Labour Law reforms in evolving context of Make in India

Shurlly Tiwari , Faculty ISME

India is one of the emerging economic powers in
the World.

One of the factors
which play an important role in this process is Make in India and GST. India has taken over China in FDIs investments,
now it is top choice of the foreign investors in the World. Foreign Direct Investment (FDI) inflows in India’s
manufacturing sector grew by 82 per cent year-on-year to US$ 16.13 billion
during April-November 2016.

 India is the youngest country with an average
age of 26 -32, which lures the Manufacturing Giants to start up their
operations in India.

India’s manufacturing sector has the potential to touch US$ 1 trillion by 2025. There is
potential for the sector to account for
25-30 per cent
of the country’s GDP and create up to 90 million domestic jobs by 2025. Business conditions in the Indian
manufacturing sector continue to remain positive.

Currently in India 20,000
trade unions are registered under Trade union act 1926. And all the trade
unions are associated with 5 main CTUO’s
(Central Trade Union Organisations)

The total Indian Workforce Formal and informal is about 500 million. Until late 1980 the trade
union issues were extremely important in India and were widely covered by the media.
In the 1990 the gaining power of trade unions and to provide inputs to effect
politically, socially and economically was diminished.

We have a 90-year-old Law, The Trade Union Act 1926, provides
a broad framework for proper functioning of the Manufacturing Units. However,
there are many gaps in this Act; the Law is very archaic making hiring and
firing of workers almost impossible. This leads to many abuses
by the employer, to avoid the hassle of hiring and firing,
employers resort to contract labour, in the recent past, we had a major
incident in  Maruti Udyog Ltd. plant at Manesar
, (Sep.2012) , where  contract workers restored
to violence against the Management and the company had to bear huge losses.

To avoid Industrial unrest and dispute, new reforms in Trade
Union are introduced like:

1. Increase in the minimum wages of no less than 18000 rupees a month.
2. Enhanced pension of no less 3000 rupees a month.
3. Minimum wages for unskilled non-agricultural workers to be 350 rupees per day.
4. In late June, Government approved a more than 14 % increase in salaries and pensions
for about 10 million government employees, which is expected to cost nearly $17
billion in the financial year through March 2017.
5. Disinvestment in central and state owned enterprises and
opening up sectors ranging from Railways
to Insurance
and defence top
foreign Direct investment.
6. Governments Target is to raise about 565 billion rupees in
Capital receipts, in which 360 billion rupees would come from selling off
minority stakes in federal and state owned enterprise.
7. Enlisting of Informal sector worker has become easy as all
the CTUOs has a read only database of 900
Adhar card holders. which has stopped the interventions of politics
and political parties into the system, for hiring and firing.
8. Payment of Bonus Amendment Bill – 2015, to make more people
eligible for bonus and double bonus. 
9. Child Labour Protection and Regulation -2012, no child under
the age of 18 cannot be employed in
any hazardous act.
10. The Small Factories Bill -2014, – To exempt firm up to 40 employees in compliance from 6 major
11. Labour Code on wage Bills -2015, replace 4 laws pertaining to salaries and wages.
12. Labour code on industrial Relation Bill -2015, replace trade
union acts and industrial dispute act.


  • The Government of
    India has an ambitious plan to locally manufacture as many as 181 products. The move could help
    infrastructure sectors such as power, oil and gas, and automobile manufacturing
    that require large capital expenditure and revive the Rs 1,85,000 crore (US$ 27.75 billion) Indian capital goods business.  
  • India is an attractive
    hub for foreign investments in the manufacturing sector. Several mobile phone,
    luxury and automobile brands, among others, have set up or are looking to
    establish their manufacturing bases in the country. 
  • With impetus on
    developing industrial corridors and
    smart cities
    , the government aims to ensure holistic development of the
    nation. The corridors would further assist in integrating, monitoring and
    developing a conducive environment for the industrial development and will
    promote advance practices in manufacturing.
With the help of Make
in India
drive, India is on the path of becoming the hub for hi-tech
manufacturing as global giants such as GE,
Siemens, HTC, Toshiba, and Boeing
have either set up or are in process of
setting up manufacturing plants in India, attracted by India’s market of more
than a billion consumers and increasing purchasing power.
  • Excess
    intervention of Government in Decision making Process
    , according to the
    chapter 5B of the Industrial Disputes Acts of 1947, employer requires
    prior approval of the appropriate government before any layoff,
    retrenchment or closure in establishments employing 100 workers or more.
  • Section 9A of the Act,
    mandates 21 days’ notice
    before affecting any change in established
    conditions of service of any employee.
  • The Contract Labour (Regulation and abolition) Act of 1970 provides
    for engaging contract workers
    for temporary, seasonal work but not for work of a perennial nature. Since regular worker are becoming less
    , more expensive, hard to put to immediate work and legally
    challenging to lay off in the face of falling demand, the employers find
    this feature of the Act very restrictive.

This article is an attempt to understand the
changing role of trade union in India. The entry of foreign players due to
globalization introduced pro employer industrial policy, which changed the
scenario for trade unions and the Industrial System in India. Apart from their main objective of demand
for pay and working conditions, the new trend is unions play a key role in
encouraging productivity and they are acting as a change agent of social
. It should be noted that the role of state in maintaining good
industrial relations by taking care of employees through various legislations
is very significant.

After the implementation of GST,
the lower taxes, simplified tax structures, seamless tax credit facility and
technology driven easy tax compliance system offered by GST provide an ideal
platform to increase a manufacturing sector share of GDP from the current 17.4% to 25% by 2025.

To achieve this lofty target India
needs to expand the manufacturing value add to $837.7 billion and manufacturing gross output to $3.8 trillion by 2025.
These are ambitious targets and getting there would require a laser like focus
on manufacturing categories.

The four categories where this will
affect the most are:

1. Manufacturing
capital goods.
2. Developing
in-house industrial R&D centres.
3. Facilitate
manufacturing of Computers, TV, Mobile phones and other electronic and telecom equipment.
4. Creating
Large scale manufacturing facilities for producing skills and labour intensive
products like auto components, toys, furniture, footwear, apparels, mattresses,
locks and low end engineering products.

India should move quickly as the
factories are easy to develop and can employ
millions of people who can move from agriculture or informal sector to the
formal sector.
Labour Law reforms and trade union reforms are the critical
factor in facilitating large scale employment. The make in India and GST are
serious efforts, to give a big boost to manufacturing in India. However, they
are unlikely to succeed if the hygiene factors and labour friendly and employer
friendly environment is not created.

These reforms along with the GST
will raise India’s productivity and reduce prices. Combining GST with a clearly
articulated manufacturing strategy would attract Global Investments, Create
Jobs and enable India to become a large manufacturing nation within Few years.

There cannot be a better time to
jump start the Make in India Program along with these reforms.


All the Trade Union reforms are majorly
for the full time workers; the Government should also draft reforms for the
contract workers, on the same lines. As it will help to prevent abuses and
promote retention in their retention for longer time and will also keep them motivated.

The role of Government is very significant,
but at the same time it should be limited, the Government should not interfere
in the decision making of employer.


 – CNBC videos
– Times of India 

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