How Modi govt’s labour law changes hope to raise India’s ‘Ease of Doing Business’ ranking

The government introduced 2 bills in Lok Sabha this week, which will consolidate earlier legislation seen as impediments to attracting investment.

Villagers working as manual labourers | Photo: Flickr

New Delhi: Ever since the Narendra Modi government assumed power in 2014, it has made concerted efforts to target specific sets of laws to boost India’s ranking in the World Bank’s ‘Ease of Doing Business’.

While the country ranked 142nd among 190 nations in 2014, it clinched the 77th spot in the Ease of Doing Business 2019 survey. The 2019 report specifically acknowledged India’s legal overhauls, including the Goods and Services Tax (GST) as well as Insolvency and Bankruptcy Code (IBC).

With Prime Minister Narendra Modi set on breaking into the top 50, the latest in the government’s line of such initiatives is the consolidation of India’s archaic and complex labour law system, which has often been viewed as an impediment against attracting investment in the country.

To this end, the Code on Wages Bill, 2019, and the Occupational Health, Safety and Working Conditions (OHSWC) Code Bill, 2019, were introduced in the Lok Sabha Tuesday. The two bills together form a part of the four proposed bills envisaged to replace 44 archaic labour laws.   

The need for labour reforms

The labour laws in India are a complex maze of over 40 central laws and more than 100 state laws. 

Just the concept of ‘wages’ has 11 definitions under the various laws, with each labour legislation requiring maintenance of a separate register and submission of annual returns to the authority designated in the Act and its rules.

The minimum wage system has also exploded over the past 70 years, with nearly 1,915 minimum wages for various job categories across states. The complexities make complying higher than the cost of violations and keep the ‘inspector raj’ alive.

Aimed at reducing the number of laws and introducing uniformity in standards, the Code on Wages now subsumes four central labour laws: The Payment of Wages Act 1936, the Minimum Wages Act 1948, the Payment of Bonus Act 1965 and the Equal Remuneration Act 1976.

The OHSWC Code Bill clubs 13 laws, including the Factories Act, the Contract Labour (Regulation and Abolition) Act, the Interstate Migrant Workmen Act, and several other laws specifically regulating beedi workers, cinema workers, construction workers, dock workers, plantation workers and motor transport workers, sales promotion employees and working journalists. It reduces 622 sections in all the laws to 134 sections in total. 

The move has the thumbs up from the industry.

“It is a wise, good and positive move from the government’s side to create four codes out of over 40 laws to simplify them,” said M.S. Unnikrishnan, the chairman of the CII National Committee on Industrial Relations. “If properly implemented, this should help India improve ranking in the ease of doing business.”

Code on Wages Bill

This bill was first introduced in the Lok Sabha in August 2017 and was referred to the Parliamentary Standing Committee, which submitted its report in December 2018. 

The bill, however, lapsed after the dissolution of the 16th Lok Sabha. A fresh bill was then drafted and introduced Tuesday, incorporating some of the recommendations made by the standing committee. 

The new bill universally applies the provisions of minimum wages and timely payments, irrespective of sector and wage ceiling. It also allows the central government to take wage-related decisions for employment in some sectors including railways, mines, and oil fields while allowing the state governments to decide the minimum wages for others. 

The bill also provides for constitution of central and state advisory boards comprising an equal number of employers and employees, independent persons and representatives of state governments (only in case of central advisory board). One third of the total number of members in all boards need to be women.

The boards are expected to advise the government on issues such as fixing minimum wages and increasing employment opportunities for women.

Commenting specifically on the Code on Wages Bill, Unnikrishnan said, “Subsuming the existing four laws related to wages and intending to declare a national minimum wage will ensure that minimum living standards are maintainable irrespective on the region or the state that one is working in.”

He, however, cautioned, that “since individual states are given the liberty to promulgate wages in their respective states above the national minimum level, populistic state governance could misuse it and make businesses unviable”.  

Standing committee suggestions

The wage bill, though, rejects some of the major changes recommended by the standing committee.

One such significant suggestion was the definition of “worker” and “employee”. The committee felt that the inconsistency in the definitions within the code may lead to misinterpretations or even employers discriminating between workers and employees.

For instance, as per the report, former Rajya Sabha MP and CPM Politburo member Tapan Sen pointed out that certain provisions of the bill dealing with minimum wages only mention their applicability to “employees” and not workers. This, coupled with the fact that working journalists and other newspaper employees have been specifically included in the definition of “worker” instead, might exclude such journalists from the provisions related to minimum wages. 

Accepting the suggestions, the standing committee report had stated, “The committee, therefore, are of the opinion that since the minimum wage is a matter of right for every working person, a common and comprehensive definition of employee/worker needs to be given in the Code for better clarity at the implementation level…”

The bill has also rejected suggestions to include eight hours as the maximum number of working hours in a day.   

Industry experts, however, said portions of it still need clarity. “There are a lot of aspects that still need clarity, starting from the definition of wages itself,” said Pooja Ramchandani, who heads the labour and employment law section at the law firm Shardul Amarchand Mangaldas & Co. 

“The problem that I see with the calculation of the minimum wage is that there are various subjective criteria that have been prescribed by the code, such as years of service, the difficulty of work assigned, etc,” she added. “Today, the law is that minimum wages are strictly structured into skilled, unskilled etc. The introduction of additional parameters for deciding the minimum wage will only lead to more confusion.”

Ramchandani said she hoped that simplification is ensured in Parliament. “I hope when the code is discussed in the Parliament, some simplification is brought about, in terms of the definition as well as means to arrive at the minimum wage,” she said. “Uniformity is one aspect that the bill is trying to achieve, but whether simplification is being achieved or not is quite doubtful.”

OHSWC Code Bill: One license, one return

This code bill applies to establishments employing at least 10 workers and to all mines and docks. At present, different thresholds apply for welfare provisions such as a crèche, canteen, first aid, welfare officer etc under different acts. The bill envisages a uniform threshold for welfare provisions for all establishments “as far as practicably feasible”.

It also proposes one registration for each establishment. Currently, six of the 13 labour acts require separate registrations. 

Further, it introduces the provision of one license and one return, instead of the current requirement of multiple licenses and returns in existing 13 labour laws subsumed in the Code.

According to Unnikrishnan, this bill will play a vital role in reducing the burden on the companies to deal with multiple registrations and agencies. 

“The positive aspect of the bill is that inspector raj will be contained with the new definition of inspector-cum-facilitator,” he said. “Instead of multiple filings in excessive today, once this Code is notified, individual entities only need to have a single annual filing done, that too online.”

He, however, objected to the bill being applied to all companies with over 10 employees.

“We expected the applicability of this Code for medium and large size organizations as they will need to have capabilities and people to be deployed for compliance,” he told ThePrint. “But the government is intending to make every company with more than 10 employees come under the ambit of this Code.”

Dilution of enforcement mechanisms & penalties

The new bills also reject two other standing committee suggestions that were specifically aimed at strengthening the enforcement of the provisions.

The fines under the 2017 code provided for penalties against establishments, ranging from Rs 10,000 to Rs 1 lakh. The Standing Committee had, however, noted that the penalty amount was “not substantial enough to act as a deterrent”. It had then suggested that the penalty be increased to a range of Rs 50,000 to Rs 10 lakh.

The new code, however, does not accept this recommendation. 

The committee had also taken objection to the use of the term ‘facilitator’ instead of an ‘inspector’, asserting that this “gives the impression of diluting the enforcement mechanism and restricting the inspection which is the lifeline of enforcement”. Partly accepting the suggestion, the term “inspector-cum-facilitator” has now been used.

Stakeholder participation

The ‘Statement of Objects and Reasons’ of the two bills refers to the recommendations made by the second National Commission of Labour in 2002. It goes on to state that the decision to club the four central laws was taken in view of the commission’s recommendations as well as the discussions during a “tripartite meeting comprising of the Government, employers’ and industry representatives”.

Around 10 central trade unions, however, have already called for a nationwide protest against the bills on 2 August, registering their protest against the two codes. 

“Central Trade Unions INTUC, AITUC, HMS, CITU, AIUTUC, TUCC, SEWA, AICCTU, LPF, UTUC and Independent Federations/Associations – take strong objection and condemn bulldozing of codification of labour laws and other laws in spite of strong objections from the trade union movement,” a joint statement issued by the trade unions stated. 

They have categorically claimed that the trade unions were excluded from any participation in the discussion on the methodology to determine the national minimum wage.