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  • Yogi government on March 20 ordered employers to pay full wages during lockdown. This triggered protests by shops, commercial establishments and factory owners.

  • UP Labour Commissioner on April 21 wrote to field officers to consult him before lodging a first information report (FIR) against owners of any factory.

  • UP government on May 6 decided to bring an ordinance to altogether exempt factories and establishments from most labour laws barring four for a period of three years.

  • Among key rights worker would lose include right to form unions, right to raise an industrial dispute, right to have grievance redressal machinery, among others.


  • 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.

  • On the face of it, these changes are being brought about to incentivise economic activity in the respective states. Keeping aside the questions of law — labour falls in the Concurrent List and there are many laws enacted by the Centre that a state cannot just brush aside .

  • The key question is: Are these the long-pending reforms of the labour market that economists used to talk about, or is the suspension of labour laws an ill-timed and retrograde step that critics have made it out to be?

What are 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 categorisation, 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 are labour laws often criticised

  • Indian labour laws are often characterised as “inflexible”. In other words, it has been argued that thanks to the onerous legal requirements, firms (those employing more than 100 workers) dither from hiring new workers because firing them requires government approvals.

  • Even the organized sector is increasingly employing workers without formal contracts. This, in turn, the argument goes has constrained the growth of firms on the one hand and provided a raw deal to workers on the other.

  • Others have also pointed out that there are too many laws, often unnecessarily complicated, and not effectively implemented. This has laid the foundation for corruption and rent-seeking.

  • Essentially, if India had fewer and easier-to-follow labour laws, firms would be able to expand and contract depending on the market conditions, and the resulting formalisation — at present 90% of India’s workers are part of the informal economy — would help workers as they would get better salaries and social security benefits.

What can the ILO do?

  • The ILO can impose sanctions on India as it is a specialised agency of the United Nations. So far, Myanmar has been the only country on which sanctions have been imposed by the ILO in its history of over 100 years.

Is that what is proposed by states like UP?

  • As a matter of fact, no. UP, for instance, has summarily suspended almost all labour laws including the Minimum Wages Act.

  • Radhicka Kapoor of ICRIER characterised this as “creating an enabling environment for exploitation”. That’s because far from being a reform, which essentially means an improvement from the status quo, the removal of all labour laws will not only strip the labour of its basic rights but also drive down wages. For instance, what stops a firm from firing all existing employees and hiring them again at lower wages, she pointed out.

  • In that sense, from the perspective of the workers, the government has completely turned its stand from asking firms not to fire workers and pay full salaries at the start of the lockdown, to stripping workers of their bargaining power now.

Why will wages fall?

  • For one, as Chart 3 shows, even before the Covid-19 crisis, thanks to the deceleration in the economy, wage growth had been moderating. Moreover, there was always a wide gap between formal and informal wage rates. For example, a woman working as a casual labourer in rural India earns just 20% of what a man earns in an urban formal setting.

  • If all labour laws are removed, most employment will effectively turn informal and bring down the wage rate sharply. And there is no way for any worker to even seek grievance redressal, said Amarjeet Kaur, General Secretary of AITUC.

Would these changes not boost employment and spur economic growth?

  • Theoretically, it is possible to generate more employment in a market with fewer labour regulations. However, as the experience of states that have relaxed labour laws in the past suggests, dismantling worker protection laws have failed to attract investments and increase employment, while not causing any increase in worker exploitation or deterioration of working conditions.

Could the government have done something else?

  • Instead of creating exploitative conditions for the workers, the government should have — as most governments have done across the world (Chart 5) — partnered with the industry and allocated 3% or 5% of the GDP towards sharing the wage burden and ensuring the health of the labourers “because if Covid hits them, the whole country would be sunk”.

  • Moreover, beyond labour regulations, firms faces a lot of other hurdles like the shortage of skilled labour and the weak enforcement of contracts etc.

Suspending Central laws

Article 213 (1) of the Constitution have the following provisions:

  • a Bill containing the same provisions would under this Constitution have required the previous sanction of the President for the introduction thereof into the Legislature; or

  • he would have deemed it necessary to reserve a Bill containing the same provisions for the consideration of the President; or

  • an Act of the Legislature of the State containing the same provisions would under this Constitution have been invalid unless, having been reserved for the consideration of the President, it had received the assent of the President.”

  • An ordinance is passed when the state government considers the matter so urgent that it cannot wait for the state Assembly to meet in normal course. An ordinance has the same effect as a law passed in the legislature. However, all ordinances have to be placed before the Assembly within six months for its consideration.

  • According to Article 254 (2), any Bill relating to a subject in the concurrent list, which may be repugnant to a Union law, needs the approval of the President for its enforcement. This means that it has to be cleared by the Centre, which would advise the President to give his assent. This applies to an ordinance as well due to Article 213 (1).

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