• Legis Scriptor

Indian Labour Law & it's Effect on Unemployment

Authored by - Ashish Nagpal

Keywords - Labour Law, regulations, India, Unemployment, COVID 19.


The main idea of this research paper is to look onto the different objectives and examining the various periods through which the Indian Labour Law has evolved up to this point and to see to what extent the labour laws in India has been able to maintain the two most core objectives i.e the protection of the labour forces and the maintenance of the Industrial peace. Although the condition of Indian Labour Law is seen to be highly protective of the worker’s interest by the International Standards and takes consideration particularly in the field of the dismissal regulation. However throughout the study or by studying any no. of theories and different studies of many authors it can be concluded and derived that there is no evidence that the pro-worker labour legislation leads to unemployment rather pro-worker labour legislation has, in turn, resulted in labour regulation.


In the recent account of the trend in regulations of working conditions in Asia and the Pacific Region has indeed suggested that there is a lack of in-depth study of the labour laws across the countries. The condition of India has also been quite similar to this, although a large no. of material is available on the Indian Labour Law it’s highly fragmented in nature and contains only short articles in its eternity.

In February 2014, the then Finance Minister of India; Mr. P Chidambaram termed Manufacturing Sector as the Heels of the Indian Society owing to the growth in the Compound Annual Growth Rate of about 10% during that period, however, the share of the manufacturing sector has incumbent to new lows. The reasons for the backlogging of India’s performance in the manufacturing process however are well researched. The other countries of our continent have already fared ahead of India owing to their International Production networks. India has not been able to seize the opportunity though because the foreign investors haven’t been able to find all the familiar conditions as they find in the other southeast Asian countries, even the local investors have been finding problems and are looking to invest in foreign countries.

Our country further lacks world-class facilities particularly, logistics facility which is quite important for the delivery of goods from one place to another, and from one country to another, India has been further quite behind its peers in this regard. Further, the complexities of labour regulations raise the cost of compliance generally and further possess difficulties in the manufacturing activities, it is further the constraint on the vary of the size of the labour force in regard to the change in the market situation which in turn possess the greatest obstacle to the manufacturing process in this globalization era.

Salient Features of Labour Regulation in India

Regulation of the Labour Laws in the country is a subject of the Union List but has some of the matters in the concurrent list too. Due to this reason the state and the union both have the power to make and amend labour law regulation in India and due to this, there has been a multiplicity of laws too. The main consequence of this is that a large no. of registers have to be maintained and this raises the cost of compliance and become a burden on the MSME’S (medium, small and micro enterprises) and recognizing this problem the government of India further enacted the Labour Laws Act, 1988 which simplifies the procedure for enterprises employing up to 19 workers. The growing problem of the “inspector raj” system has been one of the main issues and the state government in a bid to stop these have moved in direction of not taking periodic inspections and inspection to be done only on the basis of complaints of non-compliance even if it affects the labour regulations.

Laws & Practices Influencing Flexibility in Indian Labour Market

There are many Statutes and Acts which further aims at the influence of the labour laws system in our country. The list of some of the important laws and statutes which in turn governs the Labour system in our country.

Industrial Disputes Act, 1947

The Industrial Dispute Act which was enacted in 1947 is indeed major legislation that affects the labour flexibility in India and once a workman in appointed, the laws give very little power to the employer to downsize the employees.

The procedure involved in this that if any permanent employee has to be removed from a company then dispute settlement procedures apply here which generally involves a 3 step process i.e consultation, conciliation, and adjudication or arbitration; the workers usually aim to dissolve the matters through the process of adjudication as the matters of legal consideration takes a long time and India and hence the matters are not resolved quickly. In some cases, the court decides to grant back the entire wages of the workers involved.

The Thing which makes the matters worse in this Act is that the proper guidelines are not stipulated on the laws on the circumstances in which permission would be denied when an application has been made by any of the employers.

The Contract Labour (Abolition & Regulation) Act, 1970

This Act was intended to regulate the use of labourers employed through intermediators or agents and to work towards the abolishment of the contractual labours in fields relating to employing them for longer periods of time. The main and the important segment of this Act is the Section 10 of the said Act which allows the central and the state government to prohibit the use of contractual labour for any of the work done in the aspect of taking consideration of all the factors like conditions of contractual labour in the establishment and also after looking at all the different work conditions they are involved in.

Labour Law Reforms

Code on Wages Act 2019

The New Wages Code of 2019 removes the multiplicity of the wage definitions which further significantly reduces the litigation as well as the compliance cost for the employees in general. The main reform in the amendment was that this new Act links the minimum wage across the country to the skill of the employee and the place of employment. The objective of the Act was to universalize the provisions of minimum wages and the timely payment of wages to all employees irrespective of the sector and the wage ceiling. Also, it seeks to ensure the “Right of sustenance” for every worker which intends to increase the legislative protection for equal wages.

A more decisive action taken by the government by this Act was the formulation of National Floor Level Minimum Wage will be set up by the center whose main aim will be for the states to fix minimum wages for their regions which cannot be less than the floor wage set by the center. This will further be revised every 5 years.

Code on Social Security, 2019

The Labour Minister on 9 December 2019 introduced the Code on Social Security in the Lok Sabha. The major objectives of this act being:-

· To integrate a clutch of existing laws and to also introduce various new initiatives like the initiative for insurance and health benefits for contract labours and universal social security for small gig workers

· The corporatization of major existing organizations for social welfare is headed by people other than the government.

· Proposing gratuity for fixed-term employees after one year of their service

· Also, this code aims at merging the eight existing labour laws into one

Industrial Relations Code, 2019

The main aim of presenting this code was to help the industries, the main features of this code is:-

· Payment of Wages Unjustifiable :- The payment of wages to workers in case of natural calamities until the re-establishment of the Industry would be unjutifiable.The main idea behind enforcing this was that the Industries should not be forced when the situation is beyond their control and according to the committee the recent events of COVID-19 would also be considered as a natural event.

· This code make it upon the discretion of the industry to pay 50% of the salary to the workers/employees who are laid of from the service due to the shortage of raw materials etc.

· Further, the code was introduced in Lok Sabha for the replacement of 3 major labour laws namely :-

o The Industrial Disputes Act, 1947

o The Trade Unions Act, 1926

o The Industrial Employment Act, 1946

Effect on Unemployment

Necessary conditions for employment generation is economic growth sufficient jobs for new entrants into the labour force, as well as those migrating out of agriculture and whose large part is to be generated in labour-intensive manufacturing sectors, construction, and the services.

The current objectives of the labour law reforms in tackling the problem of unemployment are discussed as below:-

  1. Complete codification of Central Labour laws into four codes which we have discussed earlier

  2. Increase Female Labour Force Participation to at least 30 percent by 2022-23.

  3. Disseminate publicly available data and further to innovatively use the administrative data on a quarterly basis by the end of the 2022-23 period.

  4. Increased formalization of labour law by reforming labour laws.

Steps by the Government

  1. Rationalizing the 38 labour laws into 4 codes namely wage (under examination in LS), safety and work conditions, industrial relations, and social security and welfare (which is under pre-legislative mode).

  2. Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), MUDRA Yojana, Prime Minister’s Employment Generation Programme, and making the platform of Employment Provident Funds Organisation (EPFO) completely online.

  3. Make Publicly available the data on employment collected by the EPFO, Employees State Insurance Corporation (ESIC), and National Pension Scheme (NPS).

Constraints in the Employment Sector

The various constraints in the employment sector are discussed as below:-

Productivity across all sectors:- The major reason for the unevenness in the productivity across all the major sectors is the uneven distribution of workforce labour among the different sectors, For example:- The labour employed in the agriculture sector is too much but the productivity in comparison to the employed labour is way too less.

Protection and Social Security:- The social security in our country is not too much efficient, the various schemes such as the medical facilities provided to the workforce are not too good in our country along with that the education schemes or the employment generation schemes do not work too good in India.

Skills:- The skillset available in our country right now to the labour sector is under-developed which means the skills which are available to the workforce in our country are way too less as a comparison to the work they are doing and further it leads to loss of revenue hence generated.

Employment Data:- This Employment Data is not available precisely in our country. This problem has been a huge roadblock to the employment sector in our country. The government should work to provide employment data in a synthesized form.

Recommendations for Eradicating Unemployment

The proper layout plan for the development of the employment sector in our country is discussed in the various steps below:-

Enhance Skills and Apprenticeships

Labour Market Information System (LMIS)

It is defined as a system where both the employees and the employers can come together to work in a better system. It means that those who are willing for jobs and those who are making opportunities for it should work together. The various characteristics of LMIS discuss as below

  1. Regional Integration of the data available:- It means that is a labour of one state wants to work in some other state then the proper data should be made available for this process

  2. One-Stop-Shop:- It means that those seeking jobs and those who are providing one should be set up under a one common roof

  3. Government Ownership:- It means that the government should have a good percentage of ownership in the job providing sector as various fake agencies are created nowadays and there is a lack of trust among the people.

  4. User Friendly:- It means that such a platform should be created which is user friendly. The labour class people in our country are not so technologically advanced and a proper method by which they can access it is necessary.

  5. Wider Use of Apprenticeships Programmes by all the enterprises:- The apprenticeship and the vocalization courses should be introduced which can in turn skill the unskilled labor and provide them with better work and pay opportunities to them.

Labour Reforms

The various Labour Law reforms which are needed to eradicate the growing unemployment in our country are:-..

  1. Compliance of working conditions regulations more effective and transparent.

  2. National Policy for the Domestic Workers.


Thinking about the labour laws in India requires us to not only thinking about the application of a set of legal or regulatory conventions which helps in governing labour in a particular society. It also requires us to think about what “labour law” might mean in varying economic and social contexts. In certain respects, Indian labour law is much like the labour law of developed industrial societies. It has in itself extensive legislation providing for minimum standards of employment, social security, occupational health and safety, and so on. The labour law legalizes trade unions and their activities and provides a framework for the settlement of industrial disputes. It legalizes industrial action in pursuit of collective interests. Yet, as we have seen, formally the labour law of India covers only a very small percentage of the Indian workforce, and even among that cohort, the law’s application in practice is lax, to say the least. Neither of the two principal objects of the labour law system identified in this paper appears to have been met in practice. To all intents and purposes then, this is a non-functioning system.


1. ‘Workman’- Industrial Dispute Act, 1947, Section 2, Act No. 14 of 1947 (March 11, 1947)

2. Formation of Union, Trade Unions Act,1926, Section 2h.

3. Abolition of Labour, The Contract Labour (Abolition & Regulation) Act, 1970, Section 10.

4. 1. Richard Mitchell, Petra Mahy, Peter Gahan, The Evolution of Labour law in India: An overview and Commentary on regulatory objectives and development, Asian Journal of Law and Society, Feb 1 (2014) 413-453 at A1.

5. Anwarul Hoda, Durgesh K. Rai, Labour Regulations and Growth of Manufacturing and Employment in India: Balancing Protection and Flexibility, May 2015.