Reform by notification

Four labour codes take the reform process forward, but reliance on notifications in a few areas raises questions

India’s labour policy has acquired a new look. Four labour codes are now in the public domain and these are the Code on Wages, the Occupational Safety, Health and Working Conditions Code, the Industrial Relations Code and the Code on Social Security.

The Code on Wages was passed by Parliament in early August and the Industrial Relations Code was introduced in the Lok Sabha on November 28. The Occupational Safety, Health and Working Conditions Code was introduced in the Lok Sabha in July, but referred to the Standing Committee of Parliament in October. Its report is expected next month. The draft Code on Social Security was approved by the Union Cabinet on December 4 and is expected to be introduced in Parliament soon. 

As many as 28 different labour laws have been subsumed in the four codes — 13 in the Occupational Safety, Health and Working Conditions Code, eight in the Code on Social Security, four in the Code on Wages and three laws in the Industrial Relations Code. 

It was a long journey, showing once again how slow is the pace of economic reforms in India. The Second National Commission on Labour had submitted its report in June 2002, when Atal Bihari Vajpayee was the prime minister. It had recommended that the existing labour laws should be amalgamated and grouped under five broad heads — (a) industrial relations, (b) wages, (c) social security, (d) safety; and (e) welfare and working conditions. 

For well over 17 years, experts and civil servants discussed the implications of these recommendations under three different governments — two led by Manmohan Singh and one by Narendra Modi. The long years of deliberation also reflected the governments’ general reluctance to reform laws that might be politically controversial. It was only in the second term of the Narendra Modi government that a decision was taken to merge the various labour laws under four categories — the Commission’s recommendation was slightly tweaked by grouping the laws on safety, welfare and working conditions under one code. 

What do the four codes of labour policy tell us about the state of reforms in a key segment of the economy? There are four important takeaways from this massive exercise. 

One, the Union government has diluted its own role in an important area of labour policy. The Code on Wages restricts the role of the Centre in framing wage-related policies to only railways, mines and oilfields. In all other sectors, the states would be given the freedom to frame wage policies. This implies that a host of central laws that govern wages for several industries will cease to be effective. Similarly, on minimum wages, the Centre and the states could frame their own wage levels, but these cannot be lower than the floor wages that the new Code would stipulate for different geographies within the country. 

Two, the new laws have substantially reduced the powers of the inspectors of the labour department. The Code on Wages, for instance, ensures that the inspector-cum-facilitator shall give an opportunity to the employer before initiation of prosecution proceedings in cases of contravention. The inspector can initiate prosecution proceedings only when there is a repetition of the contravention within a period of five years. In the draft Code on Social Security, the inspectors’ power to call for documents on provident fund records has been subjected to a limitation period of five years, beyond which inspectors cannot access such records. 

Three, the new labour policy’s reliance on notifications has seen an increase that may not make the legislators in Parliament very happy. Of course, the Industrial Relations Code retains the old provisions that required employers of industrial establishments with at least 100 workers to take prior permission of the central or state government before lay-off, retrenchment or closure. But now it also gives the freedom to the central and state governments to modify the threshold number of workers in establishments by notification. Similarly, the draft Code on Social Security permits the government to change the threshold for coverage of an establishment under the Employees’ Provident Fund Organisation or the Employees’ State Insurance Corporation by issuing a notification. 

Four, the new labour policy has hugely expanded the scope of the coverage of the law to include new categories of employees. The Industrial Relations Code covers the fixed-term employees and ensures that they get all the statutory benefits like social security and wages on a par with the regular employees doing similar work. The Occupational Safety, Health and Working Conditions Code stipulates that the new law would apply to more sectors of industry including theatre, films, entertainment and media. The draft Code on Social Security ensures that gratuity and insurance benefits are made available to the fixed-term employees and to all those who operate in the app-based sharing economy or the gig economy and work in companies like like Uber, Ola or Swiggy. 

The Indian economy is bound to be impacted by these major labour policy changes. But how these changes pan out will be known in the next few years.