UPSC IAS Main Exam : GS Paper III : Labour Reforms in India

Labour Reforms will be a burning issue in the Civil Services Mains Exam .This articles provides the whole gamut of issue related to Labour reforms in India since independance

Created On: Sep 21, 2015 12:55 IST

Labour has been one of the most critical factors for manufacturing industries as well as services sectors. Cost of production, geographical location of industries and even survival of the enterprises heavily rely on the labour.

Labour, today is considered as a backbone of development of any third world countries.  However, if a country is democratic, liberal and respects universal adult franchise, labours, which are in majority numbers get voice and have right to freedom of speech and expression. These countries can’t ignore interest of labour in favour of industry and capital, even at the early stage of their development.

However, developed countries on the other hand extended liberal policies towards workmen only after long period of industrial development. During this period capitalists of the country amassed wealth and in latter period, mainly after numerous labour movements, workers getting voting rights and activism of ILO, western governments took up responsibility of wealth redistribution.
India, like any other developing country has been taking dual responsibility wealth creation and redistribution simultaneously, since independence.

For the latter result, i.e. wealth creation, India needs huge investment and development of its manufacturing industries. However, investment whether domestic or foreign will come, given there is low cost advantage. Generally, in the initial phase this low cost advantage is derived through relative lower wages of workers as there is surplus labour. As a result industries start mushrooming and results in the shortage of adequate skilled labour.

To protect the rights of all the labours, gradual increase in the formation of trade union can be observed. Such cartelisation of labour gradually erodes the low cost advantages vis-à-vis labours in a country. By this time low cost advantage starts waning and governments struggle to maintain balance between workers’ rights and industrial growth by legislation. It is in this context that various reforms, regulation and amendment specific to labour laws appear to be inevitable. Such change in the processes and legislations are called labour reforms.

As per the constitution of India, following are some of the provisions related to the welfare of labour:

•    Article 23 - It forbids forced labour

•    Article 24 - It forbids child labour in factories, mines and other hazardous occupations below age of 14 years.

•    Article 43A, inserted by 42nd amendment – It directs state to take steps to ensure worker’s participation in management of industries.

Acts and Rules: Following are the various rules and acts enacted for the welfare and justice of labours in India. We can segregate them under following headings:
Industrial Relation:

1.    The Trade Unions Act, 1926

2.    Employee state insurance Act – ESI card is issued, insuring worker against any accident at work. There’s also ESI corporation

3.    The Industrial Employment (Standing Orders) Act, 1946

4.    Employees Provident Fund and Miscellaneous provisions Act – Provident fund is one in which employee pays part of his wage (12 % in most cases) and equal contribution by employer. This is mandatory for establishment employing more than 20 people.

5.    Factories Act ,1948

6.    Child Labour (prohibition and regulation) Act – prohibits children below age of 14 to work in hazardous jobs. There are demands for complete ban on child employment

7.    Industrial Disputes Act, 1947 – One important provision – Industries employing more than 100 people can not terminate employment before approval of government. There is strong demand from industry to revise this limit, to facilitate easy entry and exit.

8.    Minimum Wages Act

9.    The plantation Labour Act, 1951

10.    Bonded Labour system ( Abolition) Act – System in which onetime payment was made by employer to supplier or leader of group and whole season’s or year’s services of labour was taken. Still rampant in some businesses like Brick Kilns

11.    Contract Labour (Regulation and Abolition) Act, 1970 – Contract labour is indirectly employed by an establishment through a contractor or agency. So their relation with principal organization becomes ambiguous. They are generally discriminated against direct employees in terms of wages, job security, status etc. This act attempts to abolish it in certain circumstances and to bring them at par with direct employees.

Industrial Safety and Health:

1.    The Dock workers (Safety, Health & Welfare) Act, 1986
2.    The Mines act, 1952    
3.    The Factories act, 1948

Labour Welfare:

1.    The Unorganised workers’ social security act, 2008
2.    The Bonded Labour system (Abolition) act, 1976
3.    The Employment of Manual Scavengers and Construction of Dry latrines Prohibition Act, 1993
4.    The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979

Social Security:

1.    The Employees’ State Insurance Act, 1948
2.    The Employees’ Provident Fund & Miscellaneous Provisions Act, 1952
3.    The Maternal benefits act, 1961
4.    The Personal Injuries (Compensation Insurance) Act, 1963

Employment & Training:

1.    The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959
2.    The Employment Exchanges (Compulsory Notification of Vacancies) Rule, 1960
3.    The Apprentices Act, 1961

The labour reforms have been done under the consideration of ILO.

International Labour Organisation

The International Labour Organization (ILO) is devoted to promoting social justice and internationally recognized human and labour rights, pursuing its founding mission that labour peace is essential to prosperity. Today, the ILO helps advance the creation of decent work and the economic and working conditions that give working people and business people a stake in lasting peace, prosperity and progress. Its tripartite structure provides a unique platform for promoting decent work for all women and men. Its main aims are to promote rights at work, encourage decent employment opportunities, enhance social protection and strengthen dialogue on work-related issues.

The ILO has four strategic objectives:

1.    Promote and realize standards and fundamental principles and rights at work
2.    Create greater opportunities for women and men to decent employment and income
3.    Enhance the coverage and effectiveness of social protection for all
4.    Strengthen tripartism and social dialogue  
In support of its goals, the ILO offers unmatched expertise and knowledge about the world of work, acquired over more than 90 years of responding to the needs of people everywhere for decent work, livelihoods and dignity. It serves its tripartite constituents - and society as a whole - in a variety of ways, including:

1.    Formulation of international policies and programmes to promote basic human rights, improve working and living conditions, and enhance employment opportunities
2.    Creation of international labour standards backed by a unique system to supervise their application
3.    An extensive programme of international technical cooperation formulated and implemented in an active partnership with constituents, to help countries put these policies into practice in an effective manner
4.    Training, education and research activities to help advance all of these efforts


Our existing trade union law is outdated. The absence of norms for fixing the representative union scares investors. Industry has been clamouring for core labour law reforms. The demand is for flexibility in terms of freedom to hire contract labour, the freedom to retrench workers and close down undertakings without prior government endorsement, and the freedom to introduce technological changes that involve loss of employment. Further, they want a liberal labour inspection system and a rational and modern system of records compliance.

The employers may have a case, at least with some of the demands. But there are other compelling issues which hurt industrial relations governance at the plant level, the resolution of which would also enhance the competitiveness of the firms. The employers seem to have forgotten this in their quest for labour flexibility. One core issue is the absence of a central law providing for a mechanism to determine the collective bargaining agent.
If there are multiple trade unions fighting for their respective rights it could lead to the worsening of industrial relations governance, even if the employer enjoys labour flexibility. This has been demonstrated by recent industrial conflicts. It is well known that trade unions, under certain conditions, could in fact contribute to the enhancement of productive efficiency and reduce transaction and monitoring costs.

The issues can be seen under following headings:

•    Archaic Laws
•    Huge Informal sector
•    Complexities of procedures
•    Entry and exit Barriers for firms
•    Job insecurity for workers

The path of labour reforms was ignited first by Rajasthan, enabling in an era of healthy labour reforms so as to attract investment and make the place a better place for the business. Following reforms was brought up by the Rajasthan government:

The amendment to the Industrial Dispute Act –

It will allow companies to retrench up to 300 employees without seeking government permission. Earlier, it was restricted to 100. It has also introduced a time limit of three years for raising industrial disputes. The modifications also make it tougher to register labour unions—instead of 15% of workers, now 30% of workers in a factory need to join hands to form a union.

The Apprentices Act –

It is largely focused on the manufacturing sector and most of the service sector is out of its ambit. The state would like the Act to apply to both manufacturing and services sectors.The Apprentices Act will address the skill gap that characterizes the labour market in India. The Apprentices Act is an innovation and stands in the intersection of education and employability.

Changes in the Contract Labour Act –

It will now apply to establishments in which fifty or more workmen are employed against twenty earlier. "Because of threshold limit, employers while hiring personnel or procuring commodities from small entrepreneurs and petty contractors found it difficult to execute contracts, as the small units faced hardship in ensuring formalities under the Act.

Amendments in the Factories Act –

Amendments were made in the definition of 'factory' which will now apply to those companies (run with aid of power) where 20 people are employed instead of 10. For companies running without power, the number has been increased to 40 from 20. The state government reasoned that because of the limit, small units were also covered under the definition of 'factory' requiring several compliances while hurting their expansion and growth. For speedy disposal of offences and minimizing number of litigations, a new provision has been added for compounding of offences which was absent in the previous Act.

In light of the above, recent labour reforms under the NDA government can be highlighted as follows:


Following have been covered under this:

Dedication of Shram Suvidha Portal and Labour Inspection Scheme in Central Sphere:
Multiplicity of labour laws and the difficulty in their compliance has always been cited as an impediment to the industrial development.

The World Bank annual report for year 2014 in a comparative study on Indian Labour Laws has established the fact that the Indian states with flexible labour laws and easier compliance mechanism have fared better in terms of Industrial development than those where labour laws are rigid and the compliance is difficult as well. Ease of compliance has also been found to be important for the growth of organized sector. Ministry of Labour and Employment and Ministry of Commerce and Industry are both working in close coordination to fulfill the mission of “Make in India”. Not only it is needed to amend the labour laws and make them flexible for the present circumstances but it is also important to ensure that the compliance is made easy as this will encourage the development of manufacturing industry particularly MSME sector in the country.

Amendments to three major labour laws were presented to Parliament during this Monsoon session of the Parliament. Ministry has developed a Shram Suvidha Portal in central sphere to create a conducive environment for industrial development. The 4 main features of this Portal are:

a. Unique labour identification number (LIN) will be allotted to Units to facilitate online registration.

b. Filing of self-certified and simplified Single Online Return by the industry. Now Units will only file a single consolidated Return online instead of filing 16 separate Returns.

c. Mandatory uploading of inspection Reports within 72 hours by the Labour inspectors.

d. Timely redressal of grievances will be ensured with the help of the portal.

This will bring in the necessary ease in compliance of provisions related to labour and will be a step forward in promoting the ease of doing business. The complete database available centrally at unified portal will also add to the informed policy process. The portal will be operative in 4 central organizations namely Chief Labour Commissioner, Directorate General of Mines Safety, Employee Provident Fund and Employees’ State insurance Corporation. In this endeavor of the Ministry, complete information of all 11 lakh units for these organizations has been collected, digitized and de-duplicated reducing the total number to 6-7 lakh. It is proposed to allot LIN to all these 6-7 lakh units.

Labour Inspection Scheme

So far the units for inspection were selected locally without any objective criteria. To bring in transparency in labour inspection, a transparent Labour Inspection scheme is being developed. The four features of the inspection scheme are:
1.    Serious matters are to be covered under the mandatory inspection list.
2.    A computerized list of inspections will be generated randomly based on pre-determined objective criteria.
3.    Complaints based inspections will also be determined centrally after examination based on data and evidence.
4.    There will be provision of Emergency List for inspection of serious cases in specific circumstances.
A transparent Inspection Scheme will provide a check on the arbitrariness in compliance mechanism. Immediately on inauguration, sms/email was sent to 1800 Labour inspectors of these enforcement agencies on behalf of the Prime Minister.

Dedication of Portability through Universal Account Number (UAN) for Employees Provident Fund:

Under the scheme complete information for approximately 4 crore subscribers of EPF has been centrally compiled and digitized and a UAN has been allotted to all. The UAN is being seeded with Bank account and Aadhar Card and other KYC details for financial inclusion of vulnerable section of society and their unique identification. Camps are being organized to facilitate opening of bank account and Aadhar card for those subscribers who have no bank account or Aadhar card as on date. This will ensure portability of the Social Security Benefits to the labour of organised sector across the jobs and geographic areas. The EPF account of employee will be now be updated monthly and at the same time he will be informed through sms. Finally it will ensure that each of the 4 crore or more EPF account holders have direct access to their EPF accounts and will also enable them to consolidate all their previous accounts (approximately Rs 27000 Crore are currently lying with EPFO in inoperative accounts). By 16th October, 2014, approximately 2 crore subscribers will have the benefit of portability through UAN. Subscribers have been informed through sms/email immediately on inauguration. The minimum pension for employees has been introduced first time so that employees’ pension is not less than Rs. 1000 per month. The wage ceiling has been raised from Rs. 6500 to Rs. 15000 per month to ensure that vulnerable groups are covered under EPF Scheme.

Recognition of Brand Ambassadors of ITIs :

The Industrial Training Institutes (ITIs) in the country are the backbone of the vocational training system, only source of supply of skilled manpower to manufacturing industry. There are 11,500 ITIs having about 16 lakh seats. But this is grossly inadequate for supplying skilled manpower to Indian industry. Only 10% of the workforce has got formal or informal technical training. Only one fourth of this is formally trained. Whereas in South Korea, Japan, Germany, the percentage of workforce having received skills training is 96, 80 and 75 respectively. There is also another big imbalance. The intake capacity of undergraduate engineering colleges was more than 16 lakh in India which was almost same as seating capacity of ITIs. Whereas we need about at least 10 shop floor workers for an engineer. Therefore we need to rapidly expand certificate level vocational training if we have to succeed in our mission of ‘Make in India’.

However, as a general trend, pass outs from education system do not take admission in the ITIs as their first choice. Mostly end up in ITI after exhausting all other options for higher education. This is because; blue collar work is not respected and regarded in the society. For meeting the skill needs of our industry and for enhancing employability of our youth, we need to attract more youth to it is by enhancing dignity of vocational training.

Over 60 years of existence ITIs have given excellent technician, mechanics, entrepreneurs and professional leaders. Manufacturing sector is reservoir of this success. They have brought name and fame in the country and abroad. It is proposed to compile these success stories and publish in print and electronic form. These success stories shall be used for motivating youngsters and their parents. We would like to showcase such successful ITI graduates as National Brand Ambassadors of Vocational Training. This will be taken as communicator and catalyst, taking the message of ITI vocational training to every section of society. This will also improve the brand image as well as social acceptance of the vocational training. The Prime Minister has released this publication and felicitate few of these Brand Ambassadors. This will send a good message in the society and help in giving honour and acceptability, removing social stigma from vocational training and skilled work. Best wishes for a successful career will be sent on behalf of the Prime Minister to 4 lakh ITI students through SMS.

All India Skill Competition:

The Ministry of labour conducts competitions to foster the healthy spirit of competitiveness among the trainee Craftsmen/ Apprentices. Winning spirit brings pride to world of skills, improves changing work habits to be more organized, goal setting to achieve goals, and simply performing higher quality work. They are:

a) All India Skill Competition for Craftsmen among trainees admitted under Craftsmen Training Scheme (CTS). It is conducted once in a year. On the basis of marks obtained in skill competition by trainees, the award is given to BEST CRAFTSMAN-cash prize and merit certificate, BEST INSTITUTE – a merit certificate and the BEST STATE –a shield.

b) All India Competition for Apprentices among trainees admitted under Apprenticeship Training Scheme (ATS). It is conducted twice every year. The award is given to the BEST Apprentice- cash prize of Rs 50,000 and a merit certificate and Runner Up Apprentice- cash prize of Rs 25000 and merit certificate in each Trade, and the BEST ESTABLISHMENT on all India basis- a trophy and certificate by President of India.

Trade covered in Competition: Both the competitions are conducted in 15 trades i.e. Fitter, Turner, Machinist, Welder (G&E), Mechanic (Motor Vehicle), Mechanic (Diesel), Instrument Mechanic, Draughtsman (Mechanical), Draughtsman (Civil), Electrician, Electronic Mechanic, Cutting & Sewing, Foundry Man, Computer Operator & Programming Assistant (COPA), and Refrigeration & Air Conditioning Mechanic.

Launch of Apprenticeship Protsahan Yojna :

The Apprentices Act 1961 was enacted for regulating the Apprenticeship Training Scheme in the industry for imparting on-the-job training to apprentices. Presently, there are only 2.82 lakh apprentices undergoing training against 4.9 lakh seats.
Apprenticeship Scheme has huge potential for training the large number of young person’s to make them employable. If properly revamped, it could also significantly contribute to ‘Make in India’ Mission. Similar schemes have been highly successful in countries like Germany, China and Japan where the number of apprentices are stated to be 3 million, 20 million and 10 million respectively.
Present framework tightly regulates the number of apprentices trade-wise, and is not attractive to youth because of low rate of stipend. Further the industry is averse to participate because the scheme is not viable for the small industries. There are a large number of establishments including MSMEs where training facilities are available but could not be utilized so far.
A major initiative has been undertaken to revamp the apprenticeship Scheme in India after extensive consultation with industry, states and other stakeholders with the vision of increasing apprenticeship seats to more than 20 lakhs in next few years. There are four components of this initiative, which are given below:

a.     Making the legal framework friendly to both, industry and youth. The necessary Bill amending the Act was placed and passed in Lok Sabha on 14.8.2014.

b.     Enhancing the rate of stipend and indexing it to minimum wages of semi skilled workers.

c.      Apprentice Protsahan Yojana which will support manufacturing units mainly and other establishments by reimbursing 50% of the stipend paid to apprentices during first two years of their training.

d.     Basic training component (mainly class room training part) of the curricula is being restructured on scientific principles to make it more effective, and MSMEs will be supported financially by permitting this component in government funded SDI scheme.
The Apprentice Protsahan Yojana  - It will support one lakh apprentices during the period upto March 2017. Selected Apprentices and the Establishments ready to participate in this scheme from various states will be invited and it is proposed that Prime Minister will give sanction letters to these to mark the launch of the new scheme.


In apprentice system, trade workers, engineers (both diploma holder and graduates), 10+2 passed vocational students, need to undergo training in industry to enhance their skill. On completion of this they become regular workers. For this they get stipend in form of remuneration.

New amendment increases Stipend to 70 % of wage of regular unskilled worker in first year, 80% in second year. Non engineers can also be appointed, and their total number could be up to 10 % of the total workforce. Now students other than engineering can also seek apprenticeship. About 500 new trades are added.


This aims at elimination of troublesome submission procedures, under which returns was to be certified by officials. Now by self-certification method, compliance will be checked randomly through firms/employers selected by computer.


A transparent Labor Inspection Scheme for random selection of units for inspection would end undue harassment of the “Inspector Raj,” while ensuring better compliance. Now officials have power to select units on their discretion. This results in rent seeking and corruption.


Number of forms related to compliance with labour laws that employers have to file will drop from 16 to 1.

Many of these laws had been identified variously as a constraint to expansion of investments in manufacturing and a hindrance in doing business in India. The approval of amendments will give companies greater flexibility in hiring and firing of employees and make it tougher for registration of labour unions, which many analysts say would encourage industries to expand and recruit more workers. With this, the labour market in India will turn a new leaf and instead of reform in central sphere, states will adopt state-specific reforms to compete and attract investments. Amendments will be made in the Apprentices Act 1961 to create larger opportunities of Employment for the Youth and will develop greater linkages between educational institutions and industries, enabling India to catch hold of countries like Germany, China and Japan, which have high number of apprenticeships bridging the gap between skilled and unskilled.

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