Current Issues in Labour Reforms in India

The Article 246 (with 7th schedule) of the Indian constitution puts the issues related to labour and labour welfare under the concurrent list. However, the exceptional matters related to labour and safety in mines and oilfields and industrial disputes concerning union employees come under Union List. The irony of putting labour in concurrent list is that today we have around 47 central labour laws and 200 state labour laws. For instance, we have separate laws for cine workers, dock workers, motor transport workers, sales promotion employees, plantation labour, working journalists and workers in mines. There are varied definitions on child, contract labour, wages, employee, workman, factory, industry, etc. Though most of these laws are archaic, yet many of them are relevant for welfare of the laborers.

The three major central laws that have been centre of reform talks are

Rajasthan: Front Runner in Labour Reforms

For a long time, the demand to reform the labour laws was in place both from the Industry side as well as labour side. In early 2000s, during the NDA government two reports, one from planning commission and second from Second National Commission on Labour (SNCL) had come up with some recommendations, which included:

  • Problems exist Chapter V-B and Section 9A of the IDA act and they need to be addressed.
  • Broader interests of the employers and the workers should be taken into consideration, to use contract labour in non-core activities and also to some extent in core activities. The first requirement was that a clear distinction between core and non-core activities was needed.
  • Multiplicity of the labour laws should be addressed.
  • Unification and harmonization of the labour laws should be done.

The forerunner among states towards relaxing the labour laws was Rajasthan, where the state legislative assembly unanimously cleared amendments in three key labour laws. The state made more than 20 amendments to Industrial Disputes Act, Factories Act, Apprentices and Contract Labour (Regulation and Abolition) Act.  We note here that being a subject of concurrent list, these amendments need presidential assent despite being state laws.

  • Under the Industrial Disputes Act, companies needed prior government approval if they wanted to retrench more than 100 workers. That bar has now been raised to 300 workers.
  • Similar limits that govern the applicability of the Factories Act and the Contract Labour Act have been raised.
  • The amendments have introduced a three-year time limit for any dispute.
  • Amendments also make it sure that anyone attempting to register a representative union has to show the support of 30% of the workforce, up from just 15%.

The objective is to encourage industrial investment and job creation. Rajasthan looks for lots of business when central government is planning to push forward on everything from a Golden Quadrilateral to the Delhi-Mumbai Industrial Corridor and a Freight Corridor.

The changes in Rajasthan are slated to serve as prototype for national level reforms. With staunch opposition of trade unions, the other states and gauging its fall out and must be planning to emulate it. At centre, the Ministry of Labour and Employment has already signaled its intentions to amend a number of Union laws, while the industrial bodies pitching up for labour reforms. At present, the ministry has invited comments on amendments to the Factories Act, the Minimum Wages Act and the law that governs child labour.

Critical examination of the Situation

  • Reform of the labour law is vital for the revival of manufacturing sector in India, without which the Make in India campaign is doomed to fail. However, expecting big changes in productivity and job creation simply as a result of such reforms does not seem to be logical. This is because majority of the manufacturing in India comes from MSME sector, most of which have a small number of employees. The labour laws in India come into force when the firms have at least 100 (300 in Rajasthan now) employees. Such relaxations don’t even matter till a firm which has 10 employees expands till it employs 99th
  • Chapter V-B of IDA act was relaxed earlier by the Gujarat and Andhra Pradesh for the Special Economic Zones. It is hard to prove that they had any jump in job creation in manufacturing sector. Most of the growth in Gujarat was in petrochemical and refineries sector, which are capital intensive.
  • The labour laws are not followed religiously in states. On ground, many factories employed contract workers; thus expecting a jump in job creation due to a change in a law which was not even followed seems to be doubtful.
  • The reforms need inclusive growth, so that its various implications on laborers are also addressed.


There is a need to update the labour laws, because these laws don’t reflect the requirements of the day. The Industrial Disputes Act, the Trade Unions Act, Factory Act and all other such acts were enacted in those times when liberalization, globalization or privatization was not even fully understood, let alone practiced. However, it is very challenging to make a delicate balance between the interest of the businessmen and those of the weaker section of the society. Further, reforms should bring inclusiveness and lead to economic growth along with job creation.


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