Proposed Labour Law Reforms: Should we sacrifice democracy and well being of people for FDI and high growth rate?

July 27, 2014

by Surendra Pratap


The new NDA government is moving fast towards amendment of labour laws. Notifications are issued and comments are invited on the amendments proposed by the government on Minimum Wages Act 1948, Factories Act 1948, Apprentices Act, 1961, Labour Laws (Exemption from Furnishing Returns and Maintaining Registers by Certain Establishments) Act, 1988 and Child Labour (Prohibition & Regulation) act 1986. In the mean time the BJP ruled state government of Rajasthan has also taken a major stride towards labour law reforms.

It is important to mention here that the labour movement in India is also demanding for the labour law reforms for a long time. But the labour movement demanded a labour law reform targeted to unify various labour laws, end the multiplicity and inconsistency in various provisions in various labour laws, and upgrade the labour standards. The issue was discussed at various forums and meetings like Indian labour conference and the working groups formed by the planning commission.

However, it is ironic that the views and demands of trade unions were completely ignored by the governments. The proposed amendments are mainly targeted to address only employers’ demands and have very little concern for demands raised by labour and trade unions. Therefore they may lead to downgrading the labour standards and reducing the collective bargaining power of labour. This motive is clearer in another policy initiative wherein in the name of ending so called inspector raj all the ministries are directed to shift to a system of self-certification of adherence of official norms by all companies, barring those engaged in activities that are regarded as hazardous or involving risk. The department of industrial policy and promotion (DIPP) has clearly said that no inspection of business premises and factories should be done unless it is approved by the head of the department. This directive is issued to deal with the government’s concern that the inspectors from the labour department, central excise and state VAT authorities, and those dealing with boilers, pliant tools of industry as they are, are still seen as major headaches by businesses.[1]

Therefore it is very much clear that the government is highly concerned with the profit accumulation of the investors/employers and wants to give them a free hand. But what are the obstacles to unbridled profit accumulation? They need to pay taxes, they need to follow environmental and other OHS (occupational health and safety) standards, they need to pay wages and follow labour standards. But if all of this is just a headache for the investors, something they think of hurdles in their way of extracting profits, then what is the value of these investors/employers to the society? Why do we need them? Who is going to benefit from such development?

Let us also remind a rare kind of judicial self criticism emerging as a kind of warning on this issue. A Division Bench of Justice G S Singhvi and Justice A K Ganguly in its two separate orders in 2010 cautioned that the attractive mantras of globalisation and liberalisation are fast becoming the raison d’etre of the judicial process and an impression has been created that the constitutional courts are no longer sympathetic towards the plight of industrial and unorganised workers, and that there will be precarious consequences for the nation if the constitutional imperatives are diluted to promote the so-called trends of globalization.[2]

It is clear that the agenda of labour law reforms is closely linked with the neo-liberal model of economic development. Therefore to articulate what kind of labour law reforms are needed in India, it is necessary to look at: a) what kind of economic development is promoted by the government and what results it has already produced and is it worth justified to reform labour laws to promote and support such kind of development; b) What kind of economic development policies and strategies need to be followed to promote more equitable and more democratic society and c) the problems of existing labour law system in India and what changes needs to be done to upgrade the labour standards and increase the collective bargaining power of labour.


The right to organize and collective bargaining is the basis of capitalist democracy

 The development of society depends on the wealth produced by its own social labour. The nature of social development in terms of inbuilt concerns for the wellbeing of the people depends on the extent of social equality in the ownership and control of means of production and the mechanisms for distribution and redistribution of wealth produced by social labour. In a capitalist society, ownership and control of crucial means of production is generally concentrated in a small elite section of the society and large majority of masses survive only on their labour power. This is not only true for the wage labour but also for the large section of the peasantry (small peasants who live in an illusion of being the owner of means of production but actually market has converted them in to wage labour on their own fields).

In such situations, the well-being of the people depends only on the strength and power of collective bargaining of the masses at different levels-at the level of a production unit, at the level of industry, and at the level of policy making. It is on this background that the right to organize and collective bargaining becomes a broad social and political issue. It is so important that the extent of freedom, space and smoothness of collective bargaining can be considered as a barometer to measure how democratic a society is. We cannot imagine a capitalist democracy and civilized society without right to organize and collective bargaining.

The meaning of civilized society is a society where at least survival (allowing for different levels of survival at different levels of socio-economic development) is fully ensured for all; and the workers and the people at large can effectively exercise their powers of collective bargaining to ensure redistributive justice for further improvements in their living standards and working conditions. If the survival is not ensured, then the workers are virtually thrown in the conditions of slavery and it drastically reduces their collective bargaining power. The importance of labour laws on wages, working hours, job security, social security, occupational health and safety and other working conditions is that it sets the base level for collective bargaining. The greater collective bargaining strength and improvements in the working and living conditions of organized sector workers was achieved primarily due to this factor.


Sacrificing democracy for profit accumulation

In the new international division of labour, shaped by the global value chains, major section of industries are locked in lower levels of value chains, and they are ruthlessly exploiting the labour to ensure super-profits to transnational corporations along with capturing an attractive profit for themselves. In any case, a very small amount of profits generated remains in the country and rest is transferred to developed countries; for example in electronics industry total value added in the country is only 10%. Huge share of profits generated is captured by the TNCs by virtue of their control and monopoly on crucial technologies and crucial components. This situation may not change without a great focus on basic research in all fields of science, and in crucial fields like metallurgy. In India there is no focus in this direction, budget for research and higher education is dismal and the conditions are becoming worse with privatization of education and contractualization of academicians engaged in research and teaching.

Moreover, in WTO regime the capital is freely mobile, i.e, there is no surety that the FDI coming in country will remain for long time. If the multinational corporations see opportunity for better profits in some other country, they may shift their investments from one country to other in no time, creating mass closure of factories and mass unemployment. For example, hundreds of factories were closed down in Mexico and their orders went to China and similar impacts were felt in Philippines and some other countries as well. Recurrent crisis is inbuilt in this growth model. During the recent international financial crisis, according to government data, more than 500,000 jobs were lost in India in export-oriented sectors alone during the last three months of 2008. Many scholars believed that these figures were highly underestimated. The Financial express reported that unemployment estimates for the first quarter of the financial year in 2009 show a total of 1.71 lakh job losses. The data shows withdrawal requests from the Employees’ Provident Fund Organization (EPFO) between April and June touched a record 31.51 lakh, indicating large-scale layoffs as well as a severe cash crunch among workers.

It is evident that globalization brings all sorts of uncertainties. Sustainability of development and jobs created by foreign investments are uncertain; job security at workplace is uncertain, incomes in traditional occupations are uncertain, income in agriculture has become highly uncertain, even the life is always in uncertainty due to increasing number of environmental disasters, drastic increase in occupational health and safety problems, increasing number of epidemics caused by new diseases and drastic increase in crime and accidents. The liberalization is consciously and unconsciously throwing everything in uncertainty to ensure certainty of profits to the capital; promoting casualisation in every sphere of life to ensure sustained profits to the capital. It is also reducing the power of the people to fight against the vulnerabilities. Deregulations at national level and regulations at international level are reducing the capacity of the people to bargain with their nation states.

Capital is set free so that it can exploit the global reserve army of labour and reduce the overall collective bargaining power of people/labour vis-a vis capital. Informalisation and scattering of the industrial workforce farther reduce their income and collective power of the working class. States are moving out from its welfare functions and are abolishing subsidies to the people which make working class entirely dependent on the capitalists. Labour laws are amended to reduce the overall collective power of the workers and compel them to virtually work in slave labour like conditions. Moreover, in the capitalist global village, the Asian community life based on mutual cooperation is abolished and the safety covers offered by joint family and community is lost. The fate of every individual is now controlled by the market, and the market teaches everyone to care for only him or herself and survive or perish alone without getting any support from the community. The kind of social security systems initiated by the government are also in the same line-if you can buy you can get a social security and if you are unable to buy you are poised to face a hell on this earth.

Does it not resemble the age of barbarism? It is certainly different, since unlike the age of barbarism, this is unimaginably higher stage of development with problems of overproduction rather than scarcity and also unlike the earlier, it is well planned and systematically imposed by the corporate capital for profit motives. Therefore, we can call it the age of modern barbarism. The vulnerabilities of the people, in this age of modern barbarism are growing to the extent that not only large number of poor people are compelled to live in hell of chronic poverty and dying of hunger; but also they are compelled to opt for suicides. In one decade from 1997-2007, more than 182936 small-marginal farmers committed suicide in India. Large number of suicides of industrial workers, for example in Tirupur, also came to the fore[3].


This development looks more like destruction

It is being promoted that pro-industry policies will boost foreign investment, accelerate growth and generate more employment. Working class is told to make short-term sacrifices for a better future. Media often call this a ‘bitter medicine’ which working class should be forced to swallow for the ‘good of the nation’. Let us check what two-decades of neo-liberal policies have brought to the workers.

Job-less growth

  • Indeed, Indian GDP grew at an exceptional rate during the last two decades. There was a boost in foreign direct investment (FDI) as well. However employment growth remains dismal.
  • The share of agriculture in GDP decreased drastically, but the share of agriculture in employment still remains about 56 %. It means the economic growth is not creating enough employment so that workers are tied up in unprofitable agricultural sector.
  • Employment grew at 1.84 per cent per annum during 1993-94/2004-05, as against 2.02 per cent in the preceding ten year period. During the period 2004-05/2009-10, employment growth, has been abysmally low, 0.22 per cent per annum. While GDP growth rate was about 5 per cent during 1983-84/1993-94, rose to about 6.3 per cent during 1993-94/2004-05 and accelerated to as high as 9 per cent during the period 2004-05/2009-10, when employment virtually stagnated.
  • It is interesting to note that from 1999-00 to 2004-05, the total employment in the economy increased from 397 million to 458 million. In organized/formal sector total employment increased only by 8.5 million during this whole period (from 54.1 million to 62.6 million), and moreover all this increase in employment in formal sector was also of informal kind. This was combined with informalization of existing employment in formal sector. It means the workers who were earlier in better conditions were also thrown in precarious working conditions and low wages.
  • Between 2006 and 2010, total employment grew by only 0.1 per cent while labour productivity grew by more than 34 per cent.
  • During the period 1995-96 to 2000-01 about 1.1 million workers were thrown out of job.

Slave labour like conditions

  • Hundreds of the Special Economic Zones (SEZs) that have come up and coming up are declared public utility services under Industrial Disputes Act, where strikes are virtually prohibited. Since collective action is the only weapon of the working class, it makes unionizations meaningless.
  • No one is allowed to enter the SEZs without formal permission. Therefore it becomes highly difficult for trade unions to organize the SEZ workers.
  • Major amendments in labour laws for SEZs are proposed including amendment in trade union act and granting exemptions in various labour standards.
  • The SEZs are put out of the purview of the state labour departments and the power of labour department is virtually transferred to SEZ development authorities that include the representatives of private developers of the zones.
  • There is no provision in SEZ act for providing regular employment to those who lost their livelihoods.
  • In the name of building ‘comparative advantage’ for attracting more and more FDI, relaxation in labour laws and provisions for self certification are being provided to more and more industries, inspections under labour laws are prohibited and open violations of labour laws are rampant.
  • Whenever the workers attempt to exercise their right to trade union and collective bargaining, they face brutal repressions.
  • Now a new drive is set to be started for establishing large numbers of huge National Industrial Manufacturing Zones (NIMZs) along Delhi-Calcutta and Delhi-Mumbai corridor and for this huge amount of agriculture land is going to be acquired.
  • All NIMZ units will be declared Public Utility Services on permanent basis.  In the initial draft it was proposed that NIMZs will be exempted from the applicability of all important labour laws and it was also proposed that the right to join unions in NIMZs would be confined to the workers drawing salary below a certain limit. In final draft these clauses were removed, but situation still is not very clear.

Hell of Poverty

  • Only about 3 % of total workers in India are the formal workers getting the social security benefits. Informal workers constitute 97% of the workforce and do not get any social security benefits. Why they are informal? And why they are poised to suffer? Is it not true that they are deliberately made informal by not covering them under labour laws?
  • About 836 million or 77 per cent of Indian population are living below Rs.20 per capita per day. 88 per cent of the Scheduled Castes and Scheduled Tribes, 80 per cent of the OBC (other backward casts) population and 84 per cent of the Muslims belong to this ‘poor and vulnerable’ group. About 79 per cent of the informal or unorganized sector workers belonged to this group.
  • It is also important to note that the total employment in the Indian economy increased from 396 million to 456 million between 1999-00 and 2004-05, but there was no significant increase in formal employment and this entire increase in the employment has largely been of informal nature. The trade union density, i.e. the percentage of total workforce unionized is only 6.46%. Approximately 73 million out of 173 million wage earners throughout India do not receive statutory minimum wages.
  • In the phase of liberalization, in India, the share of profit in the total national income is drastically increasing and share of wages is drastically declining. This reflects on declining collective bargaining power of labour.

Disasters and Deaths

  • The current phase of globalization has created a new international division of labour shifting the labour intensive, hazardous to health and environmentally costly manufacturing operations and other works to developing countries, particularly in Asia. This phenomenon has actually converted less developed countries into pollution havens for dirty industries. The share of dirty industries in total FDI in India was 51 percent in 1991-2000. Of these 27.4 percent was in energy, 4.5 percent chemicals, 7.5 percent transport, 5.5 percent metallurgy and 3.5 percent in food processing, all classified as Red or most polluting industries, while hotels and tourism having 1.7 percent and textiles 1.2 percent came under orange industries. The largest inflow to approvals of foreign investment was in the dirty industries chiefly chemicals.
  • India’s 75000 km of long coastline has already been converted in to a destination for waste disposal of the entire world. Lead Ash, Battery scarp, Zinc ash, waste oil and old ships laden with asbestos are increasingly reaching here. India is importing over 70,000 MT Zink waste and 50,000 MT lead waste through its 7 major and 100 minor ports. Huge amount of plastics and metal waste are coming into India from Australia, Canada, UK and USA apparently for recycling. Indian coasts are now emerging as world’s largest ship breaking yards. This is only the tip of the iceberg and shows only the trend. The complete picture is really scary. The pollution content ratio of India’s trade increased from 0.480 in 1985 to 1.38 in 2000.
  • Only in three years between 2006 and 2009, the number of hazardous industries increased many folds and the number of workers employed in hazardous industries increased from 324437 to 1949977.
  • According to ILO estimates, around 403,000 people in India die every year due to work-related problems, i.e. more than 1,000 workers every day or 46 every hour die due to occupational health and safety problems. The current burden of accumulated occupational diseases in India is estimated to be at around 18 million cases.
  • ILO reports an estimated 40,133 fatal accidents in India. ILO also estimated 2,61,891 fatal work related diseases. Another estimate claims 924,700- 1,902,300 incidences of occupational diseases per year 121,000 deaths caused by occupational diseases per year.
  • Labour department is completely paralyzed by way of downsizing the size of the staff. There are only 2642 Safety Officers, 604 Inspectors (against a sanctioned strength of 938) and 35 certifying surgeons (against a sanctioned strength of 94) in the country.
  • The state’s attitude towards occupational health and safety in industries is also reflected in its budgetary allocations also. In India, only 3 percent of GDP is spent on health care and almost 75 percent of it goes to the curative health. As for as occupational health and safety is concerned, the government expenditure on it is almost negligible.


We need pro-worker labour law reforms

Most of the south Asian countries inherited labour law system of the colonial period, with serious problems in terms of multiplicity of labour laws with serious inconsistencies. In India the labour movement raised the demand of uniform labor laws many times, but no serious attempts were made by the government in this direction. Every new law and every new amendment increased the complexities further, rather than resolving it. This is probably one of the worst kinds of labour law systems in the world. There are about 43 labour laws enacted by the central government and hundreds of labour laws enacted by various state governments. Many provisions of labour laws are inconsistent to the provisions of other labour laws. Applicability of various provisions provide number limits (size of establishments in terms of No. of workers engaged) so different to each other and without any sound logic.

For example, the Minimum Wages Act applies to all establishments and all workers; but the Payment of Wages Act applies only to those establishments with 10 or more workers, and also only to those workers getting wages less than Rs 18000 per month. Similarly the Industrial Disputes Act, 1947, is applicable to all enterprises for the settlement of industrial disputes. However protective clauses pertaining to layoffs, retrenchments and closures- Chapter-VA and Chapter-VB have limited applicability. Chapter VB does not apply to any establishment employing less than one hundred workers, and Chapter VA does not apply to any establishment employing less than 50 workers. Does it not appear the product of either the intellectual bankruptcy or a very clever design to divide and exploit the vulnerabilities of labour and maintain dominance of capital over labour?

Farther, if we look at the general picture, only a tiny section of workforce is protected by the labour laws and has guaranteed space for collective bargaining in well defined legal boundaries. According to the Fifth Economic Census (1999) more than 97 percent of the enterprises employ less than ten workers, and most of these employ less than five workers. Therefore, protective labour laws apply to only less than three percent of the enterprises; and in rest of the 97 percent enterprises only Industrial Disputes Act (minus its protective sections like section VA, VB), Minimum Wages Act, the Workmen’s Compensation Act, Equal remuneration Act, and the Shops and Establishments Act (enacted by each state separately) and some pieces of labour legislation enacted for specific occupations are applicable.

The trade Unions welcome the willingness and initiative of the government towards reforming the labour laws; however, they strongly oppose the piecemeal reforms targeted to downgrade labour standards. They demand an integrated approach in labour reforms, targeted towards bringing uniformity in labour laws, extending universal applicability and towards overall improvement in labour standards. The views and demands of the trade unions on this issue, as listed in the report of working group of planning commission on labour law reforms, are as follows:

  • Labour laws should be applied universally and there should not be categorization like applicable to 5-10 or 20 employees.
  •  Instead of having too many labour laws, these should be rationalized in 5-6 groups.
  •  There are so many definitions in the labour laws and all are different for different laws. Definitions should be one and applied to all laws uniformly.
  •  There is no Act for protecting the collective bargaining by workers and strikes have been declared illegal by the Courts. Sometimes conciliation is not the proper way to redress the grievances and provision of strike (Right to strike) should be incorporated in labour laws, though it may be the last resort. There should be a provision that if 2/3rd or 3/4th (or any such number as may be decided) of workers decide to go on strike, it cannot be declared illegal.
  • Chapter V (b) of the Industrial Disputes Act, 1947 mentions about number of employees upto 100. In the era of computerization numbers of employees per unit are reducing so the law should be applicable to all without restriction of numbers.
  • There should be a law for migrant labours. Migrant workers are not provided even minimum wages and they should be protected.
  • The system of contract labour/casual labour in Government departments should be abolished.
  • Due to already overburdening of judicial system, a separate independent judicial system for labour issues may be created, instead of handing over power to Labour Department
  •  There should be codification of Labour Laws.
  • Without referring to the ‘decent work’ agenda, problem of labour cannot be addressed.
  • There should be fixation of National level Minimum Wage for simplicity and to avoid disputes.
  • Suggestion of payment of wages through cheques can work provided every worker has a bank account and is acquainted with the procedures involved.
  • The enforcement machinery is inadequate for implementing labour laws.
  • Planning Commission should develop a tripartite mechanism by which they can discuss the issues of labour reforms.
  • The definition of ‘workmen’, as provided in the Industrial Disputes Act, 1947 should be applicable to all labour laws.
  • The implementation machinery for the labour laws, i.e. the Labour Department should be provided more teeth and it must have stringent penal powers for non-compliance of labour laws.
  • No contract labor should be employed wherever the job is permanent.
  • The concept of self-certification by employers is not acceptable.
  • There should be amendment in the Payment of Bonus Act, 1965 to remove the ceiling.

In the name of increasing competitiveness to attract investments and need for flexibility demanded by the employers, the rights and lives of workers cannot be sacrificed. Is it not advisable and justified that India should come out of WTO and move towards a development strategy targeted to equitable and democratic development?

[The writer is with the Centre for Workers Education, New Delhi.]

Further readings to explore more on this issue

  1. Shrinking spaces for collective bargaining in India
  2. SEZs-The New War Zones of Working Class in India
  3. Corporate led Globalization aggravating the problems of occupational Health and Safety
  4. Social security- A struggle of survival for Workers in the age of Globalization
  5. International Capital Mobility, Global Value Chains and the Emerging Labour Movement in Asia
  6. ILO 2010-11: World of Work Report 2011: Making markets work for jobs; ILO, Geneva
  7. Liberalization and employment in India:

8. Liberalization and suicide

[1] New advisory to end ‘inspector raj’;

[2] Globalisation blinds us to aam aadmi plight: SC


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