By Vasundhara Krishna

Edited by Anandita Malhotra, Senior Editor, The Indian Economist

“Labour” is subject that lies in the concurrent list. This means that both the parliament and the state legislature can both make laws on it. Presently there are 45 central laws and about 101 state laws that regulate the working conditions and terms of service of labour in India.  The initial intent of making these laws was to provide protection to the labour, but it is seen it does more harm to them than good.

 Any factory or industry that employs more than 20 people comes under the purview of labour laws. The major issues with it are that the laws are difficult to comprehend, there is multiplicity of legislation, and there is ambiguity which leads to litigations. As a result a factory has to set up a separate legal department to tackle with legal issues emanating from labour laws. This leads to inefficiency because any workforce that is not contributing to production of more goods is in effect a waste of resources. Every law has a different definition of “labour”. Most of these laws are outdated; they date back to pre-independence era.

For most part, these laws have been responsible for the creation of an informal sector. In an informal sector there is no permanent source of kingdom and the workers in this sector are extremely vulnerable to exploitation. 92 percent of the total workforce is employed in the informal sector. It is attributable to these labour laws only that the formal sector has not been able to grow.

Labor laws have also given rise to “contractual labour”. Labour laws do not apply to these workers and they are paid wage of per day basis. The percentage increase in factory labour is only 1 percent whereas in the contractual labour is 40 percent. Hence it is a loophole through which employees escape from the purview of labour laws.

The service sector has grown so much in comparison to the manufacturing sector because of two major reasons. One, that out of all labour laws only 2 labor laws are applicable to it ( to provide social security in the form of Provident Fund and to provide one weekly & one monthly leave). Second, the service sector is mentally prepared to pay high prices of land as their main cost is that of labour whereas the manufacturing sector’s major cost is that of land and the Land acquisition bill in its present form makes it difficult to acquire cheap land.

The complexity of labour laws makes it difficult to hire and fire workers. For this reason most of the companies go for the option of full automation. Suzuki is planning to install a fully automated plant in Gujarat and similar was the plan of POSCO. It is understandable if full automation is carried out in the countries of Japan, Germany and USA where labour is expensive, but in India, it makes the deployment of technology relatively expensive considering the fact that we have such cheap labour and it also renders us incompetent in the international market.

What is it that impedes the reform of labour laws?

It is the politically backed trade unions that make it difficult to bring in reforms. As was seen recently when the Coal India Ltd’s workers had gone on strike when reforms to labour laws were proposed.

In the past, in Manesar, workers of Suzuki Company had gone on strike for almost 17 days. This has resulted in huge loss to the company. That strike has repercussions till date, when a consumer goes to buy a Suzuki car; he is told that there is a waiting for almost a month. This compels the consumer to buy a car of another brand which is readily available.

Management and workers are two sides of the same coin and each is indispensable to the other. But whenever there is a conflict between the two it is the company that suffers. It is important for the workers to realize that if company suffers, it will in no way be able to benefit the workers. Hence they should express their dissent but in a different way, as was done by a shoe factory workers in Japan.  They only made left foot shoe and not the right one until their demands were met. This way the company also did not make any loss because they resumed making the right pair of the shoe (as production did not stop) soon after their demands were met.

China doesn’t have any labour laws and that is the reason its rate of employment is so much more and its goods are so cheap.

It is imperative that a single National Labour Policy is designed that will do away with all the fallacies and shortcoming of the present labour laws, so that good intentions of protecting the workers are actually materialized by good and effective policy.

Vasundhara Krishna is an economics graduate from Miranda House (DU).She enjoys delving deep into economic issues as she thinks that if ever we are to become a global power, it will be riding on the back of sound economics. She has been a sports person since childhood with a particular inclination towards Table Tennis. Also she is a movie buff who thinks there can be never too much of drama. You can reach her

Posted by The Indian Economist | For the Curious Mind