Labour Reforms in India

Labour falls under the Concurrent List (List III) of the Seventh Schedule of the Indian Constitution, allowing both the Centre and States to legislate. Historically, India’s labour market was governed by over 40 central laws and 100 state laws, many dating back to the pre-Independence era. This complexity led to the “Inspector Raj,” high compliance costs, and the informalization of the workforce. To address these, the Government of India consolidated 29 central labour laws into Four Labour Codes.

The Four Labour Codes: A 360° Overview

The primary objective of these reforms is to improve “Ease of Doing Business” while ensuring “Universal Social Security” for workers, including those in the unorganized and gig sectors.

1. The Code on Wages, 2019

This code replaces four laws, including the Minimum Wages Act, 1948, and the Payment of Wages Act, 1936.

• Universal Minimum Wage: Extends the right to minimum wages and timely payment to all employees in both organized and unorganized sectors.
• Floor Wage: The Central Government will fix a “Floor Wage” taking into account living standards; State Governments cannot set minimum wages below this floor.
• Gender Neutrality: Prohibits gender discrimination in matters related to wages and recruitment for the same or similar work.

2. The Code on Industrial Relations, 2020

This code consolidates three laws, including the Industrial Disputes Act, 1947, to create a balance between employer flexibility and worker rights.

• Retrenchment Threshold: Increases the threshold for firms to seek government permission before layoffs or closures from 100 workers to 300 workers.
• Fixed-Term Employment: Introduces “Fixed-Term Employment” to provide workers with the same benefits as permanent employees for a specific duration, reducing the reliance on exploitative contractors.
• Worker Reskilling Fund: Mandates employers to contribute to a fund for reskilling workers who have been laid off.
• Strike Notice: Mandates a 14-day notice period for strikes in all industrial establishments.

3. The Code on Social Security, 2020

This code replaces nine laws, including the EPF Act and the Maternity Benefit Act, focusing on expanding the social safety net.

• Inclusion of Gig and Platform Workers: For the first time, “Gig workers” (freelancers) and “Platform workers” (Uber/Zomato partners) are recognized for social security benefits.
• Social Security Fund: Proposed establishment of a dedicated fund for unorganized workers, gig workers, and platform workers.
• Gratuity Period: Reduces the eligibility period for gratuity for fixed-term employees from five years to a pro-rata basis (based on contract tenure).

4. The Code on Occupational Safety, Health and Working Conditions, 2020

This code consolidates 13 laws, regulating health and safety standards across various sectors.

• Inter-State Migrant Workers: Broadens the definition to include those who move to another state independently (not just through contractors).
• Women Workforce: Allows women to work in all establishments for all types of work, including night shifts (with consent and safety measures).
• Health Checks: Mandates free annual health check-ups for employees above a certain age in specific establishments.

Comparative Table: Pre-Reform vs. Post-Reform

Institutional and Digital Interventions

Alongside legislative changes, the government has introduced digital platforms to ensure transparency and welfare delivery.

• Shram Suvidha Portal: A “One-Stop Shop” for labor law compliance, allowing for online registration, filing of simplified annual returns, and a transparent inspection scheme.
• e-Shram Portal: A national database created to register unorganized workers. It facilitates the direct transfer of social security benefits and provides a Universal Account Number (UAN).
• Universal Account Number (UAN): A 12-digit number allotted to EPF subscribers, ensuring the portability of provident fund accounts across different employers and locations.

Critical Facts and Trivia for UPSC Aspirants

• V.V. Giri National Labour Institute: The premier institute for labor-related research and training in India, located in Noida.
• Second National Commission on Labour (2002): Chaired by Ravindra Varma, this commission was the primary architect of the recommendation to consolidate labour laws into groups like wages, industrial relations, and social security.
• The 2nd Indian Labour Conference (ILC): Often called the “Labour Parliament” of India, it is a tripartite consultative committee consisting of the Government, Employers, and Trade Unions.
• ILO Ratifications: India has ratified six out of the eight “Core” conventions of the International Labour Organization (ILO). It has not yet ratified Convention No. 87 (Freedom of Association) and No. 98 (Right to Organise and Collective Bargaining).
• Sunset Clause: Some labour laws previously had specific expiry dates for certain provisions; the new codes aim for permanent, technology-driven updates.

Significance of Labour Reforms

• Formalization: By simplifying compliance, the codes encourage small enterprises to register, bringing more workers into the formal economy.
• Attracting FDI: A flexible labour market is a key demand for global investors looking for alternatives to China (the “China Plus One” strategy).
• Gender Parity: Legalizing night shifts for women and ensuring equal pay are steps toward improving India’s low Female Labour Force Participation Rate (FLFPR).
• Ease of Compliance: Replaces multiple registers and returns with a single interface, reducing the “hidden cost” of doing business in India.