Current Issues with Industrial Disputes Act (1947)

This legislation was enacted in 1947 to provide for a machinery and procedure for investigation and settlement of industrial disputes. It applies to all industries irrespective of size. It also has provisions regarding conditions for layoffs (suspension or termination of employment), retrenchment (reduce the overall size of operations) and closure of an industry. The most controversial part of this act is its Chapter VB, which has been amended from time to time, particularly in 1982. This act / chapter provide that:

  • If an industrial establishment employs more than 50 persons, it needs to give 60 days’ notice, citing reasons of closure, to the appropriate government before the closure of the industry. This requirement of days of notice was increased to 90 days in 1982.
  • If the industrial establishment employs more than 300 people, it must take prior approval of the appropriate government for layoffs, retrenchment and closure. This limit was lowered to 100 in 1982.

The above two provisions in the Chapter V-B of IDA act are construed as causing rigidity in the labour market. These provisions simply say that you cannot simply hire and fire at will because even if you want to fire a single employee, you need to seek the permission of the labour commissioner (in case of factories employing more than 100 workers). Further, since the subject is under concurrent list, the states have further made stringent conditions so that lay off, retrenchment and closure becomes even more difficult.

The results are:

  • Lower output by labour
  • Lower productivity
  • Hesitation in hiring
  • Lower investments
  • Lower overall manufacturing performance
  • Foreign investors are deterred from investing in India.

What the industry demands is that this law needs rationalization as per demand of current era of globalization. The arduousness of this act is what they hold responsible for the fact that only 6 per cent of the total labour force is employed in organized manufacturing, rest is in unorganized sector.

Apart from Chapter V-B, the Section 9-A is also a cause of concern. This section says that I you are modifying the wages and other allowances, hours of work rest intervals and leave of a laborer, you need to give him / her at least a 21 days’ notice before. Thus, if you quickly need to redeploy the employees to meet certain time bound targets, you can’t do that. This disallows industrial restructuring and technological upgrading.

The challenge for the governments (centre / state) to make a delicate balance between the labour welfare and industry welfare, because it is argued that if these conditions (chapter V-B and section 9-A) are dissolved, it will give the industrialists a free hand to ‘hire and fire’ thus snatching away the sheltered environment in which laborers work presently.


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