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Basics explained: Why Indias labour laws are complicated

Simplus Information Services 19 hours ago
An important piece of reform needed in India is related to labour. A high growth economy needs an efficient workforce.
Many experts argue that Indian labour laws need to be simple.

Here are pointers that explain problems:

Too many laws: Labour laws are part of the concurrent list. This means both the central and the state government can
create them. This has resulted in an overlapping jurisdiction. Currently there are 44 central laws and about 160 state
laws on the subject. Many of the laws are archaic, dating to pre independence creating an urgent need for an overhaul of
the laws to attune them to present realities, Morgan Stanley, a global bank, said in a note.
Multiple confusion: There are multiple laws governing a single area. For instance, there are 19 laws governing
conditions of work and industrial relations, 14 laws on social security and labour welfare. A fallout of the cumbersome
labour law structure is that the organized sector has remained small, accounting for only 16% of the total employment.
The bulk of labour force is employed in the unorganized sectors, the Morgan Stanley report adds.
Industrial Disputes Act: This law requires that companies employing more than 100 workers should get government
permission to fire a worker or close down a plant. Worker or trade unions can intervene company decisions and things
could get into litigations for years. The rigidity is a primary reason why manufacturing fails to take off in India. With the
new government emphasizing on enhancing the manufacturing and export capabilities, companies would need relaxation
here.
The Contract Labour Act: The Contract Labour (Regulation and Abolition) Act 1970, prohibits use of contract labour
for core functions in a company. The purpose was to ensure interests of permanent employees. However, lately,
companies have employed contract labour as it provides flexibility to companies. In the organized sector the share of
informal employees (contract) has increased from 37.9% in F2000 to 57.8% in F2010, according to the Morgan Stanley
report.
The problem here is that contract workers are paid less than permanent employees. If majority of the work force is on
contract, the whole purpose is defeated. There is an amendment sought in the Act to be made applicable only to
companies that employ more than 50 workers. Presently, this applies to companies employing 20 or more works.
Trade Union Act: This bit of legislation gives legal rights to registered trade unions. It also gives them immunity from
certain civil suits and criminal prosecution. Trade unions serve the purpose if they can bargain collectively. However, one
large factory may have multiple unions backed by different political parties. The law requires minimum 7 workers to form
a trade union. In many other countries, the requirement to form a trade union in a factory is much higher so that the
scope of forming too many unions is reduced. Similarly, there are few nationwide unions that speak for worker interests
collectively.
Impact on India: India ranks 99th in labour market efficiency among 148 countries. The manufacturing sector, which
the new government now seeks to boost, accounts for only 12.9% of GDP in India (2013) against 31.8% in China (as of
2011) and 23.7% in Indonesia. The tight labour market regulations have dissuaded foreign firms from investing in a large
manufacturing base in India, observes the Morgan Stanley note. Indias progress in creating jobs in non-farm sectors has
been slow with agriculture still employing 49% of the labour force. This has slowed urbanization.
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