Introduction to Labour Legislation

UNIT 6 LABOUR POLICY, EMERGING

ISSUES AND FUTURE TRENDS
Objectives
After studying this unit, one will be able to
(a) understand various factors responsible for formation of Labour Policy,
(b) know the influences of Indian Constitution ILO and various conferences,
committees and plans on Labour Policy,
(c) scan through different stages of Indian Labour Policy.
(d) appreciate future guide lines for Labour Policy.
Structure
6.1

Introduction to Indian Labour Policy

6.1.1 Factors Responsible for Labour Policy
6.1.2

6.2

6.3
6.4

6.5
6.6

6.1

The Main Postulates of Labour Policy

An overview of Labour Policy/Practices

6.2.1 Colonial Period upto 1950
6.2.2 Post Independence Period 1947-2000
6.2.3 Period of Structural Adjustments 1991-onwards
Emerging Issues
Future Guidelines (Trends) for Labour Policy
6.4.1 Paradigm Shift in Fundamentals
6.4.2 Align Labour Policy with Economic Policy
6.4.3 Competitive Labour Policy at State Level
6.4.4 Labour Law Reforms
Harmonious Understanding between Legislative, Judiciary and Executives
Conclusion

INTRODUCTION TO INDIAN LABOUR POLICY

Labour Policy means setting trends, evolving course of actions, following principles
and practices to govern labour matters. The National Commission on. Labour (1969)
observed "the concern of the state in labour matters emanates as much from its
obligation to safeguard the interests of workers and employers as to ensure the
community the availability of their joint products/service at a reasonable price. The
extent of its involvement is determined by the level of social and economic
advancement, while the mode of intervention gets pattemised in conformity with the
political system obtaining in the country and social and cultural traditions of its
people".
The Labour Policy and the role of state in a democratic country will be different from
that with different philosophy for the governance of the people. In a democratic setup, the emphasis will be on human freedoms and human rights, and policies reflect,
broadly, the choice and the will of the people:

42

Labour Policies are also influenced by the stages of development of an economy and
industrialisation strategies. Policies regarding job and job security etc. are influenced
by economic health, employment unemployment situation,etc. The extent of state
intervention also differ from state to state. In USA state merely lays the ground rule
and procedures and an independent agency such as National Labour Relations Board
administers the relations. But in a state like India, state intervention takes place not
only in the event of disputes but even when there is apprehension of it.
In India, the labour policies and practices are influenced by a variety of
considerations,

based on social economic and political patterns that emerged at the time of independence.
a)
b)
c)

d)

e)

Labour Policy, Emerging

Issues and Future Trends

concern for planned development and rapid economic growth as envisaged in

the successive five year plans
requirements of welfare state as envisaged in our constitution, specially the
directive principles of state policies (Art.39,41,43 43A etc.)
the socio-economic imbalances in the society, the depressed conditions of the
working class as observed by the Royal Commission on Labour and the Labour
Investigation Committee.
the imbalance in and between unions and employers and weaknesses of both the
partners, leading to preference for adjudication, despite obvious merit of free
Collective Bargaining.
the role of state as a major employer, with public sector being projected "to
achieve the commanding heights of the economy as per the Industrial Policy
Resolutions". However, the New Economic Policy seems to alter this position.

6.1.1

Factors Responsible for Labour Policy

The Labour Policy of our country is influenced bya)

b)
c)
d)

Constitution of India
The instruments of ILO
The policies announced in successive five years plans
The report and recommendations of various major commissions like Royal
Commission on Labour, the National Commission on Labour and Tripartite
Committees like- Indian Labour Conference and Standing Labour Committee

Indian Constitution and Labour Policies

Constitution of India is the supreme law of the land and fountain head of all labour
policies. The trinity of Constitution- the Preamble, the Fundamental Rights and the
Directive Principles of State Policies, provide the base and inspiration for enunciation
of labour policies by the Government. The Preamble provide the philosophies and
principles, the Fundamental Rights postulate the human rights and human dignity and
Directive Principles the progressive and on-going ways for Labour Policy
formulation.
Keeping the diversities and pluralistic structure of Labour problems, our Constitution
keeps labour in the concurrent list i.e. both Central Government and the State
Government have powers to legislate and regulate labour problems.
The ILO and its Instruments
Right from its very inception in 1919, the ILO through its Conventions and
Recommendations, has been defining and redefining the international labour
standards and impressing on the member states the need to ratify them,
Out of over 180 Conventions, India has adopted 36.
Some of the subjects covered by international labour code are the following
a)
b)
c)
d)
e)
f)
g)
h)
i)
j)

Freedom of association
Prohibition of forced labour
Equality of opportunity and treatment
Employment and human resources
Social Policy/Labour Administration
Industrial relations
Weekly rest and paid leave
Occupational safety and health
Social security
Employment of women

43

Introduction to Labour Legislation

k) Employment of children and young persons

l) Migrant workers
m) Hours of work
All these have influence on formulation of Labour Policy in India
Five Year Plans and Labour policy
Labour investigation Committee, 1946 and Royal Commission on Labour 1931 and
their recommendations guided the labour policy in immediate post-independent
period.
1. Revise the existing labour legislations to meet the changing needs of the time
2. Abolish/regulate Contract Labour
3. Evolve fair, terms and deal for all workers
4. Fix wages for sweated industries
5. Health Insurance Programme
6. Network of Employment Exchanges
National Commission on Labour and the Successive Five Year Plans have
contributed some thing or the other for the formulation of labour policies at national
level.
Tripartite Labour Bodies and Labour Policy
Indian Labour Conference and Standing Labour Committee were formed (1942) with
a view to provide necessary platform for evolving national labour policy on
consensus basis. They have done valuable service over the years. But because of the
adamant attitude of Government not to accept even the unanimous recommendations,
these bodies have not been successful in their mission fully.
6.1.2

The Main Postulates of Labour Policy

The main elements of our labour policy have been as follows:

1. Emergence of state as the most prominent player as the custodian of the interests
of the working community, as also the catalyst of change and welfare
programmes
2. Recognition of right of direct action, if justice is denied to the working class
3. Encouragement of mutual settlement, collective bargaining and voluntary
arbitration
4. Intervention by the state in favour of the weaker party to ensure fair treatment
and all concerned
5. Primacy to maintenance of industrial peace
6. Involving partnership between the employer and the employee in a constructive
endeavour to promote the satisfaction of economic needs of the community in
the best possible manner
7. Ensuring fair standards and provisions of social security
8. Cooperation for augmenting "production" and increasing "Productivity"
9. Adequate enforcement of Legislations
10. Enhancing the interests of workers in industry
11. Tripartite consultations

6.2

AN OVERVIEW OF LABOUR POLICY/PRACTICES

In order to understand Labour Policy, one has to have an overview of labour policies/
practices. It can be divided into three periods - (1) Colonial Period upto 1950 (2) Post
Colonial Period 1950-1990 (3) Period of Structural Adjustment - Emerging HR/IR
Requirements and need for change.
6.2.1

44

Colonial Period Upto 1950

Our colonial masters devised Labour Policy keeping two broad economic factors in
view : (1) to protect the interests of British Enterprises in India (ii) to ensure
uninterrupted supply

of goods and services to enable them to manage wars, which they encountered in the
first half of the 20th Century. They were aware that they have to leave India one day
and therefore, they wanted to drain out wealth from India to England and for that
they wanted to contain labour by adhoc, negative and reactive measures. No
systematic and planned effort was made to evolve a development oriented labour
policy, ensuring the growth of a healthy IR system.
During Colonial period policy of government for IR was one of laissez-faire and
selective interventions at most (NLC 1969). There were hardly any law to protect the
interests of workers except the employers and workmen (Disputes) Act which was
used mostly to settle wage disputes. The Britishers were compelled to enact Indian
Trade Union Act 1926, Trade Disputes Act 1929, Bombay Industrial Relations
Act,1938; recommendations of Royal Commission on Labour 1931 led to the
Payment of Wages Act 1936 and amendments to Factory Legislations. But during
World War II, their concern for IR became quite evident when they used Defence of
India Rule 81A for Compulsory Arbitration and established Tripartite Forums (ILC
and SLC:) to deal with IR problems.
6.2.2 Post Independence Period 1947-2000
Even after independence, the Labour Policy continued to be influenced by colonial
mind set and our legislature could not muster courage to make fundamental departure
Psychological hang-over of the past continued to be reflected in our Labour Policy in
independent India.
During the freedom struggle, our leaders made promises and pledges to the working
classes. Our leaders displayed varied ideological commitment - the communist
ideology, the fabian socialist ideology and the liberal democratic idealogies have
deep influence on our Labour Policy.
We have three main sources of legislations which form the core of labour policies.
They are central legislations (67) the state legislations (157) and the judge made
laws.
The Indian Labour Conference and Standing Labour Committee provided the forums
for discussion among the different stakeholders to evolve Labour Policy based on
consensus.
(i) Despite all these, Labour Policy in India remained consistently inconsistent. Shri
V.V. Giri wanted to bring the policy of one union in one industry and
strengthening the institution of collective- bargaining, failing which going for
Compulsory Arbitration. But that could not materialise.
(ii) In 1957-58, emphasis shifted from legalistic approach to voluntarism. Several
voluntary arrangements gained currency - Code of Discipline (1958), Model
Grievance Procedure (1958), Code of Conduct(1958), Verification of Trade
Union Membership (1958), Voluntary Arbitration (1959), Code of Efficiency
and Welfare (1959), Industrial Truce Revolution (1962).
(iii) India had to face three wars between 1962-1972 and therefore wanted better
discipline in all spheres of life, including labour management. From 1968 till
early years of eightees, the labour market was marked by violence, gheraoes and
militancy. Emergency in June 75, established National Apex Body in place of
ILC. After emergency, Janta Govt. rehabilitated ILC, and workers participation
in management gained currency. Labour militancy also revived. Government
went for ESMA (Essential Services Maintenance Act) for meeting the situation
of industrial strife. During this period unsuccessful attempts were made to
reform labour legislations and to adopt a policy of workers participation
As a result of these adhoc and fragmented approach in Labour Policy, we have got a
totally protected and sheltered labour management relations.
Thus, our labour policy has not come up to our expectations and it lacks direction and
sense of proportion. Labour being an important component of production, the poor
labour policy gets reflected in our productivity and other economic parameters.
When India became independent, it was one of the major economic powers. But in
1990, it is at the bottom of other industrialising countries. It got itself marginalised.
India's share in the world exports declined from 1.4% in 1953 to 0.5% in 1990, its
share in import also declined from 1.3% to 0.7% during the corresponding period.

Labour Policy, Emerging

Issues and Future Trends

45

Introduction to Labour Legislation

World Competitive report puts India at the bottom of the 10 industrialising countries
in, terms of competitiveness of its human resources.
According to the 1992 UNDP Report of Human Development, India ranked 134
out of 160 countries in terms of human resource index.
6.2.3 Period of Structural Adjustments 1991-onwards
Global competitiveness has put its pressure on Indian economy Government of India
had gone for New Economic Policy in 1991. The N.E.P. envisages radical charges in
all facets of Indian economy. It recommends reforms in our policies - industrial,
fiscal, monetary, trading etc. It has gone for recommending privatisation of the PSUs
and government organisations. The Industries which were reserved for PSUs, most of
them have been opened for Private Sector also. The Multinationals and FDIS are
encouraged to invest. They want liberalisation in different areas of economy,
including labour area. But the government lacks political will to do any reform in
labour policy. Therefore, status quo ante continues in this area.
Old policies are not capable of meeting the challenges of change. Therefore, our new
labour policy has to address the following needs of entrepreneurs - both domestic and
foreign.
(i)

Giving them reasonable freedom in selecting their employees by removing quite

a few of the existing restrictions.
(ii) Freedom to organise the work by bringing flexibility of deployment, etc.
(iii) Freedom to set the conditions of service of their employees without too much
interference of laws/courts.
(iv) Freedom of introducing compensation packages, (specially for PSUs) in order to
attract and retain good performance.
(v) Freedom to experiment with innovative and new employer-employees relations
practices at workplace.
(vi) Freedom to maintain discipline. The undue security of job has to be removed in
order to make employees performing.
(vii) Freedom to close-down in the event of the organisation not being viable.
The Labour Policy has to be practical , pragmatic and balanced. Our industries are
falling sick. BIFR under Sick Industrial Companies (Special Provisions) Act, 1985,
has proved " inadequate to meet the challenges. It can not intervene for five years
after the unit is established and until the net worth is negative. The dilatory
procedures and lack of authority despite its quasi-judicial character makes it less
potent to accomplish the task.
Absence of a clear cut-Exit Policy makes the situation worse confounded. The
changes brought about in legislations in1976, by addition of sections 25 M,N, & O,
which require Government permission for lay off, retrenchment and closure, has
virtually taken away their rights from employers.
What should be the policy to deal with surplus labour in event of technological
upgradation, closure, sickness, should be clearly formulated. If that is not done, the
position will not improve.
National Renewal Fund and V.R.S Schemes are well intended but their practical
application is proving dysfunctional. Clear and stringent guidelines have to be issued,
which are still not there.

6.3

EMERGING ISSUES

Following distinct trends are clearly discernable

1.

Input costs are rising and output prices declining. Productivity improvement is
imperative to do more with limited resources on sustained basis. The resultant
squeezing in employment, wages, benefits etc. create sense of helplessness and
cause tension in IR

2.

Organisations have gone for new approaches of management (1) setting up parallel

46

3.

4.

5.

production facilities (ii) sub-contracting (iii) net-working (iv) franchising etc.

This has reduced the criticality of production/services. This has given employer
alternatives and sense of independence forcing the unions to come to their terms.
Several MNCs,(Bata, Hindustan Lever and a list of pharmaceutical Cos. for
instance), which have conceded whatever unions asked for in the past are now
beginning to take advantages of the increased vulnerability of unions in this
scheme of management.
When companies become bankrupt due to mismanagement etc. employers have
to yield to union pressure to give-up control and, often forcing employees
buyouts through workers' cooperatives or otherwise. In quite a few cases
(Kamani Tubes, Central Jute Mills, for instance) workers are able to revive sick
units and maintain their profitability with support from professional
management.
Because of economic, structural, technological and other changes, companies
develop sickness, the trade unions are agreeing for several concessions to save
jobs - (a) down sizing including retrenchment of a section of workforce (b) wage
and benefits cuts and freezes (c) freezing cost of living and other allowances. (d)
suspension of trade unions rights for collective-bargaining and industrial action
for certain period, and (e) agreeing for higher charges in the work norms and
work practices and greater managerial discretion in maintaining discipline
production and productivity etc. In both the Private and Public Sectors, where
the cases have been referred to BIFR, concession has become norms than
exceptions.
When neither the trade unions nor the employers seem to show adequate
concern and sensitivity to workers interests, workers are seen to ignore both
employers and unions and take charge of the situation. They occupy the plant
and run it to keep their jobs and earn their livelihood - Kanoria Jute Mills in
Calcutta is the example..

Labour Policy, Emerging

Issues and Future Trends

6.4 FUTURE GUIDELINES (TRENDS) FOR LABOUR

POLICY
There is complete change in economic environment; therefore, there is a need for
paradigm shift in Labour Policy.
Paradigm shift in fundamentals
Align Labour Policy with Economic policy
Go for immediate labour law reform,
Competitive Labour Policies in State also
6.4.11 Paradigm Shift in Fundamentals
The requirements of competitive market warrant the following change in role/attitude
of Government
(1). Shift away from the role of Controller to facilitator/enabler. The content of
Labour Policy should move away from regulation to facilitation, reaction to
proaction and, dispute resolution, to creation of harmonious relation, conducive
to social and economic development.
(2). Competitiveness is leading to a shift towards decentralised I.R. There is a need
to create and strengthen institutional mechanisms for building workplace culture
by providing information - sharing consultations, communications and
consensus development at workplace level.
(3). Our labour market is characterised by dualist. A vast pool of illiterate, unskilled,
unorganised, unprotected and mute majority of workforce and a small pool of
literate, skilled, organised, protected and vocal minority of workforce, co-exist.
(our labour policy concern for a small section of less than 8% of labour force in
organised sector of the political unions acting in unison with the state to pursue
labour policy based on political rather than considerations of labour and market).
The state has to broad base the labour policy to cover the workers of
unorganised sectors also in more meaningful manner than done today.

47

Introduction to Labour Legislation

(4). Labour Policy should shift away from negative role of dispute resolution to
proactive and positive role of promotion of sound labour management relations;
strikes and lockouts do not tell the whole story.
(5). Hitherto, PSUs are supposed to be model employer. In this age of competition,
let them be model performers too.
(6). Sustaining growth and fostering competitive labour markets are critical to ensure
job and income security. Job security at any cost, regardless of the viability the
enterprise may lead to counterproductive work culture.
(7). Ensure wider social dialogue for broad based social consensus and social
cohesion. Academic experts should be associated with tripartite bodies.
(8). Affirm diversity commitment to rural labour, women labour, child labour,
bonded labour and labour in unorganised sectors have been largely rhetoric.
(9). The state has an obligation to make social justice an integral part of
developmental planning. Growth first and justice later is a contentious issue.
The state has to pay attention to the transitional pains and gains. Trickle down
theories would be treated as trickery when people do not experience trickle
down even after decades, whatever may be the reasons. Sacrifice today for better
tomorrow will fall on deaf ears on societies where rich continues to get richer
and poor poorer.
6.4.2

Align Labour Policy with Economic Policy

In to-days' world, the policies of protection, self-reliance and input-substitution is

giving away. To catch up with the other industrialised countries, we need to attract
capital, cut costs, and enharice competitiveness. In the sphere of labour, this means a
new alignment between industrialisation policies and labour policies. Towards this
end, the labour policy should stress support for
(i)
(ii)
(iii)
(iv)
(v)
(vi)

The observance of a minimum number of core/basic labour standards

Free trade unions and collective bargaining
Encouraging workplace institutions to affect changes at micro level smoothly
Investment in education and training
Bringing entire labour force under the purview of a rational labour policy
Proactive labour market policy, removing the mismatch between the acquired
and required skill facilitating information and counselling facilities for
employment
(vii) A culture of non-interference by one party in the affairs of the other party.
At the minimum, what the foreign investors expect is a)

A clear enunciation of the right, and responsibilities of the employers and

workers unions,

b)

An unambiguous and easily understandable legal and institutional frame work.

c)

Predictable arrangement concerning union recognition, collective-bargaining,

skill-development, flexibility at workforce adjustment.

d)

Well defined, clear cut, time bound and proactive grievance redressal.

e)

An administrative and judicial system that can be trusted for its transparency,
integrity, expedience, efficiency and accountability.
6.4.3 Competitive Labour Policy at State Level
Labour is a concurrent subject and states frame their labour policies keeping the local
factors in view. They do have different labour policies than centre with regard to
trade unions recognitions etc.

48

Keeping the competitiveness and investment opportunities in respective areas, the

states may enunciate progressive labour policies, without waiting for centre.

6.4.4

Labour Law Reform

Labour Policy, Emerging

Issues and Future Trends

India has a law - heavy system in 67 central and 157 state legislations. Most of these
laws are either outdated or irrelevant. We need an upto-date and simple labour law
code. Attempts have been made in the past without much success. Labour laws
reforms are not easy. South Korean experience confirm it. But several economies in
transition - China, Vietnam, many in Africa and Latin America have been able to
rewrite labour laws.
Thrust of changes in labour laws 1.
2.
3.
4.

Have one (or a few) labour code in place of many labour laws and ensure better
enforcement. China and Vietnam have done in mid 1990s.
Get over the confusion over some basic concept by eliminating multiple
definitions in different legislation - industry, wages, workman, etc.
Minimum wages prescribed are too low and their implementation too lax. Make
it decent, simple and easy to understand and implement.
Some of the Acts have become irrelevant. Trade Union Act 1926, is an example.
In Japan and Denmark, there is no trade union legislation but unionisation is
very high. In many East Asian Countries, the right to form the trade union is
limited to the private sector only. Unions are not allowed in public sector. Even
in countries where they are allowed (Malaysis and Singapore), their right to. go
on strike is quite limited. In many of the East Asian Countries (Malaysia,
Indonesea, Taiwan) the unions are not allowed to have any association with
political parties. This has been done to avoid industrial relations becoming proxy
wars for political parties, rather than repressing genuine workers interests.

Following the economic reform in 1991, it was proposed to revise the Act in 1993 to
have 10% or 100 members, whichever is less, to become eligible for registration. But
that also could not be passed.
Central legislation for recognition of trade union as bargaining agent is a necessity
for collective-bargaining and it should be provided without delay. The secret-ballot
method every two years followed in AP, Orissa and West Bengal have their own
adverse effect, which may be corrected.
5.

A thorough review has to be done on the various provisions of I.D. Act in 1947.
Reforms in some of the South East Asia, China and Vietnam offer valuable
insights. Some of the vital areas are:

(a) Employment can be secured only so long as the enterprise is secure viable. ILO
(convention 168) holds that the termination of employment at the initiative of
employer can be valid if structural, technical, economic and other changes
require workplace adjustment as per business needs; this is imperative. Notice,
consultation and compensation can be and should be tightened. Prior permission
from Government should be dispensed with regard to lay-off, retrenchment and
closure.
(b) Sec. 9A concerning notice of change should be amended. Notice may be
required and consultation should be encouraged but employer must have right to
improve in order to remain competitive.
(c) In most of the South East Asia countries, for a strike to become legal, it requires
the approval by a majority (2/3 in Malaysia) of the union members by secret
ballot. This has to be followed by a notice to employer and a cooling off and
conciliation period (usually 15 to 45 days) before going on strike.
A similar provision for both the strike and lockout may go long way to contain I.R.
situation in India.
Average number of workdays lost per year, per employee in Manufacturing Sector in
selected countries from 1972 - 81, and 1982 - 1992.

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Introduction to Labour Legislation

(d)

6.
7.

6.5

Excessive job security or job protection impede job creation, increase in the
price of labour and its relative inflexibility, besides bringing in undisciplined
work culture. That requires correction.
Protective - wage fixation the one being practised, having no connection with
performance.
Skill Development Fund is required to be created to impart training and
development to those who are getting obsolescent with increase innovations.

HARMONIOUS UNDERSTANDING BETWEEN

LEGISLATIVE, JUDICIARY AND EXECUTIVES

Each political party in its manifesto recognises the need for integration of Indian
economy with global economy. But none of them has the courage to say that
industrial relation system has to gear itself to. match the requirement of
competitiveness. Even our judiciary is still obsessed with the spirit of our
Constitution and busy with creative interpretation of social justice. The executive is
usually bound by rules and procedures, rigid in its approach and indifferent in its
attitude.

6.6

CONCLUSION

Efficient use of labour is an important factor, in market economy to-day and that is
possible only through dynamic, pragmatic
broader labour policy. Our labour
policy is totally obsessed with 8% of labour force in the organised sector. Even the
salaried employment constitute a fraction (about 15%) of total *our force in the
country. Therefore, our labour policy should address, the entire labour force,
confronting 92% in the unorganised sector. Besides, workplace Industrial Relation
System should facilitate change, promote flexibility and prepare the workforce to be
able, adaptive and attuned to respond to the challenges of changes. Since we have
already undertaken reforms in most of other areas of economy, the reform and
progressive policies in labour area is overdue to make our economy really
competitive. It has been well said, "if you can not think of future, you can not have
one".

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