Chapter 1: Introduction

1.1 Labour law Reforms – an overview

1.2 Introduction of Labour Laws

1.2.1 Who is labour under Labour Law

1.2.2 Purpose of labour legislation

1.3 History of Labour Laws

1.4 Study of Labour Law reforms in Pre and post independence.

1.4.1 Pre--‐1920s

1.4.2 Post--‐World War One and the 1920s

1.4.3 The 1930s

1.4.4 World War Two and the Pre--‐Independence Period

1.4.5 Post--‐Independence, 1948 onwards

1.5 Labour Law in India

1.5.1 Implementation of Labour law in India

1.5.2 Constitutional framework of Labour laws

1.6 Labour market in India

1.6.1 Organised and unorganised sector

1.6.2 Phases of Organised and unorganised sector

1.7 Organisational Effectiveness - Conceptual framework

1.8 Introduction of Organizational Effectiveness

1.8.1 Organisational Effectiveness and Labour management Relations

1.8.2 Organizational Effectiveness and Job Satisfaction, Motivation

1.8.3 Organizational Effectiveness and Employees Productivity

1.8.4 Organizational Effectiveness and Employees Retentions

1.9 Labour Law Reforms and Organizational effectiveness

1 .1 Labour Law Reforms- an Overview

Reforms in Labour Laws are being much talked in recent years. It is being advocated that all
talk of liberalization is futile without squarely facing up to the imperative of Labour Reforms.
These are an integral part of the economic reforms process itself. Other efforts at raising the
standard of performance on the economic front to world class are apt to stall if those
managing enterprises find themselves hamstrung by outdated trade union laws and dilatory
methods of adjudication of industrial disputes.

For instance, the unwieldy number of adjudicating authorities — conciliation officers,

conciliation boards, courts of inquiry, labour courts, industrial tribunals and the national
industrial tribunal — under the Industrial Disputes Act and the complex procedures are out of
sync with the essential pre-requisites for the success and even the survival of companies in a
globally integrated economy.

Productivity, customer service, cost-effectiveness, keeping to delivery schedules,

technological up gradation and modernization have emerged as the criteria for judging the
quality of management of companies, and Labour Reforms hold the key to increased
competitiveness and investment flows in all these respects. The need for introducing labour
market flexibility and simplifying Labour Laws has no doubt been emphasized by the
President and Prime Minister of the country downwards from time to time.

The case for Labour Reforms could not have been argued better than in this extract from the
Economic Survey of 2005-06: ". Indian Labour Laws are highly protective of labour, and
labour markets are relatively inflexible. These laws apply only to the organized sector.
Consequently, these laws have restricted labour mobility, have led to capital-intensive
methods in the organized sector and adversely affected the sector's long-run demand for
labour".

Among the plethora of modern Labour Laws, the Workman‘s Compensation act, 1923 is the
oldest one. Some of the other significant Labour Legislations are the Trade Unions act, 1926,
the Payment of Wages 1948, The Factories Act 1948, Employees State Insurance Act 1948,
The Employees Provident Fund and Miscellaneous Provisions Act 1952, The Payment of
Bonus Act 1965, and the Payment of Gratuity act 1972. These Acts have been changed and
amended from time to time to adapt to contemporary issues

In 1991, the government of India introduced economic reforms in the wake of globalization
making Indian economy open to the global competition. While reforms in many other critical
competitiveness-enhancing areas like infrastructure, financial sector and taxation were
undertaken, Labour Legislations were left untouched. Indian corporations demanded Reforms
in Labour Laws so that the Indian industry is made more competitive through introducing
changes in the existing legal provisions. However, this demand was strongly opposed by the
trade unions and workers. In addition, politicians have always been evasive on the subject of
changes in Labour Laws as the vote bank politics can have negative impact if they tilt too
much towards the right wing.

With the talks of second generation economic reforms, the talk about Labour Law Reforms
has emerged again. The deregulation of labour market has been thought as an important
component for effective economic reforms and privatization agenda. The debate on whether
the aims of poverty alleviation, creation of employment and ensuring social justice will be
met by Labour Law Reforms or not, is still on. Recently, while this survey was being
conducted, the second National Labour Commission (NLC) and the group of ministers on
Labour submitted a 1470 page report giving positive signal to the demands of Indian
business. This development suggests that Indian labour market is definitely heading towards
the deregulation path.

For the past six to seven years it has been argued (especially by employers) that Labour Laws
in India are excessively pro-worker in the organized sector and this has led to serious
rigidities that has resulted in adverse consequences in terms of performance of this sector as
well as the operation of the labour markets. There have been recommendations by the
government to Reform Labour Laws in India by highlighting the need for flexibility in Indian
Labour Laws that would give appropriate flexibility to the industry that is essential to
compete in international markets. The main issue has been slow employment growth despite
increasing GDP growth termed as ‗jobless growth‘ the arguments for which are that the
existing labour laws are less employment friendly and biased towards the organized labour
force, they protect employment and do not encourage employment or employability, they
give scope for illegitimate demands of the Trade Unions and are a major cause for greater
acceptance of capital-intensive methods in the organized sector and affect the sector‘s long
run demand for labour. It has been argued that due to inflexibility in the labour laws the
opportunity to expand employment in the organized manufacturing sector has been denied
since there is a lack of consensus between the employer‘s side and the worker‘s side. The
employer‘s view flexibility in labour markets as a pre-requisite for promoting economic
growth and generating jobs, whereas, the trade unionists view flexibility in labour markets as
a strategy for profit maximizing of the firms and reducing their bargaining power without
generating sufficient employment opportunities as has been said. For them insecurity has
been the major cause of concern.

In the wake of labour market flexibility post economic liberalization, which is believed to
enhance competitiveness in an environment of rapidly changing markets and technologies,
the government is in a dilemma as most of the labour laws and social protection laws has
been labour friendly. But in order to introduce reforms in the labour market, the government
has to respond to the requirements of the various stakeholders (employers, workers,
multinational firms and international financial agencies). The urgency for the need to reform
labour laws was brought into front after the recent spat in Gurgaon (Honda Motorcycle and
Scooter India case)1. It is considered to be a watershed event that turned all eyes towards the
urgency to delve into the matter seriously. Yet the labour and the management communities
differ in their opinion in what reforms can actually be done to the laws. The employees are of
the opinion that the central and the state labour laws have been flouted continuously,
whereas, the employers are of the opinion that the ‗Labour Laws in the country seek
employment at the cost of employability‘ (Business Standard, August 6, 2005).

1
The case highlights the growing number of instances of clashes between the employees and the management of
companies in India, which is often guided by external parties such as trade unions and political parties.
Figure No 1: Labour Force participation Rate

The three main labour laws that are the major point of debate in this regard are the Industrial
Disputes Act (1947), the Contract Labour Act (1970) and the Trade Union Act (1926). But
though on one hand we have the accusation on the rigid labour laws, on the other hand this
argument has been contested on grounds that there are weak linkages between labour
regulations and industrial outcomes. Some of these studies found that neither employment
growth nor fixed capital investments of firms were constrained by labour laws. So, in this
context of current debates related to rigidity of labour laws and hence the impediments to
employment generation in this sector, it becomes extremely important to understand firstly
the jobless growth in organized manufacturing since 1980‘s and especially in the post reform
period; secondly the need for flexible markets and skill development in the country; thirdly
the labour laws that are the current concern; fourthly the task force and SNCL
recommendations and the objections to those recommendations and lastly the need for safety
nets and social security for labour in the current wake of flexible labour markets.

1.2 Introduction of Labour Laws

The law relating to labour and employment in India is primarily known under the broad
category of "Industrial Law". Industrial law in this country is of recent vintage and has
developed in respect to the vastly increased awakening of the workers of their rights,
particularly after the advent of Independence. Industrial relations embrace a complex of
relationships between the workers, employers and government, basically concerned with the
determination of the terms of employment and conditions of labour of the workers. Escalating
expectations of the workers, the hopes extended by Welfare State, uncertainties caused by
tremendous structural developments in industry, the decline of authority, the waning
attraction of the work ethics and political activism in the industrial field, all seem to have
played some role.

Labour Laws is the Body of laws, administrative ruling and precedents‖ which addresses the
relationship between and among ―Employers, Employees & Labour Organisations which
dealing with labour issues. Labour Laws as word ―LAWS‖ shows is not a single law but a
cluster of different Acts, Rules and Regulations enacted by Parliament of India and different
States Legislatures. In India Labour Laws covers almost all types of industries with
Differentiation of enactments for different type of industries as per the nature of those
industries like Dock Workers, Coal Mines Workers, and Plantation Workers etc. There are
different laws to regulate their employment and conditions of service also with different
subjects.

The labour laws in India not only deal with industrial relations (i.e. relations between the
employers and employees), but also relate to payment of wages, working conditions, social
security, etc. Additionally, there are several labour laws which regulate service conditions in
specific industries, such as building and construction work, pharmaceuticals, dockyards, and
mines. In addition, these labour laws also provide for various compliances in accordance with
the procedures laid down therein. This chapter provides an insight into the laws and
regulations applicable in India to labour and industrial matters.

In the current Indian economic environment, which is marked by globalised economy,

liberalisation in trade, enhanced competition and ongoing technological advancement,
rationalisation of manpower is one of the most effective keys to the efficiency of any
organisation. Rationalisation of manpower does not merely mean reduction / retrenchment of
employees. What it really means is reorganisation of the existing manpower such that their
utilisation and output can be optimised. Hence, we have had companies approach us in the
last few months for assistance not only in connection with retrenchment of employees and
closure of certain offices, but also for: transfer of employees pursuant to transfer of business
as a „going concern‟; offer of relocation options to employees on account of closure of a
business unit or cessation of a line of business at a particular location; redefining of
responsibilities pursuant to new business opportunities; identifying groups to undergo
technical training to keep up with and implement new innovations; etc. While carrying out
any of the aforesaid rationalisation options, it is imperative that the organisation balances
commercial requirements with the legal framework.

Labour Laws also known as employment law(is the body of laws), administrative rulings,
and precedents which address the legal rights 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 as
workers, union members and employers in the workplace. Generally, Labour Law covers:

• Industrial relations – certification of unions, labour‐management relations, collective

bargaining and unfair labour practices

• Workplace health and safety

• Employment standards, including general holidays, annual leave, working hours,

Unfair dismissals, minimum wage, layoff procedures and severance pay.

There are two broad categories of labour law. First, collective labour law relates to the
tripartite relationship between employee, employer and union. Second, individual labour law
concerns employees' rights at work and through the contract for work. The labour movement
has been instrumental in the enacting of laws protecting labour rights in the 19th and 20th
centuries. Labour rights have been integral to the social and economic development since the
industrial revolution.

1.2.1 Who is labour under Labour Law

According to the Article 1, 2 & 4 of labour law, All employers, workers, workshops and
production, industrial, services and agricultural institutes shall be obligated to observe the
provisions of this Law. For the purpose of this Law, a worker is one who works in any
capacity against receipt of remuneration including wages, salary, share of profit, and other
benefits at the request of the employer. Workshop is a place like industrial, agricultural,
mining, construction, transportation, passenger transport, services, commercial and
production institutes, public premises and their likes, where the worker in which performs his
work at the request of the employer or his representative.

Labour is a primary factor of production. The size of a nation's labour force is determined by
the size of its adult population, and the extent to which the adults are either working or are
prepared to offer their labour for wages. Labour is a active factor of productions, this factor
has its own feelings, like and dislike, thinking power etc. We can achieve better quality level
of production, if land and capital employed properly in close association with labour
1.2.2 Purpose of labour legislation

Labour law is designed to protect the rights of individual workers and employers, and to
promote productive, safe workplaces. Prior to the advent of labour legislation, workplaces
were regulated only by the ethics of the ownership and the bargaining power of the
employee.

Employment law is another name used for Labour law. This law is used for the employee's benefits. It is the
law which deals with the legal rights of and limitations on working people and their organizations. As such,
it looks at many features of the links between manager, trade unions and employees. Labour law defines
your rights and obligations as workers, union members and employers in the
workplace. Generally, labour law covers:

 It establishes a legal system that facilitates productive individual and collective

employment relationships, and therefore a productive economy
 By providing a framework within which employers, workers and their representatives
can interact with regard to work‐related issues, it serves as important vehicle for
achieving harmonious industrial relations based on workplace democracy
 It provides a clear and constant reminder and guarantee of fundamental principle and
rights at work which have received broad social acceptance and establishes to
processes through which these principles and rights can be implemented an enforced.
 For securing the health and strength of employees, men and women
 That citizens are not forced by economic necessity to enter avocations unsuited to
their age or strength
 Just and humane conditions of work and maternity relief are provided
 That the Government shall take steps, by suitable legislation or in any other way, to
secure the participation of employee in the management of undertakings,
establishments or other organisations engaged in any industry.
But experience shows that labour law can only fulfils these functions effectively if it is
responsive to the conditions on the labour market and the needs of the parties involved. The
most efficient way of ensuring that these conditions and needs are taken fully into account is
if those concerned are closely involved in the formulation of the legislation through processes
of social dialogue. The involvement of stakeholders in this way is of great importance in
developing a broad basis of support for labour legislation and in facilitating its application
within and beyond the formal structured sectors of the economy.

1.3 History of Labour laws

The origins of Labour Laws can be traced back to the remote past and the most varied parts
of the world. While European writers often attach importance to the guilds and apprenticeship
systems of the medieval world, some Asian scholars have identified labour standards as far as
rules for labour-management relations in the Laws. Latin American authors point to the Laws
of the Indies promulgated by Spain in the 17th century for its New World territories. None of
these can be regarded as more than anticipations, with only limited influence on subsequent
developments. Labour Law as it is known today is essentially the child of
successive industrial revolutions from the 18th century onward. It became necessary when
customary restraints and the intimacy of employment relationships in small communities
ceased to provide adequate protection against the abuses incidental to new forms of mining
and manufacture on a rapidly increasing scale at precisely the time when the 18th-century
Enlightenment, the French Revolution, and the political forces that they set in motion were
creating the elements of the modern social conscience. It developed rather slowly, chiefly in
the more industrialized countries of Western Europe, during the 19th century and attained its
present importance, relative maturity, and worldwide acceptance only during the 20th
century.

The first landmark of modern Labour Law was the British Health and Morals of Apprentices
Act of 1802, sponsored by the elder Sir Robert Peel. Similar legislation for the protection of
the young was adopted in Zürich in 1815 and in France in 1841. By 1848 the first legal
limitation of the working hours of adults was adopted by the Landsgemeinde (citizens‘
assembly) of the Swiss canton of Glarus. Sickness insurance and workmen‘s compensation
were pioneered by Germany in 1883 and 1884, and compulsory arbitration in industrial
disputes was introduced in New Zealand in the 1890s. The progress of Labour Legislation
outside western Europe, Australia, and New Zealand was slow until after World War I. The
more industrialized states of the United States began to enact such legislation toward the end
of the 19th century, but the bulk of the present Labour Legislation of the United States was
not adopted until after the Depression of the 1930s. There was virtually no Labour
Legislation in Russia prior to the October Revolution of 1917. In India children between the
ages of seven and 12 were limited to nine hours of work per day in 1881 and adult males
in textile mills to 10 hours per day in 1911, but the first major advance was the amendment of
the Factory Act in 1922 to give effect to conventions adopted at the first session of the
International Labour Conference at Washington, D.C., in 1919. In Japan rudimentary
regulations on work in mines were introduced in 1890, but a proposed factory act was
controversial for 30 years before it was adopted in 1911, and the decisive step was the
revision of this act in 1923 to give effect to the Washington Convention on hours of work in
industry. Labour legislation in Latin America began in Argentina in the early years of the
century and received a powerful impetus from the Mexican Revolution, which ended in 1917,
but, as in North America, the trend became general only with the impact of the Great
Depression. In Africa the progress of Labour Legislation became significant only from the
1940s onward.

The legal recognition of the right of association for trade union purposes has a distinctive
history. There is no other aspect of Labour Law in which successive phases of progress and
regression have been more decisively influenced by political changes and considerations. The
legal prohibition of such association was repealed in the United Kingdom in 1824 and in
France in 1884; there have been many subsequent changes in the law and may well be further
changes, but these have related to matters of detail rather than to fundamental principles. In
the United States freedom of association for trade union purposes remained precarious and
subject to the unpredictable scope of the labour injunction, by means of which the courts
helped restrain trade union activity until the 1930s. The breakthrough for trade unionism
and collective bargaining was achieved by the National Labor Relations Act of 1935. In
many other countries the record of progress and regression with respect to freedom of
association falls into clearly distinguished periods separated by decisive political changes.
This has certainly been the case with Germany, Italy, Spain, Japan, and much of Eastern
Europe; there have been many illustrations of it, and there may well be more in the
developing world.
Labour codes or other forms of comprehensive Labour Legislation and ministries of labour
were not introduced until the 20th century. The first labour code (which, like many of its
successors, was a consolidation rather than a codification) was projected in France in 1901
and promulgated in stages from 1910 to 1927. Among the more advanced formulations
affecting the general condition of labour were the Mexican Constitution of 1917 and
the Weimar Constitution of Germany of 1919, both of which gave constitutional status to
certain general principles of social policy regarding economic rights. Provisions of this kind
have become increasingly common and are now widespread in all parts of the world.

Departments or ministries of labour responsible for the effective administration of Labour

Legislation and for promoting its future development were established in Canada in 1900, in
France in 1906, in the United States in 1913, in the United Kingdom in 1916, and in Germany
in 1918. They became general in Europe and were established in India and Japan during the
following years and became common in Latin America in the ‘30s. A labour office was
established in Egypt in 1930, but only in the ‘40s and ‘50s did similar arrangements begin to
take root elsewhere in Asia and Africa. Under differing political circumstances there
continue, of course, to be wide variations in the authority and effectiveness of such
administrative machinery.

1.4 Study of Labour Law Reforms in Pre and post independence

Discussion of Indian labour law and industrial relations is often divided into discrete time
periods, reflecting important stages in the evolution of the Indian state as well as stages of
economic development and policy. The earliest regulation was largely designed as labour
control, but this was eventually added to by a sequence of factory-type regulation, providing
for some basic levels of protection, between the 1880s and the 1930s. This legislation
essentially reflected an accommodation of sorts between the interests of British industry,
seeking protection for its domestic enterprises against cheap foreign labour, and Indian social
reformers intent on improving what were regarded as sub-human working conditions in
Indian factories. In the view of some commentators, this early period of labour law reform
was largely ‗formal or unimportant‘ constituting only a ‗minimum of interference with the
working conditions of labour and the relationship between the employer and the worker‘.

A second period (1937-1947), was more creative, and began with the emergence of
‗Provincial Autonomy‘ in the second half of the 1930s, the focus of the Indian Congress
Party on worker‘s rights (including such matters as standards of living, trade union rights, the
right to strike and so on), and the introduction of greater uniformity through the extension of
workplace regulation. The third period in Ornati‘s analysis begins with the critical post-
Independence legislation of the late 1940s and early 1950s.

Ornati‘s analysis would suggest that there was nothing very eventful about early Indian
labour law, but others have argued that there was important progress made in labour
legislation in the immediate post-World War One period, pointing specifically to the
influence of several International Labour Organisation (ILO) conventions and the Royal
Commission on Labour in the 1920s as major advances. For the purposes of present
discussion we propose to examine the evolution of labour law in India, and the regulatory
policy associated with it, across six main periods.

1.4.1 Pre - 1920s

In the very early stages of British colonial control, there was little attention paid to the legal
organisation of work by the authorities. Labour organisation and the production process
remained, apart from a few exceptions, a matter of family, land and cultural regulation. The
earliest British regulations related to workers in the government service, including the
military, and ‗forced labour‘ for the performance of public works. However, as we have
noted briefly above, from the 1880s onwards there was a succession of legislative
interventions by the colonial government, mainly in relation to the employment of women
and children, and concerning hours of work, in factories and mines. Much of this legislation
was the result of various government-initiated enquiries. However, the legislation made only
very slight inroads into working practices in these industries, and was of limited impact
insofar as it applied only selectively. Regulation in the plantation sector was focused
principally upon matters relating to labour supply and the problems of the indentured labour
system.

1.4.2 Post-World War One and the 1920s

As we noted, there is some disagreement about the importance of this period. Several factors
had combined to alter the industrial and political landscape, including the emergence of a
strong nationalist movement, the rapid development of trade unions (most importantly the
formation of the All India Trade Union Congress in 1920), and the emergence of Communist
influence in the labour movement following the successful Bolshevik revolution in Russia in
1917. At the same time the newly created ILO began to have an influence on labour policy in
India. Much of the legislation of this period was a continuation of the ‗factory‘-style
regulation of the pre-war period, dealing with hours of work, rest periods, female and child
protections, health and safety and so on. Typical protective legislation of the period includes
the Factories Act 1922, the Mines Act 1922, and the Workmen‘s Compensation Act 1923,
much of it responding to the ratification of various relevant ILO conventions by the colonial
Indian government. However, even if this body of legislation is correctly characterised as
‗unimportant‘ two further enactments in this period point to what has been described as the
emergence of a more modern approach to the regulation of industrial relations: the Trade
Unions Act 1926 and the Trade Disputes Act 1929. The regulatory framework set down in
these two provisions continues formally to underpin the collective labour law system of
present day India. The Trade Unions Act 1926 provided for the registration of trade unions
(though registration was not made compulsory), gave unions a legal status, and extended
some protections against civil and criminal liability in the course of industrial disputes. The
Act was limited in certain respects (for example unregistered unions were excluded from the
Act‘s protections), and the legislation provided no support for a collective bargaining system
as such, insofar as there was no obligation upon employers to bargain with unions (even
registered unions) in the course of an industrial dispute, nor, in the case of such bargaining,
was there any legal obligation to bargain in good faith. The Trade Disputes Act 1929 placed
severe limitations upon the right to strike, and provided for the compulsory reference of
industrial disputes to a conciliation board or a court of enquiry. The outcomes of the
reference, however, were not binding upon the parties. Both pieces of legislation were
strongly criticised by sections of the trade union movement, including the All India Trade
Union Congress.

1.4.3 The 1930s

In the context of world economic depression and the associated rise in unemployment, there
was also in this period continued agitation for Indian independence in which the All India
Trade Union Congress was playing a major role. Mass dismissals were accompanied by a
renewed wave of strikes, especially as the economic depression took hold through 1928 and
1929. Against this background, the British government established the Royal Commission on
Labour in India on the 4th July 1929. The Commission was effectively boycotted by the
Indian labour movement, the All India Trade Union Congress pointing to the British
Imperialist government‘s ‗open and brutal attack upon the trade union movement by means
of repressive legislation.‘ and its lack of ‗bona fides‘ in establishing the Commission.

The Commission handed down its Report in 1931, still a period of continued job cuts, wage
reductions, and ongoing industrial unrest and strike action. But during the 1930s, two major
factors began to put some further shape on Indian labour law. First, many of the outcomes of
the Report of the Royal Commission made their way into a string of new labour legislation
between 1933 and 1939. Menon estimates that of 24 pieces of labour legislation introduced
by central and provincial governments between 1932 and 1937, 19 arose from the Royal
Commission‘s recommendations. Virtually all of this new law was in the nature of protective
factory and mines regulation to do with wages, hours of work, and compensation of one sort
or another, similar to earlier periods. One exception was the Payment of Wages Act 1936,
which empowered the employer to deduct wages of employees absent from work in concert,
and without reasonable cause. A further example was the Trade Disputes (Amendment) Act
1938, which authorised provincial governments to appoint conciliation officers to assist in the
settlement of disputes.

Secondly, and potentially more important, were the developments which followed from the
Government of India Act 1935. The heightened profile given to provincial autonomy made
possible under these new constitutional arrangements gave rise to popular expectation that
more ‗labour‘- or ‗union‘-friendly policies would emerge at the provincial government level,
and this in turn gave rise to further concentrated periods of extensive strike action.

Even prior to the 1935 Act, several provincial governments had begun to experiment with
labour law, much of it an important contribution to the development of better working
conditions in work places. Not all of this, however, was particularly directed to creating a
more favourable environment for combined labour activity. One important instance was the
introduction of the Trade Disputes (Conciliation) Act 1934 by the provincial government of
Bombay. Whilst novel insofar as it was designed to effect changes to collective labour
relations (by providing for the appointment of a Labour Officer to represent the interests and
grievances of workers in the cotton mills), the 1934 Act seems to have been aimed mainly at
heading off communist influence among the labour movement following many years of
decline in the Bombay-based textile industries and a major strike earlier in that year.

However, more adventurous legislation followed after the election of more popular provincial
governments in the wake of the Government of India Act 1935. The introduction of the
Industrial Disputes Act 1938 by the Bombay provincial government, for example, among
other things made some move in towards the imposition of a legal obligation on the part of
employers to recognise trade unions. Again it is necessary to note, however, that these were
largely limited measures which were not greeted with general approval by the Indian trade
union movement. The All India Trade Union Congress described the 1938 Bombay Bill as
‗uncalled for, reactionary, prejudicial and harmful to the interest of the workers [and]
―calculated to create slave unions‖. In general it appears that the expectations created in the
popular election of provincial governments remained largely unfulfilled.

1.4.4 World War Two and the Pre-Independence Period

Regulation in the World War Two period appears against the background of considerable
industrial unrest and strike action against the conditions and affects of the war itself. These
circumstances brought into being several pieces of legislation (at Central and State level)
designed to secure labour co-operation in support of the war effort. This legislation included
passage in 1941 of Sec-49A of the Bombay Industrial Disputes Act, granting power to the
Bombay government to refer industrial disputes to compulsory arbitration by an Industrial
Court, and banning all strikes and lockouts prior to arbitration. Much of this restrictive
legislation in the Bombay province was continued after the war ended in the form of the
Bombay Industrial Relations Act 1946.41 Other relevant legislation included the Central
government‘s Essential Services Act 1941, and the Defence of India Rules (Rule 81-A,
introduced in 1942, and Rule 56-A, introduced in 1943). Each of these sets of provisions laid
down severe restrictions against strikes, and other forms of industrial action, in the course of
industrial disputes, including industrial action on the part of employers in some cases.
General and political strikes were also targeted. The provisions of Rule 81-A in particular
were continued after the war as part of the Industrial Disputes Act 1947, and, as is noted in
subsequent sections of this paper, have remained a core part of the legislation governing
industrial disputes and bargaining since that time.

To greater or lesser extent, the Trade Disputes Act 1929, its successor the Trade Disputes Act
1947, and earlier provisions such as the Bombay Act of 1934, were essentially designed to
enable government agencies to investigate industrial disputes over relevant terms and
conditions of employment, and to settle them in appropriate cases. But generally the terms of
this legislation were historically directed more towards the control of labour than towards the
settlement issue. Certainly there was little or nothing in these various provisions which
facilitated the development of collective bargaining in a British- or American-style model.

While strikes and lockouts were strictly controlled, the state, at both Central and State levels,
exercised strong controls over the circumstances in which disputes might be referred to
adjudication, the industries to which the legislation applied, and which unions might be
permitted to notify such disputes.

The overall impact of this was, then, one of limitation and exclusion. The Industrial Disputes
Act 1947, for example, applied (and applies) generally to ‗workmen‘ in ‗industries‘.
‗Workmen‘ excluded various categories of workers engaged in particular occupations, or in
managerial and administrative capacities, and so on. Whereas the term ‗industry‘ has now
been interpreted quite broadly, many types of employment, including workers in government
departments and services, and domestic and agricultural workers are still excluded. Similarly
the Trade Unions Act 1926 also contained important limitations on its coverage. It has been
said of the system set up under the Industrial Disputes Act 1947 that ‗the freedom of
industrial action on the part of workers is more illusory than real‘ and that the ‗provisions of
the law operate to restrict the options available to the side represented by the workers‘. What
collective bargaining there was, developed without state support and, not surprisingly,
evolved almost entirely in the formal (or organised) sectors of the economy. These are largely
confined to the public and large corporate sectors and constitute about 3 per cent or less of
the workforce in each case.

Most scholars have noted that the path taken in the evolution of Labour Law in India in the
post-1945 period basically followed the pattern established earlier in the restrictive policies of
the colonial government and in particular the legislation of the war years. Only in a few
States were there exceptions made to the overall discretionary power of government to refer
or not to refer disputes for adjudication, and in only a few States did laws emerge which
created some sort of obligation upon employers to recognise trade unions. One such provision
was the Bombay Industrial Relations Act 1946 which, building upon the earlier (and much
criticised) attempts in the Bombay Industrial Disputes Act 1938, distinguished several types
of unions, and extended to some of those unions the right to represent workers in particular
industries and areas.

At the same time, however, there was a continued strengthening of the protective regulation
applying to individual worker‘s rights during this period. One example is the Industrial
Employment (Standing Orders) Act 1946 which required employers to provide their
employees with clear terms and conditions of employment according to the items set down in
a Schedule to the Act and certified by the relevant authority. Other major statutes of this
period included the Factories Act 1948 and the Minimum Wage Act 1948. Much of this body
of regulation, as we have noted also in the case of the Industrial Disputes Act 1947, was (and
remains) limited in its application because it was applied only selectively to certain kinds of
business establishments, and, in respect of some provisions, only to businesses of a certain
size as determined by the number of employees. This is a common theme in Indian labour
law, with obvious implications for the legitimacy of the labour law system as a whole.

1.4.5 Post-Independence, 1948 onwards

In the immediate post-war period it was agreed that the Indian Central government would be
primarily responsible for labour legislation, and the promotion of labour‘s interests, reflecting
a five-year plan of development ‗dealing with all phases of the worker‘s life, of housing,
welfare, work, better working conditions, and fair wages‘. Many of these social values were
articulated in the Constitution of India 1950, particularly its commitment to economic,
political and social justice in the Preamble, and its general egalitarian conception of national
development.

Consistent with this socio/political outlook, we have noted the introduction of a raft of
protective legislation in the form of the Factories Act 1948, and the Minimum Wages Act
1948. Important also to note are the Dock Workers (Regulation of Employment) Act 1948,
which among other things sought to ‗decasualise‘ dock labour, the Employees‘ State
Insurance Act 1948, providing for an insurance system for employees in cases of sickness,
maternity, injury and death, the Plantations Labour Act 1951, which sought to regulate
conditions of work and provide welfare measures for India‘s high employment industries in
tea and rubber plantations, and the Employees' Provident Fund and Miscellaneous Provisions
Act 1952, one of the most important pieces of legislation in India's social security system It
follows from what we have said earlier, however, that this period did not mark out a
completely new approach to the issue of labour regulation in India. When it came to the
regulation of collective labour relations in particular, the restrictive policies of government
control which had characterised the colonial and immediate post-war period continued to
hold sway. As various authorities have noted, the major influence on the formation of post
independence labour and economic policy was the priority given to government-directed
‗nation building‘ in which the need for trade union co-operation in securing industrial peace
and labour support for industrialisation and economic development (economic nationalism)
was paramount .

Consequently the development of labour law in India continued to follow the dual pattern
already identified. In support of the state planned and organised economy, the Indian
government continued its strong interventionist role in industrial relations. The laws
regulating trade unions and industrial disputes remained largely fixed on the model set by the
legislation introduced over the period from 1926 to 1947, and this in turn had certain
implications for the Indian industrial relations system. While trade union organisation was
legally sanctioned, collective bargaining (at least nominally) ‗recognised‘, and strikes and
lockouts to a degree legalised and regulated, the level of state intervention in the actual
industrial relations process, and the emphasis given to the maintenance of ‗industrial peace‘
effectively circumscribed the possibility that collective bargaining might develop as the
primary form of industrial relations in India in effect ‗collective bargaining was held to be
incompatible with economic planning‘.

Overall the law on bargaining has changed little since these formative days, although in an
important amendment to the Trade Union Act in 2001 it was provided that trade unions were
required to have at least 100 members or to represent at least 10% of the workforce in order
to secure registration under the Act, thereby making the formation and legalisation of unions
far more onerous than had previously been the case. As noted earlier, some States did move
to provide unions with a right to recognition, and some subsequent legislation made the
refusal to bargain on the part of an employer an ‗unfair labour practice‘, more or less making
the duty to bargain legally obligatory. Probably the best example of this legislation is the
Maharashtra Recognition of Unions and Prevention of Unfair Labour Practices Act 1971,
which supplemented the Industrial Relations Act 1946 of Bombay, although that legislation
was limited in its application to nine industries only. In 1982 the Indian Central Government
amended the Industrial Disputes Act of 1947 introducing the concept of the ‗unfair labour
practice‘ into national labour law. This legislation outlawed various practices by employers,
unions and workers designed to disrupt the legitimate processes of dispute settlement under
the Act. The refusal by an employer to bargain collectively in good faith with the recognized
trade union was listed as an unfair practice. Whilst on its face this provision might seem to
have amounted to a major breakthrough in collective bargaining law in India, it does not
appear to be regarded as particularly important by Indian labour law scholars, perhaps
principally because it has had little impact in practice. What collective bargaining there is in
India, and it does exist at all levels and across many industries, has evolved in a de facto
sense, and, as noted earlier, has been largely limited to the public, and corporate, sectors of
the economy. In the mid 1990s the proportion of Indian workers covered by collective
bargaining agreements was estimated to be lower than five per cent.

The second area of development concerns employment security. Originally the termination
of, or dismissal from, employment was not an appropriate subject of an individual ‗industrial
dispute‘ pursuant to the Industrial Disputes Act 1947, and there was thus little limitation on
the employer‘s right to fire an employee as it saw fit, other than a requirement that
appropriate notice be given. Nor did the legislation place limitations upon the power of the
employer to retrench or lay off redundant workers. However, pursuant to amendments to the
Industrial Disputes Act in 1953, 1976 and 1982 the Central government began gradually to
introduce important new regulations pertaining to retrenchments, lay-offs, and plant and
industry closures. These regulations, including the all important Act required, inter alia,
permission by the appropriate authorities for mass redundancies and firm closures, minimum
notice periods and further relief in the form of compensation.

As far as individual dismissals are concerned, a 1965 amendment to the Industrial Disputes
Act created a right in an individual employee to notify an ‗industrial dispute‘ over his or her
discharge, dismissal, retrenchment or other form of termination, whether or not that person
was represented by a trade union. A subsequent amendment, in 1971, empowered the
Industrial Tribunals and the Labour Court to investigate the dismissal of employees, and
make appropriate orders, including reinstatement and compensation, where the dismissal was
found to be unfair. As a consequence of these legal changes, the Labour Court and other
tribunals developed a general broad discretion to review the dismissal of workers and to
award relief according to notions of substantive and procedural injustice. In 1976,
amendments to the Act substantially increased (from one month to three months) the amount
of notice required to be given to certain categories of employees who had been in continuous
service for at least one year, and prohibited the dismissal of workers by way retrenchment,
lay-off, or industry closure in factories, mines and plantations employing 300 or more
persons (later reduced to 100 or more in 1982) without permission of the appropriate
government.
Other legislation introduced in the 1970s and into the 1980s consolidated this evolving
protective framework of laws for employees engaged in the regulated (formal) sectors of the
economy. Aside from further strengthening the law on dismissal, major legislation was
introduced by the Central government in 1970 which strictly limited and regulated the use of
contract and agency labour. Further, the Industrial Disputes (Amendment) Act of 1982, in
addition to declaring certain collective behaviours by both employers and unions to be ‗unfair
labour practices‘ declared certain hiring practices, such as the continuing employment of
workers on casual or temporary contracts with ‗the object of depriving them of the status and
privileges of permanent workmen‘, also to be unfair. Overall, then, the post-Independence
period was, at least at the level of the individual worker in the regulated sector, clearly a
period of important consolidation in employment protection. Not only the Central
government, but also several of the State governments, played an important role in this
development.

1.5 Labour Law in India

The history of labour legislation in India is naturally interwoven with the history of British
colonialism. Considerations of British political economy were naturally paramount in shaping
some of these early laws. In the beginning it was difficult to get enough regular Indian
workers to run British establishments and hence laws for indenturing workers became
necessary. This was obviously labour legislation in order to protect the interests of British
employers. Then came the Factories Act. It is well known that Indian textile goods offered
stiff competition to British textiles in the export market and hence in order to make India
labour costlier the Factories Act was first introduced in 1883 because of the pressure brought
on the British parliament by the textile magnates of Manchester and Lancashire. Thus we
received the first stipulation of eight hours of work, the abolition of child labour, and the
restriction of women in night employment, and the introduction of overtime wages for work
beyond eight hours. While the impact of this measure was clearly welfares the real
motivation was undoubtedly protectionist to date, India has ratified 39 International Labour
Organisation (ILO) conventions of which 37 are in force.

The Labour 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 Organisation. 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 labour, fair and humane
conditions of work, social security, protection of wages, and redress of grievances, right to
organize and form trade unions, collective bargaining and participation in management.

India has numerous Labour Laws such as those prohibiting discrimination and Child Labour,
those that aim to guarantee fair and humane conditions of work, those that provide social
security, minimum wage, right to organise, 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 labour in companies even if these are because of economic conditions.

Indian Labour Laws are considered to be very highly regulated and rigid as compared to
those of other countries in the world. The intensity of these laws have been criticised as the
cause of low employment growth, large unorganised sectors, underground economy and low
per capita income. These have led many to demand reforms for Labour market flexibility 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 employee‘s 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 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 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 the 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.

The Contract Labour (Prohibition and Regulation) Act 1970

This act provides a mechanism for registration of contractors (if more than twenty workers
are engaged) and for the appointment of a Tripartite Advisory Board that investigates
particular forms of contract labour, which if found to be engaged in areas requiring perennial
work connected with the production process, then the Board could recommend its abolition.
A tricky legal question has arisen as to whether the contract workers should be automatically
absorbed or not after the contract labour system is abolished. Recently a Constitutional Bench
of the Supreme Court held that there need not be such automatic absorption – in effect this
‗abolishes‘ the contract labourer and has given rise to a serious anomaly.

India's rigid labour laws and excessive regulations assumed to protect the labour are the
cause of slow employment growth in high paying, organised sector. India's labour-related acts
and regulations have led to labour-market rigidity. This encourages shadow economy for
entrepreneurs, an economy that prefers to employ informal labour 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 labour laws have created a strong disincentive to formally register new
companies and hire additional workers in existing organised sector companies. Unlike China,
Indian businesses have avoided substituting India's abundant labour for export or domestic
opportunities, or use labour 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 compared states of India who have amended Labour
Legislations to grant more flexibility to employers, to those states in India that have made
their Labour Laws even more rigid and complicated to comply with. These studies find that
states with flexible Labour Laws have grown significantly faster. Flexible labour 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 Labour Laws. States with rigid Labour Laws have
led local entrepreneurs to prefer casual workers or contract workers with finite employment
time period; in essence, more rigid and inflexible Labour Laws states see increased informal
employment.

A 2007 article in The Economist finds India to have the most restrictive Labour Laws in any
major economy of the world. India's private sector, including its organised 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 organised 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.

1.5.1 Implementation of Labour Laws in India

The Ministry of Labour has the responsibility to protect and safeguard the interests of workers
in general and those constituting the deprived and the marginal classes of society in particular
with regard to the creation of a healthy work environment for higher production and
productivity. The Ministry seeks to achieve this objective through enacting and implementing
Labour Laws regulating the terms and conditions of service and employment of workers. In
1966, the Ministry appointed the First National Labour Commission (NLC) to review the
changes in the conditions of labour since independence and also to review and assess the
working of the existing legal provisions. The NLC submitted its report in 1969. The important
recommendations of NLC have been implemented through amendments of various Labour
Laws. In the areas of wage policy, minimum wages, employment service, vocational training,
and worker‘s education, the recommendations made by the NLC have been largely taken into
account in modifying policies, processes, and programmes of the government. In order to
ensure consistency between labour laws and changes in economic policy, and to provide
greater welfare for the working class, the Second NLC was constituted in 1999. All Labour
Laws provide for an inspectorate to supervise implementation and also have penalties ranging
from imprisonment to fines. Cases of non-implementation need to be specifically identified and
complaints filed before magistrates after obtaining permission to file the complaint from one
authority or the other. Very few cases are filed, very rarely is any violator found guilty, and
almost never will an employer be sent to prison. Consequently these powers are used by
corrupt officials only for collecting money from employers.

This does not however mean that no Labour Laws are implemented. On the contrary
experience has proved that the implementation of such laws is directly proportional to the
extent of unionization. This generalization is particularly true of the informal sector.

1.5.2 The Constitutional framework of Labour Laws

Under the Constitution of India, Labour is a subject in the concurrent list where both the
Central and State Governments are competent to enact legislations. As a result , a large
number of Labour Laws have been enacted catering to different aspects of labour namely,
occupational health, safety, employment, training of apprentices, fixation, review and
revision of minimum wages, mode of payment of wages, payment of compensation to
workmen who suffer injuries as a result of accidents or causing death or disablement, bonded
labour, contract labour, women labour and child labour, resolution and adjudication of
industrial disputes, provision of social security such as provident fund, employees‘ state
insurance, gratuity, provision for payment of bonus, regulating the working conditions of
certain specific categories of workmen such as plantation labour, beedi workers etc. This is
how we have a large number of Labour Legislations, which can be categorized as follows:

(a) Labour Laws enacted by the Central Government, where the Central
Government has the sole responsibility for enforcement

Table No 1
 S No. Name of the Act
1 The Employees‘ State Insurance Act, 1948
2 The Employees‘ Provident Fund and Miscellaneous Provisions Act,
1952

(b) Labour Laws enacted by Central and enforced by both the Central as well as the
State Governments
Table No 2
S No. Name of the Act
1 The Contract Labour (Regulation and Abolition) Act, 1970.
2 The Equal Remuneration Act, 1976.
3 The Industrial Disputes Act, 1947.
4 The Industrial Employment (Standing Orders) Act, 1946.
5 The Maternity Benefit Act, 1961
6 The Minimum Wages Act, 1948
7 The Payment of Bonus Act, 1965
8 The Payment of Gratuity Act, 1972
9 The Payment of Wages Act, 1936
10 The Apprentices Act, 1961

(c) Labour Laws enacted by Central Government and enforced by the

State Governments
Table No 3
S No. Name of the Act
The Factories Act, 1948
The Trade Unions Act, 1926
The Workmen‘s Compensation Act, 1923
1.6 Labour Market in India

The Indian labour market is of dynamic nature. Liberalization and globalization has created a
stir in the labour market especially for the educated people of India. So, we will study the
employment pattern of the country in context of the shift taking place between the economic
sectors and formal and informal sector of economy followed by the analysis of education and
skill profile of the workforce and labour market trends.

The labour sector of the Indian economy consists of roughly 487 million workers, the second
largest after China. The organised sector includes workers employed by the government,
state-owned enterprises and private sector enterprises. In India the organised sector employed
27.5 million workers, of which 17.3 million worked for government or government owned
entities.

Majority of workforce is engaged in agriculture and allied activities marked with low
productivity levels. Indian agricultural sector attributes to low productivity levels and low
wage rates, even in the non-agricultural activities. About ninety percent of the workforce is
engaged in poor working environment of informal sector. Despite of numerous changes in
economic structure over the years, the employment pattern has been resistant to change.
1980s was the employers‘ market. There was little job-hopping; engineers, doctors and civil
services were most coveted. As in 1991 country was liberalized, there was surge of
multinational corporations. This expanded the job opportunities. MBA became a dream
degree for middle-class people.

1.6.1 The organised and the unorganised sector

An important distinction that is popularly made nowadays in all discussions relating to

Labour Legislation is between workers in the organised/formal sector and those in the
informal/informal sector. Many who make this distinction do so with ulterior motives, yet we
must reckon with it – especially because out of the total workforce in the country, 92 percent
work in the informal sector while only eight percent work in the formal sector.

At the outset it must therefore be remembered that those who were unorganised yesterday are
organised today and those who are unorganised today aspire to become the organised
tomorrow. Moreover, many rights, benefits, and practices, which are popularly recognised
today as legitimate rights of the workers, are those that have accrued as a result of the
struggles carried out by the earlier generation of workers. The attempt, prevalent in some
circles to pit one section of workers against the others, must therefore be carefully understood
and deserves to be rejected outright.

1.6.2 Phases between Organised and Unorganised Sector

We are already witnessing a reduction in the Organised Labour force and an increase in the
ranks of the Unorganised. The above law is a kind of inter-phase in the process of regulating
the transition from regular employment to irregular employment. If contract labour is seen as
introducing a form of flexibility, a strict enforcement of this Act could have had a salutary
effect on the transition process. Instead the enforceability of the Act is now diluted and
consequently even the minimum protection envisaged under this law to contract labourers is
in jeopardy. Dominant thinking in relation to globalisation is having its effect on the judicial
process also, ignoring Directive Principles of State Policy contained in the Constitution of
India.

India's Ministry of Labour, in its 2008 report, classified the Unorganised Labour in India into
four groups. This classification categorized India's Unorganised Labour force by occupation,
nature of employment, specially distressed categories and service categories. The
unorganised 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 labourers. Another
separate category dedicated to distressed unorganised sector includes toddy tappers,
scavengers, carriers of head loads, drivers of animal driven vehicles, loaders and unloaders.
The last unorganised labour category includes service workers such as midwives, domestic
workers, barbers, vegetable and fruit vendors, newspaper vendors, pavement vendors, hand
cart operators, and the unorganised retail.

The unorganised sector has low productivity and offers lower wages. Even though it
accounted for over 94 percent of workers, India's unorganised sector created just 57 percent
of India's national domestic product in 2006, or about 9 fold less per worker than the
organised sector. According to Bhalla, the productivity gap sharply worsens when rural
unorganised sector is compared to urban unorganised 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 unorganised sectors. Poverty rates are reported to be significantly
higher in families where all working age members have only worked the unorganised sector
throughout their lives.

Agriculture, dairy, horticulture and related occupations alone employ 52 percent of labour 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 unorganised
manufacturing, unorganised trading/retail and unorganised 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 organised private 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 organised 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 labour pool. India's economy has been adding about 8
million new jobs every year predominantly in low paying, unorganised sector. The remaining
5 million youth joining the ranks of poorly paid partial employment, casual labour pool for
temporary infrastructure and real estate construction jobs, or in many cases, being
unemployed.

1.7 Organisational Effectiveness- Conceptual framework

All organizations want to be successful, even in current environment which is highly

competitive. Therefore, companies irrespective of size and market strive to retain the best
employees, acknowledging their important role and influence on organizational effectiveness.
In order to overcome these challenges, companies should create a strong and positive
relationship with its employees and direct them towards task fulfilment.

In order to achieve their goals and objectives, organizations develop strategies to compete in
highly competitive markets and to increase their performance. Nevertheless, just a few
organizations consider the human capital as being their main asset, capable of leading them to
success or if not managed properly, to decline. If the employees are not satisfied with their
jobs and not motivated to fulfil their tasks and achieve their goals, the organization cannot
attain success.

People have many needs that are continuously competing one with another. Each person has a
different mixture and strength of needs, as some people are driven by achievement while
others are focusing on security. If the managers are able to understand, predict and control
employee behaviour, they should also know what the employees want from their jobs.
Therefore, it is essential for a manager to understand what really motives employees, without
making just an assumption. Asking an employee how he feels about a particular situation
does not provide an accurate evaluation of his needs, as the interpretation could distort the
reality itself. The closer one gets his perception to a given reality, the higher is the possibility
to influence that specific realty. Thus, managers can increase their effectiveness by getting a
better grasp on the real needs of the employees.

Organizational Effectiveness became more prominent and switched to being a concept from
the status of a construct (Henry, 2011). This concept is related to issues such as the ability of
an organization to access and absorb resources and consequently achieve its aims ( Federman,
2006). As Gigliotti (1987) said, a unit which is individually ineffective in terms of
cooperation with the rest of the organization is doomed to failure. Cameron (1978) pointed
out that organizational effectiveness is the proficiency of the organization at having access to
the essential resources. However, McCann (2004) noted it as the criterion of the
organization‘s successful fulfilment of their purposes through core strategies.

Vinitwatanakhun‘s (1998) study illustrated that Organizational Effectiveness should focus on

human resources and organizations and help individuals to achieve skills and self-esteem in
order to control the new environment and find security and support. As Baker and Branch
(2002) pointed out, the organizations, laboratories and universities that are involved in
scientific researches suffer most, because they have to present effective management, behave
more responsibly, and do jobs with limited resources in order to improve their effectiveness.
Although willing to improve their effectiveness, the managers in these organizations first see
themselves as scientists and then managers.

However, they have to deal with the problems of the organization and system effectiveness.
They are obliged to be innovative in their research, conduct, sponsorship as well as design
and management of their organizations. In the literature, there is not a single model of
organizational effectiveness to fit all organizations.

1.8 Introduction of Organizational Effectiveness

Organisational effectiveness refers to how successfully organisations achieve their missions.

Organisational effectiveness measures are concerned with understanding the unique
capabilities that organisations develop to ensure that success. This includes measuring the
value of organisational human resources (Jamrog & Overholt, 2004). Previously, scholars
tended to use the term ‗organisational performance‘ to mean financial and economic-related
measures such as profitability, return on investment, earnings per share and so on (Harel et
al., 2003). However, according to Eccles (1991), academics and practitioners have begun to
demonstrate that accrual-based performance measures are obsolete and often harmful.
Consequently, business practices could be assessed in terms of their contribution to subjective
psychological wellbeing (e.g. commitment, involvement or satisfaction), rather than in terms
of objective criteria (Jansen et al., 2001), since employers employ not just one part of a
person but rather the whole person, including personal, social and professional qualities
(Harnesk, 2004). Therefore, in this study, the focus of organisational effectiveness is a newer
concept than organisational performance, and implicitly considers a range of variables, which
mainly focus on human resource outcomes.

Several studies have assessed different sets of variables. For instance, Robbins (1984)
identified productivity, absenteeism, turnover and organisational citizenship behaviour and
job satisfaction as indicators of organisational effectiveness. Huselid (1995) and Sun et al.
(2007) suggested using employee productivity and turnover as measures of firm performance.
Ryan et al. (1996) used employee turnover as a measure of organisational effectiveness. In
Guest and Conway‘s (1997) model, commitment is an attitudinal consequence and intention
to stay/quit is a behavioural consequence of the psychological contract.

According to Bratton and Gold (1999), high employee commitment to organisational goals is
an important facet of human resource outcomes. Lawson and Hepp (2001) measured
employee results based on satisfaction, commitment and productivity. Additionally, Huang
(2001) asked respondents to compare the performance of their firms with that of competitors,
using five human resource outcome indicators: staff morale, organisational climate, staff
turnover, organisational commitment and job satisfaction. To comply with this newer
definition of organisation effectiveness, this study used a multiple variable measure, which
incorporates the HR aspects of organisational effectiveness: employee morale, attraction of
talent, employee productivity, organisational commitment and employee turnover rate.

An organisation can be made effective not only by augmenting productivity but also by co-
ordinating and developing a system for the efficient handling of employees who are
committed to the objectives of the organisation. Further, an effective organisation is
characterised by its emphasis on human resource development. Thus, the effectiveness of an
organisation depends mainly on the behaviour of employees. Employees differ in their
outlooks, needs, goals and abilities, even when they are placed in the same work
environment. I t makes people to behave differently from one another. I t is certain that, it
will ultimately affect the entire organisation. Moreover, their individual differences can have
a direct bearing on organisational effectiveness. An effective management can lead the
employees towards its goal which cannot be achieved without the whole hearted and positive
co-operation of ail categories of employees of the organisation; any organisation which wants
to achieve its objectives should create a participative climate for mutual benefit.
Organisational effectiveness, In general, is based on the integration of the goals of the
organisation and the employees.

Organisational effectiveness has been identified, in earlier theories, with maximisation of

profits' or 'high productivity' or 'efficient service' and good employee‘s morale. Normally,
every organisation has certain multi- purpose social functions. But studies have emphasised
that the human behaviour of organisations is very much limited. The behavioural scientists
feel that this is a limitation of organisational effectiveness. Hence, the needs and wants of the
employees should be achieved through participation of employees in all the vital areas of
decision-making. Further, the main objective of Participative Management is to improve the
industrial relations and performance of organisations. In a country like India, i f profit is
considered to be the only measure of success or effectiveness of organisation, even
organisations, managed unscientifically would be considered as successful and effective.
Therefore, apart from profits, a number of other factors should also be considered to
determine the effectiveness of the organisation. Management and proper coordination of
labour is one of these factors. Labour should be organised properly along with other factors of
production, to improve its efficiency. This can be made possible only by creating a better
environment to work and by improving the satisfaction of the employees through a number of
measures. In particular, job satisfaction, morale, favourable industrial relations, better quality
of work life, conducive organisational climate and the overall health of organisation can help
to achieve organisational effectiveness. A review of earlier studies, in this field, makes it clear
that these factors have already been identified as main determinants of organisational
effectiveness. For instance, job satisfaction has been identified as an important factor
influencing Organisational Effectiveness by Negandhi and Relmann, Campbell (19731,
Morale by Cainpbell and (1973), Industrial relations by Negandhil Reimann (1973) and
adaptability (Organisational Health) by Mott and Webb (1974).
To identify the variables, determining the organisational effectiveness in the organisations,
following factors have been taken into consideration: 1) Labour Management Relation, 2) Job
Satisfaction & Motivation, 3) Employees Productivity, 4) Employee‘s Retention.

Every organization needs committed and dedicated staff that will help it to meet its tactical
and strategic objectives. These objectives can only be achieved if the knowledge and skills of
staff are upgraded through training and development. This will serve as a source of
motivation to employees and drive them to contribute their quota towards the achievement of
the organization‘s goal. Competent staff at all levels of an organization is needed to
effectively push ahead the objectives of the organization. It is known that results cannot
usually be achieved by any single management by its own. All the good things management
require such as efficiency, effectiveness, productivity, creativity can best be achieved when
everybody works effectively as a team player, and not as individuals.

1.8.1 Organizational Effectiveness and Labour Management Relations

The productivity growth and performance in recent years has drawn increasing attention to
the industrial relations system and various strategies for improving its performance. This is
leading to a new era of experimentation at the organizational level with various worker
participation programs, new local collective bargaining agreements, and changes in other
employment practices that are designed to both improve industrial relations and
organizational effectiveness. These pressures are also producing a new emphasis within
management on applying strategic planning techniques to the industrial relations function as
firms and unions begin to recognize the interdependence among broad business policy
decisions and industrial relations performance at the workplace level. Consequently,
industrial relations professionals within both management and unions are being called upon to
critically examine their prevailing practices and to assess alternative strategies that satisfy
organizational and worker goals.

Unfortunately, the industrial relations profession has been slow in developing the type of
analytical capacity required to support these experimentation, planning, and evaluation
processes. Instead, there historically has been an aversion among many industrial relations
managers and labour representatives to the idea of quantitative assessment of industrial
relations practices and performance. Few firms, for example, systematically collect and
analyze industrial relations activity or performance data. Even fewer attempt to relate
variations in industrial relations outcomes over time or across locations to indicators of
organizational effectiveness or worker well being. Indeed, aside from the analysis of the
effects of unions on wages and other job and organizational outcomes (Freeman and Medoff,
1981; Kochan and Helfman, 1981), we have little theoretical or empirical work that attempts
to relate industrial relations outcomes to management and worker goals. Thus, industrial
relations professionals are currently in a poor position to forecast or explain how various
change strategies might influence organizational effectiveness and, more importantly, are
poorly equipped to evaluate the effects of these change efforts.

1.8.2 Organizational Effectiveness and Job Satisfaction, Motivation

The management of people at work is an integral part of the management process. To

understand the critical importance of people in the organization is to recognize that the
human element and the organization are synonymous. A well-managed organization usually
sees an average worker as the root source of quality and productivity gains. Such
organizations do not look to capital investment, but to employees, as the fundamental source
of improvement. An organization is effective to the degree to which it achieves its goals. An
effective organization will make sure that there is a spirit of cooperation and sense of
commitment and satisfaction within the sphere of its influence.

Various studies concluded that factors empowerment and recognition have positive effect on
employee motivation. More the empowerment and recognition of employees in an
organization is increased, more will their motivation to work will enhance. Also there exists a
positive relationship between employee motivation and organizational effectiveness. The
more the employees are motive to tasks accomplishment higher will the organizational
performance and success.

The current era is highly competitive and organizations regardless of size, technology and
market focus are facing employee retention challenges. To overcome these restraints a strong
and positive relationship and bonding should be created and maintained between employees
and their organisations. Human resource or employees of any organization are the most
central part so they need to be influenced and persuaded towards tasks fulfilment. For
achieving prosperity, organizations design different strategies to compete with the
competitors and for increasing the performance of the organizations. A very few
organizations believe that the human personnel and employees of any organization are its
main assets which can lead them to success or if not focused well, to decline. Unless and
until, the employees of any organization are satisfied with it, are motivated for the tasks
fulfilment and goals achievements and encouraged, none of the organization can progress or
achieve success. The purpose is to analyze the impact of employees‘ motivation and job
satisfaction on organizational effectiveness.

1.8.3 Organizational Effectiveness and Employee Productivity

Every employee contributes to organizational effectiveness. Taking into account skills,

experience, motivation, and rank, some play a bigger role than others to understand more
about the elements of effective organisation and their connection towards productivity.
Today, contemporary organizations are indicated by such constantly altering dynamics as the
complexity of personalization, and competition needs of people instead of methods reliance
upon technology and also the rise of the understanding economy among a number of other
challenges, Indeed, this is actually the more reason employee development is vital towards
the success and survival of the organization now a lot more than before. Today, the mission
for responsible organizational productivity now involves, education encouragement,
strengthening the employees to compete better. Employee productivity is all about drawing
people together to obtain the tasks accomplished, which offer the organizational mission.
With this position and energy comes great responsibility. The duty to look after the
employees and increase their productivity is just the job of the organisations.
As organizations as well as their conditions have changed rapidly in the last years, a brand
new type of development activities and clarity of goals and much more democratic
environment is needed to be able to make sure the organization‘s survival and gratification.
It's contended that progressive organisational culture has an optimistic effect on the
employee‘s productivity of the organization. Thus the performance of numerous people that
culminates within the productivity of the organization, or perhaps in the achievement of
organizational goals. Effective regular training becomes instrumental in making
organizational performance.

1.8.4 Organizational Effectiveness and Employee Retention

Employee retention refers to the ability of an organization to retain its employees. A

distinction should be drawn between low performing employees and top performers, and
efforts to retain employees should be targeted at valuable, contributing employees. Employee
turnover is a symptom of a deeper issue that has not been resolved. These deeper issues may
include low employee morale, absence of a clear career path, lack of recognition, poor
employee-manager relationships or many other issues. A lack of satisfaction and commitment
to the organization can also cause an employee to withdraw and begin looking for other
opportunities.

Fitz-enz (1997) stated that the average company loses approximately $1 million with every 10
managerial and professional employees who leave the organization. As mentioned previously,
the combined direct and indirect costs associated with one employee ranges from a minimum
of one year‘s pay and benefits to a maximum of two years‘ pay and benefits. Thus, there is
significant economic impact when an organization loses any of its critical employees,
especially given the knowledge that is lost with the employee‘s departure. It will become
significantly more important in the years ahead to recognize the commitment of individuals to
an organization, as well as the organization‘s need to create an environment in which one
would be willing to stay (Harris, 2000).

Organizations will need to either create an intellectual capital environment where the
transmission of knowledge takes place throughout the structure, or continue to lose important
individual knowledge that has been developed during the length of service (Harris, 2000).
This deep knowledge is what many believe will help to meet the needs and expectations of
the employees and to create and sustain a competitive advantage within the global economy
in which organizations are competing in today.

Recent changes in the employment conditions have resulted in increased exposure of workers
to unfavourable job characteristics and to consequential increases in adverse individual and
organizational health outcomes (Mansell et al., 2006). Due to increased competition,
globalisation and demand for efficiency, many organizations have adopted the strategy of
restructuring and downsizing (Ugboro, 2006; Hirsch, 1987; Cameron et al., 1993). This has
resulted in feelings of job insecurity, low commitment (Rousseau, 1996; Rosseau & Libuser,
1997), intent to quit among the employees and increased turnover (Cohen 1993, Hunt &
Morgan, 1994). Voluntary turnover of high performing employees is a serious threat to the
effectiveness of restructuring and downsizing strategy (Mueller et al., 1984) and also to the
organisational sustainability.

High employee turnover creates problem both for the organizations (Huang, 2006) as well as
for their customers. Departing employees take away a great deal of accumulated knowledge
with them (Mitchell, 2001). Besides, the cost of replacing an employee is estimated to be
twice an individual‘s annual salary. Further, training and developing new recruits to bring
them to the desired level of performance requires heavy investment in terms of time, money
and other resources (Mitchell, 2001). An in-depth review of employee turnover costs helps
managers to gain insight about the magnitude and determinants of this managerial challenge
and assess the implications for organizational effectiveness.

Organizations worldwide are now increasingly realizing the importance of retaining their
talented workforce. An attempt has been made to fill the gap of what should be done to
enhance the degree of employees‘ satisfaction with respect to their respective jobs in an
organization which may enhance the degree of organizational attachment and to maximize
organizational Performance.
1.9 Labour Law Reforms and Organizational effectiveness

For the past six to seven years it has been seen (especially by employers) that labour laws in
India are excessively pro-worker in the organized sector and this has led to serious rigidities
that has resulted in adverse consequences in terms of performance of labour laws in markets.
There have been recommendations by the government to reform labour laws in India by that
would give appropriate flexibility to the industry that is essential to compete in international
markets. The main issue has been slow employment growth despite increasing GDP growth
termed as ‗jobless growth‘ the arguments for which are that the existing labour laws are less
employment friendly and biased towards the organized labour force, they protect employment
and do not encourage employment or employability. It has been argued that due to
inflexibility in the labour laws the opportunity to expand employment in the organized
manufacturing sector has been denied since there is a lack of consensus between the
employer‘s side and the worker‘s side. The employer‘s view flexibility in labour markets as a
pre-requisite for promoting economic growth and generating jobs, whereas, the trade
unionists view flexibility in labour markets as a strategy for profit maximizing of the firms
and reducing their bargaining power without generating sufficient employment opportunities.
In the wake of labour market flexibility post economic liberalization, which is believed to
enhance competitiveness in an environment of rapidly changing markets and technologies,
the government is in a dilemma as most of the labour laws and social protection laws has
been labour friendly. But in order to introduce reforms in the labour market, the government
has to respond to the requirements of the various stakeholders (employers, workers,
multinational firms and international financial agencies). The employees are of the opinion
that the central and the state labour laws have been flouted continuously, whereas, the
employers are of the opinion that the ‗labour laws in the country seek employment at the cost
of employability. This is the major concern for my debate that labour laws are still working
for the favour of labour employment and their growth.

Organisation effectiveness and employee welfare practice have become major issues in
management in this global economy where human resource management has received much
recognition, many employers are only interested in seeing their employees work without
caring for their welfare and development. Invariably, this attitude tends to demoralize the
employee who is poised to give of his best towards the success of the organization.