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Year Ender: Labour reform slowed down in 2021; will it pick up pace in 2022?

Experts argue that governments at the states and at the Centre seem to have got convinced that there is an economic as well as political cost of implementing labour codes in 2021. This led to the stalemate, but 2022 may be the year to roll out the stalled labour reforms at least in a staggered way.

December 28, 2021 / 04:36 PM IST
(Image: Ather Energy)

(Image: Ather Energy)

In September 2020, the Union government passed three crucial labour codes in the parliament within 48 hours amid protests and walkouts from opposition political parties in both the houses, indicating the strong policy intention to push through the much-talked labour reforms.

Responding to the debate on the three labour reforms bills on social security, industrial relations, and occupational safety, then labour minister Santosh Gangwar had said that the “purpose of labour reforms is to provide a transparent system to suit the changed business environment."

Soon after the parliamentary approval, corporate India cheered the government’s legislative move, and along with the wage code passed in 2019, called the four labour codes a contemporary necessity to reduce “regulatory cholesterol” and improve ease of doing business.

Soon after the parliamentary approval, the Union Labour Ministry set a target to implement the Codes by January 2021. Since then, it has missed at least three more deadlines -- April 2021, July-August 2021 and October 2021.

Now there is a strong belief that it may not happen till the next financial year due to several reasons including the upcoming assembly elections, and the continued stress in the economy, at least in several sectors if not all.


The labour codes are expected to introduce far-reaching changes with implications for employers and workers. They will offer greater flexibility in rolling out short-term work contracts, make hiring and firing flexible, and make industrial strikes harder.

There will be a new national wage floor that will benefit workers, while informal and gig workers will get a social security net. A change in the definition of wages may impact the take-home amount but will increase retirement savings – something that some entrepreneurs and employers oppose because it could increase their employee cost in the short term.

“From labour reform perspective, 2021 is a year of stalemate. Governments both at the states and at the Centre seem to have got convinced that there is an economic as well as political cost of implementing the labour codes. After the hurried passage of the bills in 2020, I can clearly believe that the Centre is a party to this delay in implementation,” said K R Shyam Sundar, a labour economist and professor at XLRI, Jamshedpur.

Status of Labour Code

As of mid-December 2021, more than 28 months after the Code on Wages was approved by the parliament, and almost 15 months after other three codes on social security, industrial relations and occupational safety and health were passed, all states and Union Territories are yet to notify their draft rules.

While 24 states and UTs had framed draft rules for the wage code by December 15, only 13 had framed draft rules for the occupational safety code. For the industrial relations code, 20 states/UTs had drawn up the draft rules and for the code on social security, 18 states and UTs had prepared the draft rules, as per information with the labour ministry.

The central government has pre-published the draft rules for all the four codes but after a cabinet reshuffle and a new labour minister (Bhupendra Yadav) taking charge earlier in 2021, authorities do believe that the ministry has looked at the rules afresh.

“The new minister is an advocate and understands the rules and legislations well. It is natural that he is having a look at it afresh. Does that mean changes to draft rules – most probably 'yes' on a case to case basis, but a definite answer will come in due course,” said a government official with knowledge of the development.


After a daunting farmers protest that led to the withdrawal of farm laws, the trade union movement has got emboldened with regard to the labour codes. And there was a strong view in the power corridors that implementation of labour codes when the farmers' protest was on would have created more problems in building public perception.

The economic difficulties since the COVID-19 outbreak coupled with the political and public perception optics around labour codes have played a part in delaying the implementation.

Implementing labour codes now will have a cascading impact during state elections scheduled in early 2022. It will give a bragging right to opposition political parties to speak about it along with the stretched employment environment, to garner political dividends.

The other side is the economic reason and reservation from employers' groups who believe that in a stretched business environment, increasing minimum wage will be draining on them. The labour codes have provisions to have a mandatory national wage floor and also talk about calculating statutory deductions on at least 50 percent of the overall wage.

"The financial implication is a talking point among corporates. Entrepreneurs won't speak up as much, but there are layers of worries. There is a need to balance labour welfare and business welfare,” Chocko Valliappa, managing director of Tamil Nadu-based Sona Group had told this author earlier during a conversation. Valliappa, who has business interest in sectors ranging from technology to textiles, education to job boards, said the labour codes are net positives but needs to be weighed well before rolling them on the ground.

Valliappa believes shifting to the new regime will not be easy.

The change in the definition of wage as envisaged in the code will impact the basis to calculate contribution towards certain benefits like EPF and gratuity, as now the same will have to be calculated on 50 percent of the total remuneration of an employee. Which is not the case now. Employers are demanding that while calculating statutory deductions like EPF and gratuity – the word wage should be less than 50 percent of the total remuneration. From employees’ perspective, this also means less take-home pay and more retirement savings.

So, there are three key challenges – slow economic recovery gives limited option to the government at the Centre, and at the states; businesses are lobbying not to impact their income by increasing employees cost, and third, the political cost that may come if the ruling party alienates the working class.

Besides, the labour unions who are demanding a relook of all the four codes have called for nationwide strikes in the last week of February 2022, and are conducting sectoral and local level protests regularly. The local and sectoral protests might not be reverberating in the corridors of central secretariat buildings in New Delhi, but has the potential to damage public perception where it matters – on the ground.

“Our struggle for workers' rights continues. Labour codes in the present form will take away job security, wage security and lead the labour market towards massive contractualisation,” Amrajeet Kaur, general secretary of All Indian Trade Union Congress, a national trade union, said during a recent conversation.

Will labour reform pick up pace in 2022?

The year 2022 is perhaps when the government will go ahead with the labour codes with varying degrees of efficiency. If authorities are to be believed, the government may even consider going for a staggered implementation – meaning all four codes may not come into force at one go with non-controversial ones coming into effect first.

To be sure, the 2022-23 implementation window will also give a fair amount of time to corporate houses to get their back end ready for the new labour laws.

“Don’t expect the labour codes implementation before the next financial year – early FY23 or late FY23 can be a debate,” argued Shyam Sundar of XLRI.

He said if the government does not implement the codes in 2022-23, then both the intention and the credibility will be questioned. Second, 2022-23 is perhaps the only favourable window for them to roll out the codes as the year after that (2023-24) will take the Union government closer to the general elections.

“And a year before it goes to polls, it won't like to battle a renewed public anger, and will have less space to course-correct if the situation demands,” he observed.
Prashant K Nanda
first published: Dec 28, 2021 03:37 pm
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