Article (September-2019)


Labour reforms to accelerate ease of doing business

H.L. Kumar

Designation : -   Advocate, Supreme Court

Organization : -  New Delhi


159086 Total View        

In order to streamline labour laws, the government has decided to go for much-awaited labour reforms.  And in this process the Union Cabinet has already approved the Wages Code Bill. The government has proposed to remove the multiple labour laws and replace them with four sets of labour codes. This will ensure the process of registration, filing of returns and standardisation of labour definitions, which will ultimately result into less disputes. In this exercise 44 labour laws will be reduced to 4 broad codes.

With the clearance of the wages Bill by the Union Cabinet, it will pave the way for its introduction in the ongoing session of Parliament. The government has thus sent the signal to reform India's labour policies, widely considered a difficult and potentially controversial second-generation reform. The government hopes to clear the bill at the earliest as it has already undergone the scrutiny of a Parliamentary Standing Committee after it was first introduced by the NDA government in August 2017.

Union minister for Information and Broadcasting Prakash Javadekar confirmed that the Cabinet has cleared the bill and that the government would share details of the legislation after tabling it in Parliament. While the current Minimum Wages Act and the Payment of Wages Act apply only to employees engaged in certain kinds of jobs, the 'Code on Wages allows provisions of minimum wages and payment of wages to cover employees in both the organised and unorganised sectors'. The bill also allows payment of wages by depositing the same in the bank account of the employees, electronically or by cheque.

The Wages Code was originally envisaged during the UPA era and it replaces four existing laws, the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976. The legislation allows the central government to decide the national floor rates for wages in some sectors including the railways and mines, while the state governments can decide the minimum wages for others. And it sets the overtime rate at twice the standard wage rate. The Centre is also going to recommend a 'national minimum floor rate' and states cannot pay less than this. The bill also allows the Centre to set different national minimum wages for different parts of the country. The bill says that minimum wages must be revised by the central or state governments every five years.

Among the changes suggested by the Standing Committee were to remove the distinction between 'employees' and 'workers', and to eradicate gender discrimination not just in wages but also in recruitments and transfers. As on today, the situation is 'employees' (those in managerial and administrative roles) and 'workers' (others) are defined and it is expected that this definition will remain unchanged.

The UPA government had originally planned to simplify the complex and archaic labour laws into just four codes. The plan, however, could not see the light of day as the Congress-led coalition, surviving on outside support didn't have the numerical strength to push labour reforms through Parliament. The NDA government's first attempt in the area of labour reforms in 2017 was also met with similar opposition. Rationalising the labour laws was seen as such a cumbersome and politically risky work that even in the era of economic liberalisation in 1991, the labour sector remained untouched.

The Wage Bill was introduced in the Lok Sabha in August 2017 but lapsed at the end of the 16th Lok Sabha because it was not possible to muster enough support from the Rajya Sabha. Now when things have become more favourable for the changes, it is expected that it will go through without any hitch and hindrance. Wage and other three codes are aimed to further enhance the ease of doing business in the country, one of the pet projects of Prime Minister Narendra Modi. In the President's speech to the joint sitting of both Houses last month, President Kovind remarked, "Work is underway in full earnest to transform India into a Global Manufacturing Hub. Keeping in view Industry 4.0, a New Industrial Policy will be announced shortly.

In 'Ease of Doing Business', India has leapfrogged 65 positions during the past five years, from a ranking of 142 in 2014 to 77. Now our goal is to be among the top 50 countries of the world. In order to achieve this, process of simplification of rules will be further expedited in collaboration with the States. In this sequence, necessary amendments are also being brought in the Companies Law." The four Codes - wages, industrial relations, social security and industrial safety & welfare - will also protect the rights of workers.

The Luddite trade unions, as they are in India, suffer from the mental blocks and they resist any change in the status quo. The Wage Code Bill, therefore, is bound to get opposition from the trade unions but this has been welcomed by and large by all stakeholders with some reservations and misgivings. For instance, Confederation of Indian Industries (CII) wants that state should have more powers to have minimum wages because in its view the concept of National Minimum Wage will affect job creation. The minimum wages should be decided on the basis of three criteria, geographic location, skill and occupation. It has also suggested that the government should fix the minimum wages for unskilled workers, but the wages of skilled and semi-skilled labour force should be left to be determined by market forces. There is a section which has also called for a comprehensive employment mission and setting up of an inter-ministerial and all State National Employment board to drive job creation in the country. The National Employment Board should have the representatives from the ministries, state governments, industry experts and trade unions.

In India the labour is included in the concurrent list which implies that both the central and state governments can make laws, but the implementation of laws is squarely on the state governments. Currently, the Minimum Wages Act allows the state governments flexibility in deciding when to revise as long as it is not more than five years.