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Labour Reforms

Labour Reforms

Labour reforms have been a subject of discussion ever since the BJP-led NDA government came to power in 2014. However, the matter remained under carpet for a long time.

The government wanted to reduce the number of laws that govern labour in different set-ups. Starting from a factory to an establishment to an IT company to a manufacturing unit and so on, there are as many as 44 pieces of legislation that govern labour. 

These laws are not only different for different set-ups but also for different purposes. For instance, the Payment of minimum wages Act, the Equal remuneration Act, the Factories Act, the Payment of Bonus Act, the Industries Development and Regulation Act etc. These Acts are applicable to different types of organisations under different circumstances. 

Some were applicable to the same kind of business activity but instead of making amendments in the existing laws the legislators introduced new laws, making it difficult for the employer to comply. The Modi government had been trying to consolidate these legislations into four different codes – Industrial relations (IR), Wages, social security (SS) and Occupational safety and working conditions (OSWC).

The Bills were introduced in Parliament but could not be taken to their logical conclusion. The wages code Bill was referred to a standing committee for its recommendations. Chaired by Dr. Kirit Somaiya, the main recommendation was to include all types of workers under the wage code Bill and to give them a minimum wages of Rs. 375 a day. 

The committee also mentioned that in case it is difficult to set a national-level floor for minimum wages for all regions, different wages may be announced for different regions. These recommendations were made during December 2018. But the government hardly had any time to discuss them, forget getting the Bill passed.

Meanwhile, the last phase of the previous government saw a controversy over unemployment data. The government kept the results of the last labour bureau employment survey (2016-17) and Periodic labour force survey on hold, for obvious reasons.

A report published in a leading daily “showed that unemployment was at its highest during the last 45 years”. The controversy hogged limelight. So much so that Modi gave a unique analysis, using figures from EPF subscriptions, auto sales, volume of Mudra loans, showing that at least 65 million people got employment during the last five years, without realising that the increase in jobs as per EPFO database may be countered by decrease elsewhere.  

Within a few days of Modi resuming power again, the controversial report was published, with an estimated unemployment rate of 6.1 per cent, confirming that the leaked report was factual. During the last five years, the government’s focus has always been on creating new jobs. Yet, the employment rate was at its lowest. And what about those who were employed but not adequately paid?

A report published by Azim Premji University titled “State of working India 2018” presented a dismal state of affairs amongst those who were employed. It says 82 per cent of the male and 92 per cent of female workers in the country earn less than Rs. 10,000 a month. In other words, while the country has a huge problem of unemployment, those who have a job also may not enjoy a good quality of life, considering the low wages or salary they earn.

Given this, the recent wages code Bill, 2019 passed by the Union Cabinet is very important. Not only does this code consolidates four Acts – the Minimum wages act, 1948, the Equal remuneration Act, 1976, the Payment of bonus Act, 1965 and the Payment of wages Act, 1936 – but also prescribes a national floor-level minimum wage, which has to be enforced by the state governments. The minimum wages announced by the state governments can be higher than what the Wages code Bill prescribes, but not lower.

In view of this, the wage code Bill offers hopes to many, who were hitherto, deprived of these benefits and were not covered under the minimum wages Act. However, even before the Bill was introduced in the Lok Sabha, it has come under criticism. Even Bharatiya Mazdoor Sangh, an RSS-affiliated trade union, has not spared the government, considering it has around 2 crore workers. 

While the standing committee recommended a national floor-level minimum wage of Rs. 375 a day, the union labour and employment minister Santosh Gangwar announced it to be just Rs. 2 more than the existing minimum wage of Rs. 176 per day. 

In other words, if a person works for say the entire month, he/she would be able to earn Rs. 5340 a month, which in any case is inadequate, considering an average family size of 5 or 6 members in India. And getting work for 30 days a month may not be feasible for daily wage workers also. Now what kind of reform is it?

Clearly the Cabinet ignored the recommendations of its own committee. The committee had worked out the minimum wage rate after considering the likely expenditure on balanced diet, conveyance, entertainment etc. Ironically, the labour ministry has not even convened a meeting to discuss the recommendations of the committee. On second thought, even Rs. 375 a day seems to be inadequate now considering the spike in retail inflation.

Not only this, the Bill allows the workers to do up to 100 hours of overtime per quarter. This comes out to 10-hour a week or a 60-hour a week. This is against what the trade unions have been demanding for across the world – 8 hour per day and a 40-hour per week.

While it intends to bring the workers in the unorganised sector under the wage Bill, it will also make it difficult for the workers to agitate or protest against unfair employers.

Trade unions will have to give a notice of six weeks before going on strike else the strike would be termed as illegal, and every member will have to pay a fine of Rs. 50000 each or even imprisonment. In other words, these reforms are not meant for the benefit of workers but reminds of pre-industrial era, where workers were ill-treated. And any protest was equivalent to that of sedition.

A few claim that these reforms shall help in improving the country’s position in ease of doing business index, considering the archaic laws that a businessman has to comply with as of now. Also, entrepreneurs are not allowed to fire workers when they are incurring a loss. This discourages investment as well. 

However, an analysis done by a few economists proved that industries incur an average expense of hardly 2 per cent on wages. Even if they are given the freedom of firing, say, 50 per cent of the workforce, it would hardly impact the firm.

It has also been found that around 44 per cent of the jobs are now contractual in nature, which reduces the incidence of “harsh” or complex labour laws. Also, most of the firms hire workers on third-party contracts, avoiding legal obligations towards wages, social security and other benefits. And those, who do not go for third-party contracts, have a tendency of paying less than the minimum wages by simply avoiding the term wages in their expense sheet. Such expenses are shown as administrative expenses. It is all about window dressing. And who is going to check the minute details?

In other words, while it makes sense to reduce the number of legislations, these reforms may not bring a drastic change in the lives of the poor workers. The new wages Bill or even the occupational safety and working conditions code have no mechanism to monitor their implementation. In fact, the stringent regulations may benefit the employer, who can easily find a  jugaad to avoid the incidence of such laws.

One major flaw that has remained intact even in the new codes is the definition part. Niti Ayog in one of its reports had pointed out that one of the reasons for lack of relevant and accurate data on the state of unemployment was different definitions used for a worker. 

For instance, there is no definition for a formal worker. Hence, while researching or collecting data, definition of a worker under the Factories Act, 1948 is largely used. This excludes many others, who can be termed as formal workers under different circumstances.

The problem persists with the new codes as well. For instance, the industrial relations code of 2017 gives a different definition of a “worker” than the social security Bill. In other words, after such a long struggle, the government does not know who these codes would actually benefit.

Instead, these codes intend to increase the burden on the taxpayer as they provide for setting up of several huge bureaucratic bodies and dismantling the existing ones. Simply put, it would neither serve the industry or the workers as of now.

(The writer, a company secretary, can be reached at

(Published on 22nd July 2019, Volume XXXI, Issue 30)