Proposed changes in labour laws

Disorganising the organised

The Budget speech has reaffirmed the Finance Minister’s, or rather, the government’s, excellent domestication and grooming by the corporate sector. The minister has demonstrated his ability to be His Masters’ Voice. The concluding notes of his budgetary speech threw the gathering at CII’s headquarters into ecstasy, which “pronounced it an unqualified triumph of the liberalisation process.” (Frontline, March 30, 2001). Bulls and bears went wild in the markets.

The budget came up with interesting proposals to boost industrial growth in the country. In the series of proposals given in Part A of the Budget 2001-2002, three paragraphs (52-54) included under the subhead “Labour Market” are striking. They tend to completely alter the industrial structure evolved during the post-independent era.

Economic Survey

In the Economic Survey presented before the Budget the Government had already made it evident that it would eliminate every hurdle before global and national capital. It called for attention to the “critical gaps” in the reform process in order to replicate “the high industrial and GDP growth rates seen during 1994-95 to 1996-97.” Among these “gaps” figured those “relating to labour laws and procedures, bankruptcy, land ceiling and rent control and small scale industry reservation”, which “inhibit industrial restructuring, raise costs and reduce international competitiveness.” The Survey propounds that “labour mobility is hampered by the existing labour laws and land utilisations by the Urban Land Ceiling Act and rent control laws. Consequently, resources in the industrial sector have not been able to move to more productive uses, in particular towards labour-using employment-generating industries, that could lead to higher industrial growth on a sustained basis.”

The trickery of preserving small-scale entrepreneurs’ interests, flexibility and competitiveness are utilised to legitimise the labour law changes. It is ironical that the same logic of competition is raised in these documents to de-reserve items, which protected the local small entrepreneurs till now. The budget has “proposed to de-reserve another 14 items related to leather goods, shoes and toys.” If we visit this notion of “small-scale” holistically and in a wider perspective of socio-economic processes, it becomes quite evident that it is simply one of the vague terminologies used and abused to mesmerise the public and legitimise the hidden agenda followed through the process of liberalisation. ‘Deregulation’ of factor markets and industries will not favour ‘small’ as against of ‘big’ but would obviously lead to monopolisation, which is a natural culmination of open competition. Deregulation is, in fact, regulation in favour of capital in general, which tendentiously moves towards concentration. Further, small-scale production units are generally ‘decentralised’ units of bigger industries, as they undertake the jobs put out by the latter.

It is in this perspective that the Economic Survey 2000-01’s ruling on the contract labour law should be understood. It says that, “the contract labour law, as it exists today, makes it impossible for genuine small-scale entrepreneurs to provide services to industry.” In the Survey, the broad framework for framing a “modern contract labour act” has been established, i.e., it “should encourage outsourcing of services so that new employment is generated.” It further provides the rationale to alter the labour laws and procedures. It states that they “have reduced the incentive for organised labour to work efficiently and have made it unprofitable for the organised industry to generate new jobs.” It even strikes a chauvinistic note even while talking of the virtues of competition and free markets: “Greater flexibility is essential if Indian industry is to compete with the Chinese industry and generate as many new jobs as the latter has.” And, only labour law changes can ensure it, since there-is-no-alternative (TINA) to ‘disorganising-the-organised’ strategy.

Budget proposals

The Budget has simply concretised the above-mentioned recommendations in the Economic Survey, though the Union Budget is an unusual place to propose changes in the labour laws. Of course, anti-labour legislations are packaged as growth measures. The Budget boldly states the need “to address the contentious issue of rigidities in our labour legislations.” It directly hits at the very basic core of the labour laws, but has followed the tradition in packaging the attack.

Changes in the Industrial Disputes Act 1947

The budget has provided an effective mechanism with which the Industrial Disputes Act 1947 would be completely emasculated. The Finance Minister conveys the distress of his corporate mentors by stating that “some existing provisions in the Industrial Disputes Act have made it almost impossible for industrial firms to exercise any labour flexibility. The Government is now convinced that some change is necessary in this legislation.”

The existing ID Act 1947 provided a segmented three-level protection machinery against layoffs, retrenchment and closure on the basis of the firms’ size –

a. No protection to those working in a firm employing less than 50 workers;

b. Some protection to those employed in the firms with 50-100 workers; and,

c. More protection to those employed in larger firms.

Generally speaking, the object of contention is chapter VB of the ID Act, which “stipulates that employers in specified industrial establishments must obtain prior approval of the appropriate government authority for effecting lay-off, retrenchment and closure, after following the prescribed procedure.” The proposal made in the Budget has a very simple solution in hand, which along with the replacement of the ‘three-level protection machinery’ by a single-level, will eventually do away with the protection itself. It is proposed, “that these provisions may now apply to industrial establishments employing not less than 1000 workers instead of 100.” It uses the classic tool of segmenting the labour market, i.e., the Number Test or Filter, for its complete deregulation. All filters segment the labour market, by protecting a small minority and informalisation of the majority. But, since about 85-90 per cent of the units in the organised sector operate with less than 1,000 workers, besides the already existing boundless informal sector, the provision will effectively eliminate the partially ‘protected’ sections of the working class.

The subsequent provisions on relief to the workers (which “would act as a deterrent on employers to take recourse to lay-off, retrenchment and closure in a routine manner”) are mere statements and empty talk. They provide for an increase in the separation compensation from 15 days to 45 days for every completed year of service. But the “number test” would filter the employer’s fear of being monitored, and industrial relations would be fully informalised. Then, the role of ID Act as the basic labour law will be diminished fully.

Contract Labour (Abolition & Regulation) Act 1970

Casualisation and contractualisation of the work-process are the modes through which the so-called “flexibility” in the labour market is established and maintained. They provide a complete control of the employers over the work conditions and assigning any work to the workers becomes their prerogative. While they can continually minimise their obligations in the “contract of employment”, the growing workforce and ensuing competition thereof bind the “free” worker to accept every work condition – they can reject the offer only to obtain in return, unemployment, deprivation and hunger.

Hence, the Budget complies with the directives of the Economic Survey for creating a “modern contract labour act”. It says, “rigidities [or, in other words, obligations for the employers] inherent in the existing legislation regarding contract labour inhibit growth in employment in many service activities.” The logic is interesting since it envisages a “growth in employment” to be the product of insecurity of the employed. The Keynesian logic of “full employment”, which at least gave some respite and social security to the population, is simply sidelined in favour of “growing employment” which assumes a “natural rate of unemployment” taking the existence of a pool of voluntarily unemployed to be granted and permissible.

Contract labour in India has another dimension, which makes its employment an efficient mechanism to ensure a supply of unprotected labour, for whose exploitation, compliance of legal obligations does not arise. It evolves layers of agencies amidst which the principal employer is almost untraceable, and he becomes free from any duty to deal with the workers. On the other hand, it becomes difficult for the workers to wage any sectionalist struggle, unless the whole system itself is questioned, since they are unable to trace an adversary to fight.

Like in the case of the Industrial Disputes Act 1947, the Contract Labour (Abolition & Regulation) Act 1970 too is rendered barren, if the budgetary provisions really inspire legislations. The Budget singles out section 10 of the Act for deletion since from it is derived the vitality of the Act. While summarizing the section itself, the cat leaps out of the bag – “Section 10 of the existing Act envisages prohibition of contract labour in work/process/operation if the conditions set therein -- like perennial nature of job etc. are fulfilled.” Hence, firstly, the differentiation, between perennial and incidental, core and peripheral ought to be eliminated, obviously only for their exploitation by capital. It could have been a marvellous proposal if it were good intentioned, in the sense that the protection provided in the labour laws were made universally applicable. At a time when all legal protection provided to the workers are being taken away, this expectation is untenable. Further, the contractualisation of the work process would, in fact, create greater differentials and segmentation in the labour market, as completion of a job would entail layers of contractual relations to be executed under various work conditions. The recommended amendment would simply give an opportunity to capitalists to equally exploit all the “strata” of labour.

The budget ultimately comes out with its clear agenda. “Section 10 enables the contract labour engaged in prohibited jobs to become direct employees of the principal employer. To overcome this difficulty, and at the same time, ensure the protection of labour, it is proposed to bring an amendment to facilitate outsourcing of activities without any restrictions as well as to offer contract appointments.”

The verbosity of pro-labour statements is evident for the reasons stated above. They need to be filtered away to have access to the hidden agenda. Their only purpose is to legitimise the “reforms” in the eyes of voters. Hence, the statements – “It would not differentiate between core and non-core activities, and provide protection to labour engaged in outsourced activities in terms of their health, safety, welfare, social security, etc. It would also provide for larger compensation based on last drawn wages as retrenchment compensation for every year of service.”

Changes in Context


Estimates of employment in organised sectors (Millions)

Years Public sector Private Sector Total
1990 187.72 75.82 263.53
1991 190.57 76.76 267.33
1992 192.10 78.46 270.56
1993 193.26 78.51 271.77
1994 194.45 79.30 273.75
1995 194.66 80.59 275.25
1996 194.29 85.12 279.41
1997 195.59 86.86 282.45
1998 194.18 87.48 281.66
1999 194.15 86.98 281.13

Note: (i) Includes all establishments in the Public Sector irrespective of size of employment and non-agricultural establishments in the Private Sector employing 10 or more persons.

(ii) Excludes Sikkim, Arunachal Pradesh, Dadra & Nagar Haveli and Lakshwadeep as these are not yet covered under the programme.

Source: Ministry of Labour, (DGE&T); Economic Survey 2000-01; Website document:

The finance minister is sure that these changes “will promote industrial investment in labour-intensive, and export-oriented activities providing for renewed industrial growth.” Whatever the figures say, it would definitely increase competition in the labour market and ensure a growth, if any, with low wage and high profits. Further, it would help increase concentration of wealth, and eventually, free play for monopolies for which “SSIs” (employing less than 1000 workers) would serve as subsidiaries.

The changes recommended by the Budget along with divestment, etc., complete the basic institutional transformation needed for the new Post-Fordist regime of accumulation professed by the international agencies of capital – WTO, IMF and World Bank. This regime overcomes the crisis of the earlier regime by transforming the labour process in accordance with the flexibility given by automation. More fundamentally, a capitalist crisis developed globally as real wages continued to rise, while fixed capital cost, too, tremendously increased in relation to the total work force, resulting in a fall in the general rate of profit. To fight this trend, an expansion of market was necessary. The technologically less advanced third world would have to be made to compete with the advanced economies, thus transferring surplus value produced in the former as realised profit for the latter. To coerce the underdeveloped world to open up their economy, the prices of primary products, for which these countries were the exporters, were made to crash in 1980s leading to balance of payments crisis in the 1990s.

India accepted the IMF-WB designs for liberalisation and restructuring in the wake of its foreign exchange reserve depletion. It was during the latter half of the eighties that the switchover from an inward looking, closed or import-substituting development strategy to an outward-looking, open or trade-linked strategy started, the orientation for which is evident throughout the economic policy documents of the present government. An export-oriented outlook essentially signifies that the profit would be realised on surplus production, exploiting the national labour on the basis of the effective demand in a foreign country. Hence, to increase the

competitiveness of the exports, it needs to be continuously cheapened which would entail dismantling labour protection and envisaging a labour market free of all regulations. It was at this juncture, that all the labour laws, which impeded the exit of labour or capital, were considered to be evil, and the logic of flexibility versus rigidity evoked.

If we go through the statistics provided by the Economic Survey, it would be evident that the labour law changes are simply for legalisation of the process of disorganising the organised, already evident in the statistics (See table).

In this regard it is quite interesting to note that the growth of employment in the organised sector was 2.6 per cent in 1981, which came down to --0.3 per cent in 1998. It further diminished in 1999. With disinvestment occurring on a larger scale, the figure in the years to come can well be imagined. Between 1983 and 1998, the number of employees in the organised sector just inched up from 24 million to 28 million, while the total size of the work force leaped from 289 million to 397 million.

What else can one make out from the data and intentions evident in the Economic Survey and the Budget, except that the rulers are ready for a complete fragmentation of the organised sector? It would allow the capitalists to regiment the workforce, decrease the necessary labour time required for its reproduction (i.e., doing away with wage-rigidities) and an increase in surplus labour time, realised in greater profits.

– Pratyush Chandra

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