Cabinet Approves Changes to Manufacturing Labor Laws in India

August 5, 2014 Posted by India Briefing Reading Time: 4 minutes

DELHI – In a landmark decision last month, India’s Union Cabinet approved a proposal to amend three key labor laws including the Factories Act 1948, Apprentices Act 1961 and Labor Laws Act 1988.

While successive Indian governments have agreed on the need for comprehensive labor reform, partisan politics and the potential for a union-led backlash have historically stalled policy progress.

However, with Narendra Modi and the BJP now in control of the first majority government in 30 years, many foreign investors are hopeful these proposed amendments may signal the beginning of the first major revamp in nearly five decades of India’s outdated labor laws – a development that could create millions of new jobs and boost the country’s manufacturing competitiveness.

With most labor laws in India dating back more than 60 years to the end of British rule, labor ministry officials cited labor law reform as a top priority during the Modi administration’s first 100 days in office.

Factories Act 1948

The proposed changes to the Factories Act 1948 focus on five key points including relaxing norms for women to work in some industry segments at night, improving worker safety, increasing penalties for violations, doubling the provision of overtime from 50 hours a quarter to 100 or from 75 to 125 in other work of public interest, and reducing the number of days an employee must work to be eligible for benefits such as leave with pay from 240 to 90 days.

The proposed amendment would also eliminate provisions enabling the prosecution of factory owners for petty offences such as failing to maintain a clean toilet.

“While we have tried to ease the process of doing business with industries, the amendments have kept in mind the safety and welfare of employees. The initiative is a fine balance between labor welfare and industry-friendly and job-oriented reform,” a labor ministry official said.

Apprentices Act 1961

In respect to the Apprentices Act 1961, the proposed reforms are reportedly seeking to expand the scope of employment as ‘apprentices’ on a shop floor. While most apprentices currently have a strong engineering background, this would enable non-engineers to accrue industry-relevant experience and skills.

Under the proposed reforms, an apprentice would receive 70 percent of a semi-skilled worker’s salary during the first year, 80 percent the second year and 90 percent the third year. In small-scale industries, the government would pay 50 percent of the required salary.

“This will increase the skilled manpower in the country and help industries get job-ready employees,” the official added. While India currently has around 300,000 apprentices, these reforms would theoretically enable millions more Indians to take on an apprenticeship on the path to full time employment.

Labor Laws Act 1988

The proposed amendment to the Labor Laws (exemption from furnishing returns and maintaining registers by certain establishments) Act 1988 would permit small industries with less than 40 workers to file a single-page return for compliance with several labor laws that currently require individual returns to be filed.

Criticism and Praise

After news of the proposed reforms broke, some trade unions were quick to voice their opposition.

“We are opposed to the proposal to put women in the night shift. We are also opposed to increasing the overtime limit to 100 hours from 50 hours per quarter,” national secretary of the All India Trade Union Congress, D.L. Sachdeva, said.

“The BJP government in Rajasthan is playing to the demands of the industry. Whatever amendment it is bringing in are employer-friendly, not employees-friendly. In the name of growth, I have a sense the state wants to promote the interest of the rich and influential business community,” he added.

However, business leaders across India were quick to laud the initiative.

“India needed this for [a long time] and we have been asking for it a long, long time. I can tell you that such steps create massive employment. It is not only good from the industry point of view but also from the workers’ point of view. The government should make sure that a right balance is there between an employee and the employer. [These reforms] shall give India a rightful place in the comity of nations,” Hero MotoCorp’s managing director Sunil Munjal commented.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email india@dezshira.com or visit www.dezshira.com.

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