Article: Labour reforms to change Indian landscape

Employee Relations

Labour reforms to change Indian landscape

Here's a snapshot of the key reforms undertaken by the Union government and what it means for India Inc
Labour reforms to change Indian landscape

 In the second half of 2014, the Indian government implemented certain initiatives to promote the country as a manufacturing destination with its ‘Make in India’ campaign. The government has adopted such initiatives to indicate its seriousness in this regard by approving changes in some industrial laws (labour or employment laws are referred as industrial laws in India), which have in the past proved to be a key impediment in the growth of the manufacturing sector in India.

We discuss herein certain key reforms that have been undertaken and some others that have been proposed.


Changes in the social security contribution: In August 2014, the wage limit for contribution towards employees’ provident fund and related schemes was raised from Rs. 6,500 per month to Rs. 15,000 per month. This increase in wage ceiling (to Rs. 15,000 per month) has brought more than five million workers under the ambit of various social security schemes extended through the Employees’ Provident Funds Act. Another important initiative of the Government, through the Employees Provident Funds Office (EPFO), was to launch a universal account number (UAN) for the covered employees.

Labour Inspection Scheme: With the intention of bringing in reforms in certain labour related compliances, the Union Labour Ministry in October, 2014 launched a labour inspection scheme (LIS). LIS aims to bring in transparency in labour inspection process. It places certain important matters (strike, fatal accidents etc.) under the mandatory inspection list. It further provides that computerized pre-decided codes would be used to determine optional inspections and complaint-based inspections would be done based on data and evidence, etc. 

Exemption from furnishing returns: To avoid multiplicity of maintaining various records, the Government in December, 2014 amended the existing Labour Laws (Exemption from Furnishing Returns and Maintaining Registers by Certain Establishments) Act, 1988 (“Principal Act”) [which exempts certain class and categories of organizations from maintenance of records and registers and also submitting returns] through the Labour Laws (Exemption from Furnishing Returns and Maintaining Registers by Certain Establishments) Amendment Act, 2014 (“Amendment Act”).

Also, as per the Principal Act there were 9 Acts1 under which covered establishments were exempt from filing records and returns. The Amendment Act has increased this exemption to 16 Acts.


Since labour laws fall in the Concurrent List provided under the Constitution of India, State Governments also have certain prerogative involving Indian industrial laws. Accordingly, the State of Rajasthan, with the intent of acting as a laboratory for the future reforms that the Central government may introduce, brought certain labour reforms across various statutes.

These amendments became effective in December 2014:

Industrial Disputes Act: Government permission will not be required for retrenchment/closure/lay off in industrial establishments employing up to 300 workmen. This earlier number was 100.

Contract Labour Act: the amendments raise the requirement for obtaining license/registration under the said Act, to contractors/employers with more than 50 workers from the current limit of 20.

Factories Act: the applicability of the said Act has been raised to premises with more than 20 workmen and 40 without power. The earlier applicability was 10 workers with power and 20 without power.


The year 2015 seems promising further reforms in the industrial laws in India. One of the major legislations that is proposed to be amended is the Factories Act. Some of the proposed changes to the Factories Act are as follows:

  1. Relaxation of restrictions on night work for women in a factory;
  2. Increase in limit of overtime work to hundred (100) hours from the existing limit of fifty (50) hours in a quarter;
  3. Introduction of a new provision in the Act regarding compounding of certain offences;
  4. Provision of personal protective equipment for safety of workers/ obligation of employers to undertake higher degree of precautions against fumes and gases;
  5. Provision of empowering the State Government to increase the period of spread over from ten and a half (10.5) hours to twelve (12) hours through notification to this effect;
  6. Reduction in the eligibility criteria for entitlement of annual leave with wages from two hundred and forty (240) days to ninety (90) days; and
  7. Provision of canteen facilities in respect of factories employing two hundred (200) or more workers instead of the present stipulation of two hundred and fifty (250) workers and also provision of shelters or restrooms and lunchrooms in respect of factories employing seventy five (75) or more workers instead of the present stipulation of one hundred and fifty (150) workers.


While the reforms undertaken and/or proposed reflect the positive intent of the current government and seem to be a step in the right direction, a lot is still desired. There is a need to thoroughly revamp the archaic labour laws of the country and introduce laws or structures which not only provide a balance between protecting the employee and the employer but also encourage accountability at both ends.

Some of the changes that the government could consider are:

Single definition of ‘employee’ across several statutes and do away with different definitions such as ‘employee’, ‘workman’, ‘wage’, ‘employer’, industry, etc., to reduce ambiguity with respect to applicability of various Acts. The definitions should be made uniform and clarity should be provided in the legislations with respect to specific categories of employees, nature of establishments etc., to which they are applicable.

The definition of ‘workman’ under the Industrial Disputes Act, 1947 (“ID Act”) should be revised to provide protection to only employees who deserve so due to low financial earning only. The definition currently exempts employees in managerial and administrative capacity and employees in supervisory capacity whose monthly salary is more than Rs.10,000. People who are highly paid should be exempt from the undesired protection, as available under the current ID Act.

The current structure in the ID Act provides for multiple adjudicating forums for various labour disputes. This slows down dispute resolution and promotes delay in justice. It is desired that alternate ways of dispute resolution such as arbitration, etc., are promoted to deliver justice in a time bound manner. Also it is needed that such alternate ways of dispute resolution are accorded desired sanctity.

An employer should be allowed to terminate the services of employees by paying adequate compensation. Requirement to comply with rules such as the last in first out, etc. should be done away with.  

The union related laws need to be rewritten so that the labour unions become instrumental in the growth of manufacturing, services or other sectors in India and play a positive role in increasing harmony between the employer and employees rather than setting wrong examples.

In order to bring more spirit to ‘Make in India’ campaign, India needs to take a huge leap and not a stroll.

Disclaimer: This is a contributed post. The statements, opinions and data contained are solely those of the individual authors and contributors and not of People Matters and the editor(s).

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Topics: Employee Relations, #IndustrialRelations

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