Indian Government Set to Introduce Reforms to Labor Laws

October 21, 2016 Posted by India Briefing Reading Time: 6 minutes

By Pritesh Samuel

In a sign that the government wants to get serious about overhauling labor laws, India plans to introduce a proposed Wage Code bill that will guarantee minimum wages across the country in the winter session of parliament. The draft bill will also streamline the definition of wages by combining four wage related laws – the Minimum Wages Act, 1948; the Payment of Wages Act, 1936; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976. This is in line with the government’s plan of improving India’s ranking in the World Bank’s annual ease of doing business assessment.

Altogether, the government aims to combine 44 labor related Acts into four codes, which will cover wages, industrial relations, social security, and working conditions. In the existing set-up, aside from a myriad number of labor laws, India does not have a national minimum wage law. Rather, each state decides its own minimum wage law, making it difficult for businesses to ascertain their exact costs. In addition, those in the unorganized sector do not get any social security or health benefits, and implementation of any wage law is lax.

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In the above figure, we see the gap between regular workers (employed in the formal organized sector) and employees in the informal sector.

Draft National Policy for Domestic Workers

The labor ministry is also working on a draft national policy for domestic workers. Among the benefits proposed will be a minimum salary of US$ 135 (Rs 9,000) per month for full time household help, along with other benefits including social security coverage and mandatory leave. The draft also sets provisions against sexual harassment and bonded labor, and suggests compulsory paid leave of 15 days a year as well as maternity leave.

The policy allows domestic workers to be given a right to pursue education, a safe working environment, and a grievance redressal system. It’s in line with standards from the International Labour Organization (ILO), which India has adopted. The draft also recommends minimum monthly wages for unskilled, semi-skilled, and high skilled categories of domestic workers. In addition, there is an attempt to curb abuse by placement agencies. Such agencies will only be allowed to charge a one-time 15 day salary payment from employees and will have to provide social security coverage, including medical and health insurance.

Studies show that India has a total of 30 million domestic workers in the organized and unorganized sectors. If implemented, the proposed policy will benefit them significantly. Out of the country’s total workforce of 400 million, estimates show that less than 10 percent work in the formal or organized sector. Most of India’s workers are therefore employed in the informal sector, which deprives them of minimum wages, leave, or any other social benefits for them or their families.

States Leading the Way Forward

Paving the way for the rest of the country, the western state of Rajasthan recently implemented its own minimum wage policy. The state government fixed a minimum wage of US$ 85 (Rs 5,642) for domestic workers per month, which came into effect in January 2016. For any overtime, employers will have to pay double the minimum wage fixed per hour for each hour beyond the normal eight hours. Violators will face prosecution and the worker will be eligible for compensation as high as ten times the difference between the minimum wage and the amount they received. Following Rajasthan, in September the state of Assam proposed a minimum wage for its domestic workers. In the draft law, the proposed wage is set at US$ 0.4 (Rs 30) per hour for part time employment and US$ 108 (Rs 7,200) per month for full time. In addition, workers will be entitled to Variable Dearness Allowance (VDA), which is typically available to public sector employees. The VDA takes into consideration the increase or decrease of the Consumer Price Index (CPI) every six months.

Equipping the Labor Force

The Indian workforce is expected to reach 900 million by 2020. However, the government will need to train the workforce effectively and build infrastructure to make use of the country’s demographic dividend. Some studies show that around 80 percent of engineers in India are unemployable. Domestic and foreign companies therefore have to train fresh graduates for almost a year before they can start working. Tata – a large multinational conglomerate based in India – does this, as does Boeing. In order to address India’s skills deficit, the government has launched two skill development programs of around US$ 3.29 billion to help train its workforce by 2020. Analysts estimate that India will need around 90,000 aerospace and defense factory workers in the coming decade. In addition, recruitment agencies have stated that India will require but face a talent shortage for IT personnel, accounting & finance staff, project and sales managers, customer service representatives, technicians, quality controllers, and buying & selling procurement staff, among others.

Observations

India has to reform its British colonial era labor laws and invest in quality education and vocational institutions, while improving on other workman initiatives like apprenticeship programs. While the aforementioned draft laws are headed in the right direction, informal workers represent a significant amount of the Indian workforce and the government will need to prioritize equipping such workers with the right skills while ensuring that they receive due benefits. This will remain a challenge. Informal workers will have to acquire skills with strong labor market links. If the Indian government can do this successfully, it will transform the country into the manufacturing and economic powerhouse it intends to become.

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