5 contentious issues holding up India’s labour law reforms


Former Niti Aayog chairman Arvind Panagariya best captured the complexities of India’s labour laws in these words, “The labour situation is incredibly complicated: when you go from six workers to seven in a firm, the Trade Unions Act kicks in. When you go from nine to ten, the Factories Act kicks in. And when you go from 19 to 20, something else kicks in, as happens again when you go from 49 to 50 and 99 to 100. The biggest killer is the Industrial Disputes Act, which says that if you are a manufacturing firm with 100 workers or more, you cannot dismiss any of them under any circumstances unless you get prior approval from the government.”
“This is rarely given and it applies even if you go bankrupt, in which case you still have to pay your workers. This has important consequences because investors are not going to enter into an industry if they can’t exit. So India has a very pernicious set of labour laws and that really, to me, is the reason why Indian firms have remained so small on average.”
Labour is in the concurrent list and more than 40 central laws and more than 100 state laws govern the subject. The central government is keen to consolidate the central laws into four codes – relating to wages, industrial relations, social security and welfare and occupational safety, health and working conditions – and bring about reforms to ensure ease of business.

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