Rewriting India’s Labour Landscape: A Structural Reset of Work, Wages, and Worker Rights

The structure of labour laws in India for the past seven decades was not only filled with a web of bureaucracy and complex, sometimes overlapping, rules, but also incompatible with the vision of the new industrial and innovative India.

Illustration by The Geostrata

This reality was embraced by the Government of India and the Ministry of Labour and Employment when Union Minister Mansukh Mandaviya introduced four new bills to the parliament, which replaced the web of the previous legislation and possessed the idea of reforming the overall structure of the labour market of India.

THE LABOUR MARKET OF INDIA AND THE PROBLEM WITH ITS LEGISLATIONS

In an economy, the level of demand in a country is determined by its financial and goods markets, while supply is decided by its capital and labour markets. For the Indian economy in particular, with its massive population, the role of the labour market certainly remains more significant.

However, even with its heightened role, the labour market of India was not entirely content with its governance, as there were many gaps and flaws in the legislation surrounding the labour market. Some of the major problems with the labour market are as follows:

Extreme Fragmentation

The Labour laws of India were enigmatic and extremely complicated to understand. Many times, some laws overlapped each other, for example, the Payment of Wages Act, 1936, Minimum Wages Act, 1948, the Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976, all had provisions that overlapped, so much so that the definition of wages was defined differently in each act.

In toto, this extreme fragmentation and the complicated web created an invisible barrier that prevented business owners from registering their business or expanding beyond a certain point, as either of the two conditions would bring them under this web of fragmented and enigmatic legislative net. The problem of expansion and not registering is explained further below.

Prevention of Expansion

The psychological fear of the labour laws discouraged employers from employing more workers or expanding to more organised workplaces. Under previous laws, any company that has an organised workspace, employs 20 or more workers, or has formal employment contracts, has to register itself, thereby joining the formal or organised sector. Many companies simply refused to meet any of the following conditions, or even if they did, they just did not register themselves as a formal company. This prevention created a problem both for the employer and the employee, as the scope for growth was reduced, and without formal contracts, they were vulnerable to exploitation.

The problem is reflected in the fact that India has a large quantity of large and micro-industries but limited medium-scale industries in between.

Large-scale Informalisation and Low Coverage

A large majority of India’s population works in micro-industries, and with companies' refusal to formally register themselves, those employees simply remain outside the legislative coverage. Moreover, the legislation did not cover everyone, like gig-workers, who are becoming a significant chunk of the labour pool of India.

Bureaucratic Issues

The labour laws were also plagued with many bureaucratic hurdles, like the lack of provisions for registering labour or employee databases with the government, as reflected during the migration crisis, as seen during the times of the Covid lockdown, and a lack of uniformity in implementation, as labour falls under the concurrent list. Bureaucratic rigidity was also a problem, which further prevented companies from registering, as it restricted how companies could employ or lay off workers.

In general, with major problems like these, the need was clear to bring forth a new labour code which could match India’s vision of growth without compromising the conditions of labour in the country.

THE STRUCTURAL RESET OF LABOUR LAWS

On November 21st, when Mansukh Mandaviya announced the implementation and rationalisation of the past 29 laws related to labour, effectively codifying them into four codes passed during the period of 2019 to 2020, he marked the beginning of a structural reset of the labour landscape of India. The four laws that have been implemented are explained individually below:

The Code on Wages

The code on wages passed in 2019 by the parliament is one of the four acts dealing with the bureaucratic mess created by the plethora of archaic bills governing wages and reimbursements extended to employees and labour. The act combined the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976. while further increasing the coverage of labour laws and ensuring uniform standards in wages and salaries.

Firstly, it defines the definition of wages, specifically categorising pay, retaining allowance, and dearness allowance as components of wages. It also defined any other component that exceeds more than 50 percent of the remuneration as part of wages, while also clarifying the definitions of payee and payer. To help the labour, it fixes minimum wage clearly, enforcing that the wage floor for different states must not be below the national floor, ensuring a decent standard of living. The code also fixes the time range of reimbursements while ensuring that deductions cannot be more than 50% of the wage. 

In its entirety, the law fixes minimum wage, guarantees no discrimination in pay, reduces litigation, and encourages a formal employment culture while protecting employees.

Industrial Relations Code

The bill, passed in 2020, integrates the Trade Unions Act, 1926, Industrial Disputes Act, 1947, and Industrial Employment (Standing Orders) Act, 1946. Similar to the Wages Act, it also tries to integrate the bills and give specific definitions to terms like workers and industry. For the employers, this act implements the need for a 14-day strike notice and recognises the existence of a labour union and negotiation council, which must have recognition by more than 51 percent of the workers in the establishment.

However, one argument that has been struck against this bill, particularly, is that industries are being made corporate-friendly. From a given 14-day strike notice, laws related to re-entrenchment, layoffs, and standing orders are now applicable only to companies that have more than 300 workers, a change from 100 workers. The act allows room for expansion, destroying the psychological burden and fear, but may also result in poorer labour conditions in the excluded industries, while the inspector-cum-facilitator will also have a greater role in ensuring fairness and equality among workers.

Besides this argument, the act has the potential to encourage economic freedom, boost manufacturing growth, and offer more flexibility for expanding businesses and operating them while inducing the advent of a stronger formal sector in the Indian Labour market.

Code on Social Security

The Code on Social Security is the third major act passed in 2020, encompassing a total of nine acts. This particular code is being considered game-changing as it changes the complete atmosphere of labour laws and labour protection in India. One of the most important provisions of this bill is the coverage and definition of gig workers, platform workers, and aggregators.

Moreover, the act guarantees social security to this line of employment, making digital platforms accountable for the welfare of their workers. The importance of these specifications and reforms arises from the fact that the culture surrounding these professions has been growing over time.

For the welfare of the unorganised sector and the category it just defined, the code provides for the establishment of National and State-level social security boards. These National and State Social Security Boards will be responsible for recommending, monitoring, and advising on the formulation and implementation of social security schemes for unorganised, gig, and platform workers.

The act in general brings about many reforms in gratuity, provident fund, maternity fund, and other forms of social security for all types of workers. Besides reformation in these funds, the act also brings about a national portal for a national database for workers, along with the tighter implementation of social security laws using inspector-cum-facilitators. The act integrates the benefits and brings all of it under a unified code of law while increasing coverage and protection for workers.

Occupational Safety, Health, and Working Conditions Code

This code is the last among the four codes being implemented and was made to rationalise a total of 13 labour laws enacted earlier. Its main purpose is to comprehensively modernise India’s labour framework, elevate and safeguard working conditions for the workforce, and firmly align it with the broader vision of a progressive and New India.

The code aims to educate both the employer and employees about safety requirements during work and create a uniform standard for both of them to follow. As also mentioned under the code on social security, this too aims to establish a database and register all the workers of India through mandatory employee registers to ensure effective monitoring, welfare delivery, and to prevent migration crisis.

Besides these conditions, it aims to rationalise and liberalise working conditions by fixing a maximum of working hours per day and week (8 per day and 48 per week) and guaranteeing rest days and intervals. By making the need for all compliance digital, it also eradicates a part of the bureaucratic web and licensing raj that surrounded working conditions and work injuries.

Besides the change in working hours and work gaps, two main provisions of this code include the broadened definition of migrant workers and the access of women to work in mines and other professions on night shifts, which previously they could not. In general, the code tries to humanise working conditions and liberalise many laws related to worker fatigue and injuries.

THE MACROECONOMIC BENEFITS OF THE SYSTEM

The introduction of the four labour laws, along with their proper and effective implementation, has the potential to generate significant macroeconomic benefits for the country. For starters, this reset can greatly benefit the ease of doing business in India, which can be attributed to greater economic growth, a manufacturing boost, and rising foreign and domestic investments across private and public firms. From the macroeconomic aspect, this boost can greatly increase the growth of modern manufacturing industries.

Secondly, the gap between large and micro companies can gradually be bridged, as the expanded scope for economic and business growth is expected to drive a rise in both the number and scale of MSMEs. Moreover, with the reduction in compliance and legislative burden handled by employers, the psychological barrier of expanding and entering the formal structure can be eradicated. 

Besides that, from the worker’s point of view, incentives for higher productivity and unified labour laws help workers better understand their rights and duties while encouraging improved performance. Moreover, additional coverage and liberalisation in wages, working conditions, and social security can ensure higher morale for labourers and workers, especially casual labourers and the ones employed in the unorganised sector.

Lastly, the quality of our workforce can be greatly improved as a lot of emphasis is also given on re-entrenchment and reskilling of workers. Moreover, with higher safety guidelines, loss to work injuries can be prevented, which is also a major drain on the resources of an economy. To conclude, the four labour codes are poised to have a far-reaching and transformative impact on the Indian economy.

These reforms seek to create a balanced and efficient labour ecosystem by harmonising the demand for labour by employers with the supply of labour from the workforce, without undermining the interests of either.

Through standardisation, transparency, and enhanced social security coverage, the codes aim to promote formalisation, productivity, and inclusive growth. With effective and sincere implementation, these reforms have the potential to significantly improve working conditions, strengthen labour rights, and make a meaningful contribution to the broader vision of a Viksit Bharat.

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BY AMEYA GUPTA

TEAM GEOSTRATA

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