1. A number of state governments made key changes in the application of labour laws

  • What are Indian labour laws? How do they safeguard the interests of labours?

  • Why are labour laws often criticised?

  • Why will wages fall, if labour laws are relaxed?

  • Would these changes not boost employment and spur economic growth?

UPSC Can list these Questions under

GS paper 3 ( Indian Economy, Labour laws)

What is the context about?

  • As the economy struggles with the lockdown and thousands of firms and workers stare at an uncertain future, some state governments last week decided to make significant changes in the application of labour laws.
  • UP, the most populous state, has made the boldest changes as it summarily suspended the application of almost all labour laws in the state for the next three years.

What are Indian labour laws? How do they safeguard the interests of labours?

  • Estimates vary but there are over 200 state laws and close to 50 central laws. And yet there is no set definition of “labour laws” in the country.
  • The main objectives of the Factories Act, for instance, are to ensure safety measures on factory premises, and promote health and welfare of workers.
  • The Shops and Commercial Establishments Act, on the other hand, aims to regulate hours of work, payment, overtime, weekly day off with pay, other holidays with pay, annual leave, employment of children and young persons, and employment of women.
  • The Minimum Wages Act covers more workers than any other labour legislation. The most contentious labour law, however, is the Industrial Disputes Act, 1947 as it relates to terms of service such as layoff, retrenchment, and closure of industrial enterprises and strikes and lockouts.

Why are labour laws often criticised?

  • Indian labour laws are often characterised as “inflexible”. In other words, it has been argued that thanks to the onerous legal requirements, firms (those employing more than 100 workers) dither from hiring new workers because firing them requires government approvals.
  • Even the organised sector is increasingly employing workers without formal contracts.
  • Others have also pointed out that there are too many laws, often unnecessarily complicated, and not effectively implemented.

Why will wages fall, if labour laws are relaxed?

  • Even before the Covid-19 crisis, thanks to the deceleration in the economy, wage growth had been moderating.
  • Moreover, there was always a wide gap between formal and informal wage rates. For example, a woman working as a casual labourer in rural India earns just 20% of what a man earns in an urban formal setting.
  • If all labour laws are removed, most employment will effectively turn informal and bring down the wage rate sharply. And there is no way for any worker to even seek grievance redressal.

Would these changes not boost employment and spur economic growth?

  • Theoretically, it is possible to generate more employment in a market with fewer labour regulations.
  • However, as the experience of states that have relaxed labour laws in the past suggests, dismantling worker protection laws have failed to attract investments and increase employment, while not causing any increase in worker exploitation or deterioration of working conditions.