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Budget 2017: Finance Minister revives labour law reforms from cold storage

By Goutam Das     February 1, 2017

One could argue there is very little for 'Make In India' in the budget - except for an increase in the allocation for incentive schemes such as M-SIPS and EDF and a potential boost to the local manufacturing of POS card readers, finger print readers, scanners and iris scanners because of certain exemptions on such devices. Nevertheless, a paragraph under 'The Poor And The Underprivileged' in the budget document holds immense importance for the future of manufacturing in the country.

The Finance Minister, Arun Jaitley, said that the government is keen on fostering "a conducive labour environment wherein labour rights are protected and harmonious labour relations lead to higher productivity". He went on to add that  legislative reforms will be undertaken to simplify, rationalise and amalgamate the existing labour laws into four codes on (i) wages; (ii) industrial relations; (iii) social security and welfare; and (iv) safety and working conditions.

While it sounded a very pro-labour statement, there's a lot in it for employers as well.


As far back as April 2016, the Second National Commission on Labour recommended that the existing Labour Laws, which totals more than 100 at present, be broadly grouped into four 'Labour Codes' on functional basis. Two of these codes - the ones of industrial relations and wages - had already been discussed and debated at length in meetings between tripartite partners which consisted trade unions, employers and the government a year before. They were probably ready to be tabled in the form of a bill but none from the industry heard anything about it since, a source who participated in these meetings said.

The Finance Minister may have just revived the reforms process here. It is critical for the industry from the ease of doing business perspective. Manufacturers have been clamouring for changes in ancient acts such as The Industrial Disputes Act, 1947. The act mandates companies employing 100 or more workers to seek prior permission of the government for firing workers. Chapter V B of the Act bars companies from exiting or downsizing quickly - a company needs to seek permission from the government three months in advance. This locks up capital in unproductive assets. In the new recommendations, that limit has been extended to 300 employees.

While some expect the government to take the codes up post the state elections, patience is the key word when it comes to touchy subjects such as labour.


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