24. Business, Labour and Government – Business Environment



In this chapter, we study labour as a factor of production and the most important human resource. After reading this chapter, we will understand and appreciate the role of labour in the creation of wealth and the need to maintain cordial labour relations for the overall prosperity of the society.

An organization needs both capital and labour to create wealth. Earlier, capital was considered to be the most important factor for a business to succeed. Today, the need includes labour as well. The conventional shareholder primacy model left out the role of the employees in the creation of wealth. The Western reform advocates promoted the concept of shareholder capitalism where the sole emphasis is on strengthening the rights of, and the protection for, financial investors. Today, the growing recognition that human capital is a source of competitive advantage has led to the understanding that labour is, if not more important at least, as important as capital. This is what they call knowledge capital—an invaluable asset of an organization. In fact, when a company takes over another company, the former values the human capital more than the plant and machinery of the latter. The interest of employees in an organization can be represented by many ways. It is important to realize that shareholders’ long-run interests are probably well served by including employees in the corporate governance.


Labour as a factor of production is as crucial as capital in any productive activity. Labour can be defined as the exertion of mind or body or both with a view of earning an income. Technically, labour includes all human efforts, either physical or mental, engaged in the process of production. According to Alfred Marshall, “By labour is meant the economic work of a man whether with the hand or the head.”1 All these definitions stress the fact that it is only when the work is carried out with the objective of earning an income can it be called labour. Therefore, labour excludes work done for amusement or non-economic motive such as love, charity, friendship, religious fervour and social responsibility. Economists consider labour as work for which compensation is paid as a reward. They do not make any distinction between manual, menial or intellectual labour. However big or important the post a person holds, it is of no significance in categorizing the person as labour. As long as one is paid for the work done, irrespective of its nature, one is referred to as labour in economics. If they receive monetary compensations for the work done, priests and ministers can also be called labour.

Labour, being human, is characterized by features different from other factors of production such as land and capital. The following are the important characteristics of labour:

  1. Labour, the commodity, is indistinguishable from labour, the person. Both the person as well as the commodity are in one and the same person and are inseparable.
  2. Labour is a perishable commodity. Therefore, the labour that is lost today is lost forever. This is the reason behind workers accepting low wages fully aware that the government has fixed higher minimum wages for certain categories of workers such as farmers.
  3. Labour has no supply price unlike other commodities whose supplies can be adjusted by changing their prices. Besides, supply of labour changes only slowly, as it takes years for children to grow and acquire skills through education and proper training.
  4. Labour is a non-competing group in that a weaver cannot become a carpenter.
  5. Labour is immobile. Environment; human relationships; social, religious, and cultural factors; tastes; fashion; habits; language and other diversities make the mobility of factors difficult.
  6. Supply of labour has a backward sloping curve. It has been observed both in poor as well as in developed economies that when there is a rise in wages, workers often worked fewer hours. “When the wage was doubled, instead of continuing to work six days a work, the workers might work three days and go fishing for the next three days…As improved technology raises real wages, people feel that they want to take part of their higher earnings in the form of more leisure and early retirement.”2 The reason for the backward sloping curve is explained thus: “The hours of work supplied as a function of the wage, where the substitution effect dominates at relatively low wages and the income effect dominates at high wages. In the latter region, the supply curve will be negatively sloped.”3
  7. Unlike capital, labour has to be delivered in person. It is important, therefore, to have a conductive situation at the workplace for labour to be productive and efficient.
  8. Labour is at a disadvantage in bargaining. Whenever there is an industrial dispute between the workers and their employers with regard to wages, bonus, hours of work, leave and other conditions of employment, the latter always seems to have an upper hand since they have the resources and can easily withstand the pressure from the other side. Workers, on the other hand, stand to lose in case the employers refuse to concede to their demands and are willing to shut down their businesses as a last resort. Thus, governments try to protect workers in collective bargaining and have put in place laws, regulations and dispute settlement structures to safeguard the interests of workers, who may constitute a large chunk of their parties’ vote banks.

There are certain practices which are considered unfair when they are repugnant to the orderly functioning of a trade union or its members, as codified in various industrial acts including the 1972 Bombay Act and the Industrial Disputes Act, 1947. The following are the unfair practices:

  1. Labour practices relating to management interference in the relations between a union and its members or between two unions or the right of employees to choose a particular union;
  2. A management attempting to dismiss, discharge or reduce any employee of any union or make him suffer any other type of punishment just because he is a member or an executive of a registered union, or one which has applied for registration and
  3. A management victimizing a trade unionist for being engaged in union activities such as denial of promotion or punishment transfers or management intervention in trade union affairs, coercion of workers to join a union or threats for not joining or the use of violence.

The word exploitation is used to refer to the act of using another person's labour without offering adequate compensation. Macro-level or “new liberal” theories focus on exploitation by large sections of society in the context of free markets. Marxist theory paints the entire capitalist class as highly exploitative, and capitalism as a system based on exploitation of labour. In the Marxist view, exploitation normally occurs because of three structural characteristics inherent in capitalist society:

  1. A very small section of the society, namely the capitalists own the means of production.
  2. Non-property-owners such as the workers can survive only by selling their labour to the capitalists.
  3. The State uses its mite to protect the unjust distribution of power and property in the hands of a small minority of capitalists.

Exploitation is a raging issue amongst the developing nations, particularly in the context of the global economy. Multinational companies (MNCs) are exploiting workers by applying unequal human standards, i.e., lower standards for the workers in the developing world when compared to their counterparts in the developed world. Besides, if people choose to work for low wages and in unsafe conditions, it is only because it is their only alternative to starvation or scavenging from garbage dumps. This cannot be seen as any kind of free choice on their part. It also argued that if a company intends to sell its products in the Western world, it should pay its workers by the standards set by the developed world.

However, fighting exploitation in poor nations takes one to a dead end. Many MNCs secure adequate supplies of labour from poor countries by offering wages and perquisites better than the existing options. If the “exploitation” were to be stopped, the “victims” would be much worse off than before.

“Groups who see themselves as fighting against global exploitation also point to secondary effects such as the dumping of government-subsidised corn on developing world markets which forces subsistence farmers off of their lands, sending them into the cities or across borders in order to survive. More generally, some sort of international regulation of transnational corporations is called for, such as the enforcement of the International Labour Organization's labour standards.”4


The interests of employees can be protected through the following agencies/processes:

  • Trade unions
  • Co-determination: employee representation on boards of directors
  • Profit sharing
  • Equity sharing
  • “Team production” solution
  1. Trade unions: Trade union's role is to represent the collective voice of employees and as such they provide a muscle in collective bargaining, and as such as cannot be underestimated. Labour with a perishable commodity to offer will not be able to withstand the financial might of employer otherwise. Only trade unions can represent the collective interests of employees and fight for what is due to them from the organization. Though the approach of such unions are often more confrontational than cooperative, it is a collective body that represents the collective interests of employees. They could use this as a platform to negotiate agreements between the organization and labour. These could sometimes reduce the flexibility of such agreements in the light of changing market conditions.

    Since the role of trade unions to protect workers’ interests is of paramount importance, we will analyse it in greater depth separately in the ensuing pages.

  2. Co-determination: It is a situation where there is employee representation on the board of directors of the organization. This worked well in Germany in the post-world War II decades when the situation brought about labour peace, reduced the level of unemployment, and added to the robust growth of the economy. But in recent decades of the fast growing economy, it has led to economic rigidity and sluggish growth.
  3. Profit sharing: The concept of profit sharing with employees in order to protect the interests of employees in the organization became more popular in Europe in the 1990s. Most profit-sharing plans are broad based, i.e. all or most employees were included in the scheme of profit sharing rather than just executives only. This practice has been followed in firms facing intense competition and in firms with highly qualified workforce. Profit sharing motivates the individual worker to put in his best as his efforts are directly related to the profits of the organization, in which he gets a share. Profit sharing could be done in many ways, such as
    1. Cash-based sharing of annual profits where the annual cash profits of the organization are shared among the employees
    2. Deferred profit-sharing where the deferred profits of the organization are shared among the employees.

    The objective of such profit-sharing is to encourage the involvement of employees in the organization, and improve their motivation and the distribution of wealth among all the factors of production. Wage flexibility can improve a firm's performance where the wages of employees depend on the profits made by the organization.

  4. Equity sharing: Under equity sharing, employees are given an option to buy the company's shares, identify themselves with, and thus become the owners of the organization. This leads to improved employee commitment to management's goals, which motivates the employees to perform better. As a result, there is an alignment of interest between employees and shareholders. This may help firms in being more adaptable to the changing environment and support the emergence of a more transparent and effective corporate governance. This may stimulate the social responsibility of the firms.

    There are various ways in which equity sharing could be achieved: employer's share (i) ownership plans, (ii) stock bonus plans, (iii) stock option plans, (iv) employee buyout and (v) worker cooperatives. This method of equity sharing to increase employee participation is followed in larger companies, with highly qualified workforce, and high level of worker empowerment, such as software companies.

  5. Team production solution: Team production solution is a situation where the boards of directors must balance competing interests of various stakeholders and then arrive at decisions that are in the best interest of the organization. Though they are employed by shareholders to safeguard their interests in the organization, they have to work for the common benefit of all the stakeholders of the company.

As a result of increasing participation of employees in the organization, a company can reap the benefits of increase in productivity, which in turn, increases the profit of the organization. This is the new perspective of wealth creation which in turn leads to the increase in wealth distribution. The grant of shares though should not be at the expense of the benefits and wages payable to the employees. The provision of employee share alone is not enough, but it must be accompanied by the increased employee participation in decision making. It should be understood that employee share plans are not a substitute for diversified retirement savings. The Enron fiasco reminds us that employees can lose everything if the business is not diversified. There are some guidelines that could be used here while deciding on employee representation in an organization.

  • Voluntary participation: There should be voluntary participation on the part of the employees and they should not be forced to do anything out of compulsion. If compulsion is exercised either by unions or employers, it may boomerang, instead of being beneficial.
  • Extend benefits to all employees: The benefits should be extended to all employeesmdash; factory workers, clerical staff and the executives of the organization indiscriminately. The extension of benefits to selective groups of employees will create more problems rather than solve any, leading to disagreement among workers and distrust towards employers.
  • Clarity and transparency: The process by which the allocation of shares is done should not be complicated; they should be clear and transparent. Workers should clearly understand and appreciate the benefits they will get under the arrangement.
  • Predetermined formula: There should be a predetermined formula to work out the number of shares that could be offered, and it should not be left to the discretion of any party.
  • Regularity: There should be some regularity when such offers are made; they cannot be made as and when the organization feels like making such offers.
  • Avoiding unreasonable risk for employees: The organization should take into consideration the interests of the employees when making any decisions, and they should ensure that no undue risks are taken.
  • Clear distinction: There should be a clear distinction between the participation schemes that are offered to the employees and the regular wages and the benefits that are offered by the organization. Those participatory schemes should in no way affect regular wages and related benefits paid to employees.
  • Compatibility with worker mobility: The participation schemes offered should be compatible with the worker mobility. The worker should not be penalized by accepting the schemes offered to him.

By increasing the role of the employees in the organization, the company can ensure better corporate governance.


According to Sidney and Beatrice Webb, “A trade union is a continuous association of wage earners for the purpose of maintaining and improving the conditions of their working lives.”4 There is another interesting definition of trade union by Punekar et al., “Through their collective action, workers ask for more wages, less hours of work, reasonable amenities and humane treatment. Thus, a trade union is born.”5 Trade Unions are thus voluntary organizations of workers formed with a view of promoting and protecting their interests through collective action.

Trade unions emerged to fight against the exploitation of workers by owners of capital and organizations during and after the Industrial Revolution in England. In the early days of establishment of industries, capitalists exploited workers to the maximum by making them work for longer hours for meagre wages and denying them opportunities to come together and represent their grievances, either to them or to the government of the day. The socio-cultural milieu also favoured such exploitation by capitalists who had a strong voice in the British Parliament. The English society was familiar with adages such as “An idle mind is the workshop of the devil” and “Don't spare the rod and spoil the child”, to justify long hours of work and the engagement of even child workers in factories. With a view to extract maximum amount of work, workers were given accommodations near the factories with no creature comforts provided to them. It was said that their residences were uncomfortable and so small that even the smallest amongst them couldn't stand erect. They were not given woollen clothes even during the peak winter and in Christian England, they were not allowed to go to the church even on Sundays. The situation was so unbearable that the workers wanted to organize themselves and convey their grievances to the powers that be. But the British Parliament, peopled by industrial upstarts and commercial tycoons, had passed laws preventing such communion amongst workers. The laws said that if the workers tried to form any union in restraint of trade and commerce, they could be penalized by awarding a penalty short of capital punishment. Under these circumstances, it was indeed a very long struggle for workers to gain the right to form trade unions. In their hard and long struggle, they were assisted by political leaders, Fabian socialists and people such as Karl Marx and Engels who sympathized with the suffering workers.

Rights of Recognized Trade Unions

Once a trade union is recognized, the procedure and conditions for which are laid down in Section 28-C to Section 28–1 of the Trade Union Amendment Act, 1947, it enjoys certain rights as mentioned below:

  1. Immunity from criminal liability: As per the law, a registered trade union enjoys, under certain circumstances, immunity from prosecution for criminal conspiracy. As such, no member or officer of a registered trade union is liable to be punished for criminal conspiracy in respect of any agreement entered into between the members for the furtherance of any object on which the general funds of the trade union can be spent.
  2. Immunity from civil suits: “Complete immunity has been provided from civil proceedings and tortuous acts to a registered trade union, its office bearers and members, of the offence of deliberately bringing about a breach of contract of employment between the employer and the employee.”6 Similarly, a union is protected from being sued for allegedly inducing a person not to abide by his contract of employment or interfering in any other manner with the trade, business or employment of some other person in the course of a trade dispute.
  3. Other rights and privileges: The National Commission on Labour recommended that “A union recognized as the representative union under any procedure should be statutorily given, besides a right of sole representation of the workers in any collective bargaining, certain exclusive rights and facilities to enable it to effectively discharge its functions.”7 As per the Commission, these rights would include the following: (a) the right to represent its members and bring about issues with the management; (b) right to collect within the premises of the organization membership fees; (c) right to demand check off facility; (d) right to put up a notice board on the premises for union announcements; (e) right to hold discussions with employees at a suitable place within the premises; (f) right to discuss with employer the members’ grievances; (g) right to inspect a place of employment or work of its members before their joining it and (h) nomination of its representatives on committees formed by the management for industrial relations purposes, as well as in statutory bipartite committees.

Box 24.1 The Prominent National Trade Unions in India

Presently, in India, there are a number of pan-India trade unions:

1. Indian National Trade Union Congress (INTUC): It was established on 3 May, 1947 and affiliated to the Congress Party. Founding of the Indian Trade Union Congress (INTUC) on 3 May, 1947 was considered a historical imperative. It was established by the Indian National Congress on the foundations of the Gandhian tenets. The INTUC has played a very vital role in almost all legislations enacted to protect the interests of the workers and has been successful in bringing about a progressive re-orientation in the policies and programmes of the governments, both at the Centre and in the States. The INTUC is in the vanguard of India's march towards her cherished goal of establishing a secular and socialist democracy. It claims to have over 6 million members.1

2. Bharatiya Mazdoor Sangh (BMS): It was established on 23 July, 1954 and is affiliated to Jan Sangh, now Bharatiya Janata Party. The BMSs (Indian Workers’ Union) claims to be the largest central trade union organization in India. According to provisional statistics from the Ministry of Labour, the BMS had a membership of 6,215,797 in 2002.2

3. Hind Mazdoor Sabha (HMS): Established in 1948 and is affiliated to the Socialist Party. The HMS was founded in Howrah on 24 December, 1948, by socialists, Forward Bloc followers and independent unionists. In March 1949, HMS claimed to have 380 affiliated unions with a combined membership of 618,802.3 According to provisional statistics from the Ministry of Labour, HMS had a membership of 3,342,213, constituting 13% of the total trade union membership in the country in 2002.

4. United Trade Union Congress (UTUC): Established in 1949, the UTUC was founded at an All India Labour Conference in Calcutta on 1 May, 1949. It is politically tied to Revolutionary Socialist Party. According to provisional statistics from the Ministry of Labour, the UTUC had a membership of 383,946 in 2002. In 1953, UTUC had 332 affiliated unions.4

5. All India Trade Union Congress (AITUC): Was established on 31 October, 1920 and is affiliated to the Communist Party (India). AITUC is the oldest trade union federation in India and one of the five largest. According to provisional statistics from the Ministry of Labour, AITUC had a membership of 2,677,979 in 2002. Until 1945 when unions became organized on party lines, it was the primary trade union organization in India. Since then it has been associated with the Communist Party of India. AITUC is a founder member of the World Federation of Trade Unions.5

6. Centre of Indian Trade Unions (CITU): Established in 1970 and affiliated to the Communist Party (Marxist), The CITU is a National Central Trade Union in India, politically attached to CPI(M). It is today one of biggest assembly of workers and classes of India. According to provisional statistics from the Ministry of Labour, CITU had a membership of 3,222,532 in 2002.6

7. National Labour Organization (NLO): It was established in 1969. The split in the Indian National Congress in the year 1969 led to the division of INTUC and resulted in the formation of NLO.


Indian Trade Unions

Though modern mechanized factories were established in India as early as 1850, trade unions came to be established here only after the First World War. Factors such as rising prices and low wages which caused misery and discontentment created a conductive environment for the establishment of trade unions. One of the important incentives that encouraged the growth of trade union movement in India was the establishment of the Soviet Socialist Russia in 1917 which spotlighted the need to recognize the working class movement. During this period, several unions were established. In 1920, the All India Trade Union Congress (AITUC) was formed to coordinate the activities of various trade unions in the country. Another milestone in the history of Indian trade union movement was the enactment in 1926 of the Trade Union Act that conferred several rights and privileges on trade unions, most importantly, giving them a legal status to represent the workers.

“There are over 9,000 trade unions in the country including unregistered unions and more than 70 federations and confederations registered under the Trade Unions Act, 1926. The degree of unionism is fairly high in organized industrial sector. It is negligible in the agricultural and unorganized sectors.”8

Defects of Indian Trade Unions

It is well known that the Indian Trade Union movement suffers from a number of deficiencies as a result of the factors that are listed and explained below:

  1. Small coverage: Trade unions in India cover only a small percentage of the workforce. Since they cover only the workers of the organized sector, they leave out millions of workers in the informal sector embracing the primary, small, medium, and secondary sectors and those in the informal service sector. Many organizations discourage casual, temporary or contract workers from unionizing.
  2. Illiteracy and ignorance of members: It is common knowledge that most Indian labourers are illiterate, ignorant and often untrained. Such being the situation, it is very difficult to make the workers realize the need for a trade union and to motivate them to join it. Added to this problem is the difficulty of finding good organizers, both at the grass root level and at the top echelons. So is the case with finding active workers and participants to be engaged in trade union activities which is very important for their success.
  3. Migratory character of workers: Most of the workers in factories such as textile and jute mills have come to cities from their villages, which are located in the far off under-developed regions of the country. They tend to go back as often as possible during religious festivals and social functions. They migrate to cities, not because of their lure and attraction, but because of the economic and other compulsions. There are several factors that have driven workers from rural areas to work in city-based factories such as (i) increasing pressure of population on land; (ii) emergence of a large army of landless labourers in villages; (iii) the ill treatment meted out to the “low caste” persons by upper castes that drive out the former; (iv) massive rural indebtedness and (v) family quarrels. Apart from the above-mentioned reasons for the migration of workers, they also change their jobs and places of work frequently. Because of these reasons, they are reluctant to join trade unions and pay subscription even though it's a meagre amount.
  4. Heterogeneous character of labour: Most of the workers in factories come from different states, converse in different languages and follow different religions and customs. They are sharply divided on regional and parochial lines and align themselves as “high class” and “low class”, “Hindu” and “Muslim”, “Southerner” and “Northerner”, “Tamil” and “Malayali” and so on. Such artificial divisions have adversely affected the collective bargaining capacity of the workforce. As a result of this diversity, they don't bond together and it is not easy to organize them into a democratically functioning trade union. Employers use these differences amongst workers to their advantage and have been exploiting them to serve their own selfish ends.
  5. Abysmal poverty of workers: Industrial workers are poorly paid and eke out a miserable existence. With such poverty, they are not in a position to subscribe to the union activities regularly. They find it difficult to pay even a small amount, and often do not find any justification as to why they should pay the subscription when there is no quid pro quo.
  6. Lack of interest in trade unions: By and large, workers show no interest in trade union activities. Due to long and dragging hours of work, they get completely exhausted by the time they finish their assignments. Most of the time they do not have the energy to take part in the activities of the union.
  7. Outside leadership: Indian labour union leaders are generally outsiders. Myers, an authority on the subject of Indian trade unions, commented: “Practically all Indian unions are led by persons who have no background in industrymdash; that is ‘outsiders’; (who) are mostly middle-class intellectuals, with clear-cut political orientation in many cases.”9 Lawyers, politicians and outside professionals take the leadership of trade unions in India since the labourers are illiterate and unorganized. That is the reason most of the trade unions are attached to some political party or the other. This situation is being exploited by trade union leaders for their own personal ends.
  8. Political domination: Trade unions in India are controlled, as pointed out earlier, by political parties and their leaders. This has led to multiplicity, and inter- and intra-union rivalry. The mushrooming of unions on party-splitting and new affiliations cause a lot of problems alien to workers’ interests. This also causes a major headache to Indian managers. Politicians are more interested in promoting the interest of the parties to which they are attached, rather than the welfare of the workers. Thus, labourers are misguided and are made to align themselves with political parties though ideologically they may not be inclined to do so.
  9. Unfriendly attitude of employers: Employers by their very nature do not like to promote union activities within their organizations. They take undue advantage of the ignorance and illiteracy of workers, try to create a wedge between them, promote groupism and try their best to de-unionize them.
  10. Absence of fraternal activities: Most of the unions in India are not in a position, financially or otherwise, to promote the welfare of workers by providing them with education, medical aid and loans in times of need. Most of the unions, therefore, try to be militant and have been only demanding more wages and bonus and other perquisites.
  11. Small size of unions: Most of the Indian trade unions are small in size and about three-fourth of the unions have less than 5,000 workers. “Over the years, the average size of unions has been decreasing and the trend towards fragmentation has accelerated this process.”10
  12. Lack of resources: Most of the unions have small number of members with poor subscriptions. Even today, membership fees in unions average INR 12 per annum. Therefore, they are financially and organizationally weak. This is the reason why many strikes organized for long periods end in failure. For instance, the textile mill workers’ strike organized in Bombay in 1982–83 by Datta Samant, an “outsider” and militant leader, was prolonged for more than one-and-a-half years and ended in a colossal failure.
  13. Reluctance to submit returns to authorities: Indian trade unions fight shy of submitting statutory returns to the Registrar of Trade Unions for reasons known to them. As a result, researchers on the subject are unable to get an accurate picture of the reach and intensity of trade union movement in the country. It is reported that only around 12 per cent to 13 per cent of registered unions submit their returns, causing constraints in the enforcement of labour laws.

Management Concerns

Following the establishment of trade unions, in course of time, managements realized that a trade union in their premises is a force to reckon with and that they could ensure industrial peace and better performance of their organization only with the cooperation from the union. This belief was further reinforced by a series of labour-friendly legislations and the government becoming a part of dispute settlement. The following three are the major concerns of businesses:

  1. Right to manage: Right to manage has become a major concern among most organizations in the context of militancy of unions, lack of solidarity among employers themselves and legislative support enjoyed by unions. All these problems inject a degree of helplessness among managers in running their organizations. Being at the mercy of unions, they have to buy peace with them by involving them in managerial decision making and avoiding taking any disciplinary action against union leaders even when they commit grave errors.
  2. Recognizing a union: It is tough for organizations to “recognize” a union. Though the Trade Unions Act, 1926 stipulated the terms and conditions for the registration of a trade union, it is silent on the recognition of a union by management for purposes of collective bargaining. It becomes extremely difficult for managements to identify any particular union for that purpose, especially in large organizations where there are a number of unions with diverse political affiliations. Even if a management wants to go by a simple majority, it may not be sure whether that union represents large number of members in the absence of any fool proof method to check the membership. Moreover, “there is no guarantee that a majority union will remain so because of inter union rivalry and because of the possibility that members may shift their loyalty to another union if the current one fails to protect them and/or provide them the benefit.”11 Though it is an important and desirable management practice to identify a trade union for bargaining purposes, the process is replete with full of uncertainties.
  3. Involving a third party: The Industrial Disputes Act, 1947 provides for third-party involvement in dispute settlement between employer and employee through conciliation, arbitration and adjudication. However, though conciliation is the most desirable method to prevent and settle an industrial dispute, it has not been found to be very successful in actual practice. Likewise, adjudication too has not been very successful, apart from the fact that it is a very expensive process. Because of all these factors, collective bargaining and bipartite negotiations have suffered and managers of business organizations feel let down by the inefficacy of various measures available to them for dispute settlement.

The genesis of labour legislation lay in the excesses of the early industrialism that followed the Industrial Revolution in England. Along with the Industrial Revolution, there were other factors that laid the foundation for a more vibrant system of labour laws. Thinkers including Rousseau, John Stewart Mill, Hegel, Karl Marx and Engels, in concert with the forces unleashed by the French and the Russian Revolutions, enormously influenced labour jurisprudence. Other favourable factors such as the fast-paced revolution in science, technology, communication and telecommunications made the entire world come together in a global village. These developments made easier for the working classes of poor countries to know how well their counterparts in the developed world were being served. Other factors that helped the process were the growth of trade unionism and the termination of colonial rule.

In India and elsewhere, the establishment of democracy and its enabling institutions, political freedom coupled with the extension of adult franchise, the rise of Socialism and other revolutionary ideas, the emergence of humanitarianism and the concept of social welfare and justice, establishment of the International Labour Organization (ILO) and the ILO standards, the struggle for national emancipation and adoption of the Indian Constitution have all had their prompting impact on enactment of labour legislations.

Labour legislation in India followed more or less the same pattern as in Western democracies. Businessmen and entrepreneurs by and large have been highly critical of the pro-labour-law systems in the country, especially the restrictions placed on exit for workers. This view also is backed by academicians and unbiased researchers. Many of the laws were enacted in the immediate post-Independence period when it was thought that labour was a weaker party in the process of collective bargaining, and needed the backing of the State.

Important Legislations

Indian labour legislations can be classified into different types such as regulative, protective, compensation related, social security and welfare based. These varied kinds of legislations are listed below:

  1. With regard to regulative labour legislations: Their aim is to regulate and help establish cordial relations between employers and employees by providing the means, methods and mechanics of settling industrial disputes. These include (a) The Trade Unions Act, 1956; (b) Industrial Disputes Act, 1947; (c) State laws on industrial relations and (d) Industrial Employment (Standing Orders) Act, 1946. Of these laws, we will learn more about the Industrial Disputes Act in the ensuing pages because of its importance in the industrial relations scenario in the country.
  2. The protective labour legislations: The primary objective of these is to ensure creation of labour standards, and the improved working conditions for labour include, inter alia, the following Acts: (a) Factories Act, 1948; (b) The Plantations Labour Act, 1951; (c) The Mines Act, 1952; (d) The Water Transport Workers Act, 1961; (e) The Shops And Establishments Act, 1948 and the (f) BDMC Cigar Workers Act, 1966.
  3. Compensation-related labour legislations: These lay down the methods and manner of wage payments and also the minimum wages for various categories of workers include the following: (a) The Payment of Wages Act, 1936; (b) The Minimum Wages Act, 1948; (c) The Payment of Bonus Act, 1965 and (d) The Equal Remuneration Act, 1976.
  4. Social Security labour legislations: These intend to provide workers social security benefits and include (a) The Workmen's Compensation Act, 1923; (b) The Employees’ State Insurance Act, 1948; (c) The Coal Mines PF Act, 1948; (d) The Employees Provident Fund and Miscellaneous Provisions Act, 1952; (e) The Maternity Benefit Act, 1961 and (f) Payment of Gratuity Act, 1972.
  5. Welfare labour legislations: These aimed at promoting the overall welfare of the workers and improving their living conditions include: (a) Limestone and Dolomite Mines Labour Welfare Fund Act, 1972; (b) The Mica Mines Welfare Fund Act, 1946; (c) The Iron Ore Mines, Manganese Ore Mines and Chrome Ore Mines Labour Welfare Fund Act, 1976; (d) The Cine Workers Welfare Fund Act, 1981; (e) State government legislations for welfare funds and (f) Beedi Workers Welfare Fund Act, 1976.
  6. Miscellaneous labour legislations: There are some other important labour laws. They are (a) The Contract Labour (Regulation and Abolition) Act, 1970; (b) Child Labour (Prohibition and Regulation) Act, 1986; (c) Building and other construction workers (Regulation of Employment and Conditions of Service) Act, 1996; (d) Apprentices Act, 1961; (e) Emigration Act, 1983; (f) Employment Exchange (Compulsory Notification of Vacancies) Act, 1959; (g) Inter State Migrant Workmen (Regulation of Employment and Condition of Service) Act, 1979; (h) Sales Promotion Employees’ (Conditions of Service) Act, 1976 and (i) Working Journalists and other Newspapers Employees’ (Condition of Service and Miscellaneous Provision) Act, 1955.

The Industrial Disputes Act, 1947

Of all labour legislations enumerated in the preceding section, The Industrial Disputes Act is perhaps the most important piece of legislation. It was a piece of social legislation enacted to provide for investigation and settlement of industrial disputes and for certain other matters. The Act was applicable to all industrial and commercial establishments employing technical and non-technical workers drawing wages up to INR 1,600 per month. Unlike some other acts, this Act was applicable to all states in India.

The Industrial Disputes Act, 1947 has been described as a milestone development of industrial relations in India. Justice Krishna Iyer observed in a case relating to LIC—Supreme Court, 1980, that The Industrial Disputes Act, 1947, “Is a benign measure; it pre-empts industrial tension; it is a mechanism for dispute resolution; it ensures industrial justice and creates a climate of goodwill.”12 The following are the most important features of the The Industrial Disputes Act, 1947:

  1. Establishment of a permanent conciliation machinery for a speedy and amicable settlement of industrial disputes with a maximum time limit prescribed
  2. Recognition of compulsory arbitration and enforcement of its awards in public utility services
  3. Prohibition of strikes and lockouts during the course of proceedings of conciliation and arbitration
  4. Prescription of specific time limits with a vie to eliminate delays for various stages of conciliation and arbitration
  5. Imposition of an obligation on employers to recognize representatives of trade unions in order to deal with them
  6. Setting up of work committees for purposes of providing a machinery for mutual consultation between employers and employees
  7. Establishment of machinery called the Industrial Tribunal to which industrial disputes may be referred to wherein both parties in case of any industrial dispute may apply for an appropriate decision.

Problems with Indian Labour Laws

The World Bank reported recently that in 2004 India had 482 cases of major strikes which resulted in a work loss of 15 million man-days. Likewise, between 1995 and 2001, approximately 9 per cent of factory workers were involved in these work stoppages. Not surprisingly, the work stoppage figure for China was almost zero at that time. It was also reported that the wages of Chinese workers were rising much faster than that Indian workers. Another interesting statistics is provided by the data of the Ministry of Labour. According to the Ministry's source, in the year 2000, there were 533,038 industrial disputes pending in India's labour courts, of which, 28,864 had been pending for more than 10 years. These figures clearly indicate that much needs to be accomplished as far as labour laws are concerned.

Kaushik Basu noted that the Indian worker has not benefited from the booming Indian economy. He states, “While the Indian economy is booming, there is evidence that workers are not partaking in the boom adequately. Employment is not growing as fast as working age population, nor are wages rising as rapidly as per capita income. There are many reasons for this-some to do with forces of globalization”.13 Though he concedes that these forces are not within the policy reach of the Indian government, yet he attributes these observations to a very complex and badly conceived labour laws enacted by the Indian government since Independence. He estimates that there are as many as 45 labour laws at the central government level and a staggering 100 laws at the level of state governments in India. A large number of these laws are very archaic. Originally, they were meant to control the industrial conflict and strife so as to keep the labour market efficient. But with the passage of time, even assuming that they worked at the time they were enacted, most of them have been found to have outlived their objectives.

An analysis of the current situation indicates that the Nehruvian Socialist government passed the Industrial Disputes Act of 1947 with a view of protecting workers from being thrown off the jobs which, along with a number of amendments, made it extremely difficult for firms employing more than 100 workers in the formal sector to lay off their employees. However, in the current global setup, with a great deal of volatile and shifting demand, companies have responded to this law by being mean and lean. They have been keeping their labour forces as small as possible not only to cut down cost, but also to circumvent the consequences of being seen as not abiding by the law. This is why workers have not benefited from the booming Indian economy. To obviate this difficulty, Kaushik Basu suggests that India should adopt a system which has room for more flexible contracts in the labour markets, with a safety net for workers who lost their jobs, and to resolve industrial disputes more quickly.

From the foregoing analysis of the interrelationship between business, labour and the government, it is evident that these three organs of society share a symbiotic relationship. However, capitalist organizations exploit labour wherever possible. To protect themselves from undue capitalist exploitation, workers have earned the right to form trade unions, through which they hope to promote their welfare. In recent times, however, the rising economic clout of mega corporations has made it far tougher for the workforce to assert their rights and protect their turfs. In this context, the civil society and the state have a moral responsibility to ensure inclusive economic growth in which workers’ rights are well protected.

  • Labour can be defined as the exertion of mind or body or both done with a view to earning an income. As long as one is paid for the work done, irrespective of its nature, one is referred to as labour in economics.
  • Labour, being human, has some special characteristic features different from other factors of production: (i) Labour the commodity is indistinguishable from labour the person; (ii) Labour is perishable; (iii) Labour is at a disadvantage in bargaining; (iv) Labour has no supply price; (v) Labour is a non-competing, an organization needs both capital and labour to create wealth, group; (vi) Labour is immobile; (vii) Supply of labour has a backward sloping curve.
  • There are certain practices which are considered unfair. These include: (i) Labour practices relating to management interference in the relations between a union and its members or between two unions or the right of employees to choose a particular union; (ii) A management cannot dismiss, discharge or reduce any employee of any union or make him suffer any other type of punishment just because he is a member or an executive of a registered union, or one which has applied for registration and (iii) A management cannot victimize a trade unionist for being engaged in union activities such as denial of promotion or punishment transfers or management intervention in trade union affairs, coercion of workers to join a union or threats for not joining or the use of violence.
  • The interests of employees can be protected through the following agencies/processes: Trade unions, co-determination, and employee representation on boards of directors, profit sharing, equity sharing and “team production” solution.
  • Rights of recognized trade unions are (i) Immunity from criminal liability; (ii) Immunity from civil suits and (iii) Other rights and privileges like (a) the right to represent its members and bring about issues with the management; (b) right to collect within the premises of the organization membership fees; (c) right to demand check off facility; (d) right to put up a notice board on the premises for union announcements; (e) right to hold discussions with employees at a suitable place within the premises; (f) right to discuss with employer members’ grievances; (g) right to inspect a place of employment or work of its members before their joining it and (h) nomination of its representatives on committees formed by the management for industrial relations purposes, as well as in statutory bipartite committees.
  • Trade unions were established in India after the First World War. Presently, in India, there are a number of national trade unions including INTUC, BMS, HMS, UTUC, AITUC, CITU and NLO.
  • Some of the defects of the Indian trade Union Movement are: (i) Small coverage; (ii) Illiteracy and ignorance of members; (iii) Migratory character of workers; (iv) Heterogeneous character of labour; (v) Abysmal poverty of workers; (vi) Lack of interest in trade unions; (vii) Outside leadership; (viii) Political domination; (ix) Unfriendly attitude of employers; (x) Absence of fraternal activities; (xi) Small size of unions; (xii) Lack of resources and (xiii) Reluctance to submit returns to authorities.
  • After Independence, there has been a spate of legislations of different types such as regulative, protective, wage-related, social security and welfare based. Of these labour legislations, the Industrial Disputes Act, 1947 was the most important.
  • Managements have certain concerns regarding trade unions and their functions. Some of them are (i) right to manage; (ii) recognizing a union and (iii) involvement of third party.
civil suits co-determination collective bargaining
criminal liability equity sharing fraternal activities
HMS INTUC migratory character
NLO non-competing group profit sharing
team production trade unions unfair labour practices
  1. How is labour defined from the standpoint of economics? What are the characteristics of labour that make it different from other factors of production?
  2. Explain how the interest of employers can be protected. Are these protective measures available to Indian workers?
  3. What is a trade union? What are the benefits that accrue to members of a trade union?
  4. Trace the genesis of trade union movement in India. What are the benefits that members of a recognized trade union get? Also explain the weaknesses of trade union movement in India.
  5. From the standpoint of managements, what are their concerns regarding trade unions and their functions? What are the problems they face when implementing labour laws in India?
  6. What are the factors that facilitate labour legislation in Post-Independence India? Also explain the different kinds of labour legislations with particular reference to the Industrial Disputes Act of 1947.

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