Labour reforms in India


  • In an Ease of Business report NITI Aayog said that the government should reform labour laws and make them more flexible to make it easier to do business in the country.


  • The report was jointly prepared by NITI Aayog and IDFC Institute.
  • The report was based on an enterprise survey of 3,276 manufacturing firms.
  • According to survey’s finding, firms in labour-intensive sectors find compliance with labour-related regulations particularly onerous.
  • The survey found that more enterprises in labour-intensive sectors reported that finding skilled workers, hiring contract labour and terminating employees was a major or a severe obstacle.
  • Such sectors also reported a significantly higher average time taken for environmental approval and more days lost due to strikes and lockouts.

Related statistics:

  • India have about 85 -90 % of the workforce employed in informal sector on which labor laws are not applicable
  • The World Bank ranked the country at a low 130th position last year, an improvement of just one position from the previous year.
  • The government wants India to be ranked in the top-50 nations in terms of ease of doing business. The next update to the ranking is expected later this year.
  • The areas where India ranks poorly as per the World Bank ranking include starting a business, dealing with construction permits, registering property, paying taxes, trading across borders, enforcing contracts and resolving insolvency.
  • In Ease of doing Business report India ranked 134 out of the 189 countries.

Why there is need for labour protection laws in India?

  • Labor protection legislation is one of the basic features of welfare state and aims at providing social justice.
  • The main aim of such laws should be to create more, safer, and rewarding jobs for the labour.
  • This includes standards on minimum wages, working conditions, overtime controls, right against unjustified retrenchment, strengthening of Labor unions, Right of worker to compensation in case of accident at work place, post-retirement benefits, Personal progress, skill development, Social security and Dignified and respectful job etc.

What are the problems faced by labours in India?

1. Huge Informal Sector:

  • India have about 85 -90 % of the workforce employed in informal sector on which these laws are not applicable.
  • These are micro firms employing as low as 5-10 persons.
  • These employers are discouraged to expand their businesses, by such huge number of regressive laws.
  • Labours working in these informal sectors doesn’t have understanding of laws to that level and services of Lawyers to ensure compliance is much expensive.
  • Huge majority of workforce get no formal training. This results in low productivity and low value addition
  • Entry and exit Barriers for firms and Job security for workers
  • The issue is of retrenchment is also one of the major problem. Law for this provides that government approval should be taken before retrenchment of the workers (in case industrial dispute act apply).

2. Surplus Labour Force :

  • Labour market in India is suffering from surplus labour force.
  • A huge number of labourers are rendered surplus due to lack of adequate demand arising out of both primary, secondary and tertiary sector.

3. Unskilled Labour :

  • Another major problem of labour market in India is that there is a growing number of unskilled labourers in the country.
  • In the absence of adequate vocational institutes, skill formation among the labour force in the country is very slow.

4. Lack of Absorption of Skilled Labour :

  • Another major problem of labour market in India is that there is a growing number of unskilled labourers in the country.
  • In the absence of adequate vocational institutes, skill formation among the labour force in the country is very slow.

5. Imperfections and Work Culture :

  • Labour market in India is also suffering from some imperfections :
    1. lack of adequate information regarding jobs
    2. lack of suitable agency for the proper utilisation of labour force
    3. child labour practices
    4. lack of proper manpower planning etc.
  • Such imperfections have been resulting in various hurdles in the path of absorption of labour force smoothly.
  • Work culture among the Indian labour force is not at all good.

6. Militant Unionism:

  • Labour market in India is also facing the problem of militant unionism.
  • In some productive sectors and that too in some particular states, trade unions are not adhering to healthy practices.
  • This has led to militancy in the union structure and its activities, which is detrimental for the greater interest of the nation.

7. Unemployment:

  • Labour market is also facing a serious problem of unemployment.
  • A huge number of work forces of our country remain unemployed throughout the year or some part of the season.
  • This has led to the problems like disguised unemployment, seasonal unemployment, general unemployment and educated unemployment.

8. Lack of Labour Reforms:

  • Labour market in India is also suffering from lack of adequate labour reforms provision

What is the Legal Status of labours 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.
  • Our constitution has many articles directed toward their interests for eg. Article 23 forbids forced labor, 24 forbids child labor (in factories, mines and other hazardous occupations) below age of 14 years.
  • Article 43A was inserted by 42nd amendment – directing state to take steps to ensure worker’s participation in management of industries.
  • There are approx. 144 central and state laws, most or all of which seek compliance from industries.

What are the challenges India is facing related to labour reform?

  • Contract labour is a serious assault on worker’s right.
  • Privatisation and FDI are other areas of concern for organsied labour.
  • Issues arising from the point of view of workers and industries.

What are the government schemes related to  labour reforms in India?

  • Apprentice Protshan Yojana and the Effective Implementation of revamped Rashtriya Swasthaya Bima Yojana (RSBY) for labour in the unorganized sector were the important steps in this direction.
  • Shramev Jayate : Skill development of youth would be created through initiative under ‘Shramev Jayate’. It is one of the most important elements of
  • The “Make in India” vision and aims to create an opportunity for India to meet the global requirement of skilled labour workforce in the year ahead.

What are the laws related to labour reforms in India?

  • Industrial Disputes Act (1947) :Major issues are with  Chapter V-B  and Section 9-A
  • Contract Labour (Regulation and Abolition) Act (1970): There are various issuesaround this legislation
  • Various issues with Trade Union Act (1926)

What are the government’s steps to tackle labour related problems?

  • The Labour Ministry soon likely to ratify two key international conventions on child labour marking an important step towards eradicating child labour. The move followed amendment to Child Labour Act.
  • India has so fare retified 45 conventions of International Labour Organisation, out of which 42 are in operation.
  • Complement abolition of child labour is one of the goals of government under Nation’s Sustainable Development of 2030.
  • The Centre has made changes to the draft of the Factories Act, 1948, to allow states to take a call on the number of workers a unit has to employ to be covered under the law.
  • Rajasthan has been the pioneer in labour reforms. It has relaxed the provisions of the Factories Act, Industrial Disputes Act, Apprentices Act and Contract Labour Act.
  • Madhya Pradesh has amended at least 20 labour laws, including 17 central ones, such as the Industrial Disputes Act, Factories Act and Shops and Establishments Act.
  • The Maharashtra law department has amended the Contract Labour (Regulation and Abolition) Act to make it applicable only to establishments in which 50 or more workers are employed.

What are the important laws related to Industrial relations?

1-Employee state insurance Act: ESI card is issued, insuring worker against any incident at work

2-Employees Provident Fund and Miscellaneous provisions Act. This is mandatory for establishment employing more than 20 people

3-Factories Act, 1948.

4-Child Labor (prohibition and regulation) Act – prohibits children below age of 14 to work in hazardous jobs.

5-Industrial Disputes Act – One important provision – Industries employing more than 100 people cannot terminate employment before approval of government. There is strong demand from industry to revise this limit, to facilitate easy entry and exit.

6-Minimum Wages Act.

7-Bonded Labor system (Abolition) Act – System in which onetime payment was made by employer to supplier or leader of group and whole season’s or year’s services of labor was taken.

8-Contract Labor (Regulation and Abolition) Act, 1970 – Contract labor is indirectly employed by an establishment through a contractor or agency. So their relation with principal organization becomes ambiguous. They are generally discriminated against direct employees in terms of wages, job security, status etc. This act attempts to abolish it in certain circumstances and to bring them at par with direct employees

9-Apprentices Act, 1961

What are the global Initiatives?

1-International Labor Organization

  • Founded in 1919 as result of Treaty of Versailles, it became first specialized agency under United Nations in 1945. Its vision is to secure humane working conditions for workers and to attain social justice for them universally. In short it carries ‘Decent Work Agenda’
  • It has produced about 189 legally binding conventions on member countries and more than 200 non-binding recommendations. It is also global center for research and study on work and labor.
  • It also gave 4 core standards on labor which are part of general human rights as per UN declarations. These are
  • 1-Freedom of Association, Right to organize and Right to Collective Bargaining
  • 2-Abolition of forced labour
  • 3-Minimum age of employment and abolition of child labor
  • 4-Prohibition on workplace discrimination and Equal pay for men and women for work of equal value.
  • Under fire from trade unions over multiple issues, the government decided to put its ambitious labour reforms on the backburner.
  • The G20 summit has also praised the initiative for promoting labour reforms in its Hamburg Action Plan recently
  • In UK government provides safety net to employees of startups.

What is Hamburg Action Plan?

  • It is adopted at the G20 Summit very recently.
  • The Action Plan said that India is introducing labour market reforms to provide security to workers, increase female participation in the workforce and make doing business easier in the country.
  • The G 20 Summit assumes significance in the wake of India trying hard to improve its global
  • The Hamburg Action Plan sets out the group’s strategy for achieving strong, sustainable, balanced and inclusive growth.
  • It will help in boost confidence and contribute to shared prosperity.
  • The Action plan has been developed against a backdrop of improving growth and job prospects.
  • The Action Plan noted that weak productivity growth, income inequality, and ageing populations represent challenges to the growth in the long run.
  • It included new policy actions to tackle challenges in economies, focusing on initiatives that foster inclusive growth, enhancing resilience and further the G20 efforts to implement structural reforms.
  • In the action plan, the G20 members resolved that they will continue to use all policy tools – monetary, fiscal and structural – individually and collectively to achieve the goal of strong, sustainable, balanced and inclusive growth, while enhancing economic and financial resilience.
  • The Action Plan also outlined new actions to tackle the issues of beneficial ownership, correspondent banking and remittances, anti-money laundering and combating the financing of terrorism, fossil fuel subsidies and data gaps.
  • The action plan took note of various steps being taken by the member countries including on monetary policy and enhancing resilience of the respective economies.
  • On promoting inclusive growth, the Action Plan noted that the inequality within many countries had increased until the mid-2000s and the member countries are introducing further measures this year to promote inclusive growth and raise the living standards of all their citizens.

What are the solutions?

  • Social safety net for workers in order to enable capacity building of workers.
  • Social security should be provided by means such as Insurance Pensions, Provident Funds
  • The Government needs to present in above areas particularly in case of startups and small scale industry.
  • The growth is extremely important for Industry
  • Disinvestment and FDI: PSE’s one of the main objectives was to provide employment even at cost of economy but this very policy was result of demise of PSEs. Same is true for FDI.
  • India’s Demographic Dividend: India is expected to generate 51 million jobs till 2019, it is imperative to streamline all laws, to facilitate manufacturing sector in India so as economy could absorb new human resource inflow.
  • There is  expected increase in productivity of agriculture sector, which will result substantial shift to industry
  • The challenge is highlighted in the new round of rural distress. It shows once again that the only viable way to break the cycle of distress is through labour-intensive industrialization, as was done in so many other Asian countries, including China.
  • Making the Indian labour market less rigid.


  • The government needs to bring more investor-friendly labour laws at the national level and reforms such as deregulating labour laws.
  • Governments should maintain balance between workers’ rights and industrial growth by legislation.
  • The reforms need inclusive growth, so that its various implications on laborers are also addressed.
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