Labour in India
Labor availability map for the world. In 2011, India had about 487 million
workers compared to China's 795 million and United States' 154 million.
The labour in India
consists of about 487 million workers, the second largest after China.[1] Of these over 94 percent work in unincorporated, unorganized enterprises ranging
from pushcart vendors to home-based diamond and gem polishing operations. The
organized sector include those employed by the government, state-owned
enterprises and private sector enterprises. In 2008, the organized sector
employed 27.5 million workers, of which 17.3 million worked for government or
government owned entities.
India has numerous labor laws such as those prohibiting discrimination and child
labor, those that aim to guarantee fair and humane conditions of
work, those that provide social security, minimum wage, right to organize, form trade unions and enforce collective bargaining.
India also has numerous rigid regulations such as maximum number of employees
per company in certain sectors of economy, and limitations on employers on
retrenchment and layoffs, requirement of
paperwork, bureaucratic process and government approval for change in labor in
companies even if these are because of economic conditions.
India is considered to be a highly regulated and most
rigid labor law countries in the world. Rigid labor laws in India have been
criticized as the cause of low employment growth, large unorganized sector,
underground economy, use of casual labor and low per capita income. These have
led many to demand reforms for labor flexibility
in India.
History
The labor laws of India originated and express the
socio-political views of leaders such as Nehru
from pre-1947 independence movement struggle. These laws were expanded in part
after debates in Constituent Assemblies and in part from international
conventions and recommendations such as of International
Labour Organization. The current mosaic of Indian laws on employment
are thus a combination of India's history during its colonial heritage, India's
experiments with socialism, important human rights and the conventions and
standards that have emerged from the United Nations. The laws cover the right
to work of one’s choice, right against discrimination, prohibition of child
labor, fair and humane conditions of work, social security, protection of
wages, redress of grievances, right to organize and form trade unions,
collective bargaining and participation in management.[
Labor laws in India
Labor law notices in India.
India has over 50 major Acts and numerous laws that
regulate employers in matters relating to industrial relations, employee unions
as well as who, how and when enterprises can employ or terminate employment.
Many of these laws survive from British colonial times, while some have been
enacted after India's independence from Britain.
India is a federal form of government. Labour is a
subject in the concurrent list of the Indian Constitution and therefore labour
matters are in the jurisdiction of both central and state governments. Both
central and state governments have enacted laws on labour relations and
employment issues. Some of the major laws relevant to India are:[
Workmen’s Compensation Act of 1923
The Workmen’s Compensation Act compensates a workman for
any injury suffered during the course of his employment or to his dependents in
the case of his death. The Act provides for the rate at which compensation
shall be paid to an employee. This is one of many social security laws in
India.[
Trade Unions Act of 1926
This Act enacted the rules and protections granted to
Trade Unions in India. This law was amended in 2001.
Payment of Wages Act of 1936
The Payment of Wages Act regulates by when wages shall be
distributed to employees by the employers. The law also provides the tax
withholdings the employer must deduct and pay to the central or state
government before distributing the wages.
Industrial Employment (Standing orders) Act of 1946
This Act requires employers in industrial establishments
to define and post the conditions of employment by issuing so-called standing orders.
These standing orders must be approved by the government and duly certified.
These orders aim to remove flexibility from the employer in terms of job,
hours, timing, leave grant, productivity measures and other matters. The
standing orders mandate that the employer classify its employees, state the
shifts, payment of wages, rules for vacation, rules for sick leave, holidays,
rules for termination amongst others.
Industrial Disputes Act of 1947
The Industrial Disputes act 1947 regulates how employers
may address industrial disputes such as lockouts, layoffs, retrenchment etc. It
controls the lawful processes for reconciliation, adjudication of labour
disputes.
The Act also regulates what rules and conditions
employers must comply before the termination or layoff of a workman who has
been in continuous service for more than one year with the employer. The
employer is required to give notice of termination to the employee with a copy
of the notice to appropriate government office seeking government's permission,
explain valid reasons for termination, and wait for one month before the
employment can be lawfully terminated. The employer may pay full compensation
for one month in lieu of the notice. Furthermore, employer must pay an
equivalent to 15 days average pay for each completed year of employees
continuous service. Thus, an employee who has worked for 4 years in addition to
various notices and due process, must be paid a minimum of the employee's wage
equivalent to 60 days before retrenchment, if the government grants the
employer a permission to layoff.
Minimum Wages Act of 1948[
The Minimum Wages Act prescribes minimum wages in all
enterprises, and in some cases those working at home per the schedule of the
Act. Central and State Governments can and do revise minimum wages at their
discretion. The minimum wage is further classified by nature of work, location
and numerous other factors at the discretion of the government. The minimum
wage ranges between 
143 to 1120 per day for work in the
so-called central sphere. State governments have their own minimum wage
schedules.
Industries (Regulation and Development) Act of 1951
This law declared numerous key manufacturing industries
under its so-called First Schedule. It placed many industries under common
central government regulations in addition to whatever laws state government
enact. It also reserved over 600 products that can only be manufactured in
small scale enterprises, thereby regulating who can enter in these businesses,
and above all placing a limit on the number of employees per company for the
listed products. The list included all key technology and industrial products
in early 1950s, including products ranging from certain iron and steel
products, fuel derivatives, motors, certain machinery, machine tools, to
ceramics and scientific equipment.
Employees Provident Fund and Miscellaneous Provisions Act of 1952
This Act seeks to ensure the financial security of the
employees in an establishment by providing for a system of compulsory savings.
The Act provides for establishments of a contributory Provident Fund in which
employees’ contribution shall be at least equal to the contribution payable by
the employer. Minimum contribution by the employees shall be 10-12% of the
wages. This amount is payable to the employee after retirement and could also
be withdrawn partly for certain specified purposes.
Maternity Benefit Act of 1961
The Maternity Benefit Act regulates the employment of the
women and maternity benefits mandated by law. Any woman employee who worked in
any establishment for a period of at least 80 days during the 12 months
immediately preceding the date of her expected delivery, is entitled to receive
maternity benefits under the Act. The employer is required to pay maternity
benefits, medical allowance, maternity leave and nursing breaks.
Payment of Bonus Act of 1965
This Act, applies to an enterprise employing 20 or more
persons. The Act requires employer to pay a bonus to persons on the basis of
profits or on the basis of production or productivity. The Act was modified to
require companies to pay a minimum bonus, even if the employer suffers losses
during the accounting year. This minimum is currently 8.33 percent of the
salary.
Payment of Gratuity Act of 1972
This law applies to all establishments employing 10 or
more workers. Gratuity is payable to the employee if he or she resigns or
retires. The Indian government mandates that this payment be at the rate of 15
days salary of the employee for each completed year of service subject to a
maximum of 1000000.
Labor structure in India
A majority of labor in India is employed by unorganized sector
(unincorporated). These include family owned shops and street vendors. Above is
a self-employed child laborer in unorganized retail sector of India.
Labor at an unorganized handicraft manufacturing enterprise.
Over 94 percent of India's working population is part of
the unorganized sector. In local terms, organized sector or formal
sector in India refers to licensed organizations, that is, those who are
registered and pay sales tax, income tax, etc. These include the publicly
traded companies, incorporated or formally registered entities, corporations,
factories, shopping malls, hotels, and large businesses. Unorganised sector,
also known as informal sector or own account enterprises, refers
to all unlicensed, self-employed or unregistered economic activity such as
owner manned general stores, handicrafts and handloom workers, rural traders,
farmers, etc
India's Ministry of Labor, in its 2008 report, classified
the unorganized labor in India into four groups. This classification
categorized India's unorganized labour force by occupation, nature of
employment, specially distressed categories and service categories. The
unorganized occupational groups include small and marginal farmers, landless
agricultural labourers, share croppers, fishermen, those engaged in animal
husbandry, beedi rolling, labeling and packing, building and construction workers,
leather workers, weavers, artisans, salt workers, workers in brick kilns and
stone quarries, workers in saw mills, and workers in oil mills. A separate
category based on nature of employment includes attached agricultural
labourers, bonded labourers, migrant workers, contract and casual laborers.
Another separate category dedicated to distressed unorganized sector includes
toddy tappers, scavengers, carriers of head loads, drivers of animal driven
vehicles, loaders and unloaders. The last unorganized labor category includes
service workers such as midwives, domestic workers, barbers, vegetable and
fruit vendors, newspaper vendors, pavement vendors, hand cart operators, and
the unorganized retail.
The unorganized sector has low productivity and offers
lower wages. Even though it accounted for over 94 percent of workers, India's
unorganized sector created just 57 percent of India's national domestic product
in 2006, or about 9 fold less per worker than the organized sector. According
to Bhalla, the productivity gap sharply worsens when rural unorganized sector
is compared to urban unorganized sector, with gross value added productivity
gap spiking an additional 2 to 4 fold depending on occupation. Some of lowest
income jobs are in the rural unorganized sectors. Poverty rates are reported to
be significantly higher in families where all working age members have only
worked the unorganized sector throughout their lives.
Agriculture, dairy, horticulture and related occupations
alone employ 52 percent of labor in India.
About 30 million workers are migrant workers, most in
agriculture, and local stable employment is unavailable for them.
India's National Sample Survey Office in its 67th report
found that unorganized manufacturing, unorganized trading/retail and
unorganized services employed about 10 percent each of all workers nationwide,
as of 2010. It also reported that India had about 58 million unincorporated
non-Agriculture enterprises in 2010.
In the organized privately owned sector with more than 10
employees per company, the biggest employers in 2008 were manufacturing at 5
million; social services at 2.2 million, which includes private schools and
hospitals; finance at 1.1 million which includes bank, insurance and real
estate; and agriculture at 1 million. India had more central and state
government employees in 2008, than employees in all private sector companies
combined. If state-owned companies and municipal government employees were
included, India had a 1.8:1 ratio between public sector employees and private sector
employees. In terms of gender equality in employment, male to female ratio was
5:1 in government and government owned enterprises; private sector fared better
at 3:1 ratio. Combined, counting only companies with more than 10 employees per
company, the organized public and private sector employed 5.5 million women and
22 million men.
Given its natural rate of population growth and aging
characteristics, India is adding about 13 million new workers every year to its
labor pool. India's economy has been adding about 8 million new jobs every year
predominantly in low paying, unorganized sector. The remaining 5 million youth
joining the ranks of poorly paid partial employment, casual labor pool for
temporary infrastructure and real estate construction jobs, or in many cases,
being unemployed.
Criticisms
Scholars suggest India's rigid labor laws and excessive
regulations assumed to protect the labor are the cause of slow employment
growth in high paying, organized sector. India's labor-related acts and
regulations have led to labour market rigidity. This encourages shadow economy
for entrepreneurs, an economy that prefers to employ informal labor to avoid
the complicated and opaque laws. In particular, Indian labour legislation such
as the Industrial Disputes Act of 1947 added rigid labour laws and one sided
trade union laws. Although the Act does not prohibit layoffs and retrenchments,
it does require entrepreneurs and companies to get the permission from government officials to
fire an employee for absenteeism, retrench
employees for economic reasons, or to close an economically nonviable company.
This bureaucratic process can stretch into years, and the government officials
have consistently and almost always denied such permission. As a result, the
scholars argue that India's inflexible labor laws have created a strong
disincentive to formally register new companies and hire additional workers in
existing organized sector companies. Unlike China, Indian businesses have
avoided substituting India's abundant labor for export or domestic
opportunities, or use labor instead of expensive equipment for quality control
or other operations. These are reasons for India's weak employment growth.
More recently, a few scholars have completed a
comparative study between states of India with different labor regulations.
They compared states of India who have amended labour legislations to grant
more flexibility to employers, to those states in India that have made their
labor laws even more rigid and complicated to comply with. These studies find
that states with flexible labor laws have grown significantly faster. Flexible
labor states have been able to take advantage of the export opportunities, and
the per capita household income has risen much faster in states with flexible
labor laws. States with rigid labor laws have led local entrepreneurs to prefer
casual workers or contract workers with finite employment time period; in
essence, more rigid and inflexible labor law states see increased informal employment.
A 2007 article in The Economist finds India to have the
most restrictive labor laws in any major economy of the world.
India's private sector, including its organized manufacturing sector, employs
about 10 million Indians. Manufacturing firms need to obtain government
permission to lay off workers from factories, and this permission is usually
denied if they have more than 100 staff. This partly explains why most Indian
firms are small: 87 percent of employment in India's organized manufacturing
sector is in firms with fewer than ten employees, compared with only 5 percent
in China. Small Indian firms cannot reap economies of scale or exploit the
latest technology, and so suffer from lower productivity than if they scaled
up, employed more people and were much bigger companies. This cripples Indian
firms ability to rapidly expand or adjust with changes in global economy, both
during early opportunity phase and during economic change.
One exception is white collar jobs, where companies have
stronger lobbies and employees are not unionized, so they have managed to
operate freely with a much larger workforce and have been able to lay off
significant chunk of their workforce without cognizance of the labor laws. In
almost all cases white collar employees are forced to resign under threat of
negative recommendations and black-listing with industry associations.
Djankov and Ramalho have reviewed a number of labor
studies on developing countries including India. They find, consistent with
above criticisms, that countries with rigid employment laws have larger
informal/unorganized sectors and higher unemployment, especially among young
workers. They also report the rigid, inflexible labor laws are strongly related
to low per capita income.
International comparison of Indian
labor laws
The table below contrasts the labor laws in India to
those in China and United States, as of 2011.
|
Relative
regulations and rigidity in labor laws
|
|
Practice
required by law
|
 India
|
 China
|
 United States
|
|
Minimum wage
(US$/month)
|
90 (INR 5000)
|
182.5
|
1242.6
|
|
Standard work day
|
8 hours
|
8 hours
|
8 hours
|
|
Minimum rest while at work
|
30
minutes per 5 hour
|
None
|
None
|
|
Maximum overtime limit
|
200
hours per year
|
1 hour per day
|
None
|
|
Premium pay for overtime
|
100%
|
50%
|
50%
|
|
|
Yes, if
approved by government
|
Yes, without approval of
government
|
Yes, without approval of
government
|
|
Government approval required for 1
person dismissal
|
Yes
|
No
|
No
|
|
Government approval required for 9
person dismissal
|
Yes
|
No
|
No
|
|
Government approval for redundancy dismissal granted
|
Rarely
|
Not applicable
|
Not applicable
|
|
Dismissal priority rules regulated
|
Yes
|
Yes
|
No
|
|
Severance pay for
redundancy dismissal
of employee with 1 year tenure
|
2.1 week salary
|
4.3 week
salary
|
None
|
|
Severance pay for redundancy
dismissal
of employee with 5 year tenure
|
10.7 week salary
|
21.7
week salary
|
None
|
