 "Labour reforms begin: PM Modi's Shramev Jayate will boost jobs in SMEs")
Big-bang labour reforms have moved up Narendra Modi’s priority list , now that two key assembly elections are over. If implemented, they will end up cranking up the manufacturing jobs machine like never before.
On Thursday (16 October), the P rime Minister launched his Pandit Deendayal Upadhyaya Shrameva Jayate Karyakram that, inter alia, offers provident fund subscribers a universal account number even while raising the limit for coverage from salary levels of Rs 6,500 to Rs 15,000 pm. Meanwhile, the ministry of labour is separately fast-forwarding plans to repeal some moribund labour laws and protect small units (those employing upto 40 people) from the rigours of onerous current labour legislation.
The pro-labour reforms the PM talked about today, including demand-based vocational training, an apprentice scheme and revamp of the health insurance scheme to benefit workers in the unorganised sector, will soon be complemented by pro-business labour reforms that will make it easier to do business and free factories from the clutches of “inspector-raj.”
If these changes are legislated as planned, a critical roadblock to more employment generation in the factor sector will have been removed. India’s micro, small and medium enterprises sector comprises some 36 million units providing employment to 81 million people. While many of these are service sector enterprises, a good chunk are also small manufacturing enterprises which remain small in order to receive excise concessions and avoid labour laws.
Many of the labour reforms now being proposed formed part of last year’s Economic Survey, prepared when Raghuram Rajan was Chief Economic Advisor to the finance ministry under P Chidambaram. The 2012-13 Economic Survey noted that India had too many labour laws (45 of them between centre and states, according to Arvind Panagariya). And states which had more flexible labour laws tended to have better industrial performance. The Survey noted: “Estimates using plant-level data suggest that firms in labour-intensive industries and in states with flexible labour laws have 14 percent higher TFP (total factor productivity) than their counterparts in states with more stringent labour laws.” (Read the details here )
So the need for labour law reform is not in doubt. Modi’s labour reforms initiative has thus not come a day too soon.
In the new system proposed by the government, a unique Labour Identification Number (LIN) will be allotted to industrial units to facilitate online registration. Compliance will also be ensured online, with the number of returns to be filed being reduced from the present 16 to just one. Inspectors who are supposed to visit factors to ensure compliance with the law will no longer be free to pick-and-choose whom they choose to visit - a key cause of selective harassment leading to bribery and corruption. Instead, inspectors will now be allotted to industries through a computerised system and they have to file their reports within three days.
But, perhaps, the biggest changes relate to a draft new law intended to free small factories forever from the tentacles of inspector raj and compliance hassles. It is called the Small Factories (Regulation of Employment and Conditions of Services) Bill, 2014 (read the full draft here ).
Currently, factory laws cover more than a dozen Acts, each one of them prescribing a different compliance format - a requirement that makes smaller factories prone to regular harassment by inspectors. The labour ministry has thus proposed one omnibus law that covers all aspects for small factories - that is, factories employing less than 40 people.
This is a revolutionary step, for what it does is create a separate and simpler compliance ecosystem for small entrepreneurs who cannot afford to maintain large bureaucracies to do the job. The Small Factories (Regulation of Employment and Conditions of Services) Bill proposes that all small factories should be completely exempt from 14 major labour laws by including the key provisions of those laws all in one place.
If this Bill is passed - not a foregone conclusion since the labour unions are sure to kick up a fuss and the Congress and the Left will call this a right-wing conspiracy to defraud workers and humour business cronies - small factories will be freed from the clutches of the following laws: The Factories Act, 1947; The Industrial Disputes Act, 1947; The Industrial Employment (Standing orders) Act, 1946; The Minimum Wages Act, 1948; The Payment of Wages Act, 1936; The Payment of Bonus Act, 1965; The Employees State Insurance Act, 1948; The Employees Provident Funds and Miscellaneous Provisions Act, 1952; The Maternity Benefit Act, 1961; The Employees Compensation Act, 1923; The Inter-state Migrant Workmen (Regulation of Employment and Conditions of Service ) Act, 1979; The (State-level) Shops and Establishments Act; The Equal Remuneration Act, 1976; and The Child Labour (Prohibition and Regulation)Act, 1986.
But before you jump to the conclusion that that this is a whole lot of exemptions, note this: what the Small Factories (Regulation of Employment and Conditions of Services) Bill does is bring all the relevant protective portions of these laws into one Act for small factories. It is not that small factories don’t have to pay bonus or deny women maternity leave; rather, compliance in this regard will be easier, and the paperwork will move online, and a breeze.
Along with this new draft law, the labour ministry is also planning to repeal three other labour laws that do not currently serve any purpose. These laws are the Employees Liability Act, 1938; The Personal Injuries (Compensation Insurance) Act, 1963; and The Personal Injuries (Emergency Provision) Act, 1962. The remaining labour and injury compensation laws already take care of the issues covered by these laws.
No government has, in recent years, dared broach the issue of labour reform for fear of angering the unions and raising a political storm. It is to Modi’s credit that he has brought the issue to the front-burner.
High time. Labour reforms holds the key to growth and high job creation. Without labour reform, India is doomed to suffer jobless growth.