Answer Synopsis 17/11/2020

Question : Intertwined with various concerns new labour codes are proposing to simplify the country’s archaic labour laws and give impetus to economic activity without compromising with the workers’ benefits. Discuss


Labour falls under the Concurrent List of the Constitution. Recently, the Parliament passed three labour codes — on industrial relations; occupational safety, health and working conditions; and social security — proposing to simplify the country’s archaic labour laws and give impetus to economic activity without compromising with the workers’ benefits.
These labour codes can have a transformative impact on labour relations in India. Along with the ‘Code on Wages Act- 2019’, these can significantly ease the conduct of business by amalgamating a plethora of Central and State laws on labour.

Concerns with the Labour codes

  • Against the Interests of Employees: The codes provide the liberty to industrial establishments to hire and fire their employees at will.
    • This move might enable companies to introduce arbitrary service conditions for workers.
  • Free Hand to States: The central government has also attracted criticism that states have been given a free hand to exempt laws in violation of labour rights. However, the Union Labour Minister has said the labour issue is in the Concurrent list of the Constitution and therefore states have been given the flexibility to make changes as they wish.
  • Affect Industrial Peace: Industrial Relation Code proposes that workers in factories will have to give a notice at least 14 days in advance to employers if they want to go on strike.
    • However, earlier the Standing Committee on Labour had recommended against the expansion of the required notice period for strike beyond the public utility services like water, electricity, natural gas, telephone and other essential services.
    • Further, Bharatiya Mazdoor Sangh has also opposed the Code, describing it as a clear attempt to diminish the role of trade unions.

Problems of Labour Market which is going to be addressed by Labour codes to increase economic in India

  • Indian labor market is characterized by a sharp dichotomy.
    • Organised sector is stringently regulated while the unorganized sector is virtually free from any outside control and regulation with little or no job security.
    • Wages are ‘too high’ in the organised sector and ‘too low’, even below the subsistence level in the unorganised sector. This dualistic set up sug­gests how far the Indian labour market is seg­mented.
  • Poor Social Security
    • Social security to organised labour force in India is provided through a variety of legisla­tive measures.
    • Work­ers of small unorganised sector as well as in­formal sectors remain outside the purview of these arrangements.
  • Multiplicity of Archaic Labour Laws
    • Labour Laws govern trade unions, industrial re­lations, and job security
    • Labour is a concurrent subject and more than 40 Central laws more than 100 state laws govern the subject.
  • Trade Union Issues
    • Trade Union Act, 1926 provide that any seven employees could form a union.
    • During the freedom struggle, Indian trade union contributed handsomely. It is now better organized.
    • Frequent Strikes: Industrial Disputes Act, 1947 aims at promoting good relations between employers and workmen, protecting workers against re­trenchment and settling disputes through con­ciliation, arbitration or adjudication. However, industrial relations climate were far from sat­isfactory when trade unions resorted to mili­tancy in the 1960s and early 1970s. Between 1972 and 1981, the average number of work days lost per year per employee in the manu­facturing sector stood at 4.070. This figure went up to 5.736 between 1982 and 1992—a very high figure compared to other countries in the contemporary period.
  • Multiplicity of trade unions hamper dispute resolution.
    • In­ter-union rivalry and political rivalries are con­sidered to be the major impediments to have a sound industrial relation system in India.
    • Indian labour laws are highly protective of labour, and labour markets are relatively inflexible. As usual, these laws are applicable in the organised sector only.
  • Rigid Laws
    • India’s labour laws for the workers in the organised sector give workers permanent employment, of course, after a probation pe­riod ranging from 6 months to 2 years.
    • Job security in India is so rigid that workers of large private sector employing over 100 work­ers cannot be fired without government’s per­mission.
  • Unskilled labour
    • Lack of enough skilled workers is a common concern raised by the employers in defence of their inability to hire more.
    • They resort to contract employment
    • They adopt hire and fire policy.
  • Gender gap
    Low female labour force participation
    • 71% of men above 15 years are a part of the workforce as compared to just 22 percent women (Labour Force Survey)
  • Low labour Productivity:
    • Promotions are based on seniority and thus workers get fixed annual wage increments unrelated to work perform­ance.
    • The labour market poli­cies followed in India in the past have led to serious problems due to low labour produc­tivity even in the context of an economy where the firms were shielded from both interna­tional competition (by the very high import tariffs) and domestic competition (by the li­censing policies).

The Periodic Labour Force Survey observes that 71% of regular wage/salaried workers in the non-agriculture sector did not have a written contract, and 50% were without social security cover. The new laws, by simplifying compliance, should create an incentive for workforce formalisation.
The new labour codes will help in increasing the pace of generating good quality jobs to cater to the growing workforce, their rising aspirations and to absorb out-migration of labour from agriculture. This way India can fully be able to capitalize on its inherent labour and skill cost and help a fast economic recovery especially post Covid-19.

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