Coronavirus – Economic Issues

Relaxation in labour laws due to COVID-19 outbreak and their impactsPriority 1

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Various laws mentioned

Mains level : Lockdown and its impacts on Labour


  • Amid the coronavirus-induced lockdown, an increasing number of states that include Uttar Pradesh, Madhya Pradesh, Rajasthan and Gujarat have pushed through changes to their labour laws by way of amendments — ordinances or executive orders.
  • They aim to provide some sort of blanket exemption to employers from labour laws.

Practice Question

Q. Multiplicity of Labour laws in India has done little to address the plight of Labourers. Critically comment in context to the nationwide lockdown imposed due to the coronavirus outbreak.

What is the move all about?

  • Most states cleared an ordinance exempting businesses from the purview of most labour law provisions for the next three years.
  • However, labour laws related to bonded labour, deployment of women and children and timely payment of salaries are not changed.

Changes in the law

  • The changes in the labour laws will apply to both the existing businesses and the new factories being set up in the state.
  • Similarly, the Madhya Pradesh government has also suspended many labour laws for the next 1000 days.
  • Few important amendments are:
  • Employers can increase working hours in factories from 8 to 12 hours and are also allowed up to 72 hours a week in overtime, subject to the will of employees.
  • The factory registration now will be done in a day, instead of 30 days. And the licence should be renewed after 10 years, instead of a year. There is also the provision of penalty on officials not complying with the deadline.
  • Industrial Units will be exempted from majority of the provisions of the Industrial Disputes Act, 1947.
    • Organisations will be able to keep workers in service at their convenience.
    • The Labour Department or the labour court will not interfere in the action taken by industries.
    • Contractors employing less than 50 workers will be able to work without registration under the Contract Labour (Regulation and Abolition) Act, 1970.

 Major relaxations to new industrial units are:

    • Exempted from provisions on ‘right of workers’, which includes obtaining details of their health and safety at work, to get a better work environment which include drinking water, ventilation, crèches, weekly holidays and interval of rest, etc.
    • Exempted from the requirement of keeping registers and inspections and can change shifts at their convenience.
    • Employers are exempt from penalties in case of violation of labour laws.

Rationale Behind the Changes in Labour Laws

  • States have begun easing labour laws to attract investment and encourage industrial activity.
  • To protect the existing employment, and to provide employment to workers who have migrated back to their respective states.
  • Bring about transparency in the administrative procedures and convert the challenges of a distressed economy into opportunities.
  • To increase the revenue of states which have fallen due to closure of industrial units during Covid-19 lockdown.
  • Labour reform has been a demand of Industries for a long time. The changes became necessary as investors were stuck in a web of laws and red-tapism.
  • Businesses and economic activities have slowed down due to which labour welfare has also been affected due to the national lockdown.

What are the Indian Labour Laws?

  • Labour falls in the Concurrent List and there are many laws enacted by the Centre that a state cannot just brush aside.
  • 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.

Their types

Broadly speaking, they can be divided into four categories. Refer to the image.

  • The main objectives of the Factories Act, for instance, are to ensure safety measures on factory premises and promote the health and welfare of workers.
  • The Shops and Commercial Establishments Act, on the other hand, aims to regulate hours of work, payment, overtime, a 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 characterized as “inflexible”. Most of them are inadequate to make the sector formalized.
  • At present 90% of India’s workers are parts of the informal economy. The Chart shows, even the organised sector are increasingly employing workers without formal contracts.
  • 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.

Issues with the recent relaxation

1.Exploitation

  • The state of UP has summarily suspended almost all labour laws including the Minimum Wages Act.
  • Hence this move is characterized 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.
  • 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.

2.Informalization

  • Moreover, far from pushing for a greater formalization of the workforce, this move will in one go turn the existing formal workers into informal workers as they would not get any social security.

3. Will reduce demand in the economy

  • Scrapping labour laws to save on labour costs will not help start the economy but will do exactly the opposite.
  • It will reduce wages, lower earnings (particularly of low wage workers) and reduce consumer demand.

4.Unlikely to 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.
  • It is unproven if they can cause an increase in worker exploitation or deterioration of working conditions. However, in the long run, employment will not increase, because of several reasons.

5. Enacted without any scrutiny:

  • Usually, any change in an Act follows a rigorous process of public consultation, scrutiny by committees of Parliament, and debates in the House before being approved.
  • The changes described here have not gone through such a process.
  • However, most of these have a three-month time limit, and any extension would need to be approved by the legislature.

What else could have been done?

1.Allow two shifts

  • There is already too much-unused capacity. Firms are shaving off salaries up to 40% and making job cuts. The overall demand has fallen. Which firm will hire more employees right now, he asked.
  • If the intention was to ensure more people have jobs, then states should not have increased the shift duration from 8 hours to 12 hours.
  • They should have allowed two shifts of 8-hours each instead so that more people can get a job.
  • This move and the resulting fall in wages will further depress the overall demand in the economy, thus hurting the recovery process.

2.Partnered with the industry

  • Most governments have done across the world have partnered with the industry and allocated 3% or 5% of the GDP towards sharing the wage burden and ensuring the health of the labourers.
  • Moreover, beyond labour regulations, firms face a lot of other hurdles like the shortage of skilled labour and the weak enforcement of contracts etc.
  • Time demands to secure the labour most than their employers.

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piyush Singh
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