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8/13/2015 Basics explained: Why India’s labour laws are complicated Yahoo India Finance
https://in.finance.yahoo.com/news/basicsexplainedwhyindiaslabourlawsarecomplicated060615072.html 1/2
Thu 13 Aug, 2015, 11:46 PM IST India Markets closed
Basics explained: Why India’s labour laws are complicatedSimplus Information Services – Tue 19 Aug, 2014 11:36 AM IST
An important piece of reform needed in India is related to labour. A high growth economy needs an efficient workforce.Many experts argue that Indian labour laws need to be simple. Here are pointers that explain problems: • Too many laws: Labour laws are part of the concurrent list. This means both the central and the state government cancreate them. This has resulted in an overlapping jurisdiction. “Currently there are 44 central laws and about 160 statelaws on the subject. Many of the laws are archaic, dating to pre independence – creating an urgent need for an overhaul ofthe laws to attune them to present realities,” Morgan Stanley, a global bank, said in a note.
• Multiple confusion: There are multiple laws governing a single area. For instance, there are 19 laws governingconditions of work and industrial relations, 14 laws on social security and labour welfare. “A fallout of the cumbersomelabour law structure is that the organized sector has remained small, accounting for only 16% of the total employment.The bulk of labour force is employed in the unorganized sectors,” the Morgan Stanley report adds.
• Industrial Disputes Act: This law requires that companies employing more than 100 workers should get governmentpermission to fire a worker or close down a plant. Worker or trade unions can intervene company decisions and thingscould get into litigations for years. The rigidity is a primary reason why manufacturing fails to take off in India. With thenew government emphasizing on enhancing the manufacturing and export capabilities, companies would need relaxationhere.
• The Contract Labour Act: The Contract Labour (Regulation and Abolition) Act 1970, prohibits use of contract labourfor core functions in a company. The purpose was to ensure interests of permanent employees. However, lately,companies have employed contract labour as it provides flexibility to companies. ‘In the organized sector the share ofinformal employees (contract) has increased from 37.9% in F2000 to 57.8% in F2010,” according to the Morgan Stanleyreport.
The problem here is that contract workers are paid less than permanent employees. If majority of the work force is oncontract, the whole purpose is defeated. There is an amendment sought in the Act to be made applicable only tocompanies that employ more than 50 workers. Presently, this applies to companies employing 20 or more works.
• Trade Union Act: This bit of legislation gives legal rights to registered trade unions. It also gives them immunity fromcertain civil suits and criminal prosecution. Trade unions serve the purpose if they can bargain collectively. However, onelarge factory may have multiple unions backed by different political parties. The law requires minimum 7 workers to forma trade union. In many other countries, the requirement to form a trade union in a factory is much higher so that thescope of forming too many unions is reduced. Similarly, there are few nationwide unions that speak for worker interestscollectively. • Impact on India: India ranks 99th in labour market efficiency among 148 countries. The manufacturing sector, whichthe new government now seeks to boost, accounts for only 12.9% of GDP in India (2013) against 31.8% in China (as of2011) and 23.7% in Indonesia. “The tight labour market regulations have dissuaded foreign firms from investing in a largemanufacturing base in India,” observes the Morgan Stanley note. India’s progress in creating jobs in nonfarm sectors hasbeen slow with agriculture still employing 49% of the labour force. This has slowed urbanization.
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8/13/2015 Basics explained: Why India’s labour laws are complicated Yahoo India Finance
https://in.finance.yahoo.com/news/basicsexplainedwhyindiaslabourlawsarecomplicated060615072.html 2/2