Labour reforms

Engagement with states will help

Over 40 central and 100 state laws governing labour relations exist in India, regulating various aspects of the subject, such as resolution of industrial disputes, working conditions, social security, and wages. Over the years, the multiplicity of labour laws in the country, with several archaic provisions, inconsistent definitions, and ambiguities, made compliance difficult and messy. Apart from multiplicity, the complexity of the labour laws was hindering industrial growth in India. To address the issue, the government took a bold step in terms of simplifying labour laws into four comprehensive labour codes. Of the 44 existing central laws, 29 central labour laws were consolidated and codified into these four labour codes — Code on Wages (2019), Code on Social Security (2020), Industrial Relations Code (2020), and Occupational, Safety, Health and Working Conditions Code (2020).

Notably, the labour codes received approval from both Houses of Parliament as well as the President’s assent, and the draft central rules on all four labour codes have been pre-published by the Union government. Four years later, however, the anticipated benefits have yet to materialise owing to delays in implementation. In this regard, the Ministry of Labour and Employment reportedly plans to conduct training workshops for state government officials and familiarise them with the labour codes. The initiative must be welcomed, given that the codes have the potential to foster ease of doing business and encourage formal job creation. The codes will introduce significant changes, including an increase in the threshold for layoffs and retrenchment in industrial establishments from 100 workers to 300 workers. This increased flexibility to employers is likely to attract more investment because firms can now scale their workforce in accordance with business needs without facing stringent regulatory hurdles. Changes have also been introduced relating to workers’ right to strike. Further, the coverage of social-security benefits has been extended to a broader section of the workforce, including gig and platform workers. While this may result in higher operational costs, it will ensure a more secure and motivated workforce, which will enhance productivity and reduce turnover rates.

Labour is a concurrent subject that enables both Parliament and Assemblies to make laws. Implementation has been delayed because some states have yet to finalise their rules under the codes. A recent study by the V V Giri National Labour Institute suggests that a total of 24 states/Union Territories have made rules under all four codes so far. West Bengal, Meghalaya, Nagaland, Lakshadweep, and Dadra & Nagar Haveli are yet to formulate rules under any of the codes. Clearly, the Centre wants to implement the codes only when all states are on board to avoid legal issues after implementation. Additionally, in some states where draft rules have been formulated, the state codes differ from the central laws, which will make implementation difficult. The Centre has done well to start sensitising state government officials about the labour codes. It would need to build on this and address differences, if any. India needs modern labour laws to improve the ease of doing business, significantly increase its manufacturing base, and improve external competitiveness. This will help create much-needed jobs and improve long-term growth prospects of the Indian economy.