Why changing Labour Laws is not a good idea? But there is a silver lining…


This article is written by Amritesh Panda, a student of Symbiosis Law School, Pune.

As the economy struggles with the lockdown and thousands of firms and workers stare at an uncertain future, some state governments last week decided to make significant changes in the application of labour laws. The most significant changes were announced by three BJP-ruled states — UP, MP and Gujarat — but several other states, ruled by the Congress (Rajasthan and Punjab) as well as BJD-ruled Odisha, too made some changes, although smaller in scope. UP, the most populous state has made the boldest changes as it summarily suspended the application of almost all labour laws in the state for the next three years.

It’s a common understanding that Indian labour laws needed serious reform. But the ordinances being promulgated by state governments are, under the pretext of reform, unleashing a whole-scale assault on labour. By increasing working hours, the state wants to literally break their bodies, their freedom and their dignity. By taking away any serious pretense of grievance redressal, the state wants to immobilize all questions of justice. States want to ensure that labour has no bargaining power left.

What are the Indian Labour Laws?

  • Estimates vary but there are over 200 state laws and close to 50 central laws. And yet there is no set definition of “labour laws” in the country. Broadly speaking, they can be divided into four categories. Chart 1 provides the categorization, with examples.
  • The main objectives of the Factories Act, for instance, are to ensure safety measures on factory premises, and promote health and welfare of workers. The Shops and Commercial Establishments Act, on the other hand, aims to regulate hours of work, payment, overtime, weekly day off with pay, other holidays with pay, annual leave, employment of children and young persons, and employment of women.
  • The Minimum Wages Act covers more workers than any other labour legislation. The most contentious labour law, however, is the Industrial Disputes Act, 1947 as it relates to terms of service such as layoff, retrenchment, and closure of industrial enterprises and strikes and lockouts.


Why these changes are being criticized?

These ‘so-called reforms’ would potentially open the road for unregulated exploitation of workers in the name of economic recovery. In the absence of a universal social security net, this would be a social disaster. There are two reasons behind this decision: reduction of costs of production and creating more employment opportunities at a time when unemployment is extremely high. However, there is no way of ensuring that investors will adopt labour-intensive technologies. The industry will try to minimize the size of the workforce in a post-COVID-19 economy. Unlike other economic reforms, labour market reforms are best conducted when the going is good and the economy is on a high. This is not the right time to implement such changes. The social costs will be substantially larger than the economic benefit.

Previous governments have abused the ordinance route. But the brazen use of ordinance to suspend such important provisions of the law, when Parliament is already deliberating on the matter, shows disdain for democracy. Allowing the states to override central legislation, without justification, will create future problems for federalism. Repealing many of these provisions will put India in contravention of ILO conventions and its own laws. And there is also a non-application of mind in many of the proposals. Some states will increase work hours without increasing rate of compensation.

But what is even more worrying is the impact on workers on the safety side. With the suspension of factory laws, the following features are under threat: fire safety rules; rules around facilities like first aid; safety equipment and related committees; maintenance and examination of critical equipment like lifting machines, pressure vessels, hygrometers, electrical apparatuses, ovens and dryers, and so on. The most dangerous for workers and society alike will be the suspension of regulation of hazardous processes and waste management. The 7 May 2020 gas leak incident at the Visakhapatnam polymer factory, LG Polymers India Pvt, that left more than 300 people in hospitals, is still an ongoing crisis.

What is the silver lining in all of this?

That the archaic labour laws in India need to be amended is beyond debate. They have protected only a tiny section of the labour force, facilitated rent-seeking, and have laid the ground for the casualization of the labour force, the phenomenon of the missing middle in manufacturing, and the substitution of capital for labour in a capital deficient and labour abundant economy.

Initiatives taken by states such as Madhya Pradesh — which aim to reduce the frequency of inspections, ease the registration and licensing process, and enhance the thresholds of when the regulatory architecture kicks in — are steps in the right direction.

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Steps in right direction-

Licences regulations

Under the Factories Act, 1948, read with Madhya Pradesh Factories Rules, 1962, a licence for a factory will now be valid for 10 years rather than one year. All applications will be accepted online, and so will the registration. Working hours have been increased during the COVID19 period, and overtime hours have been increased to 72 under the Payment of Wage Act and Minimum Wages Act, 1948, read with The Madhya Pradesh Payment of Wages Rules, 1962. For a new licence under the Contract Labour (Regulations and Abolition) Act, 1970, read with The Contract Labour (Regulation and Abolition) (Madhya Pradesh) Rules, 1973, the licence will be valid for the entire duration of the project and will not need an annual renewal.

Shops reforms

Under the Madhya Pradesh Shops and Establishments Act, 1958 the time for shops to be open has been increased. They can now open at 6 am and remain open till midnight. This will bring convenience to shoppers and give flexibility to shopkeepers. To call this a reform is a bit excessive. These are executive decisions in tune with a 21st century India, where ‘night life’ is lighting up, one city after another. Besides, not all shopkeepers need to stay open and the decision is left to them.

Returns reforms

Chouhan has reduced the number of returns to be filed under the Madhya Pradesh Factories Rules, 1962. From 61 registers and 13 returns, an entrepreneur will need to have just one register and file one return. Further, self-certification will be adequate for the filing of the return. Where necessary, he has allowed third party inspection by agencies empanelled by the state’s labour department.

Factory inspection chances

Factories employing less than 50 employees will not be inspected. Under the Contract Labour (Regulation and Abolition) (Madhya Pradesh) Rules, 1973, the threshold number of labourers has been increased to 50 from 20. Routine inspections are history and will be required only after permission from the Labour Commissioner or based on complaints. The threshold under the Madhya Pradesh Industrial Relation Act, 1960, is proposed to be increased from 100 to 300 employees. Shivraj Singh Chouhan also mentioned a dispute resolution mechanism without approaching courts.

These steps can be taken by respective state governments to modify current labour laws redundancy for a limited-term basis and giving a  priority to the social and economical vulnerabilities of the labour industry.

Are Businesses Optimistic?

States that have amended labour laws has packaged the move as business-friendly measures. For instance, Madhya Pradesh has relaxed the conditions relating to contract labour. So far, contractors had to renew their license every year and pay a fee based on the workmen they intended to employ. This has now been relaxed to say that renewal of license can be for the period mentioned in the application.

Additionally, factories that fall in the non-hazardous category and employ up to 50 workers will be exempted from the inspection process. A third-party certification for such factories will be sufficient. Some of these procedural reliefs may help especially in sectors like textiles—foreign investors, unsure of whether they’ll be able to navigate the bureaucracy, have been hesitant to set up factories.

Industries’ worries around rent-seeking will continue until these provisions on prior permission of the government remain. But RS Goswami, president of Federation of Madhya Pradesh Chambers of Commerce and Industry, is optimistic that these changes will inspire confidence among businesses. He pointed out that most of the changes relate to simplification of procedures and none of this will cause any financial loss or burden to workmen. Some businesses have had to wait for more than five and even 10 years for license renewal—new generation is refusing to continue family businesses because of lengthy procedures.

Concluding remarks

India must carefully trade between giving away with labour Laws and economic woes. Both the economy and the net security of the labour division should be of the highest priority to the government, one factor should not outweigh all other but a balance must be struck in order to achieve the desired results. No doubt India’s economic future is now looking perilous but it can be countered with patience, strategic planning, and sheer effort of its people. Haphazard decision making and lack of long terms strategic planning will seriously hamper the abilities to fight off the economic battle.



  1. https://www.thehindu.com/opinion/editorial/contempt-for-labour-the-hindu-editorial-on-dilution-of-labour-laws/article31538103.ece
  2. https://ccs.in/india-labour-reforms-and-colonial-hangover
  3. https://www.businesstoday.in/current/economy-politics/coronavirus-crisis-why-labour-law-changes-by-mp-are-more-balanced-than-up/story/403669.html
  4. Image from OneIndia.
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  1. Pingback: Inadequacy of Labour Laws | LawLex.Org

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