Labour laws in India

January 2017  |  FEATURE  |  LABOUR & EMPLOYMENT

Financier Worldwide Magazine

January 2017 Issue

January 2017 Issue

Since Indian prime minister Narendra Modi came into office in May 2014, the government has spearheaded a campaign to reform a number of the country’s existing – and outdated – laws. The Modi administration hopes to overhaul the national economy and boost GDP growth in a number of different ways.

Considerable attention has been focused on streamlining and simplifying the process of doing business in India – with positive results. GDP is rising and the country is attracting considerable investment from abroad. Trade barriers are being removed, manufacturing supply chains are improving and infrastructure development across the country is progressing admirably.

But the government is not resting on its laurels. As such, attention is now turning to the country’s labour market. As part of wider reforms, the government plans to introduce a proposed Wage Code bill that will guarantee minimum wages across the country. The draft bill also streamlines the definition of wages by combining four wage related laws – the Minimum Wages Act, 1948, the Payment of Wages Act, 1936, the Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976.

In total, the government hopes to consolidate 44 existing labour related acts into four codes which will govern wages, industrial relations, social security and working conditions. This is the first step in revamping the national labour legislation, which is remarkably outdated. While some companies may resist reform in some fashion, once change is introduced it is imperative that they comply. Regulatory action can be detrimental to profitability, and Indian labour unions have shown their willingness to strike in the past.

Efforts are also needed to reform the country’s educational infrastructure, as the world moves towards an increasingly advanced technological economy; future generations will need all of the educational tools at their disposal. Indeed, the government has designs on the country becoming a hub of technological development over the next decade. Rising demand for electronics and technology will create a market worth as much as $400bn by 2020, according to Indian communications and information technology minister Ravi Shankar Prasad. The Modi government hopes to make India an electronic hardware manufacturing powerhouse, and hopes to achieve net zero imports of electronics by 2020.

India’s labour laws are in dire need of reform, with much of them a hangover from the country’s colonial past.

India’s shift toward technology and digitisation may not be smooth, however. In late November, engineering and construction giant Larsen and Toubro, one of the country’s largest employers, caused shockwaves when it announced it was shedding 14,400 jobs – or 11 percent of its total workforce. The company claimed that the ‘right sizing’ of its workforce was due to “digitisation and productivity enhancement initiatives” which it instituted in the third quarter of the year.

Parliament’s winter session, which began in November, was earmarked for the advancement of the ruling National Democratic Alliance’s labour reforms. These include the Industrial Relations Code Bill 2016, Wage Code Bill 2016, the Small Factories (Regulation of Employment and Conditions of Services) Bill, the Shops and Establishments (Amendment) Bill, and Employees Provident Fund and Miscellaneous Provisions (Amendment) Bill all likely to be introduced during the month long session. Minimum wages are a major consideration for the government, particularly in light of nationwide strikes in September 2015 and 2016, which involved tens of millions of public sector workers and cost the economy around £2bn. Trade unions acting on behalf of workers have demanded a 692-rupee daily minimum wage, universal social security and a ban on foreign investment in the country’s railway, insurance and defence industries. Foreign investment in these industries is just part of a wider concern among Indian workers who have also demanded that the government abandon its plans to close unproductive factories, raise foreign investment caps in some industries and sell off stakes in state-run companies. There are fears that the spread of privatisation throughout the Indian economy will jeopardise jobs in the short and long term.

The government’s much vaunted ‘Make in India’ programme, launched in 2014 to help encourage multinationals and nationals to manufacture their products in India, will be a further driver for overhauling labour laws. The scheme has been successful in attracting considerable foreign direct investment into the country – $63bn in 2015 alone. Given that a further major objective of the Make in India scheme is to create jobs and enhance skills within the Indian labour force, it is imperative that all legislative and educational efforts are made to ensure that the initiative succeeds.

India’s labour laws are in dire need of reform, with much of them a hangover from the country’s colonial past. While Mr Modi’s government is right to begin the process of revamping the system, there will be bumps in the road. Nevertheless, change is imperative for the rights workers and the future prosperity of the economy, particularly when the country’s GDP growth of around 8 percent is slower than anticipated. Investing in education and skills development will pay off in the long term, and in the short term the planned reforms will help bring the Indian labour market into the 21st century.

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Richard Summerfield

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