Labour Reforms

Labour reforms are steps carried out to increase production, productivity of the industries and improve employment opportunities of the workers.

They aim to balance industrialist interests and the rights of the workers.

Labour is a subject in the concurrent list in the Seventh Schedule of the Indian Constitution.

Central government aims to rationalize archaic labour laws to boost investment and improve ease of doing business.

Labour force: Status

Labour Force Participation Rate (LFPR) is the percentage of working age population (15-64 years) who are employed or actively seeking employment.

  • Periodic Labour Force Survey (PLFS) by NSSO, India’s LFPR is 47.9% in September, 2022.
  • CMIE data shows 7.6% unemployment rate in India in March, 2023
  • According to Economic Survey 2022-23, Female LFPR is 19% as recorded in 2021, much below the world average of 25.1%.
  • 90% of India’s workforce in employed in informal sector ( no job contract, paid leave) and 10% is in formal sector ( appointment letter, job contract, paid leave and other benefits.

Labour Laws: Key legislations in India

  • Factories Act, 1881: To regulate working conditions in the factories
  • Trade Union Act, 1926: Right to form and join workers unions
  • Industrial Disputes Act, 1947: To investigate and settle the industrial disputes such as strikes, retrenchment, lockouts.
  • Minimum Wages Act, 1948: To pay a minimum wage to meet the basic needs of workers.
  • Employees’ State Insurance Act, 1948: To provide compulsory insurance to workers in case of sickness, maternity and injury at workplace.
  • Employees’ Provident Funds and Miscellaneous Provisions Act, 1952: To set up a Provident Fund Scheme for the workers.
  • Payment of Gratuity Act, 1972: Payment of gratuity to recognize the long and meritorious service of the workers
  • Maternity Benefit Act, 1961: Maternity benefits to female workers
  • Equal Remuneration Act, 1976: Men and women to have equal pay for equal work.
  • Child Labour (Prohibition and Regulation) Act, 1986: Prohibits employment of children below age of 14 in hazardous industries and regulates working conditions in other industries.

Labour Reforms: Need

  1. Multiple and complex set of laws: There are many inter-state variations of labour laws. Use of highly technical language which makes both both compliance and enforcement very difficult.
  2. Inflexible laws: Firms employing more than100 workers require govt approval for hire and fire.
  3. High degree of informalisation: Labour laws are not applicable to the 90% workforce who are employed in unorganised sector.
  4. Gender discrimination: Issue of unequal wages and poor enforcement of minimum wages act.
  5. Issues related to Trade Unions: Industrial disputes act unclear about the union’s right and politicisation of the unions.
  6. Lack of formal jobs: Increase in contract based jobs with poor social security and exploitation of the workforce.

Labour Reforms: Evolution

  1. National Commission on labour-I,1966: Detailed review of challenges faced by the labour in both organized and unorganized sector.
  2. Industrial Disputes Act Amendment, 1996: Ease of hire and fire policy and reduced the power of trade unions.
  3. National Commission on Labour-II, 1999: To rationalize 44 Central laws into 4 labour codes.
  4. Contract Labour (Regulation and Abolition) Amendment, 2003: Ensure social security benefits to the contractual labour.
  5. Trade Unions Act Amendment, 2001: Easier mechanism to get registered and increased their power of collective bargaining.
  6. The Maternity Benefit (Amendment) Act , 2016: Maternity leave has been increased from 12 to 26 weeks with added crèche facility at workplace.
  7. Payment of Wages (Amendment) Act, 2017: It  enables payment of wages to employees by Cash or Cheque or crediting it to their bank account.
  8. Code on Wages, 2019: Replaces Payment of Wages Act, 1936, Minimum Wages Act, 1948,  Payment of Bonus Act, 1965, and Equal Remuneration Act, 1976.
  9. Occupational Safety, Health and Working Conditions Code, 2020: Consolidated labour laws related to health, safety and work environment in the industries.

Labour Reforms: Features of 4 labour codes

Wage code:

  • Floor wage fixed by Centre.
  • Fixing the minimum wage which must be more than floor wage and has to be revised every 5years.
  • Overtime Wages must be at least twice the normal rate of wages.
  • Wage deduction should not exceed 50% of the employee’s total wages.
  • No gender discrimination in payment of wages.

Code on industrial relations:

  • Prior permission from the government for closure, lay-off and retrenchment for an establishment having at least 300 workers.
  • Negotiating Union should be the one having more than 51% of the workers as members, also termed as sole negotiating union.
  • Negotiating council, if there is no sole negotiating union then representatives of unions that have at least 20% of the workers as members.
  • Industrial tribunals to be set up for settlement of disputes.

Code on social security:

  • Social security fund by centre as well as states for unorganised workers, gig workers and platform workers.
  • National Social Security Board to recommend and monitor schemes on social security.
  • In case of pandemic/epidemic/disasteràcontributions to provident fund can be reduced.

Code on occupational safety:

  • Set up occupational safety board at national and state levels.
  • Valid for establishment with more than 10 workers.
  • Ensure welfare facilities at premises.

Labour Codes: Merits

  1. Simplification of laws; reduction of overlapping, contradictory and multiple definition-based provisions.
  2. Inclusive nature of the codes, i.e., for the first time gig worker and migrant workers were included; ensured social security for self-employment sector.
  3. Reduced chances of “unionisation” with efficient dispute resolution mechanisms.
  4. Institutional mechanism are employed, for example- NSSB to monitor schemes on social security.
  5. Federal spirit is upheld where states are given power to decide for their own minimum wage above floor wage.

Labour Reforms: A way ahead

  1. Labour Market Information System (LMIS) to identify skill shortages, training needs and share new employment opportunities.
  2. Effective implementation of government schemes such as PM Shramyogi Maan Dhan yojana, Atal pension scheme, Shram Suvidha portal, transparent labour inspection scheme.
  3. Increase in quality apprenticeship under Apprentice protsahan yojana and self-certification of documents.
  4. Skill development under Shramev Jayate – key element under Make in India.
  5. Enhance Female LFPR- Skill training programs and apprenticeships should be gender sensitive.
  6. Other supplementary reforms such as raising income and demand, stabilising business climate, infrastructure upgradation, skilling of workforce and consistent export-import policy to increase overall investment and jobs.



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