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Contract Labour: MAJOR ITEM FOR REFORM, By Dr S Saraswathi, 23 March, 2017 Print E-mail

Open Forum

New Delhi, 23 March 2017

Contract Labour


By Dr S Saraswathi

(Former Director, ICSSR, New Delhi)


To achieve “Ease of doing business” and to promote “Make in India”, labour reforms are necessary. A major item in the reforms presently under the Government’s consideration relates to legal backing for contract labour – a growing section of labour indispensable in production and trade, but badly lacking protection. Recently, the Labour Ministry has notified draft rules that would allow the principal employer or contractor hiring contract labour to file unified annual returns under the Contract Labour (Regulation and Abolition) Act, 1970 in the specified form.


Contract labour, according to official estimates, accounts for about 55 per cent of public sector jobs and 45 per cent of those in private sector. About 2 million contract workers are in the organised sector. There is no record of unlicensed contract workers outside the purview of law whose number must be much higher scattered in unorganised sector facing double disadvantage in work-life.


Reform and regulation of contract labour will thus touch one-half of total workers and will shake up the informal sector to its responsibility towards labour, on which its dependence is growing.   The workers comprise skilled, semi-skilled, and unskilled work force.


New forms of informal employment are emerging even in organised sector in India due to the advantage of greater labour flexibility and the demands of globalisation. The practice of outsourcing work, the necessity of 24-hour labour to reach all parts of the globe, the requirements of increasing specialisation and division of labour, and higher participation of women have combined to increase contract employment as a prominent feature of all kinds of work – manual, skilled, and  intellectual. Contract labour is non-standard form of employment and has grown all over the world as a result of technological change, and introduction of new forms of industrial and commercial organisation.


The very mention of “contract labour” brings before our minds workers toiling at construction sites, roads, factories, public works like water supply and drainage, and electricity -- all at the receiving end of numerous labour problems that still haunt production and services. They have a common feature that they are hired for a specific work and are disbanded after the job is completed.  


Many concerns also go relentlessly on with contract labour as a measure of economy though they have continuous work thus having “regular” contract workers for even routine work despite the mandate that people doing regular work should be on the rolls of the organisation and not on contract.  Manual scavenging, entering manholes, and cleaning septic tanks manually, which are all prohibited on paper, fall to the lot of contract workers on regular basis.


Contract labour is distinguished from direct labour in employment relationship with the establishment, working conditions, and even in the method of remuneration. It is categorised as “indirect” employees – hired, supervised, and paid by a contractor, who is compensated by the establishment. Contract employees are not on the regular pay roll of the establishment.

A workman is deemed to be employed as contract labour when he is hired by an establishment by or through a contractor. The contractor is virtually the employer for the contract workers who has no link directly with the establishment, and may not even be aware of the establishments for which he is contributing labour or their chiefs.


Contract work has become the outstanding feature of both public and private sector, particularly in mining, manufacturing, and some other services. Even the formal sector tends to split the work and resort to sub-contracting work and get linked to informal sector in which contract work is mostly the norm. In fact, it has a bright future in India.


There are different types of job or labour or mixed contract. It may be part-time, fixed time, agency staff, consultation and freelancing, call labour and so on. The arrangement may be bi-partite, tri-partite, and triangular between workers, employers, and the establishment. The intermediaries may be placement agencies, experts in the field, registered organisations, etc.


In a developing country like India, whatever be the ultimate goal, labour reforms must address issues from the point of labour welfare. In the name of “ease of doing business” or introducing labour flexibility, Indian labour is presently not in a position to give up its protective legislations  or voluntarily make sacrifices to help establishments face global competition.


NSS data have revealed a shocking record: that more than 75 per cent of workers do not have formal job contract and do not enjoy social security. Contract labour is governed by the Contract Labour (Regulation and Abolition) Act of 1970.  This Act permits contract labour only for work that does not form part of the core operation of an establishment.


The objective of the Act is to prevent exploitation of contract labour and to introduce better working conditions. The Act lays down that contract workers also should be provided with basic amenities like rest room, water, toilet facilities, etc. The ILO Convention 181 regarding private placement agencies prescribes a tri-partite relationship in contractual hiring. India is a signatory to this Convention, but the Government has not yet ratified it.


Contract labour system was considered a social evil by the First Labour Commission in 1969.  But, it has become the main strategy for making labour market “flexible” today. The Second Labour Commission in 2002 suggested formulation of labour codes as in many western nations and exempting establishments employing less than 50 workers from Contract Law. The Seventh Pay Commission has suggested framing uniform guidelines.


Contract workers are indispensable in our economy, but their grievances are many. Spending one’s career in contract work jumping from place to place without job security and labour welfare measures is no ideal situation.  Public or private sector establishments depending heavily on contract workers do suffer labour problems like prolonged strike for months at a stretch as witnessed in Neyveli Lignite Corporation (NLC), where regularisation of contract workers has become the main issue in labour-management relationship.


The Government of Maharashtra, Rajasthan, and Madhya Pradesh have taken a lead in reforms by limiting the application of the 1970 Act  to units employing more than 50 workmen and not 20. Units employing 20 to 49 workers will not come under the law which regulates wages, holidays, hours of work, and other conditions of work. The comprehensive labour code of the Centre is likely to introduce this change as also restricting application of Industrial Disputes Act to establishments employing over 300 workers and not 100 as before. Such laws are likely to result in splitting up a job in smaller units engaging less than 50 workers to be altogether free of labour rules.


The notion that “ease of doing business” is generally not labour-friendly can be erased only  through enlarging “ease” to small enterprises, genuine labour flexibility and opening of opportunities.  Developing countries caught in the web of globalisation are really in a dilemma and are facing the wrath of labour and groping to pacify labour and encourage production. Hire and fire policy is not suitable in a nation where social security remains a dream. However, a silver lining is that labour will be tempted to improve skills and enter more and more in self-employment to do what they had been doing as contract workers. ---INFA


(Copyright, India News & Feature Alliance)

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