With the economy struggling during the COVID-19 lockdown and hundreds of firms and their workers on the path to insolvency and unemployment, state governments in India made significant changes in their application of labor laws.

These changes were announced earlier this year by three BJP party-ruled states, including UP, MP, and Gujarat. Other states ruled by the opposition Congress party, Rajasthan, and Punjab, as well as BJP-ruled Odisha, have also made some changes. On the surface, the change in labor laws is meant to incentivize economic activity in Indian states. But, at what cost?

Indian Labor Laws
Despite 200 state laws and almost 50 central laws, there is no universal definition of ‘labor laws’ in India. The Factories Act of 1948 aims to promote and ensure safety measures on factory grounds while protecting workers’ health and welfare. The Shops and Commercial Establishments Act is meant to regulate working hours, payment, over time, weekly paid off, paid holidays, annual leave, employment of young people, and employment of women.

The Minimum Wages Act of 1948 covers more workers when compared to any other labor legislation. However, the Industrial Disputes Act of 1947 is the most controversial labor law. It talks about terms of service, such as layoff, retrenchment, closure of industrial enterprises, and strikes and lockouts.

Why are Indian Labor Laws Often Under Fire?
Labor laws in India are often categorized as “inflexible.” Due to the complicated legal requirements, firms (that employ more than 100 workers) are reluctant to hire new workers because they cannot be fired without government approval. Which is why, firms have started to employ workers without formal contracts. This has restricted the growth of firms while providing a raw, shaky deal to workers. Moreover, the sheer number of laws has made implementation unnecessarily complicated to implement, leading to corruption and rent-seeking policies.

Changes in Indian Labor Law
The state of Uttar Pradesh, for instance, has suspended all labor laws, including the Minimum Wages Act of India. This has created an environment for exploitation where only the status quo is maintained since the labor force will be stripped of their fundamental rights, and wages will be reduced. Instead of firing existing employees, firms can reemploy them, but at lower wages.

Even before COVID-19, due to the slowing down of the economy, wage rates had been falling. The current gap between formal and informal wage rates means that a woman working in rural India earns only 20% of what her male counterpart makes in a formal urban setting.

The workers of India believe that instead of asking firms to protect their workers with jobs and full salaries during the lockdown, the government is simply stripping workers of their basic bargaining powers. Instead of pushing for a greater formalization of the workforce, these changes will serve the purpose of converting existing formal workers into informal workers, thereby removing protections such as social security and other benefits.

Instead of encouraging exploitative conditions for workers, the government should partner with firms and allocate 3-5% of the GDP towards minimizing the wage burden. This would protect workers’ health in case of coronavirus. This would be a critical preservation measure for a country that depends so highly on easily accessible labor.

If you manage employees in India, we can help you manage the complex labor laws in each region. To learn more about labor regulations and compliance in India, click here