Labour law reforms stalled until 2024 general election

The implementation of the four labour codes, passed by Parliament between 2019 and 2020, which will bring sweeping changes to India’s job market, has been stalled. The codes are unlikely to take effect before the general election slated for 2024, the Hindustan Times reported, quoting sources close to the situation.

Nearly three years after India passed legislation aimed at streamlining the country’s labour laws, the changes have yet to take effect due to resistance from certain states.

Photograph: iStock credit bernie photo

The rollout of the four labour codes, which will consolidate a complex web of 29 central labour laws, has been pushed back numerous times.

In the summer of 2022, official sources told the media in off-the-record briefings that implementation would begin on 1 July. But in late June 2022 it was reported that the rollout had been delayed again, with no new time frame given.

Critics say the four codes – the Code on Wages, 2019; the Industrial Relations Code, 2020; the Occupational Safety, Health and Working Conditions Code, 2020; and the Code on Social Security, 2020 – are controversial and anti-worker.

However, other commentators have praised the codes, saying they will boost economic growth and employment, and remove outdated laws that are no longer fit for purpose in a rapidly transforming economy.

Many commentators say the codes represent one of the most significant economic reforms undertaken by the Modi government.

States ‘dragging their feet’ on making changes
However, under India’s constitution amendments to nationally applicable legislation cannot take effect unless they align with state laws, and certain states which are apprehensive about the impact of the labour law changes have dragged their feet on notifying rules to change their own regulations to bring them in line with the new codes.

A key component of the reforms is a clause making it easier for small and medium-sized companies to lay off employees (i.e. terminate their employment).

Under the previous law, industrial establishments with 100 or more employees had to obtain government permission to lay off even a single worker, whether permanently or temporarily, or to close business units. However, the new Industrial Relations Code raises this threshold to 300 and allows each state to set an even higher threshold than 300.

The reforms will also remove the existing broad ban on employing people on fixed-term contracts, which was previously allowed only in certain industries and occupations.

States relaxed laws during Covid-19
During the pandemic, many states relaxed the most onerous parts of labour laws in an attempt to attract business investment and promote economic growth.

According to PRS Legislative Research, this was done primarily in two ways: firstly, by increasing the maximum working hour limits for factories; and secondly, by exempting establishments from certain labour laws (in the case of Madhya Pradesh and Uttar Pradesh).

Madhya Pradesh granted factories exemptions from laws regulating certain aspects of employment conditions and employer/worker relations, such as industrial dispute resolution processes, health and safety facilities and inspections. Meanwhile, Uttar Pradesh has proposed exempting its factories from all labour laws, subject to certain conditions.

In its analysis of the changes being introduced by the states, PRS noted that after the lockdown to contain the spread of Covid-19 was relaxed, some state governments found that the lockdown had led to a shortage of workers.

“In this context, Assam, Goa, Gujarat, Haryana, Himachal Pradesh, Madhya Pradesh, Odisha, Punjab, Rajasthan, and Uttar Pradesh governments issued notifications to increase the maximum daily work hours for workers in their state to 12 hours,” noted PRS. However, Rajasthan and Uttar Pradesh subsequently withdrew their notifications.  

In May 2020, Madhya Pradesh notified amendments allowing concessions for a period of 1,000 days to help industries meet labour requirements during the coronavirus pandemic.

The aim of providing these exemptions was to facilitate greater investment in the state by new companies and boost economic activity by existing companies.

PRS Legislative Research noted that new factories were exempted from all provisions of the Industrial Disputes Act, 1947, except those relating to lay-off and retrenchment of workers, closing down of an undertaking and restarting of undertakings, for 1,000 days.

In a video conference, Madhya Pradesh’s chief minister Shivraj Chouhan said the aim was to generate employment and encourage industrial activity, and “convert the challenges of a distressed economy into opportunities”.

He added that the state is looking to attract and invite firms from across the world who want to relocate. “The changes, with workers’ rights kept in mind, became necessary as investors were stuck in a web of laws and red-tapism,” said Chouhan.

However, Pramod Pradhan, general secretary of the Centre of Indian Trade Unions (CITU) for Madhya Pradesh, argued: “All governments think that investment is the only way for development. To attract investment, they are ready to give up land and labour laws in favour of the capitalists.”
Karnataka relaxes working hours for factories

The move by Karnataka’s state government in March to approve a decision by Foxconn – the world’s largest electronics manufacturer, best known for manufacturing Apple’s iPhones – to invest Rs 8,000 crore in Karnataka, brought the recent changes to Karnataka’s labour laws allowing 12-hour shifts in factories and night working for women factory workers into the public spotlight.

The changes had gone almost unnoticed when they were passed in the state Assembly on 24 February as part of the Factories (Karnataka Amendment) Bill 2023 without a debate as the opposition had walked out in protest.

Previously, a factory worker in Karnataka could not work for more than nine hours and women were not allowed to work night shifts in factories. The amendment also increases the total number of overtime hours a worker is permitted to work over a three-month period from 75 to 145.

Earlier in March, The Financial Times reported that Apple and Foxconn were among the companies allegedly suggesting changes to legal frameworks in certain Indian states to boost productivity and efficiency in operations, matching the levels seen in China’s production centres.

Contract manufacturers assembling iPhones for Apple, such as Foxconn, Pegatron, and Wistron, have also allegedly been calling for more flexible labour laws, according to media reports.

These manufacturers have their production facilities in different regions of India. Foxconn is located at Sriperumbudur in Andhra Pradesh, Pegatron in Kancheepuram district in Tamil Nadu and Wistron has a facility near Bengaluru in Karnataka.

With global manufacturers allegedly urging India’s state governments to amend labour laws that some business lobbyists claim hamper productivity, several states may amend their labour laws, according to government officials quoted in the media.

Following the relaxation of labour laws in Karnataka, five to six other states – including Uttar Pradesh and Tamil Nadu – are likely to make (or propose) similar changes, according to the officials quoted by newspapers.

However, labour activists argue the amendments will simply benefit multinational companies and warn intervention by the central government to amend the law is not required since states have the power to make these legal changes independently.

Tamil Nadu abandons factory law change
In April, the Tamil Nadu assembly passed the Factories (Amendment) Act, 2023, which would have allowed more flexible working hours for employees in factories in certain sectors across the state.

Essentially, the change would have allowed workers the option of working 12 hours a day instead of eight and, since the mandated total number of working hours allowed in a week remains unchanged at 48, this would translate into an extra day’s leave. However, following protests by trade unions and the opposition parties, Tamil Nadu’s government, led by chief minister MK Stalin, was forced to abandon the reforms.

Anupam Manur, a professor of economics at the Takshashila Institution, an independent think tank, observed that in the Tamil Nadu amendment, it was up to the workers to choose an eight or 12-hour working day based on their preferences.

“The amendment is opposed entirely based on the assumption that the choice will not be respected, which leads to exploitation of workers,” he said in an opinion piece for Moneycontrol website. However, this argument “wears thin” for several reasons, argues Manur. “These labour laws apply to only a small fraction of the labour force in the state and country. Most of the labour is employed outside the formal sector, which has very little protections. In fact, by loosening the rigid laws, there can be a formalisation of companies and labour.

“Unfortunately, labour unions that purportedly protect the interest of a small minority of workers are the biggest deterrent in labour reforms that can extend protection to a large set of workers outside the ambit of these laws.”

Manur added: “Unfortunately, much of the discourse on labour regulation is often framed as a zero-sum game – business versus labour – and that only one can win at the expense of the other. However, these need not be antagonistic. Labour reforms help draw in larger investments, which leads to higher employment, productivity, and wages.”