The Road To Rolling Out Labour Codes: States Align, But Trade Unions Stand In The Way

The long-anticipated rollout of India's four labour codes is finally on the horizon. Twenty-five of the 28 states and all eight Union territories have finalised the draft rules under these laws.

According to a report by The Financial Express, the remaining three states — Meghalaya, Nagaland, and West Bengal — have agreed to frame the necessary subordinate legislation to give effect to the codes after initially raising concerns.

In furtherance of its motto of ease of doing business and with a view to harmonising the multiple pieces of labour legislation prevailing in the country, the Centre has consolidated 29 central labour laws (out of 44 existing central laws) into four labour codes.

This streamlining stems from the 2002 report of the Second National Commission on Labour, which recommended codifying multiple labour laws at the central level into four or five codes to reduce legal complexity.

The four labour codes — namely, the Code on Wages, 2019; the Industrial Relations Code (IR Code), 2020; the Code on Social Security (SS Code), 2020; and the Occupational Safety, Health, and Working Conditions (OSH&WC) Code, 2020 — secured parliamentary approval and presidential assent in 2019 and 2020.

The central government has already pre-published the draft rules for these codes, but their implementation has been delayed, largely due to the states' slow pace in framing the necessary rules.

Labour is a concurrent subject in India, which means both the central and state governments must formulate rules for the codes. But in the event of a conflict between state and central laws, central legislation generally prevails unless the state's law has received presidential assent.

State governments are tasked with drafting rules to address areas not fully covered by the labour codes and where the power to elaborate has been granted to the appropriate government. This includes rules relating to weekly work hour limits, overtime provisions, the process for verification of members of a trade union, and so on.

Trade Unions In The Mix

While the Centre deserves credit for achieving broad consensus before proposing changes to worker rights rather than rushing them through, challenges remain.

The Central Trade Unions (CTUs) have opposed the implementation of the codes, alleging that they will result in taking away whatever little social and economic security is left in the employment sector.

The trade unions are warning about more protests if the codes are implemented. They say that the Centre will have to repeal them the way it repealed the three farm laws.

What Lies Ahead

The scale of Indian manufacturing firms remains significantly smaller compared to China, largely due to India's historically inflexible labour laws.

With the date for the new labour codes yet to be notified, businesses continue to operate within a regulatory framework that discourages expansion and job creation.

However, recent analysis by Citigroup in its employment analysis report on India highlights that the implementation of the four labour codes could greatly enhance India’s "ease of doing business."

For the Narendra Modi government, now in its third term, implementing these codes would mark a major achievement and one of the most significant economic reforms in the post-liberalisation era.

With most states now on board, the Centre can no longer point to state-level delays as a reason for holding back the rollout.

This shift in momentum is also reflected in the actions of the new Union Labour Minister, Mansukh Mandaviya, and Union Labour Secretary, Sumita Dawra, who have been actively engaging with trade unions seeking their cooperation to implement the controversial legislation.

Simplification and consolidation of labour laws apart, the government must focus on the key issue of job creation. Investors continue to favour capital-intensive projects, partly due to inflexible labour laws, which act as a deterrent to setting up larger, more labour-intensive operations.

With major rating agencies warning that India's high youth unemployment poses a structural threat to its long-term growth, the success of these reforms will ultimately be measured by their ability to stimulate hiring and support economic expansion. Safe to say, that will be closely monitored in the coming months.