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Labour Regulations And Laws In Indian Manufacturing Industry

Labour laws in India are sclerotic in an age where workforce agility produces manufacturing success.

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Whenever an industry expert is asked what obstacles stand in the way of India becoming a global manufacturing hub the first reply usually is pernicious and archaic labour laws. Some laws governing labour in India are over 100 years old and of little practical use in a modern context. Ostensibly the government could take steps to reform labour laws but not without considerable opposition from trade unions.  When attempting to reform labour laws legislators face vehement opposition. This is why little progress has been made to reform labour despite urgent calls for decades from business leaders and the recently the CII. Today most business leaders in India advocate labour reform yet little in the way of reforms has materialised.    

Recently the NITI Aayog stated that labour laws need to be made relevant and business-friendly. It stated when companies have greater leeway in and hiring and firing workers it will make doing business easier. To bring about labour reform, the Central Government made public plans to consolidate 44 myriad central laws governing labour into four sets of labour codes. Recently it proposed labour reforms in the Lok Sabha and faced opposition from labour unions.  

Yet labour reform is necessary not only because it will benefit enterprises but also because it will benefit labour. Labour laws as they stand today are archaic and sclerotic.   

Archaic, Sclerotic Labour Laws  

When a manufacturing enterprise increases the number of workers it employs from 6 to 7, it falls under the purview of the Trade Unions Act. When its worker strength grows from 9 to 10, it falls under the purview of the Factories Act. Similarly, when its worker strength grows from 19 to 20, 49 to 50, and 99 to 100 the enterprise must abide by a new set of labour laws each time. Nearly every educated Indian knows how difficult it is for a manufacturing enterprise that employs 100 or more people to lay workers off. This is because the Industrial Disputes Act states an industry employing 100 or more workers cannot dismiss any of them, under any circumstances, without prior government approval. When sought, such permission is rarely given.  

It’s no surprise that rigid labour laws discourage manufacturers from enlarging their workforce lest they need to lay workers off in the future and be unable to. Difficulty reducing the size of a workforce is an important reason why innumerable small industries never risk expanding. Should they do so and face setbacks, they would be burdened by a significantly larger workforce they cannot shed come what may.  

This is pernicious to the countries manufacturing sector because in manufacturing, size matters. East Asian countries became manufacturing juggernauts not because they produced superior products but rather because they produced mediocre ones at exceptionally low cost. Entrepreneurs in such countries could establish large factories and employ hundreds in a relatively short time leading to favourable economies of scale. India’s labour laws don’t permit such flexibility. Labour laws in India are sclerotic in an age where workforce agility produces manufacturing success. Conceived to safeguard labour from exploitation, in their current form, they stand in the way of Indian manufacturers scaling enterprises and in the way of creating a more organized labour market. Were manufactures shackled by labour laws given free rein to fire workers when necessary, more would be willing to risk expanding, increasing the likelihood of the domestic manufacturing sector reaching its potential? The ultimate beneficiary of such a move would be workers themselves as a flourishing manufacturing sector will produce more and better-paying labour jobs. At a time when there is a significant slowdown in India, the need to draft laws that can unfetter the countries manufacturing sector is more important than ever.    

The government is also proposed amendments to the Factories Act of 1948 to create safer working conditions for workers.            

The Occupational Safety, Health, and Working Conditions Code 2019     

The Occupational Safety, Health, and Working Conditions Code 2019 was introduced in the Lok Sabha in July 2019. It provides a comprehensive legislative framework to create just and humane working conditions in several industries. All establishments that employ more than 10 workers fall under its purview. The code will amalgamate 13 laws that pertain to workers employed in factories, building and construction sites and several other industries.  

While considerable opposition has been voiced against the code, some having merit, its attempt to create a single authority for filing documents related to health and safety measures is laudable. Also laudable is its attempt to simplify labour laws.  

Opinions against the code state that the size of the organization that falls under it ambit should be larger; from those having a minimum of 10 employees to a minimum of 20 employees. However, its applicability to organizations having 10 or more employees is a sanguine decision as often smaller enterprises are ones where safety is often disregarded. Its applicability to organizations that employ 10 or more employees will certainly increase safety and makes many more workplaces safer.   

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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manufacturing labour laws niti aayog manufacturing sector

Sunita Sapra

The author is Chief Operating Officer (COO) at KARAM Industries

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