Labour reforms can help reshape India’s growth trajectory

 The changes in labour laws will help both workers and industry. These will boost entrepreneurship and investments and are an important step in reviving our economy 
amit bandre
amit bandre

India is projected to have the largest working population in the world between 2022 and 2034, with 10 million youth entering the workforce every year. Unleashing the true potential of such a strong workforce demands employment capacity of the industry. Therefore, rigidities and administrative burden in the labour regime were required to be addressed through substantive reforms. The passage of three labour codes in Parliament marked a milestone in this process and came after many years of consultations and discussions between the government, industry, trade unions and other stakeholders.

In the last five years, India has seen several legislative reforms to boost employment generation such as the Shram Suvidha Portal, MUDRA (Micro Units Development and Refinance Agency), Startup India, Make in India, Skill India, digitisation of labour law compliances, etc. With the codes on wages, industrial relations, social security, and welfare and safety, a new environment for job creation is underway.

Existing labour laws were found to be out of sync with the evolving business regulatory environment and India’s growth aspirations. Successful emerging economies on a development path have leveraged their labour supply for accelerating growth; however, India’s labour laws were applicable to around 80 million workers in the formal sector, leaving the rest of the 500 million-strong workforce out of these benefits.

On the business side, due to procedural rigidities in workforce adjustment, firms are unable to respond to product market competition, resulting in high transaction costs that adversely impact productivity as well as employment. Also, multiplicity, overlap and unclear definitions of terms such as establishment, industry, wages and workers create unnecessary confusion and prolong litigations. The Labour Code on Wages was the first code passed by Parliament in 2019. The Code subsumes four major acts concerning wages and ensures the minimum and timely payment of wages to all workers in both the organised and unorganised sectors.

Many unorganised workers such as agricultural workers, painters, etc., who were out of the ambit of the earlier Minimum Wages Act, were afforded legislative protection under it. The Code clarifies the definition of wages, as the presence of multiple definitions under different Acts has always led to litigation and added to the cost of compliance for industry. Companies will be benefited as the number of registers, returns, forms, etc., can not only be electronically filed and maintained, but also be provided in a single template.

Many changes have been introduced in the inspection rules, including the web-based randomised computerised inspection scheme, jurisdiction-free inspections, calling of information electronically for inspection, compounding of offences, etc. These changes will enable the enforcement of the Code with transparency and accountability. The rationalisation of the method of fixing minimum wages will significantly reduce the number of minimum wage slabs and is certainly a step towards ease of doing business.

The Code on Industrial Relations 2020 is the central Code that impacts the industrial ecosystem and labour relations in the country. The introduction of Fixed Term Employment and change in the threshold limit for retrenchment will boost generation of new employment, particularly for larger firms. The increase in the threshold for taking prior permission of the government for retrenchment from 100 to 300 workers will also enable smaller firms to grow. Further, the Code provides for speedier adjudication of disputes and appropriate rules for strikes and lockouts to be preceded by a mandatory 14-day prior notice.

The Code on Occupational Safety, Health and Working Conditions applies to establishments employing at least 10 people, all workers in mines and docks, and hazardous operations employing even a single worker. The provision of a national helpline for interstate migrant workers and an annual travel allowance from the employer to visit their place of origin gives protection and relief to the former. The Code permits women to work in night shifts in all establishments for all types of work, which would help enhance female workforce participation.

The Code on Social Security replaces nine laws dealing with the issue. The insurance benefits under ESI are extended to plantation workers, gig workers, platform workers and unorganised sector workers. It has also increased the coverage of the scheme to 740 districts from the present 566. Also, the option for becoming a member of ESIC is being given to establishments employing less than 10 workers as well. 
Focusing on ease of doing business, a number of states have relaxed rules on registrations, registers, returns, filings, inspections, working hours, shifts, etc., while retaining important safeguards pertaining to overtime pay, paid leave, health and safety protocols.

The introduction of these labour reforms is welcomed by the industry. The momentum, which has been built over six years, has finally led to substantive reforms that will positively impact both workers and industry. The labour reforms will certainly boost entrepreneurship and investments, and are an important step for reviving India’s economy.

Chandrajit Banerjee
Director General, Confederation
of Indian Industry


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