Explained National

How the Industrial Relations Code Bill Intends to Reform the Legacy License Raj

Industrial relations code

Modi government on 20th November approved the tabling of a bill that will usher the Industrial Relations Code, an amalgamation of the Industrial Disputes Act 1947, Trade Unions Act 1926 and Industrial Employment (Standing Orders) Act, 1946.

While this may seem to be just another news, it holds a lot of significance given that labour laws have been most restrictive in India. India aims to become a five trillion dollar economy by 2025. Manufacturing sector holds the key to this aim as it can create maximum employment and establish forward and backward linkages. Restrictive labour laws were killing the industries for last six decades. This is where the Industrial Relations Bill assumed importance.

British and Congress- Two Sides of the Same Coin?

Drawing their legacy from the British who never wanted meaningful industry owned by Indians to flourish, the labour laws were never meant to be beneficial. The same mentality was taken ahead by the Congress who ruled the country for six decades post independence. The Congress ushered the socialistic License Raj era where the labour interest seemed to be paramount while employers and industries were always a second priority.

This was bound to happen given the Congress world view of considering all businessmen as thieves. “Profit is a bad word” said one former Prime Minister. Consequently, the labour laws that were functional reeked of socialistic tendencies and an urge to maintain a vice-like grip over every activity. Industrial laws ensured the industrialists would be forced to approach the government for every small thing, giving the bureaucrats more scope for corruption and red tapism.

Chapter 5B of the Industrial Disputes Act, 1947 is one such notorious section which restricts any healthy growth of micro industries. It is applicable to all industries employing 100 people or more. In order to escape the compliance, many industries deliberately didn’t grow beyond 100 employees, thus keeping them small in size for perpetuity.

Restriction on Lay-Offs

Laying off is a regular procedure in industry. When work load reduces, some employees are kept on the bench till new work is generated.

  • The Act prohibits layoffs without the prior permission of the appropriate government authority. That’s called vice-like grip of government!
  • An application has to be made to the government which would give its approval within sixty days
  • If the application is rejected, the employees who had been laid off in the intervening period need to be given all benefits for that period
  • Even if its accepted, any employee can submit an application to government to review its decision or government can further refer that application for adjudication to Labour Court or Tribunal. The process is never ending!
  • And guess what, if this was not enough, the government gave a cruel escape route to the employer. Employer can offer employment to the laid off workman in his other establishment situated at a reasonable distance and giving same pay to the worker! Imagine the employer is laying off for lack of work and now he has an option to offer same type of employment in his other establishment. Basically, in any case, the worker should not suffer, even if the employer suffers!
Painful Retrenchments

Now what if the employer wants to permanently terminate the worker?

  • The workers need to be given three months’ notice of termination. Sounds odd in the age of pink slips, right?
  • If that was not enough, yet again employer needs to take approval from the government and yet again the worker can ask government to review its action.
  • When the retrenchment receives “approval”, the employer has to pay a compensation which is equivalent to fifteen days of wages for every year of employment.
Closing the Establishment
  • It requires the same process with 90 days notice to workers and prior approval of government along with compensation paid to employees.
Obnoxious Rules

Suppose the employer gets permission to retrench. But Chapter 5A, applicable for all establishment above 50 workers, has new set of obnoxious rules. The employer can’t retrench just anybody he wants. Suppose there are ten employees of a specific category, say welders. The employer wants to retrench one of them. Rules say he can retrench only that welder who was hired the last! May be that was the best welder, but no choice. And if the employer wants to retrench any other welder, he has to record his reasons in writing. Not to mention further litigation if trade unions decide to appeal in Labour Courts or Tribunals.

But the ordeal doesn’t end there. Now suppose the employer wants to hire people. He can’t hire just anyone. He has to first give a fair chance to the earlier retrenched workmen to offer themselves for the job. The retrenched workmen would be given priority over fresh workmen!

The result was clear. India’s industrial growth was crippled, over GDP moderated at 3-4% and the entire system was plagued with bureaucratic corruption.

The UPA-2 under Sonia Gandhi added fuel to the fire by amending the act in 2010 and inserting another clause in Section 2A. Now, if the workman is unsatisfied with the proceedings under Conciliation Officer, he can directly approach Labour Court or Tribunal for adjudication. No trade union is needed for that. The litigation just never ends.

Reforms under Modi Government-

Out of the four codes, the cabinet gave its assent to present the Industrial Relations Bill 2019 which will introduce reforms in the above acts.

In March 2018, the government had notified the changes. It introduced Fixed Term Employment where the employee would get all benefits as a permanent employee but will be outside the purview of rules of compensation and retrenchment mentioned above. This will provide much needed space for employers to run their establishments.

In the bill that will be introduced, a provision was added wherein government can issue a notification to change the number of employees above which the provisions would be applicable. Thus, the 100 employee lower limit would also be changed in the future.

The Modi government is ushering reforms in the field of labour without which the true potential of India’s manufacturing sector cannot be realized. The New India of 2022 is being ushered quietly. The remnants of the decadent License Raj era are crumbling in front of our eye. India should be celebrating.