Skip to main content
Home

Main menu

  • Home
  • Why ETI
    • Why join ETI
  • ETI Base Code
    • Base Code overview
    • Base Code clause 1: Employment is freely chosen
    • Base Code clause 2: Freedom of association
    • Base Code clause 3: Working conditions are safe and hygienic
    • Base Code clause 4: Child labour shall not be used
    • Base Code clause 5: Living wages are paid
    • Base Code clause 6: Working hours are not excessive
    • Base Code clause 7: No discrimination is practiced
    • Base Code clause 8: Regular employment is provided
    • Base Code clause 9: No harsh or inhumane treatment is allowed
  • Our approach
    • Membership
    • Programmes
    • Transparency
    • Meaningful Stakeholder Engagement (MSE)
  • Our expertise
    • Climate change & Just transitions
    • Crisis response
    • Gender equality in supply chains
    • Worker representation
    • Forced labour & modern slavery
    • Responsible purchasing practices
    • Human rights due diligence
      • HRDD legislation tracker
  • Resources
    • Guidance & reports
    • Blog
    • Case studies
    • Training
    • Events
    • Annual impact report
  • About ETI
    • Who we are
      • ETI's origins
    • What we do
    • Our members
      • Public reporting performance
    • Global presence
    • Governance
    • Our team
      • ETI Board members

Breadcrumb

  1. Home
  2. blog

Two paths for labour law in India

  • Stirling Smith
  • 19 May 2015
Construction site, India

A famous Indian nationalist, Gokhale (1866 – 1915) once remarked: "What Bengal thinks today, India thinks tomorrow."


There is a new version. “What Gujarat does today, India does tomorrow”. That’s because India’s Prime Minister, Mr Narendra Modi, was for more than a decade the Chief Minister of Gujarat. In his successful election campaign last year, one of his big selling points was the "Gujarat model" of development, including a business friendly environment. And the state seems determined to be a laboratory for national level change.


So moves by the state government to change labour law should be of interest to anybody sourcing from India, because they could go nationwide eventually. I wrote about this last June, just after Mr Modi became PM. 


So no surprise that the Gujarat state assembly has passed the Labour Laws (Gujarat Amendment) Bill, 2015. It isn’t law yet, but could be soon.


First off, they have proposed to amend the Industrial Dispute Act empowering the state government to ban strikes in “public utility services” for up to three years. This is against ILO principles and the government can define public utility services anyway it likes. It could include any business in one of the Special Economic Zones the government is promoting.


Secondly, when workers are laid off, less compensation can be reduced in those Special Economic Zones.


Third, payment of wages by cheque instead of cash becomes compulsory for any establishment employing more than 20 persons.


Time for a short history lesson. During the Industrial Revolution in Britain, many employers paid their workers with coins minted by the employer themselves. Frequently featuring their own head, rather than the king.  The system was called "truck" and of course meant that workers could only use shops that accepted their employer’s coins and so they would have to pay whatever prices those shops chose - for rubbish quality. The first law against this abuse was passed in 1831 and it was subsequently strengthened and renewed. And as we often find, legislation in former British colonies copies very closely laws in the UK.


So the old Truck Act lives on in Indian labour law. Workers should be paid in real legal tender. Cheques or bank payments don't count.


How ridiculous! How unmodern! How inflexible! How unnecessary in the internet age!


Trouble is, half of Indian adults don't have a bank account. Only 0.3% of Indian adults use mobile money services. So maybe payment in cash is needed for a teeny bit longer. 


It's not all bad news. The government is proposing a threefold increase in the minimum wage for construction workers. But unless there is proper inspection, how is this going to be enforced? (See also my blog from last year about the law on building safety)


The Bill removes all penal sanctions against employers, so the only penalty for breaking the labour law is going to be a fine. And employers can self-certificate that they are following the law.


This blog has regularly featured reports on the already very low level of compliance with existing labour law in India. These new moves in Gujarat are unlikely to make a massive difference on the ground, but they give a message to employers that they can continue to violate the law with impunity.


Burdens on business?


The reason given for these changes is to encourage business and foreign investment in particular. But are all these labour laws really holding back foreign companies from doing business in India?


A recent survey by the Indo-German Chamber of Commerce found that the biggest obstacles for German companies in India were:


  • the Indian bureaucracy 58%
  • lack of infrastructure 52%
  • corruption 45%
  • lack of skilled workers 35%; and
  • tax disputes 32%

Labour law hardly gets a mention. So the justification for these changes is bogus.


An alternative route


There has been another election in India - the Aam Admi Party swept to power in Delhi’s state elections in February. Its name means “common man” and they set up open house to hear complaints about public services.


One was held on labour. 500 workers turned up. It was revealed that the Minimum Wages Advisory Board, meant for reviewing and revising the floor level wage structures, had not met for 20 years. Stories poured out about the corruption and violation of laws by government inspectors. Huge funds for “labour welfare” were unspent. The Delhi labour minister ordered a clamp-down on inspectors and employers, and hiked the minimum wage.


So, Gujarat or Delhi - which way will India go?


Either way, any company sourcing from India needs to keep a very close eye on these changes to labour law.

Stay up to date

Stay up to date with the latest from ETI via the following channels:
  • Email
  • Twitter
  • LinkedIn
  • Blog RSS

Related content

  • ETI statement on labour law changes in India
  • Women's empowerment through trade union work in south India's textile and garment sector
  • Base Code guidance: caste in global supply chains
  • Rajasthan sandstone programme, evaluation
  • Rajasthan sandstone worker survey, report
  • Letter to Cambodian government on labour law reform

Get the latest

Subscribe to our email newsletters and stay up to speed on ethical trade.
Subscribe

ETI elsewhere

  • Twitter
  • LinkedIn
  • YouTube

Footer

  • ETI Community
  • Accessibility
  • Contact
  • FAQ
  • Jobs at ETI
  • Press resources
  • Security & privacy
Other ETIs: Bangladesh, Denmark, Norway, Sweden
Ethical Trading Initiative | Registered No. 3578127