Dilution of Labour Laws: Reasons Involved and Possible impact of the Action Taken

Dilution of Labour Laws: Reasons Involved and Possible impact of the Action Taken


The world is going through a kind of pandemic, named Covid-19, which humanity has not seen in the last 100 years, affecting the global economy to which India is no exception. Consequently, the Indian government has taken a slew of directions to mitigate financial instability and preserve the economy. Many state governments have proposed to amend or suspend the labour laws.

The history of labour laws in India dates back to 1819 Bengal Regulations VII (introduction of the indentured labour system) and then came the first version of the Factories Act in 1881. Both of these Acts were enacted to benefit the British. The worker’s movement globally gained momentum in the 20th century which eventually resulted in the Russian Revolution of 1917. International Labour Organisation was formed in 1919 and a year later, India got its first Central Trade Union with Lala Lajpat Rai as its head. The first attempt by the British to control the Trade Unions resulted in the enactment of the Trade Union Act, 1926 and to control strikes the Trade Disputes Act, 1928 was enacted.

In this paper, the authors have attempted to give a brief introduction of what constitutes labour laws in India, analyse the possible reasons for dilution of labour laws and evaluate the impact of the steps taken by the union government and the state governments.

Legal framework and classification of labour laws in India

The term ‘labour’ means productive work especially ‘physical work done for wages’. There is no common definition of labour laws in India. There are near about 200 state laws and 50 union laws, collectively known as ‘Indian Labour Laws’. The Ministry of Labour and Employment, Government of India, defines labour law as, “Labour law also known as employment law is the body of laws, administrative rulings, and precedents which address the legal rights of, and restrictions on, working people and their organizations. As such, it mediates many aspects of the relationship between trade unions, employers and employees.” In other words, labour law defines the rights and obligations of workers, union members and employers in the workplace. The law relating to labour and employment in India is primarily known under the broad category of “Industrial Law”.

These labour laws are broadly divided into four types:

  1. Condition of work: The main objectives of these laws are to ensure the safety measurements, insurance of health facilities, provisions for regulated works hours, overtime and welfare of workers. For example Factory Act, 1948.
  1. Wages and remuneration: They ensure the basic wage and remuneration of workers according to their work and that is based on minimum basic pay. This part covers more provisions for the worker than any other labour legislation. For example The Minimum Wages Act, 1948.
  1. Social security: These laws cover the social security aspect of workers such as insurance, compensation and provident fund for the betterment of the workers. For example Employee Provident Act, 1952.
  1. Employment Security and Industrial Relations: These laws deal with the employment security of workers. These laws also relate with a term of service, retrenchment and provisions for closures of industrial enterprises. These laws also deal with strikes and lockdown. For Example The Industrial Disputes Act 1947.

In present times, the labour market in India is characterized by the dual existence of the formal and informal sector. The informal sector is at the moment in dire need of substantial laws that can take care of its stakeholders. The most important thing to be noted here is the fact that out of approximately 500 million workforces of India, only 10% of it is working in the formal sector which is eligible for availing the benefits of these Acts. As a result of which the rest of the people working in the informal sector do not get access to better incomes or social security and additionally, they have to spend on child education and health out of their meagre incomes.

Causes for Dilution

Indian labour laws are often characterised as ‘inflexible’. In other words, it has been argued that due to peculiar legal requirements, firms (those employing more than 100 workers) hesitate from hiring new workers because firing them requires government approvals. Even the organised sector is increasingly employing workers without formal contracts. This, in turn, the argument goes, has constrained the growth of firms on the one hand and provided a raw deal to workers on the other. The impact of the harsh national lockdown coupled with stringent labour laws has hit the industries hard, especially the Micro, Small and Medium Enterprises (MSME). A recent survey conducted by All India Manufacturer’s Organisation (AIMO) has revealed that 35% of the MSMEs in the country are on the verge of winding up.
All these factors prompted the Central Government to bring in paradigm changes in policies to support the financial revival of the industries which eventually included financial package for MSMEs, amending the definition of MSMEs and the suspension of labour laws. 

The arguments centred around the government action of suspending the labour laws are:

1. To attract investment in various sectors and industries.
2. To provide employment to workers who have migrated back to their respective states.
3. To increase the revenue of states which has fallen due to the closure of various industrial and manufacturing units during the national lockdown.
4. To push start the economy again after almost blanket prohibition on all kinds of commercial activities (except those concerned with essential services).

Proposed Changes

While labour laws fall in the concurrent list, states are free to enact or amend the labour laws as they may deem fit with the inherent exception that the central laws may overrule them. It is for this reason only that the states have varied drastically in suspending or amending the labour laws. For instance, Uttar Pradesh has proposed to summarily suspend almost all the labour laws barring a few, while on the other hand, Madhya Pradesh has been more specific and precise in amending the labour laws. In another example, while most of the states have suspended the labour laws for 1000 days, Gujarat has gone a step further by suspending the labour laws in the state for 1200 days. However, there are some major changes which are common among all the states. Among them, few are listed below:

1. Employers can increase working hours in the factories from 8 to 12 hours (subject to the will of the employee).
2. Employers are now allowed to have 72 hours of overtime in a week (subject to the will of the employee).
3. Registration of the factory will take a day instead of 30 days earlier.
4. Renewal of license should be done after 10 years instead of 1 year as earlier.

Apart from these few common change, states have amended the laws to suit their local requirements and peculiar nature of working conditions. Like the change in working hours are done to tackle the problems arising due to shortage of labourers, as a huge labour class population has returned back to their native states.

The ‘Atmanirbhar’ angle

Recently, the Prime Minister gave a call for a self-reliant India i.e. ‘Atma-Nirbhar Bharat’. Usually, people at large understood it only as a drastic increase in the local production of goods and thereby creating an ascendency of the domestically manufactured goods in the local market. However, it has been clarified now that this ‘self-reliance’ inter alia includes active participation in post-Covid global supply chains as well as the need to attract foreign direct investment. Now, interestingly, this becomes important to see the suspension of labour laws in the light of the Atma-Nirbhar Bharat mission as envisioned by the prime minister.
The idea of being self-reliant entails dynamic changes in the work operation of industries and these changes primarily consist of easing the otherwise complex structures of industries and manufacturing units. This is where the idea of suspension of labour laws is introduced. Now the employers have got a free hand in rapidly increasing the production of goods by employing more and more workers without having to worry about indulging in long governmental procedures in case they feel the need to terminate the services of the workers. Additionally, the permission to increase the working hours and overtime has only facilitated the process.

The step has been opposed by various trade unions of the country by staging countrywide protests and calling for strikes. However, it has been assured by the government that the labour reforms emphasise flexibility on the one hand and on the other hand the government is also pitching for more stringent norms for safety and working conditions. What happens actually as the consequence of this government measure remains to be seen.

Fallouts of the dilution of  labour laws

In India where almost a substantial part of its population is below the poverty line and still struggling with unemployment, the relationship between an employer and employee suffers from scepticism. Workers even today, in the absence of comprehensive laws, still have to work in unfavourable conditions. The problem with perhaps every law in India is that it is not really well equipped with the dual character of the Indian labour market. In the wake of Covid-19 and migrant crisis, several states have taken the step of amending their existing labour laws, either by suspending them altogether or by increasing working hours. 

The biggest concern after these amendments is the exploitation of labourers and violation of their human and fundamental rights. Some serious concerns are:

1. The labour law changes will allow more factories to operate without following the requisite safety measures and health norms. This will give free hand to new companies to keep labourers in service as per their convenience, eventually raising the problem of job and social security of workers.
2. This could also go against some of the prime policies of GOI, Such as: ‘SABKA SATH, SABKA VIKAS’. Also, this goes against the grain of transformative reforms, which is the need of the hour, in efforts to make the economy stronger.
3. One aspect of the dilution is labour net-importing states have seen a labour shortage, driving up wages. This prompted some states to restrict the migrant labourers to return home. This would violate their fundamental right to move anywhere in the country as guaranteed by the constitution itself.
4. Instead of providing protection to this marginalised and vulnerable group of society and conceiving this as an opportunity to rectify the fractured economic system, these moves by states and the union will further exacerbate the crisis for those who are worst affected by it.
5. These amended laws are violating workers right to assemble peacefully, form association or union, as some of the amendments have suspended the recognition of trade unions. These new laws can also affect a worker’s right to health, social security, safe working condition and safety measures can be neglected by the industries.
6. Another issue can be traced with the Industrial Disputes Act, 1947. The Act does not permit a state government to exempt any undertaking unless there is an adequate mechanism for investigation and settlement of disputes. The law also does not empower the state to exempt the entire act without any other alternative. There is the provision of exemption to any factory or industry for up to 3 months only.. However, the Uttar Pradesh government scrapped the entire Act vide an Ordinance, among other labour laws.


In the situation of Covid-19, which is not less than an emergency, it is expected of the states and the union government to examine all the issues by looking from the perspective of both workers and industries. Many economists and sociologists have argued that the labour laws in India have been largely in favour of the employees and workers rather than that of the employers and entrepreneurs. Many of them also argue that in India the ‘ease of doing business’ declines due to the existence of archaic laws and labour related regulations (India ranks 63 among 190 countries). Hence, it should be the ideal approach of the government to strike a balance between the interests of both the labourers and the industries.

The government should enact policies keeping in mind the workers in the informal sector because they are the ones whose voices are left unheard and demands unmet due to the policy lapses despite constituting the largest workforce.

We also have to ensure gender equality at the workplace, historically there has been a tendency to devalue the labour of women no matter how strenuous and time taking their work is. We also have to strictly implement the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 to lodge complaints against sexual harassments faced by women in their workplaces.

All these steps would reduce the hassles and paper works for industries and would result in improved productivity. These reforms would give the push for simpler but effective labour laws and help in economic development. Labour reforms are the need of the hour for an emerging country like us, which has a large population of skilled and non-skilled labourers.

About the Authors

Gaurav Verma

Gaurav Verma

(Graduated, Campus Law Centre, University of Delhi)

Abhishek Pathak

Abhishek Pathak

(P.G.D.A.V. College University of Delhi)

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