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Employment, Labor Laws and Labor Markets in India by Tarun Das

Employment, Labor Laws and Labor Markets in India by Tarun Das



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Published by: Professor Tarun Das on Jul 18, 2009
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Labour Laws and Employment in IndiaTarun Das, Economic Adviser, Ministry ogf Finance, India
1 Labour Laws in India
Labour is highly protected and Indian labour laws do not allow
hire and fire policy.
As per existing laws under the Industrial Disputes Act 1947, no employer cannot close anestablishment or declare lock out or retrench any labour without taking prior approval of the concerned government authority if the establishment employed more than 100laborers on permanent basis in the previous 12 months. Various researchers in the pasthad concluded that this clause stood in the way of further organised employment and ledto growth of more capital-intensive industries. Therefore, this protection was counter- productive and acted against the overall interest of the workers.Labour figures in the Concurrent List (for both Centre and States) of distribution of legislative powers in the Constitution. As both Centre and States can legislate in this area,India has perhaps the largest number of legislations on labour in the world. There areover 47 labour related laws enacted by the Central government dealing with industrialrelations, social security, industrial safety and health, child and women labour, minimumwages and bonus, labour welfare, emigration, employment exchange and miscellaneousissues (
There is a considerable degree of overlap among these acts. Manystudies have suggested simplification of rules and procedures and to group these actsunder five or six broad and comprehensive acts dealing with basic issues.
The National Common Minimum Program (NCMP)
states, “
The UPA rejects the ideaof automatic hire and fire. It recognizes that some changes in labour laws may berequired but such changes must fully protect the interests of workers and families and must take place after full consultation with trade unions. The UPA will pursue a dialoguewith industry and trade unions on this issue before coming up with specific proposals. However, labour laws other than the Industrial Disputes Act (IDA) that create an Inspector Raj will be reexamined and procedures harmonized and streamlined 
.”At present, amendments to 13 acts are being examined by all stakeholders viz. centre andstate governments, trade unions and industry associations. These are indicated in
It may be observed from the table that even amendments of simple issues relating todefinitions and scope have taken much longer period than expected due to existing parliamentary procedures for amendment of an act. In some cases like a Bill relating toworkers’ participation in management is lying in the Parliament for 15 years since 1990without any discussion or debate due to lack of interest by political parties.In order to achieve a consensus among various stakeholders, the present Union Minister for Labour and Employment Mr. K. Chandrasekhar Rao held a meeting with professionals and chambers of commerce and industry on the 29
March 2005 andanother meeting with trade union leaders on the 31
March 2005. But, the discussions in1
these meetings remained inclusive. While professionals, government advisers andindustrialists supported flexible labour laws for employment on the ground of globalisation and general liberalisation of the economy, trade union leaders wanted more protection, strict enforcement of labour laws and more benefits for labour.To quote the Minister “
 Friends, you would appreciate the rationale for having lessrigidity in labour laws which has now become a virtual necessity. The protection, whichwas available to the domestic industry from products and services sourced overseas, isno longer there or is fast reducing. Also the earlier policy and procedures with regard toindustrial licensing has given way to a regime more determined by market forces thanadministrative actions. Efficiency, cost cutting and consumer satisfaction areincreasingly becoming the bywords or hall marks of present day business” (Rao 2005b).
The Minister indicated that the government has open mind although it considers thatthere is an urgent need for effecting requisite labour reforms. He has convened another meeting with the State Labour Ministers on the 22
April 2005. Thereafter, the minister would prepare a draft proposal for consideration by the government. Thus the reforms areconstrained by the political economy although there is close interactions betweenresearch and policy planning. This aspect is discussed in details in section 2.5 dealingwith backward looking approach.
2 Labour Markets in India
In various five-year plans, employment generation was viewed as a by-product of development and growth, and not as a goal to be pursued independently of economicdevelopment. 1970s and 1980s witnessed the emergence of various employmentgeneration and self-employment programs as a part of poverty alleviation programs.Although level of employment expanded over the years, the growth rate of employmentstill lags behind that of labour force.Open unemployment is not a major problem in India. Out of a labour force of 406million, 397 million were employed leaving 9 million openly unemployed in 2000.However, employment is characterised by very low quality of employment and low levelsof productivity. About 31 per cent of the employed live blow the poverty line. There is nosignificant growth of regular employment. Organised employment as a proportion of totalemployment declined from 9 per cent in 1993-94 to 7 to 8 per cent in 1999-2000.Significant employment is taking place in services sectors and small and mediumenterprises. Main growth was observed in casual or contractual employment. Self-employment has not also increased significantly in the period from 1993-94 to 1999-2000. Educated unemployment at 14.7 per cent is much higher than normalunemployment at 2.2 per cent.
 Labour and employment 
Comprehensive data on employment and unemployment are collected by the NationalSample Survey Organisation (NSSO) through quinquennial surveys. As per the results of the latest Round (55
in 1999-2000), the rate of employment growth decelerated from 2.72
 per cent per annum in 1983-1994 to 1.1 per cent per annum in 1994-2000 (
). Thedecline in the employment growth rate in the 1990s was associated with a higher growthin GDP indicating a decline in the labour intensity of production. Some of the importantfindings emerging from the 55
Round (1999-2000) are:(i)The decline in the growth rate of employment was associated with a sharp declinein the growth rate of the labour force.(ii)As in the past, the share of casual labour in total employment went up.(iii)The number of unemployed increased from 20 million in 1993-94 to 27 million in1999-2000.(iv)The decline in the employment growth in 1994-2000 was mainly attributable to astagnation of employment in agriculture, resulting in a drop of the share of agriculture in total employment from 60 per cent in 1993-94 to 57 per cent in1999-2000.(v)On the other hand, employment growth in all the sub-sectors within services, suchas trade, hotels, restaurant, transport, storage, communication and financial and business services, (except community, social and personal services havingnegative growth rate) exceeded 5 per cent per annum (
Table-1: Employment growth rates in 1972-2000 (per cent)
PeriodGrowth of population(% per annum)Growth of labor force(% per annum)Growth of employment(% per annum)1972-19782.272.942.731977-19832.192.042.171983-19882.141.741.541987-19942.102.292.431994-20001.931.031.07
Planning Commission, Government of India.
Table-2 Sectoral Employment in 1983 to 2000
Employment (per cent to total)Annual growth rate (%)Sector19831987-19881993-19941999-20001983to1987-19881987-1988to1993-19941983to1993-19941993-1994to1999-2000Agriculture63.260.160.456. & quarrying0., gas, water0., hotels, restaurant7.68.38.511., communication2., real estate0. services9.810. Sector1001001001002.

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