Q.11. Discuss the merits and demerits of the four ‘Labour Codes’ in the context of labour market reforms in India. What has been the progress so far in this regard? [UPSC 2024 GS P-3]

The four Labour Codes introduced by the Indian government aim to consolidate and simplify the complex web of existing labor laws to promote better working conditions, improve ease of doing business, and create a more flexible and productive labor market. These codes are part of broader labor market reforms to enhance economic growth and formalize employment.

The four labor codes are:

1. Code on Wages, 2019
2. Industrial Relations Code, 2020
3. Code on Social Security, 2020
4. Occupational Safety, Health and Working Conditions Code, 2020

Merits of the Four Labour Codes:

1. Simplification and Consolidation:
   • The labor codes replace 29 existing labor laws with just four consolidated codes, reducing regulatory complexity. This simplification helps both employers and employees by providing a clearer and more consistent legal framework, reducing compliance burdens.
   • It improves ease of doing business by making labor laws more predictable and transparent, which can attract more investment and create jobs.
2. Flexibility in Hiring and Firing:
   • The Industrial Relations Code allows companies with up to 300 workers (up from the previous limit of 100) to lay off employees or close units without government approval. This gives businesses more flexibility to adjust their workforce according to economic conditions, encouraging job creation in the formal sector.
   • This flexibility is seen as crucial for industries where fluctuations in demand are common, promoting industrial growth.
3. Universalization of Minimum Wages:
   • The Code on Wages extends the coverage of minimum wages to all employees, including in the unorganized sector. This aims to improve wage security and reduce exploitation, particularly in informal and low-wage jobs.
   • It also introduces the concept of a floor wage, ensuring a minimum wage standard across states, which could help reduce income inequality.
4. Focus on Worker Safety and Social Security:
   • The Occupational Safety, Health and Working Conditions Code emphasizes the health and safety of workers, especially in hazardous industries. It extends coverage to a larger pool of workers, including those in the gig economy and unorganized sectors.
   • The Code on Social Security aims to universalize social security benefits, including provisions for gig workers and platform workers, ensuring they receive benefits like insurance, pensions, and maternity leave.
5. Formalization of the Labor Market:
   • By simplifying compliance and encouraging employers to follow labor laws, the codes are expected to formalize a large part of the workforce, especially in sectors where informal employment is dominant. This could lead to better working conditions, more social security, and improved labor productivity.
6. Collective Bargaining and Dispute Resolution:
   • The Industrial Relations Code provides mechanisms for workers to form trade unions and engage in collective bargaining. It also introduces alternative dispute resolution mechanisms such as conciliation, arbitration, and mediation, aiming to resolve industrial disputes faster and more amicably.

Demerits of the Four Labour Codes:

1. Concerns over Workers’ Rights:
   • Trade unions and labor activists argue that the new codes dilute workers’ rights, particularly regarding job security. The increased threshold for government approval of layoffs could lead to higher job insecurity, particularly for workers in medium-sized firms.
   • The Industrial Relations Code makes it more difficult for workers to go on strike by requiring a 60-day notice period and prohibiting strikes during conciliation proceedings, which may limit workers’ ability to protest or negotiate for better terms.
2. Limited Coverage for Informal Workers:
   • While the codes extend certain protections to gig workers, platform workers, and informal sector employees, the implementation remains challenging. A large percentage of India’s workforce is still in the informal sector, and ensuring effective coverage under the new laws could be difficult without a robust implementation mechanism.
   • There is also ambiguity on how these workers will access social security benefits, as the funding for such schemes and the role of employers in contributing are not clearly defined.
3. Complexity in Compliance:
   • Despite efforts to simplify labor laws, many employers feel that compliance under the new codes is still cumbersome due to numerous definitions, overlapping provisions, and the lack of clarity on certain issues. For example, the differentiation between contract workers and regular employees remains complex, leading to potential confusion in implementation.
   • The fear is that these complexities may lead to non-compliance or an increase in informal employment to avoid regulatory hurdles.
4. Dilution of Trade Unions’ Power:
   • Trade unions argue that the new codes dilute their power and influence. The requirement for a registered union to represent 51% of workers in an establishment to be recognized as a negotiating body is seen as limiting the ability of workers to collectively bargain, especially in industries where unions are weaker.
   • Additionally, the codes restrict union activity during ongoing disputes, limiting the scope for organized labor to press for their demands.
5. Inadequate Protection for Contract and Migrant Workers:
   • The Occupational Safety Code provides guidelines for safety and working conditions but may not fully address the challenges faced by contract workers and migrant labor. Migrant workers, who are often employed in precarious conditions, remain vulnerable despite the broader coverage under the codes.
   • Issues like job security, living conditions, and access to health care for migrant workers still require more robust interventions beyond the provisions in the codes.
6. Challenges in State-Level Implementation:
   • Labor is a concurrent subject in India, meaning that both the central and state governments have the authority to make labor laws. This has led to variations in implementation across states. While some states are enthusiastic about the reforms, others are slower in adopting or aligning their state laws with the new codes.
   • This disparity could lead to uneven progress in the adoption of labor reforms, affecting businesses that operate in multiple states.

Progress on Implementation:

• Legislative Adoption: The four labor codes have been passed by Parliament in 2019 and 2020, but their implementation has been delayed. This is primarily due to the need for states to finalize their own rules and frameworks to operationalize these codes, as labor falls under the concurrent list.
• Stakeholder Consultations: The central government is continuing consultations with states, employers, and trade unions to address concerns and finalize the rules needed to implement the codes. However, pushback from trade unions and delays in state-level rule-making have slowed the rollout.
• Pilot Projects and Initiatives: Some initiatives have been undertaken to test aspects of the codes, particularly in states that are keen on reforming labor markets to attract investment, but full implementation across the country is still pending.

Conclusion:

The four Labor Codes represent a significant step toward modernizing India’s labor laws and making the labor market more flexible and transparent. While they offer potential benefits, such as simplifying regulations, enhancing worker safety, and attracting investment, there are significant concerns regarding the protection of workers’ rights, particularly in relation to job security and union activities. The success of these reforms will largely depend on effective implementation, addressing concerns of stakeholders, and ensuring that both formal and informal workers benefit from these changes. Balancing economic growth with workers’ welfare will be key to the long-term success of these labor market reforms.