The restrictive labour regulations:

Everybody who is familiar with India's plethora of stringent labour rules that
are approximately 200 labour regulations, with more than a fourth being central laws, will not
be surprised that India, as a nation is not able to capitalise on its inherent competitive
advantages in labour-intensive goods. Investors believe country's labour regulations to be
cumbersome. Despite improvements since the reforms and modifications started in 1991, the
labour force is still governed by approximately 250 labour related guidelines and
regulations at the federal and state levels.

India being a democratic country has found it more difficult to implement major reforms in
comparison to China, where labour regulations are more flexible, liberal and business-
friendly. India's labour rules are stringent, stifling investment in the industrial sector. They
deter businesses from implementing new technologies that may necessitate layoffs. One study
found out that growth in production and employment in labour-intensive industries is lower
in counties with relatively tight and inflexible labour restrictions than in other counties.

Another study said that a huge majority of labour-intensive manufacturing employment in

stringent states is centered in tiny enterprises hiring below 10 people, whereas this percentage
is significantly smaller in the latter states with relatively flexible and less restrictive labour
markets. For restrictive states and others, these percentages for major enterprises employing
more than 200 employees are 10%1.

The detrimental effect of India's labour rules on global trade and business advantages is
unsurprising, given that these gains are achieved by resource reallocation among enterprises
and industries, which rigid labour policies can obstruct and skew. Undoubtedly, the
fundamental policy implication of this discussion is the critical importance of labour reforms.
Discussing about various legal statutes related to labour laws and the problems arising from
them because of its restrictive and stifling character.

These provisions require so many prerequisites that it makes the investment makers unsure
and unwilling. These issues will now be understood in detail with the exact problem that is
faced by investors, which directly makes a detrimental impact on the manufacturing sector of
the country and in turn the balance of payment of India. For understanding the same, we will
first take up and considers problems in Industrial Disputes Act.

1
Paras Jain, “The Contract Labour (Regulation And Abolition) Act, 1970”,
https://www.legalserviceindia.com/articles/labour_contract.htm, (accessed on 18/03/2022)
Problems and concerns with legal statutes discussed above:

 Concerns and issues with the Industrial Disputes Act, 1947

India definitely falls outside the mainline of big emerging and developed countries with
regard to collective dismissal processes which include layoff, downsizing, and closures.2
While advance notifications and notices to employee’s representative’s agencies, as well as
dialogue or talks with employees' representatives, are widespread in comparative nations,
India is the only country that requires government clearance for enterprises employing 100 or
more than 100 employees. Prior authorization is not only without legitimate basis, but it is
also inconsistent with an economic system. Economists and analysts dispute on its impact on
current businesses, but there is really no denying that it has a chilling and stifling
impact on investment from foreign countries in manufacturing, an area where employers
must be quick to adapt to competitive challenges. The processes and protocols that must be
followed before companies could take measures to dismiss or fire employees in large
numbers on economic grounds have been spelled out in industrialized nations, with some of
them being more extensive and complex than other country's processes.

Indian regulations are distinctive because, in here, employers facing layoffs must acquire
prior authorization from the government before downsizing. Other countries require just a
prior notice to government authorities and place a considerably larger focus on employers
and workers alerting, consulting with, and striking a deal with staff representatives and
trade union workers prior to continuing with downsizing, layoffs, and so forth. New
investors are intimidated due to the demand for authorization because they worry about being
constrained because of the need to maintain the hiring of workers long after the company is
becoming unprofitable and unproductive for them to manage.

Further talking about another feature of regulations in certain developing nations is that they
haves no tightness in the selection procedure for retrenchment, as there is in India's seniority
criterion. The conditions are straightforward, such as requiring that all these parameters be
reasonable and logical, or giving preferential treatment to retaining of the personnel with
open-ended contracts. This leads us to believe that “hiring and firing” is extremely tough for
employers in this country, making the procedures extremely burdensome and allowing for
little to no flexibility, which, in turn, acts as a deterrent to investment. The investors clearly

2
Annual Survey of Industries, “Report on Employment & Labour Cost”,
http://www.icssrdataservice.in/datarepository/index.php/catalog/113/download/1518, (accessed on 18/03/2022)
see the kind of restriction employers in India face due to the provisions impeding hire and
fire.

 Concerns in Industrial Employment (Standing Orders) Act, 1946

The former modification to the Model Standing Order, that was repealed in 2007, permitted
for the employment of workers on a fixed-term contract. The modification that was made
in 2007, appears to have removed another source of flexibility from India's labour
regulations. At the moment, India's laws do not expressly permit the usage of fixed-term
contracts, but other OECD and emerging-market nations do, although with limitations. 3 The
number of renewing contracts or the cumulative period of these kind of renewals before the
employees have the opportunities to get into an open-ended contract is one of the most
essential components in such fixed term contracts.

Fixed-term contracts enable or offer the producers extra flexibility in dealing with cyclical
and infrequent changes in the market, with respect to demand, particularly in overseas
markets. Additional labours may be hired for the time they are needed, and then their services
and operations may be terminated. Our country is missing out on such prospects and avenues
because it lacks these types of contracts for temporary work.

 Concerns in The Trade Union’s Act, 1926

Researchers with their work have now stated that how the multiplicity of labour unions, the
probability of fragmented settlements which are applicable only for the unions that are
participating and are registered, and the absence of a precondition which is casting a vote or
a secret ballot for recruitment of office holders or for approval of any action such as strikes
and other industrial actions undermine the nation's collective bargaining effectiveness.
Whenever office holders are not employees, there is indeed a risk that their involvement in
union concerted activity may be influenced with their other associations and ties, as well as
the promotion of employees' welfare will not be the only focus.

We, in India have no provisions related to which trade union has the power of collective
bargaining. We have no formal rule or regulation in place establishing the prerequisites for a
trade union to be acknowledged as the bargaining agent for collective bargaining procedures.
A company level negotiation is the pattern with in private market while industry

3
Khushi Sharma, “Nature of standing orders under the Industrial Employment (Standing Order) Act, 1946”,
https://blog.ipleaders.in/nature-of-standing-orders-under-the-industrial-employment-standing-order-act-
1946/, (accessed on 18/03/2022)
specific bargaining is the rule with the government, in the United Kingdom.4 The regulations
create a range of trade unions, and yet only established unions can engage in the procedures
of collective bargaining. A trade union would pursue voluntarily or legislative identification
and still after this, in obtaining statutory status, the trade union needs to demonstrate it would
have the support of a majority of employees. This specifies the role of a bargaining agent in
collective bargaining proceedings. “The plurality of the trade unions throughout India is
really a fundamental issue that undermines the collective bargaining processes.”

 Concerns in The Contract Labour (Regulation and Abolition) Act 1970

Discussing about the concerns, we can see that there is prevalent use of contract labour today.
Their work as labour working on contractual basis, has grown significantly throughout the
country, providing firms with some flexibility and discretion and as a
consequence, manufacturing output has also has increased in recent years. Nevertheless, we
have witnessed that contract labourers have very terrible working conditions, with little job to
no security or stability and extremely lower wages when compared to workers employed by
the major firms for the same or similar tasks. Labour policies that find an equilibrium
amongst employment security and flexibility remain optimal. The wide disparity in
compensation levels and employment rights between permanent and contract employees is
becoming a trigger for violent industrial discontent and must be tackled.

Basically, because there are such restrictive labour and employment rules that lead to losses
and delays, firms seek various ways or loopholes to bypass these restrictive labour and
employment laws. They informally employ on a contractual basis, and the labours are treated
in a despicable manner as a result of their work. As a consequence, it is the labours'
efficiency that suffers. resulted in a weakening of the line among the “core” versus the “non-
core” operations.5 As a result, the employment of contractual labour has now become
common throughout the country, allowing companies to bypass the limits of labour
inflexibility implicit in other regulations to some degree. This will further, establish a
reputation for generating high-quality products

4
Hoda, Anwarul and Durgesh Kumar Rai, “Trade and Investment Barriers affecting International Production
Networks in India”, https://www.econstor.eu/handle/10419/176299, (accessed on 18/03/2022)
5
National Commission on Labour, “Report of the National Commission on Labour”,
https://vvgnli.gov.in/sites/default/files/Report%20of%20the%20Second%20National%20Commission%20on
%20Labour%20Vol.%20I.pdf, (accessed on 18/03/2022)
Data driven Analysis of the Impact of Labour Regulations on Employment in India's
Manufacturing Sector:

Labour restrictions do have a significant impact on employment in the organised sector for
manufacturing that is defined as proper units registered within the Factories Act of 1948 and
giving employment to 10 or more workers when power is utilized and 20 workers wherein
power is not utilized. These enterprises are primarily subject to these restrictions but smaller
entities in the unorganised sector are exempt from the requirements of these prerequisites and
are mostly impacted by such rules and regulations.

“The Central Statistical Organization of the Ministry of Statistics and Programme

Implementation gathers data driven information on employment in organised industry in the
Annual Survey of Industry (ASI).” Since this research was done, they found that employment
in organised manufacturing stayed steady at slightly more than 13 million, despite a
spectacular rise lately in past few years, employment in unorganised manufacturing was now
almost three times as high, despite accounting for just one-third of manufacturing output
according to the “Economic Survey of 2013-14.”

According to data collected by ASI, contract labour has accounts for a substantially
large portion of the growth of the employment in the organised sector in these late years. Use
of contract labour in organised sector has grown from the “figure of 1.21 million from the
year 2000-01 to approximately 3.40 million from the year 2011-12.” The intensity of
unorganised manufacturing sector's output and the rise in organised manufacturing
employment as a result of the flexibility provided by the “Contract Labour (Regulation
&Abolition) Act” provide an indication of restricting impact of the rigidity underlying in the
“Industrial Disputes Act, 1947, and the Industrial Employment Act (Standing Orders) Act,
1946.”6

6
• Anwarul Hoda Durgesh K. Rai, “Labour Regulations and Growth of Manufacturing and Employment in
India: Balancing Protection and Flexibility”, https://icrier.org/pdf/Working_Paper_298.pdf, (accessed on
16/03/2022)