Proposed Labour Law Changes: Foundation For Global Manufacturing Hub

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    Labour laws in India have often been accused of being onerous. The concomitant permit or license Raj, which mandates the companies to obtain licenses and permits for every step, often leads to delays, enhances the compliance burden and also leaves new businesses at the mercy of a regulatory maze.

    In a bid to simplify the labour laws, in July 2019, the Government had proposed to consolidate about 44 Labour Laws under 4 codes. Relating to Social Security, Wages, Industrial Relations and Health and Safety, these codes sought to simplify India's archaic labour laws. The aim was to ensure better coverage of workers, aid the unorganised and the gig economy, and also promote ease of doing business.

    Some of the key ideas envisaged in these codes were also reiterated by the Finance Minister Nirmala Sitharaman on May 14, 2020, when she announced the second tranche of the economic package. She said that these ideas will be taken up in the Parliament again, since these 4 codes are yet to be passed.

    The following immediate changes were proposed by her:

    Definition of Migrant Workers

    Migrant Workers in India are defined under the Inter-State Migrant Workman Act (Regulation of Employment And Conditions of Service) Act, 1979 ("ISMW Act"). The ISMW Act defines inter-State migrant workman as any person who is recruited by or through a contractor in one state to work in any other state, with or without the knowledge of the principal employer[1]. The requirement of being sourced through a contractor takes out of the ambit of the definition, many migrant workers who venture to other states either on their own or through unlicensed contractors. This prevents them from being classified as migrant labour and hence, they are denied the protection accorded to migrant labourers.

    It was proposed by the Finance Minister, that the definition of inter-state migrant worker, be changed and be made more inclusive to include those employed directly by the employer, workers directly coming to the destination state on their own and the migrant workers employed through a contractor.

    This would also expedite the process of increasing portability of social welfare schemes for migrant workers. Further, the new definition would go a long way in ultimately formalising the informal sector, as registration of migrants will be easier and they will receive social security and statutory benefits as a result. The total number of internal migrants in India, as per the 2011 census, is 45.36 crore or 37% of the country's population. [This includes migrants within each state also].[2] Therefore, ensuring that most of them are recognised as such requires a broader definition.

    Portability of Welfare Schemes for Migrant Workers

    Policy-makers in India have long ignored the reality of migration. As a result, the inter state migration of workers also leads to a loss of security and ability to obtain the benefit of welfare schemes. The biggest example is the PDS system. The government is working towards a 'One Nation, One Ration Card' concept to allow people to buy grains from any fair price shop across the country, not just the designated ones. This will benefit the migrant workers, as they mostly face the brunt of a non-portable PDS.

    The broader idea is to accord all benefits under schemes such as Ujjawala, ICDS and Sarva Shiksha Abhiyaan among others to migrant workers. This will lead to a more dignified life for them, reduce the burden of spending, and rescue them from debt traps which they often fall into. The measure will also help women, who are disproportionately affected by migration, as most of the times, registrations take place under the name of the male head.

    Extension of ESIC coverage Pan-India to all districts

    ESIC stands for Employee State Insurance Corporation. The ESIC includes medical, maternity, disability and dependents benefits to insured persons. If any employee is unable to work due to sickness, maternity leave, injury on employment or hospitalisation, ESIC provides financial assistance to compensate for wage loss.

    The contribution is made by both the employee and the employer. ESIC applies to non-seasonal factories employing 10 or more persons. Since 2011, the insurance has also been extended to private medical and educational institutions, cinemas, newspapers, hotels, shops restaurants, employing 20 or more persons[3]

    In the proposed labour law changes, ESIC benefit is sought to be extended to establishments employing less than 10 workers on voluntary basis. However, for hazardous industries, ESIC coverage will be mandatory. It will be extended through a government notification. The threshold of 10 will not be considered in this case.

    Currently, ESIC coverage does not extend to all districts and states such as Arunachal Pradesh and Lakshadweep. The new proposed change aims to include every district under its purview.

    Social Security Schemes for workers in the gig economy and unorganised sector

    Gig Economy is expected to grow to about $455 Billion by 2023 according to ASSOCHAM. 90% of India's workforce are part of either the gig economy or the unorganised sector. [4] Gig workers mainly include independent contractors, who are not a part of the traditional employer-employee relationship. Social Security for gig workers was also considered under the Code on Social Security in 2019. The government is currently mulling over an ordinance to bring immediate relief to the gig workers and accord them social security benefits. The labour ministry is formulating a scheme that will provide minimum social security, including pension, provident fund etc. to these workers. The Code on Social Security also considered the idea of Universal Social Security in order to accord benefits to workers from the unorganised sector.

    Re-Skilling Fund for retrenched employees

    It has been proposed that a re-skilling fund be set up for retrenched employees. It will contain contributions by the employer equivalent to the employee's last drawn wages for 15 days. These funds would be used for re-skilling of the retrenched worker. A 45-day deadline is also suggested for the utilisation of this fund.

    Gratuity for Fixed-Term Employment

    Fixed-Term Employment was introduced under the Industrial Relations Code. Now, for a fixed contractual term, employers can directly hire employees and on termination of the term, the employee will be disengaged. This will not be classified as retrenchment. All social security to be applicable under the Industrial Relations Code. Workers hired under fixed-term contracts will be entitled to gratuity at any time of leaving the job. Till now, no one hired on a contract for a fixed period was entitled to any gratuity. Under the Gratuity Act of 1972, employees completing five years of continuous service are eligible to get a gratuity payment on leaving the organisation.[5] For fixed term employees, this criterion has been done away with.

    Universalisation of Minimum Wages

    This idea was envisaged under the Wage Code Bill last year. The Wage Code Bill[6] combines four labour laws — the Payment of Wages Act, 1936; the Minimum Wages Act, 1948; the Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976 .

    Under this, the central government will fix a National Floor Wage. The minimum wage, although, will be higher than the floor wage. The central government may specify different wage rates according to different geographical locations. The state governments may also notify their minimum wage, which cannot be lower than the national minimum wage. The idea is to increase minimum wage and reduce regional disparities by providing a national benchmark. Also, the minimum wage laws, which currently cover only 30% of India's workers, will have a universal coverage.

    The National Minimum wage will include minimum wages along with the provisions for timely payment of wages for all workers, including those in the unorganised sector who were outside the scope of minimum wages earlier.

    Problems of compliance are bound to increase, and small establishments might face harassment under such a structure. Making tiny enterprises comply will be a Herculean task.[7]

    Appointment Letter for all employees

    Mandatory issuance of appointment letter is a requirement under the Occupational Safety, Health and Working Conditions Code, 2019[8]. The Code is pending to be passed by the Lok Sabha and is not in force yet.

    The appointment letter will consider information as prescribed by the respective governments. This will enable the workers to assert their rights and claim benefits available to organised sector workers. Therefore, employees with a formal letter cannot be paid less than the wage stipulated in their appointment letter, otherwise they will be liable under law. An employee will have to be issued an appointment letter within 3 months after the Code is passed and becomes a law. [9] This is a huge step towards formalisation of the economy.

    Annual Health Checkup of all employees

    This provision was also present in the Occupational Safety, Health and Working Conditions Code, 2019. The Code provides for a free annual health check-up of all employees. The kind of tests for different establishments will be specified by the state governments. This provision will help in early detection of diseases and increase productivity by getting rid of those diseases.[10] A National Occupational Safety and Health Advisory Board (NOSH) will also be constituted under the Code. This board will have representation from trade unions, employer associations, and State Governments. It will help in reducing the multiplicity of various boards.

    The board will provide an OSH code to enterprises employing 10 or more workers to certify that they meet the required health and safety standards. OSH code will also be given to enterprises which employ less than 10 workers, if they deal with hazardous activities.

    Implications of Proposed Changes

    The aforementioned proposed changes to labour laws would help in providing additional protection to the labour force. It would have the following implications:

    • The plight of migrant workers is out there for all to see, expanding the definition would provide them with more protection.
    • Similarly, extending the coverage of ESIC to all districts and all employers with 10 or more workers, would lead to refinement in health facilities for the workers.
    • The concept of a National Floor Wage would reduce regional disparity in minimum wages.
    • The mandatory issuance of an appointment letter would help in formalization of the labour force. This would also help the employees protect their interests as now they would have an evidence of employment which would clearly contain their rights and obligations.
    • Formulation of OSH Code too would help in maintaining worker safety.
    • Permitting gratuity in fixed term employment would make fixed-term employment more lucrative. Hence, if a company requires project-based work, they would be able to get employees easily for the same. The employee too would feel more protected.
    • Protection to gig workers is a big and unprecedented step. This would go a long way in formalising gig economy.


    No doubt, the proposed labour law changes aim at simplification of our current labour laws which are multiple – spread across each area. However, being labour-friendly, they may lead to extra compliance burden on companies, and measures such as gratuity for fixed term employment, extended ESIC coverage, monetary thresholds, applicability etc., would mean additional costs for employers. The questions which remain to be answered here are - would these raise some doubts upon India's commitment to replace China as the next manufacturing destination, are the proposed changes enough and in the right direction, would the actual benefit trickle down to the target labour force, and is this the time to reduce labour laws to a minimum or to bring about additional protection? These questions need to be examined in the context that some state governments are promulgating ordinances to do away with all labour laws except a few. Such changes may make state-labour-laws and the changes proposed by the centre contradictory. Hence, the centre is mulling over a uniform labour law framework across the country. This would supersede the ordinances promulgated by Uttar Pradesh, Madhya Pradesh and Gujarat and would aim at providing new businesses the right degree of flexibility. However, how can a balance be maintained so that this uniform labour law is not leaning towards either the labourers or the employers? A neutral law which safeguards interests of the workers while allowing freedom to employers is the need of the hour. The changes proposed above, by the Finance Minister, aim towards bringing some uniformity in the labour force throughout India. Flexibilities such as increasing the threshold for applicability, elimination of inspection requirements, dispensing away with license/permit regime etc. can create a fair balance between the interests of the labourers and employers. Requirements such as issuance of appointment letters can be made applicable to employers with certain number of employees. Similarly, annual health check-up can be bundled with ESI and not made a separate requirement. The certification required under the OSH Code may tie the employer down and increase the scope of corruption and red-tapeism, such changes may be re-thought about. Hence, the government should consider the issue of labour law changes holistically, from the perspective of both the employers and workers and then come up with a single code which governs all across the country.

    The article has been authored by Dr. Vinod Surana, Kalyan Jhabakh, Vandana Raheja & Soumya Shekhar. Views are personal only

    [1] S. 2(e), Inter-State Migrant Workmen (Regulation of Employment And Conditions of Service) Act, 1979

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