Indian industrial sector is generally criticized for being overprotective of its workers. The labor regulations are said to be too strict to allow firms to work efficiently and productively.
There is also a challenge of frequent strikes and lockouts by trade unions which only adds to the unproductivity of the industrial sector.
Impact of strikes and lockouts
Trade unions have played a major role in ensuring labor welfare in the past but for some time now, they have been criticized for hampering industrial activities with frequent strikes and also for hindering labor reforms.
Due to such unnecessary strikes by the trade unions, general lower labor productivity of the Indian workforce and the perceived notion of laws being tilted more in favor of labor, companies are choosing to become more and more capital intensive, something which has proven to be detrimental for a labor surplus country like India. This has led to the new phenomenon of jobless growth, where even though the country is growing economically, the growth is unable to contribute in any major way to job creation.
Code on Industrial Relations recently passed the Indian government aims to deal with the aforementioned challenges by relaxing labour regulations.
Key provisions of the Act
- It has been made easier for employers to retrench workers.
- States are now allowed to increase the threshold from 100 to 300 workers for firms before they are necessitated to take government’s approval for retrenching workers.
- For employers employing less than 50 employees, requirements of 1 month’s notice and retrenchment compensation have also been removed.
- It has been made more difficult for trade unions to announce lockouts or strikes by necessitating 10% workers to be applicants for registering a trade union.
- Fixed Term employment has been extended to all industries. In FTE, a worker is hired for only a specific period of time. Now these workers will be entitled to all the statutory benefits like minimum wage, maximum work hours, that a permanent employee gets.
Earlier attempts at labor reforms
This is not the first time that a government has attempted to bring such reforms in the labor laws. Several states had done so earlier.
Gujarat eased “hire and hire” provision in special investment regions like Delhi Mumbai Industrial corridor and National Investment and Manufacturing Zone in 2015. In Rajasthan, membership of 30% workforce is required to form a trade union compared to earlier 15%, to discourage unions from hampering industrial activities.
Very recently, the Uttar Pradesh government tried to take away almost all labor laws by an ordinance, for a period of 3 years. This was followed by similar announcements by other states like MP, Karnataka and Punjab. The Central government followed suit with Code on Industrial Relations.
Backlash from trade unions
The Code has invited backlash from several trade unions for putting the labor force at the mercy of the employers as it is now much easier for employers to fire the workers without any fear of legal action against them.
To justify these moves, Labour Minister Santosh Gangwar said in the Parliament, “It is not good for employment generation to keep threshold low at 100 because it discourages employers from recruiting more workers than this and they deliberately keep their workers’ strength below it”
The changes in labor reforms can increase market flexibility and discipline in labour to a huge extent. They can also help in inducing the much needed industrial activity post-lockdowns. But at the same time, they can also leave workers in a much more vulnerable position. Implementation of the law needs to ensure that a balance is struck between the two.
Komal is an English literature student with a keen interest in economic developments and politics amongst others. She is a part of Research & Content team at HrNxt.com