Labour Law Reforms in India

All in the Name of Jobs

Anamitra Roychowdhury

• Publisher: Routledge India
• Year: 2018
• Print ISBN: 9780367734961
• eBook ISBN: 9781351058858
• Edition: 1
• Topic: Social Sciences
• Subtopic: Labour Economics
• Index: Social Sciences

Labour market flexibility is one of the most closely debated public policy issues in India. This book provides a theoretical framework to understand the subject, and empirically examines to what extent India's 'jobless growth' may be attributed to labour laws. There is a pervasive view that the country's low manufacturing base and inability to generate jobs is primarily due to rigid labour laws. Therefore, job creation is sought to be boosted by reforming labour laws. However, the book argues that if labour laws are made flexible, then there are adverse consequences for workers: dismantled job security weakens workers' bargaining power, incapacitates trade union movement, skews class distribution of output, dilutes workers' rights, and renders them vulnerable. The book:

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• identifies and critically examines the theory underlying the labour market flexibility (LMF) argument
• employs innovative empirical methods to test the LMF argument
• offers an overview of the organised labour market in India
• comprehensively discusses the proposed/instituted labour law reforms in the country
• contextualises the LMF argument in a macroeconomic setting
• discusses the political economy of labour law reforms in India.

This book will interest scholars and researchers in economics, development studies, and public policy as well as economists, policymakers, and teachers of human resource management.

Chapter 1

Present status of labour laws in India and their proposed amendments

As already mentioned in the Introduction, approaches for achieving efficiency and international competitiveness through rationalisation of existing labour laws have been elaborately documented in various government reports. Before discussing the suggested contours of labour market reforms (proposed changes and already amended labour laws), it may be worthwhile to look at the present status of legal provisions available to labour.

1.1 Present status of labour laws in India

In the Indian Constitution, the subject of Labour appears in List III of the Seventh Schedule, known as the Concurrent List. Therefore, Union and State legislatures simultaneously enjoy the constitutionally provided right to design laws relating to labour. There are 45 Central¹ laws and 170 State statutes directly governing the labour market in India (Debroy 2005; World Bank 2010). Such laws were originally formulated to safeguard the interests of the labour constituency vis-à-vis that of capital. Most of these legislations are the product of the Nehruvian era, when the country pursued the goal of a Socialistic pattern of society – probably to respect the implicit social contract that developed during the course of struggle for independence. However, most – but not all – labour laws apply to the organised sector.²

The several laws governing the Indian labour market can be broadly categorized under three distinct heads: (a) laws relating to industrial relations, (b) laws relating to wages and (c) laws relating to social security (Hazra 2005). This study exclusively concentrates on the implications of the proposed changes in laws governing industrial relations. Industrial relation pertains to the relations between an employer and his/her employee or between two employees. Hence, there are bound to be ‘potential areas of conflict between them [various participants] and consequently laws relating to industrial relations are perhaps the most important of the labour laws’ (Hazra 2005: 138).

Essentially, three main statutes govern industrial relations in India: (a) The Trade Unions Act 1926 specifies the right of workers to organise themselves, (b) The Industrial Disputes Act (IDA) 1947, created for settling industrial disputes and securing industrial peace and (c) The Contract Labour (Regulation and Abolition) Act (CLA) 1970, which strictly stipulates the activities and norms for using contract labour in industrial units. In what follows we shall restrict ourselves to a discussion of certain provisions of IDA 1947 and CLA 1970.³ This is because much of the rationalisation of labour laws sought after (and discussed due to their sensitivity and profound implications on labour) in various government documents and subsequently debated in the literature pertains to changing the current provisions of IDA and CLA.

Let us first discuss certain present provisions in the IDA.⁴ We shall further confine ourselves to only those sections of the Act which have raised intense debate in recent times with respect to proposals for amendment. These are Chapter II-A (Sections 9-A and 9-B), Chapter V-A (Sections 25-C, 25-F and 25-FFF) and Chapter V-B (Sections 25-M, 25-N and 25-O). In what follows we shall discuss them seriatim.⁵

Chapter II-A deals with the Notice of Change and comprises Sections 9-A and 9-B. Section 9-A stipulates that an employer must serve three weeks of advance notice in writing, informing the worker⁶ of any change in his/her working conditions. These changes include: (1) changes in shift work, (2) changes in grade classification, (3) changes in rules of discipline, (4) a technological change that may affect the demand for labour and (5) changes in employment, occupation, process or department. The worker, of course, has the right to object to these changes and can go to the court, which can result in an industrial dispute with all its implications in terms of time and cost. In particular the law suggests:

No employer, who proposes to effect any change in the conditions of service applicable to any workman in respect of any matter specified in the Fourth Schedule, shall effect such change, – (a) without giving to the workman likely to be affected by such change a notice in the prescribed manner of the nature of the change proposed to be effected; or (b) within twenty-one days of giving such notice…

(IDA 1947)⁷

The aforementioned stipulations of Section 9-A also apply as employers propose to change working conditions under the following contingencies: Items 10 and 11 of the Fourth Schedule. Item 10 of the Fourth Schedule reads: ‘Rationalisation, standardization or improvement of plant or technique which is likely to lead to retrenchment of workmen’, and Item 11 of the Fourth Schedule reads: ‘Any increase or reduction (other than casual) in the number of persons employed in any occupation or process or department or shift (not occasioned by circumstances over which the employer has no control)’ (SNCL 2002: 347). The foregoing provisions of Section 9-A, it is widely argued, prevent an establishment from undertaking effective industrial restructuring and technological upgradation, and responding quickly to the rapidly changing international market environment, which are essential to remain competitive and economically viable in a globalised world (SNCL 2002; Debroy 2005; Hazra 2005; Khan 2005).

However, government has the option to exempt employers from the provisions of Section 9-A, and this is stipulated under Section 9-B, which suggests:

Where the appropriate Government is of opinion that the application of the provisions of Section 9-A to any class of industrial establishments or to any class of workmen employed in any industrial establishment affect the employers in relation thereto so prejudicially that such application may cause serious repercussion on the industry concerned and that public interest so requires, the appropriate Government may, by notification in the Official Gazette, direct that the provisions of the said Section shall not apply or shall apply, subject to such conditions as may be specified in the notification, to that class of industrial establishments or to that class of workmen employed in any industrial establishment.

(IDA 1947)

Although government reserves the right to exempt an establishment from serving the notice of change in advance, citing Section 9-B, it has been particularly criticized on grounds of creating uncertainty among employers (Hazra 2005; Khan 2005).

Chapter V-A applies only to establishments employing 50 or more workers (but is inapplicable to establishments with 100 or more workers).⁸ Chapter V-A requires giving a workman⁹ (1) in case of layoff, 50 percent of his/her normal basic wage plus dearness allowance for a period of 45 days (under Section 25-C),¹⁰ (2) in case of retrenchment¹¹ (under Section 25-F), written notice 30 days in advance or wages in lieu of the notice¹² – additionally 15 days’ average pay for every completed year of service needs to be paid, (3) in case of closure or sale of an establishment, the employer must fulfil the same conditions as for retrenchment unless its successor takes on these obligations (under Sections 25-FF and 25-FFF). However, the advance notice period in prescribed manner for closures is sixty days.

As for Chapter V-B, it is applicable to:

an industrial establishment (not being an establishment of a seasonal character or in which work is performed only intermittently) in which not less than one hundred workmen are employed on an average per working day for the preceding twelve months.¹³

After the 1982 amendment of Chapter V-B, which reduced the threshold level of workmen from 300 to 100 for obtaining prior permission before layoff, retrenchment and closures, this is the current stipulation in IDA.¹⁴ In case of layoff, Section 25-M of Chapter V-B is applicable and stipulates:

No workman (other than a badli workman or a casual workman) whose name is borne on the muster-rolls of an industrial establishment to which this Chapter applies shall be laid off by his employer except [with the prior permission of the appropriate Government or such authority as may be specified by that Government by notification in the Official Gazette (hereafter in this section referred to as the specified authority), obtained on an application made in this behalf, unless such lay-off is due to shortage of power or to natural calamity, and in the case of a mine, such lay-off is also due to fire, flood, excess of inflammable gas or explosion].

(IDA 1947)

Cases of retrenchment are governed by Section 25-N, which requires three months’ notice in writing to the workman or wages in lieu of the notice. Retrenchment additionally requires prior permission from the appropriate government, failing which retrenchment is deemed illegal. Therefore, unlike Chapter V-A, only serving prior notice is not sufficient in case of establishments governed by Chapter V-B, where prior permission has to be sought from government authorities. If permission is granted, the workman must be paid ‘compensation which shall be equivalent to 15 days’ average pay for every completed year of continuous service’ (IDA 1947). Under Section 25-O, identical provisions – similar to retrenchment – apply for closure of an enterprise, requiring prior governmental permission.

Therefore, the crucial difference ...

Table of contents

• Cover
• Title
• Copyright
• Dedication
• Contents
• List of figures
• List of tables
• Foreword
• Acknowledgements
• List of abbreviations
• Introduction
• 1 Present status of labour laws in India and their proposed amendments
• 2 A critical examination of the labour market flexibility debate in India
• 3 Explanation of jobless growth in Indian manufacturing and trends in labour conditions
• 4 Identifying the theoretical structure underlying labour market flexibility and its critical examination
• 5 Some market clearing models on labour market flexibility
• 6 Effectiveness of labour market flexibility in face of effective demand constraint
• 7 Labour market flexibility in an open economy context
• 8 Concluding remarks: labour market flexibility and the proposal for laissez-faire capitalism
• Bibliography