labour laws in our country as something which regulates business and lauded the reforms being proposed in the country for reforming labour laws.

What does doing business indicator on labour market regulations measure?


(i) whether  fixed-term contracts are prohibited for permanent tasks; (ii) maximum cumulative duration

of fixed-term contracts; (iii) length of the probationary period; (iv) minimum wage.

Working hours

(i) maximum number of working days allowed per week; (ii) premiums for work: at night, on a weekly

rest day and overtime; (iii) whether there are restrictions on work at night, work on a weekly rest

day and for overtime work; (iv) whether non-pregnant and non-nursing women can work same night hours as men; (v) length of the paid annual leave.

Redundancy rules

(i) whether redundancy can be a basis for terminating workers; (ii) whether the employer needs to notify



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