Moneycontrol PRO
Open App

Labour law dilution may not be the sole key to unlock factories

Dilution of labour-related laws have been done by states like Uttar Pradesh. However, that alone would not aid restarting of manufacturing activities.

May 29, 2020 / 07:11 PM IST
Representative image

Representative image

A mid-sized cookware brand with a manufacturing facility in Uttar Pradesh was hopeful of starting operations with 33 percent capacity from May 18 onwards. But none of the 300 workers the company expected to work out of its Ghaziabad plant showed up.

In the meantime, the Uttar Pradesh government through an ordinance passed on May 6 announced that all labour laws would be set aside for three years with the exception of laws pertaining to women and child, bonded labour, building/ construction workers and employee compensation.

The chief executive of the cookware brand quoted above said while such flexibility in labour laws would increase daily productivity, it would be tougher to convince workers to accept the new regime.

Labour, the stepping stone to setting up a manufacturing facility, has become a bone of contention amid the Coronavirus (COVID-19) outbreak in India. The lockdown announced to curb the virus spread led to several million workers, especially contractual labour, without a job for almost two months.

It is estimated that a total of 64 man-days have been lost due to the lockdown. The actual numbers of production loss will be higher, especially with the loss of livelihood leading to workers rushing back home in the special 'Shramik' trains arranged by the Indian railways.


While state governments like Uttar Pradesh and Madhya Pradesh have diluted labour laws to expedite restarting of production facilities and to attract new investments, industry experts and companies believe it may not be adequate.

What do the worker numbers look like?

According to a 2019 working paper on employment by the International Labour Organisation, the total number of workers in India in 2017-18 stood at 465 million.

Of this, the manufacturing sector employed 56.4 million people. Here, 9.2 million people constitute casual wage workers while 20.5 million were regular wage workers.


Though no nationwide data exists on the exact number of people employed by each industry, the KLEMS India Database by Reserve Bank of India released in July 2019 said the construction industry employed the largest number of people with 75.2 million workers in 2016-17 followed by textiles and allied activities at 12.3 million and food products sector at 11.7 million.

The agriculture sector still continues to be the largest employer of people with almost 206 million people employed across the country. Labour laws are not applicable to those working in the fields even as bonded labour remains prohibited.

What happened when COVID-19 hit India?

A nationwide lockdown was announced by Prime Minister Narendra Modi on March 24 which has now been extended till May 31. In a bid to minimise the virus spread, malls and restaurants remain shut while public transport is minimal.

Except for essentials like banking, insurance, stockbroking, mutual funds and public utilities, all offices and manufacturing units were ordered to stay shut.

Even those manufacturing entities which had to run the machines, labour supply slowly started dwindling from the next day itself. Workers started planning to go back to their home states due to rising safety concerns and lack of livelihood in the larger towns.


On April 15, the Ministry of Home Affairs (MHA) brought out a set of rules enabling restart of production activities in a phased manner with social distancing as a ‘new normal’ for factories. Workers, however, had already started migrating to their respective home towns. The impact: production could not begin even in green zones at the stipulated 33 percent capacity.

A few weeks later, states like Gujarat, Haryana, Madhya Pradesh, Rajasthan, and Uttar Pradesh decided that doing away with the provisions of labour laws would bring back investment and reopen industries. The provisions related to hiring and firing, formation of labour unions and even maximum working hours had been effectively abolished.

This meant workers could be hired when needed, made to wear as per the factory requirement, and retrenched when the production requirement was complete.

But isn’t labour the main impediment?

Citing labour impediments, a few companies in the manufacturing sector including textiles, leather, electronic appliances had also appealed for incentives to restart production. However, the dilution of labour laws and worsening COVID-19 situations in larger cities would mean that reverse migration would continue for another quarter.

Avneet Singh Marwah, CEO of Super Plastronics which is the brand licensee of global television brands like Thomson and Kodak in India told Moneycontrol said the problem with manpower is they have reached their respective native land and mostly they are in quarantine.

For the company, he said one of the major challenges is to set-up the manufacturing assembly line according to new norms. This, he said is affecting productivity even as safety remains a priority.

In sectors like automobile, which employs over 37 million people (directly and indirectly) in India, loss of contractual labour is posing a lot of challenges.

R C Bhargava, Chairman - Maruti Suzuki had recently said that there are uncertainties about production because manpower movement is still not free.

Adding to the woes is the migration of people, many of whom are employed as contract labourers in several component manufacturing factories surrounding the automotive factories has led to the shortage of manpower. While Maruti Suzuki has not been directly affected by the migration, its vendors have.

“Much of their manpower has run away to the villages and it is not so easy to get them back because there is no communication. Many smaller vendors have financial problems. These are the areas where the supply chain is running into problems,” added Bhargava.

Similarly, at EPC (engineering, procurement and construction) major KEC International, availability of labour, however, is a problem.

From about 30,000 people who used to work at its sites and factories before the outbreak, the number is down to about 17,000.

KEC International MD Vimal Kejriwal told Moneycontrol that the local administration in some places was asking labourers to leave for hometowns after train services resumed though they were willing to stay back and work.

In recent days, thousands of labourers have boarded special trains to head home from cities and industrial hubs where they were employed as lockdown brought economic activity to a standstill.

Will the dilution of laws help?

Even across the multiple states that have passed ordinances to bring about changes in labour laws, starting up has continued to be a concern.

The appliance manufacturing facility of a white goods firm is awaiting approvals to procure components from China even as freight movement for non-essential goods remains slow.

“Our labour lives in nearby villages so we could get them on time. But unless we have the materials to produce, how can we start operations?,” said the head of the Gujarat plant of this company.

Another United States-based white goods brand that is planning to enter India is facing real estate issues.

“We have found workers in the Delhi-NCR region but are struggling to find a manufacturing facility to suit our budget. If ease of doing business is the vision of the Indian government, why not iron out these bottlenecks?,” said the India director of the brand.

While across the country, there is a consensus on the simplification of labour laws, both companies and experts agree that dilution should be beneficial to all stakeholders.

Samir Kaji, Managing Director of Selec Controls that manufactures goods for segments like electrical measurement & protection, and automation control said that there is a need to liberalise labour laws so that companies do not fear to hire.

He said that reforms are needed in the area of exit of workers, right to strike and double pay for overtime since they are ‘unhealthy situations’. Kaji added that a contract for any hiring that allows for an exit but protects the worker with an exit pay of 45 days per year of service (capped to 9 months of payout) would be a good way to support the unemployed.

Currently, the central government is working on the unification of the 13 labour laws and 44 related regulations to bring a single code for wages and worker safety.

What do the experts say?

Labour economists are of the view that sudden dilution could become counter-productive and ensure that the reverse migration situation remains intact.

KR Shyam Sundar, a labour economist and professor at XLRI - Xavier School of Management told Moneycontrol that the argument of reviving the economy by diluting labour laws does not hold true.

“This is something which even the employers did not ask for. Dilution of labour laws means that ‘hire and fire’ can be done. But is there really a demand in the market for companies to hire? Another important point is, for example if a worker has gone back to Tirupur and his employer in Mumbai or Delhi-NCR is offering lesser wages, why will he come back? The pay is less and there is also a the COVID-19 threat,” he added.

Sundar explained that instead, there should be good wages and income support so that the workers are motivated to return to the factors.

Even looking at the total worker numbers, where only 12 percent of the 465 million workers are into manufacturing, he added that this is not good economics.

“Who is this really benefiting? Even in the manufacturing sector, only 4-5 percent will report to work considering social distancing. Making them work for 12 hours is ridiculous. These changes appear to be convoluted,” he said.

However, human resource experts are of the view that once the COVID-19 situation subsides, workers will be ready to come back.

Rituparna Chakraborty, co-founder and Executive Vice-President, TeamLease Services, told Moneycontrol, “Nothing has been implemented yet on labour laws. Companies are willing to pay more but workers are not ready to come back yet. Nobody has the luxury to be pricey and people are choosing to stay away because of the virus threat. But they will eventually come back.”

‘When will the workers be back’ is the question which all manufacturing companies are grappling with. Considering the twin challenges of rising COVID-19 cases in urban and semi-urban areas with tighter labour laws, companies expect workers to stay away till July-August citing ‘safety concerns’.

“The labour law changes may get a handful of new players to set up factories with rigid work conditions in India. But for a majority of India Inc, this served no real purpose. The real need was immediate cash support to restart work and attract talent,” said the chief executive officer of a kitchen appliances manufacturer.

(With inputs from Prince Mathews Thomas and Swaraj Baggonkar)
M Saraswathy
first published: May 29, 2020 07:11 pm
ISO 27001 - BSI Assurance Mark