India's Revamped Labour Laws: Critical Evaluation

Written by Sagal Jot Mann [i] and Jatin Kathuria [ii]

[i] [ii] Masters (MA) in Economics, Panjab University, Chandigarh

Disclaimer: Please note that the views expressed below represent the opinions of the article's author. The following does not necessarily represent the views of Law & Order.

The existing labour laws in India are a product of the two hundred year-long struggle of the country under British colonialism. The labour laws of the nation took shape under the administration of British India. At that time, labour laws were introduced to protect the interests of British employers. One of the earliest Acts introduced was ‘The Factories Act of 1883’, which was focused on the number of working hours, the abolition of child labour and the requirements of ventilation and proper hygiene.

In June 2017, India conformed to the two most important International Labour Organisation (ILO) Conventions –– the elimination of child labour and fixing of minimum wages for workers in accordance with the United Nation’s Sustainable Development Goals (SDG). (International Labour Organisation, 2017) (United Nations, 2015)

According to a government survey, approximately 90% of India’s workforce is in the informal sector with no minimum wages. (Government of India, Ministry of Labour and Employment, Labour Bureau, 2014) Despite several changes in the Minimum Wages Act (1948), the workers have failed to receive their share of wages. Most workers in the informal sector are labour intensive and since they do not fall under the purview of corporate laws, they lack job security, social protection, and are usually exploited at the hands of entrepreneurs. The Indian agricultural industry has the highest number of disguised unemployment which has led to the oversupply of labourers.

The Indian labour laws have been under international scrutiny for a long time. They have been termed as ‘inflexible’ and cumbersome to implement. Therefore, changes in labour law reforms were necessary, in order to make it simpler and help workers get better salaries and benefits. But, this does not entail the suspension of labour laws in times of a pandemic, when workers are struggling to keep up with daily survival.

The recent changes in the labour laws put forward by many state governments –– Uttar Pradesh, Maharashtra, Himachal Pradesh, Haryana, Punjab and Rajasthan –– have come as a shock to the workers, which has further led trade unions and workers organisations to label this attempt as the “turning the workers into slaves.”

These new changes can be seen as a burden for workers who were desperately looking for jobs to end their financial agony. Thus, instead of protecting the people who are already marginalised, these moves will further aggravate the crisis for them.

The Trade-Off between Labour Laws and Economic Activities

The relationship between labour laws and economic development becomes very complex in the context of low and middle-income countries. In the 1950s, the ‘structural adjustment’ [1] theory forecasted that development, when understood in terms of the transition from a subsistence economy to an economy based on wage labour and formal relations of the market, would lead to greater equality –– based on a contraction of incomes and differentials of wealth.

In 1954, the Arthur Lewis model had proposed that the economies in the early stages of industrialisation will benefit from the entry of low-cost labour, but as agriculture gives way to industry and an urban working-class is formed, this cost advantage is corroded. [2] This is partly because ‘capitalist workers layout themselves into trade unions.’

‘Labour’ can be defined as the combination of physical, mental and social effort for the production of an economy. During the lockdown-period in India due to the pandemic, the supply of labour has been disrupted due to which economic activities slowed down, which has resulted in declining labour productivity as well as Total Factor Productivity (TFP). [3]

Labour laws are known to be a major contributor to economic development and growth as they embed the norm of fairness in employment practices in order to overcome coordination failures within the firms.

This is possible because labour laws contribute to positive productivity and employment effects across the extensive economies. In industrialised economies like India, social legislation plays a significant role in the transition to capitalism by providing mechanisms for rambling labour market risks. In low and middle-income countries, labour laws help to build institutional capacity in the arena of social insurance, collective bargaining and dispute verdict, and therefore, can contribute to the formalisation of employment to reduce economic insecurity. However, with the changes in labour laws, these fruitful contributions will be at stake and will lead to social chaos. All states that will extend the working hours for labourers will be trapped in the vicious cycle of unemployment as the rate of unemployment has already surged to 27.11%. [4]This is because companies are keeping a fewer number of workers and taking responsibilities only for those workers. This will force the limited number of labourers selected by the government to work for longer hours. The labour class, which is already struggling as a result of COVID-19 will become more grievous once the protections under various laws are taken away.


In order to spur economic activity, the dissipated workers must not be taken advantage of during such times of the pandemic. The long struggle for the introduction of labour laws in India and its recognition by the ILO should not be moulded in a backward manner but the aim should be to bring positive reforms in it, for growth and development of the economy.

The government should ensure universal basic income for the workers, in order to provide minimum wages to them as seen recently being implemented in Spain, where the scheme is estimated to help four out of five people in acute poverty. Unemployment was already increasing before the lockdown due to displacement of the workers because of artificial intelligence.

With the advent of Artificial Intelligence (AI) India, a country which is labour abundant, is shifting towards capital-intensive techniques. Further dilution of labour laws will definitely aggravate the poor economic situation of labourers in the unregulated sectors. Thus, the Indian government should focus more on the necessity of labourers in the economic system, rather than placing them under the immense strain of poverty.

[1] Structural Adjustment Policies emerged from Bretton Woods institutions i.e. the IMF and the World Bank in the 1950s. [2] Lewis Model (1954), “Economic Development with unlimited supplies of labour” states that economic development takes place when capital accumulates as a result of the withdrawal of surplus labour from the ‘subsistence’ sector to the ‘capitalist’ sector.

[3] Labour Productivity equals total output divided by units of labour.

[4] Centre for Monitoring Indian Economy (CMIE) uses its Consumer Pyramids Household Survey machinery.


1. Deakin, S. (2011). The Contribution of Labour Law to Economic and Human Development. In G. Davidov & B. Langille (Ed.), The Idea of Labour Law (pp. 156-176). Oxford University Press.

2. India ratifies both fundamental ILO Conventions on Child Labour. (2017, June 13). International Labour Organisation.

3. Misra, U. (2020, May 16). Explained: What labour law changes by states mean. The Indian Express.

4. Punia, K. (2020, March 12). Future of unemployment and the informal sector of India. Observer Research Foundation.

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