PROJECT WORK SUBMITTED TOWARDS THE COMPLETION OF COURSE TITLED LABOUR LAW-ITOPIC:LABOUR REFORMS IN INDIA

Submitted By:Anwesha Tripathy, Roll No. 724, 2nd Year(4th Semester), Section-A

Submitted To:Dr. S.C.Roy, Associate Professor, Law

CHANAKYA NATIONAL LAW UNIVERSITY,PATNA

CONTENTS

Acknowledgement1. Introduction2. Current Situation with regard to Labour Force in Indian Economy3. Labour Law Reforms4. Link between Parliament, Judiciary, and Executive5. ConclusionBibliography

ACKNOWLEDGEMENTIt is my greatest pleasure to be able to present this project of Labour Law. I found it very interesting to work on this project. I would like to thank Dr.S.C.Roy, Associate Prof., Law,Chanakya National Law University for providing me with such an interesting project topic, and for her constant unconditional support and guidance.

I would also like to thank my librarian for helping me in gathering data for the project. Above all, I would like to thank my parents, elder sister and paternal aunt,who from such a great distance have extended all possible moral and motivative support for me.

I hope the project is upto the mark and is worthy of appreciation.

Anwesha TripathyCNLU

INTRODUCTION

In spite of labour laws been widely studied for almost a decade and various recommendations to re-invent/evolve labour laws in the current leg of globalization, the issues pertaining to welfare of labour and flexibility of the firms to grow in sync with market conditions for better industrial relations, persists even today. For the past six to seven years it has been argued (especially by employers) that labour laws in India are excessively pro-worker in the organized sector and this has led to serious rigidities that has resulted in adverse consequences in terms of performance of this sector as well as the operation of the labour markets. There have been recommendations by the government to reform labour laws in India by highlighting the need for flexibility in Indian labour laws that would give appropriate flexibility to the industry that is essential to compete in international markets. But the attitude has mainly been towards skill enhancement and focus on flexible labour markets rather than assessment of proper enforcement of the laws, assessment of the situation of different categories of employers and coverage of the social protection system. This project makes an attempt to present an overview of existing literature pertaining to this issue and brings forth some major concerns that ought to need attention before any alternate framing of labour laws.

CURRENT SITUATION WITH REGARD TO LABOUR FORCEIN INDIAN ECONOMY

BRIEF HISTORICAL OVERVIEWA study of the Indian economy and its labour force can be divided into three phases: (i) the colonial era (till 1947), (ii) the import substitution era post-independence (1947 to 1991), and (iii) the era of economic liberalization (1991- to date).

At the time of independence, India had a significant industrial base, which was substantially diversified under the governments heavy industrialization strategy during the plan era, particularly from the mid-1950s to the end of the 1960s. This period saw the public sector being accorded the dominant role in the growth of the economy. During the 1970s and the 1980s, the government followed the policy of self-reliance and import substitution. In this period several East Asian (Taiwan and Korea) and Southeast Asian (Singapore, Hong Kong and Malaysia) countries pursued export-oriented industrialization strategies. Domestic industry was protected in product markets and labour in labour markets. India, therefore, did not grow as fast as the rest of Asia and its economic, industrial and political significance in the region and in the world declined[footnoteRef:1]. [1: Dulbridge Magiche, A historical travel through economy]

Post-1991, the measures of economic liberalization, privatization and globalization have resulted in a drastic change in the mind set of labour, management and government. Organised labour became defensive as both state and central governments became investor friendly. Though labour laws themselves have not changed, the attitude of the bureaucracy and the judiciary has changed. Government has resorted to phased withdrawal of subsidy and selective, but slow privatization through, mostly, disinvestment route. Faced with global competition, employers have tried to tighten belt and cut costs, including, particular, labour. Cost plus economy became price minus cost as profit economy. Table 1 tries to capture some of the paradigm shifts in governments policy. The rate of economic growth, particularly in the industrial and service sectors has picked up though employment in the organized sector has stagnated in relative terms[footnoteRef:2]. With economic liberalization both labour and capital now feel less protected or unprotected. [2: www.skillingindia.com]

The change in government policies is reflected in the difference between the terms of reference of the First National Commission on labour and the Second National Commission on Labour appointed in 1966 and 1999 respectively[footnoteRef:3]. While the former was asked to recommend measures to improve the conditions of labour, the latter was asked to suggest labour law reforms to align labour policies with the requirements of product market as also recommend an umbrella legislation for unorganized labour. [3: www.preservearticles.com]

Table 1: Changes in the Scenario, Before and After Economic Liberalization[footnoteRef:4] [4: C.P Thakur,2001]

Before LiberalizationAfter Liberalization

State-sponsored and state-mediated development

Protected domestic market

Budgetary and directed institutional resource allocation

Subsidies and administered price regime

Welfare state active in labour market

Systematic de-casualization of jobs

Largely government-funded social security and welfare programmes for a few

Stable governing structure and policy regime

Stable, though obsolete, labour-intensive technologies

Dominant status of manufacturing

Market led and private enterprise dominated

Competitive market

Competitive capital market-led resource allocation

Rational pricing, including user charges

Labour-neutral and invest-friendly state policies

Fast re-casualization and contractualization of jobs

Crisis of sustainability of social security welfare programmes, and pressure for security measures for all

Crisis of governance and fear of political and economic instability

Micro-electronics-led new-generation capital and skill-intensive technologies

Threat of deindustrialization and rapid growth of the service sector

The Indian economy is still characterized by a sharing rural urban divide in terms of its structure and composition of both industries and workforce.

LABOUR AND ECONOMIC PLANNINGThe objectives of labour policy in economic planning in India in the post-independence period can be classified into two categories: the plan era and the transition-to-market era.

In the plan era, the first seven Five Year Plans (1951- 91, with some breaks in between) focused on the following objectives vis--vis labour[footnoteRef:5]: [5: www.planningcommission.gov.in]

improving the conditions of labour and their welfare prevention and settlement of industrial disputes and maintenance of industrial peace and harmony to avoid disruption of industrial activity which could adversely affect the realization of plan goals controlling industrial growth to prevent concentration of economic power in the hands of a few income disparities among individuals and regions workers education workers participation in management

With the transition to a market economy (1991 to date), the need has arisen for aligning industrial relations policies with industrialization strategies. This calls for[footnoteRef:6]: [6: www.epw.in]

facilitating the growth of enterprise and entrepreneurship and aligning labour policies with economic policies a policy focus 7 per cent organized labour to 93 per cent unorganized labour (Ninth Five Year Plan, 1997 2002, Working Group Report) reform of labour laws and labour policies in the wake of globalization (terms of reference of the Second National Commission on Labour appointed in 1999) a shift in emphasis from job security to income security and social safety measures concern for skills development, productivity and competitiveness reforming of pension a shift in government role from control to facilitation

Unemployment and underemployment have been major concerns, but it is mainly in the Tenth Plan (2002-07) document that a strong plea has been made for bringing about a qualitative change in the structure and pattern of employment to promote growth of good quality work opportunities. The growth process alone will not be able to provide adequate work opportunities for the emerging workforce, let alone reduce the backlog of unemployment. Further, the Tenth Plan document recognizes the need for transforming an agrarian economy into a modern, multidimensional economic powerhouse and an egalitarian society[footnoteRef:7]. [7: The tenth plan for the period 2002-2007]

The Tenth Plan specifically has as its targets 8 per cent annual economic growth, reduction in poverty from 26 per cent in 2002 to 21 per cent by 2007 and a decrease in population growth from 21.3 per cent in the 1990s to 16.27 per cent during the decade 2001 - 2011. It also aims to provide gainful, high quality employment to at least new entrants in the labour force, improve literacy to 75 per cent and reduce unemployment to 5.3 per cent by 2006-07. Further, the Tenth Plan envisaged to reduce gender gaps in literacy and wages by 50 per cent[footnoteRef:8]. [8: The tenth plan for the period 2002-07]

LABOUR FORCE IN INDIA: STRUCTURE AND COMPOSITIONThe diversity of the Indian industrial workforce makes it difficult to generalize its profile. Only 13 per cent of the labour force is in regular wage employment and barely 7 per cent is in the organized sector and 4 per cent unionized[footnoteRef:9]. The growing tertiarisation of the economy where the service sector dominates in terms of share of employment and GDP is accompanied by casualization. Forty-two per cent of the population is not literate[footnoteRef:10]. As a result a substantial proportion of the labour force, even in the organized sector, is illiterate. [9: Economic Times, 23rd June, The Times Of India] [10: Literacy Check, The Hindu, 17th December, 2012]

Ninety-three per cent of Indias labour force is in the unorganized sector; 55 per cent is self-employed; 13 per cent is in regular wage employment. About a third of the labour force is in casual employment (Table 4). Casualization of labour is growing due to economic liberalization, changes in ownership and technology, cost-cutting competitive strategies of employers and the governments investor-friendly disposition towards the organized sector.

Over one-fourth of the population of the country is below the poverty line. Unemployment is growing. In the absence of unemployment insurance, open unemployment is relatively less in India. The real problem is of underemployment and disguised unemployment. The really poor cannot remain without jobs. Therefore while the vast majority accept whatever job comes their way and work below subsistence level, the few who can afford to, wait for a better job. Therefore, it is little wonder that the incidence of poverty is higher among the employed than among the unemployed.

Table 4: Labour Force Profile, 2001[footnoteRef:11] [11: Source: Govt. Of India, Preserve Articles]

2001

Population>1 billion

Labour force/workforce18 million

Employment in private sector>9 million

Unionized workforce/Union density4%

Workforce covered by collective bargaining2%

Self-employment and regular salaried employment declined between 1977 and 2000 in rural areas (Table 5). Consequently there was a significant rise in casual employment in rural areas. In contrast, in urban areas, the situation was relatively stable though there was a 2 per cent increase in casual employment in urban areas during the corresponding period. Though employment in the organized sector grew in absolute numbers between 1977 and 2000, it declined marginally between 1994 and 2000. Overall, the trend points to a worsening of the quality of employment during the period 1997 2000 (Table 6).

Only 5 per cent of the Indian labour force in the age bracket 20-24 years has obtained vocational training Low literacy, vocational bias against technical skills, occupational preference for non-production jobs, mismatch between skills acquired and skills required, dearth of adequately/appropriately trained technical personnel, low competitiveness of labour vis--vis developed nations and employability and retraining of labour are among the major weaknesses that characterize the macro level situation of labour in India There is a need to forecast marketable skills through labour market intelligence system with focus on linking job seekers with job providers. Competencies for different jobs should be assessed systematically both in the organized and the unorganized sectors.

TRADE UNION SITUATIONToday there are over a dozen national centres of trade unions in the country with five of hem having a membership of over 500,000 in at least four states and four industries/ sectors. Though the official number of registered unions is around 50,000 the actual number may well exceed 100,000. There is a serious problem with regard to the data base on trade unions, their membership and finances.

In the non-farm sector trade union density is very high. While only 4 to 6 per cent of the total labour force in the country may be unionized, in public sector undertakings it could be well over 80 per cent. Trade unions main problem is inter union rivalry due to multiplicity. While there is usually broad cooperation on wider issues concerning wages and working conditions, on specific issues at the work place level such cooperation is rare.

Collective bargaining takes place at national, sectoral and enterprise level. In banks, coal, steel and ports and docks there is good coordination among the unions at the national level and centralized bargaining is the rule. In these sectors, at least till recently, government has been the sole or the major employer. In sectors like jute and textiles where private sector is the main employer region-cum-industry wide collective bargaining is common. In other industries collective bargaining is usually at the enterprise level. National legislation in India provides for trade union registration, not recognition. Some state laws provide for recognition through law (Maharashtra for example) or through administrative notifications (Orissa and West Bengal). Workers participation is provided in Factories Act in the form of mandatory works committees, joint management councils, etc. Their formation and working varies across enterprises and the over all situation with regard to representative forms of participation is not encouraging. In several cases, mostly banks and several public sector companies there is worker representation even at the board level. A law on the subject is pending since 1990. Through an amendment to the constitution of India in 1976, the Government of India has included workers participation in management as a directive principle of state policy. The second national labour commission (2002) recommended statutory provision for the purpose. Several professionally managed companies, including some of those which follow Japanese management principles and practices have been resorting to greater use of direct forms of worker participation and involvement thorugh 5S, Kaizen, Quality circles, Suggestion schemes, etc[footnoteRef:12]. [12: The Second National Labour Commission]

INCIDENCE OF INDUSTRIAL CONFLICTAs seen from Table 7, the incidence of strikes and lock-outs is generally on the decline in the post-liberalisation period (1991-to date) as compared to 1980s in terms of number of disputes, number of workers involved and number of mandays lost[footnoteRef:13]. Significantly, in recent years roughly two-thirds of the mandays lost is due to lockouts. Some of the lockouts may have taken place in the aftermath of a strike and the resultant law and order situation which provokes management to declare lockout in the interest of protecting people, premises and products from possible acts of vandalism, arson and sabotage. Whatever be the truth in it, usually that is the reason that several employers give for declaring lockout. There are several plausible explanations, including the following: [13: Labour and Industrial Laws, S.N.Mishra]

1) Increased used of advanced technologies is making control over work shift from workers to machines and managers thereby blunting the power of strike to disrupt work Evidence of this can be seen in printing, banking and many other industries.2) Declining membership and union power3) When most of the allowances, etc., are linked to wages and the courts ruling no work no wage principle, workers are not usually prepared to lose earnings due to strikes. This particularly so because it is usually difficult to go on a legal strike due to restrictions on strikes in the form of notice and prohibition during the pendency of conciliation, adjudication, etc.4) Growing fear among workers about the futility of strikes and the possibility of job loss in view of growing competition, industrial sickness, governments reluctance to support strikes any longer because of the need to woo investors, etc.5) A vast majority of the stagnant organized/unionized workers moving from working class to middle class are less prepared to take to streets and support unions during direct action

State-wise analysis of strikes and lockouts reveal that five states West Bengal, Kerala, Andhra Pradesh, Tamil Nadu and Maharashtra account for over half the mandays lost in India over the past several years. In most years over 90 per cent of the mandays were lost every year in the past decade due to lockouts and less than 10 per cent due to strikes[footnoteRef:14]. [14: The Unhappy Workers, Swaminomics, The Sunday Times, Times of India, 28th August.]

It is believed that in India more mandays are lost due to poor work ethic than due to industrial strife. Workers in the organized sector, work usually 5 hours in a shift of 8 hours in most establishments. Thus every day the 28 million strong organized sector workforce account for a loss of one million mandays a day as against about 20 million mandays lost every year on average due to industrial strife during the past 14 years or so.

LABOUR LAW REFORMSIn a global economy labour law as an autonomous subject stands at a crossroads. Some judges feel compelled to interpret law not on the basis of the text of the clauses, but in the light of the preamble to that particular piece of legislation and more importantly the Indian Constitution itself. Therefore, they might sometimes question the new economic policies as inconsistent with the Indian Constitution. Elsewhere in the world, there is another view gaining ground: The social vision of labour law, which went with the old-established institutions and practices has come under challenge to change or risk irrelevance. The current scenario requires striking a balance between these two extreme viewpoints.

There is a perception that the existing laws give virtual veto power to unions in the organized sector to block changes like improvement in plant and machinery, rationalization of manpower, and growth of productivity. Further, there is a perception that labour legislation has paved the way for multiplicity of unions, growth of intra- and inter-union rivalry, exacerbation of industrial strife and excessive intervention by the state in industrial relations.

There are as many as 165 legislations --- both central and state --- that address aspects relating to labour. But more laws mean less when implementation is thinly spread out. Even minimum wage laws have meant little when the wages fixed are too low and implementation too lax. Study groups of the National Commission on Labour and the National Labour Law Association (NLLA) prepared draft labour codes in 1969 and 1994 respectively. The Commission on Labour Standards appointed by the Government of India, in its report submitted in 1995, almost entirely endorsed the NLLAs Draft Labour Code. It suggested a few changes: initiate a national debate or wider consultation on the Draft Labour Code through Project LARGE and simplify the law without further delay[footnoteRef:15]. [15: Labour Legislations and their effectiveness on the Indian Labour market and economy, Debraj Khar]

Labour law reform is not easy. The Korean experience confirms this. When the economy was doing well organized labour organized bitter struggles against the new Korean law which was enacted to make, among other things, workforce adjustment easy. In the wake of the Korean economic crisis, however, a tripartite agreement provided for the very changes that were opposed just a year before. Several economies in transition (notably China and Vietnam) and those undertaking structural adjustment (many in Africa and Latin America) have been able to rewrite labour law without much friction.

The Government of India has appointed the Second National Commission on Labour (1999) to address the issue of aligning labour policy and labour laws with the contemporary concerns of product markets. The contrast between the terms of reference of the first and the second national commissions on labour (Annexure 1) points to the stark shift in emphasis from labour market (First National Commission on Labour) to product market (Second National Commission on Labour) and a palpable concern for a separate simplified approach (one umbrella legislation) for the unorganized sector.

The major thrust of changes in labour laws should be along the following lines:

Have fewer laws but ensure better enforcement. It would be still more expedient and equitable to have one labour code instead of numerous legislations, as China and Vietnam did in the mid-1990s. The nature and extent of protection for labour has little to do with the number of laws. Multiple definitions should be eliminated across different legislations. Wages, for instance, are defined in a dozen ways in as many legislations, or the legal distinction between worker, workman and other worker is exclusionary. Unless otherwise defined perpetrates and perpetuates discriminatory practices and confusion dictionary meanings should be considered adequate. The Labour Code can cover all working people rather than have variations in limitation of numbers employed, amount of wages/salaries drawn, etc. There should be have one national minimum wage act for all occupations rather than separate ones for select notified industries/occupations. It should be made easy to understand, be simple to administer and effective in enforcement. Several amendments to the Trade Union Act suggested earlier bipartite committees and subsequently incorporated in the bill prepared by the Ministry of Labour do not serve any useful purpose; they do, however, perpetrate distrust among unions and create strife. Japan and Denmark do not have trade union acts. In Japan, the union movement is consolidated and multiplicity reduced without legal intervention. Denmark is one of the countries with the highest rate of unionization. Almost all political parties and many unions favour secret ballot. But it would be prudent to review the experiences of Andhra Pradesh, Orissa and West Bengal before taking any action, since the experience so far suggests that the present conditions are not conducive to secret ballot. They have led to anti-establishment vote and destabilising recognised unions, causing strife in industrial relations and resultant litigation. The provisions of the Industrial Disputes Act should be reviewed while preparing the Labour Code. Legislations in some Southeast Asian countries as well as China and Vietnam offer valuable insights. In the wake of structural changes and liberalization, more than 100 developing countries and transitional economies have reformed their labour law. The three most important changes in legislation which are necessary in the Indian context also well are as follows: (a) Employment can be secure only so long as the enterprise where they are employed is secure and viable. According to ILO Convention No.168, termination of employment at the initiative of employer can be valid if structural, technical, economic and other changes so require. Workforce adjustment as per business needs is imperative. Notice, consultation, and compensation provisions can be and should be tightened. The requirement of prior permission of the government should be dispensed with in matters concerning lay-off, retrenchment and closure; (b) Section 9-A, concerning notice of change, should be amended. Notice is required, consultation is to be encouraged, but the employer should have the responsibility, if not the right, to make changes necessary to maintain and improve competitiveness; (c) As in Malaysian legislation, which forbids bargaining in respect of recruitment, transfer, promotion, work assignment and workforce adjustment, in India also collective bargaining should be encouraged on aspects other than the above[footnoteRef:16]. [16: Paving the way for development in labour market, D.Bhatacharjee,2003]

Industrial relations machinery should be made independent as recommended by the National Commission on Labour. Some studies point out that job protection laws impede job creation. Increase in the price of labour and its relative inflexibility have also been found responsible for the stagnation of job opportunities. These studies have also found that job loss was less with adjustment than without it. It is necessary to investigate the technological determinedness of employment decisions, employment effects of adjustment vis-a-vis non-adjustment and consequences of job creation on further job creation and the claims of the unemployed and fresh entrants to the job market. The cost of job protection and its effects on job creation require careful analysis. The ILO-South Asian Multidisciplinary Teams study drew attention to the need to shift the focus from job protection to income protection. Set up a skills development fund and a tripartite national wages council.

LINK BETWEEN PARLIAMENT, JUDICIARY AND THE EXECUTIVEThe process of integration of the Indian economy with the global economy started seven years ago. Some say it started much before that. Political manifestoes, however, do not realise the need for a linkage between industrialization strategy and industrial relations strategy. The apparent contradiction with the preamble to the Indian Constitution --- which still retains the magic phrase, socialist democracy --- leaves the field wide open for a variety of interpretations by the judiciary. There is a need to reassess the roles of parliament, the judiciary and the bureaucracy.

Since Justice Krishna Iyer gave his interpretation of the definition of industry in the Bangalore Sewerage Company case, there have been couple of other landmark judgments on the subject which have reversed and re-reversed the Bengal Sewerage judgment. When the Supreme Court declared P&T as not an industry, but a sovereign activity under the state, P&T officials refused to appear before the conciliation machinery of the central government with regard to the disposal of certain grievances of P&T employees[footnoteRef:17]. [17: AIR, National Labour Tribunal Reports]

Some judgments of the Supreme Court have the effect of prescribing legislation. For instance, in the case of the Food Corporation of India concerning representative union, the Supreme Court ordered that the matter be settled through secret ballot and even prescribed the procedure for conducting it. Similarly, in many cases relating to child labour, environment and sexual harassment the judgments prescribed dos and donts.

There have been judgments in recent years that have upset organized labour while those concerning unorganized labour including contract labour have generally gladdened the hearts of the workers.

Our labour bureaucracy is caught between these two extremes. `Labour policy in future would be market friendly, a high-ranking official of the labour ministry assured the audience at a conference on globalisation. The labour leader present on the podium demurred, `If labour policy is not labour friendly what kind of a labour policy is it.

`I am the labour commissioner, not the management commissioner, was the stern reply of a labour commissioner to an industrialist who was pleading his case about the rigidities in the labour market of the country.

The labour bureaucracy has, however, enormous powers. It can stall the will of Parliament through delays or notification in the gazette. For instance, the amendment to Section 9c of the Industrial Disputes Act in 1982 has not been notified to date. In another case, though electronics is not notified for the purposes of the Minimum Wages Act in one state, a labour inspector who found a lathe machine in a unit chose to classify the unit as an engineering industry and applied Minimum Wages Act to it also[footnoteRef:18]. [18: 10th World Congress of International Industrial Relations Associations, 1995]

It is important that all these three wings --- Parliament, the judiciary and the bureaucracy --- should function in harmony and unison without compromising on the rationale of their respective roles.

CONCLUSION

In India about seven per cent of the labour force is in the organized sector and the rest in the unorganized sector. Union density is low if agricultural labour is included and high in the organized sector. Globalization and technology have reduced labour intensity. To promote employment, it should stress on improving thee quality and expanding the base for basic education and skills training. Agro industrialization, service sector and self employment will be the main providers of employment. India should focus on few sectors where there is competitive advantage.

India has ratified four of the eight core labour standards and 39 out of 184 international labour standards. Though convention No.s 87 and 98 were not ratified, freedom of association is guaranteed under Consitution and Indias record of freedom of association and right to collective bargaining has been far better than that in countries which ratified these convention. There is a series effort to bring unified legislation defining and banning child labour. Labour being being in the concurrent list of Constituioin of India the government needs to consult with and make the state governments to work in tandem. All the three major partners government, employers and workers organizations are generally one in their opposition to linking international labour standards with international trade. Unlike in the past, the current thinking of Government of India is that labour policy should concern itself with the entire labour force. Till not too long ago the labour policy in India has addressed itself mostly to the eight per cent labour force in the organized sector. Even salaried workers constitute only a fraction (about 15 per cent) of the total labour force in the country. It is time it paid greater attention to the issues confronting the workforce in the unorganized sector. A credible mechanism for providing literacy and vocational skills training to all aspirants in the labour market together with a support mechanism for basic health and social security are imperative. Further, workplace industrial relations systems should be put in place that facilitate change, promote flexibility and prepare the workforce to be able, adaptive and atuned to respond to the challenges of the changes.

BIBLIOGRAPHY

For a thorough study and analysis of the research topic, several primary and secondary sources of data, both printed and electronic, were extensively used. Following is a list of all such sources of information:1. Labour and Industrial Laws, S.N.Mishra2. Labour and Industrial Manual3. www.skillingindia.com4. www.planningcommission.gov.in5. Flexibility, employment and Labour Market reforms in India, www.epw.in6. An intelligent persons guide to liberalisation, A. Bhaduri, & D.Nayyan7. The new left, Indian Journal of Labour Economics, D.Bhattacharjee8. Labour Market Reforms, B.Debroy9. India: Economic Reforms and labour policies, ILO-SAAT (1996)10. Competitive Labour Policies in Indian States, C.S.Venkataraman (1997)