Rishi Agrawal, CEO & Founder, Avantis Regtech

The huge economic costs of Covid-19 virus are clearly visible. Everything that India does to kill the virus is killing the economy. The Centre and States have done well to protect lives so far. However, it is time to move forward and protect the livelihood as well. Restarting the stalled economy is an unprecedented public policy challenge.

The post Covid-19 world is expected to see a massive reconfiguration in global supply chains. Countries and companies are already critically reviewing their manufacturing and supply chain strategy and finding ways to de-risk them. India is expected to be one of the beneficiaries of this massive global realignment.

Madhya Pradesh and Uttar Pradesh have recognised that labour reforms will help kick-start their economies. They have announced a string of labour reforms to position themselves as attractive destinations for investment.

Madhya Pradesh model

Madhya Pradesh has five sets of reforms to revive a sagging economy. These reforms are focused on easier licenses and registrations, greater digitisation, reduction in inspector raj, focus on collaborative relationship between employer and employee and reduction in regulatory record keeping.

The changes can broadly be classified into five key Labour Acts, such as Madhya Pradesh Shops & Establishment Act, 1958, Factories Act, 1948, Contract Labour (Regulations & Abolition) Act, 1970, Industrial Disputes Act, 1947 and The Madhya Pradesh Industrial Relations Act, 1960

Under the Madhya Pradesh Shops and Establishments Act, 1958, Section 9, the time for shops to be open has been increased. The new hours of operation are going to be from 6 AM to 12 AM. There are several changes under the Factories act. Multiple exemptions have been provided for a period of three months. There are 120 sections in the Act. During the next three month period only section 6(License), section 7(notice by occupier), section 8 (inspector), section 21 to 41-H (safety provisions), section 59(overtime wage), section 65(exemption orders), section 67(employment of young person), section 79(annual leave with wages), section 88 (notice of accidents) and section 112 (power to make rules) will stay in force. All other sections have been suspended.

Under the Factories Act, 1948, read with Madhya Pradesh Factories Rules, 1962, a factory licence will now be valid for 10 years rather than one year. All applications will be accepted online and the license is proposed to be granted in one day.  Madhya Pradesh has reduced the regulatory burden by reducing the number of returns and registers to be maintained under the Madhya Pradesh Factories Rules, 1962. From 61 registers and 13 returns, an entrepreneur will need to have just one register and file one return. Further, self-certification will be adequate for the filing of the return. Currently a Factory inspector is allowed to conduct inspection for a Factory employing 20 or more employees. Under the proposed change, small factories of non-hazardous category employing up to 50 employees have been exempted from the inspection process. They can submit certificates from third party certifying agencies authorised by the Government.

Under the Contract Labour (Regulations and Abolition) Act, 1970, the licensing process has been digitised. The Rules 21(1) and 21(2) have been modified. The need for filing Form IV with the licensing authority in triplicate has been changed to online application. In addition, the need to to attach Form V received from the Principal Employer with the application has also been removed. The CLRA license is proposed to be granted in one day. In addition, Rules 26 and 27 also have been modified. The CLRA license can be granted for the period of the contract instead of one year. The contractor will be allowed to pay the license fee for the entire period of the contract. This change should help reduce the regulatory paperwork, need for frequent visits and follow up to the government departments for maintenance of CLRA license.

Under The Industrial Disputes Act, 1947, Section 36-B which refers to retrenchment and lay-off has been modified. Under the current Act, factories have to follow certain procedures for lay-off and retrenchment. The modification exempts factories from sections 25-N, 25-O, 25-P, 25-Q and 25-R of Chapter V-B for a period of 1,000 days. The new start-up factories can terminate employees without paying the compensation or taking the permission of appropriate authority

Under the Madhya Pradesh Industrial Relations Act, 1960, exemption has been provided for the industrial relations procedures under section 1(4) for 11 Industries. This would simplify the resolution of industrial disputes by reducing the layers of dispute resolution and countless hours of productivity loss.

Uttar Pradesh model

The 8 May 2020 notification by the Uttar Pradesh government proposes to suspend All labour laws with the exception of three for a period of 1000 days. While details are awaited, the three exceptions are – Bonded Labour System (Abolition) Rules, 1976, Building and Other Constructions Workers (Regulation of Employment and Conditions of Service) Act, 1996 and Workmen’s Compensation Act, 1923. In the suspended Acts, certain provisions have been retained.

  • Maintenance of employee details electronically on attendance register prescribed in section-62 of the Factories Act, 1948
  • Minimum wages as prescribed by the Government of Uttar Pradesh
  • Payment of wages directly in the bank accounts in accordance with section 5 of Payment of wages Act, 1936
  • Provisions relating to Safety and Security provisions of the workers under Factories Act, 1948 and Building and Other Constructions  Workers (Regulation of Employment and Conditions of Service) Act, 1996
  • Maximum allowable hours of work cannot exceed 11 hours and the spread cannot exceed twelve hours per day
  • Provisions of the various labour laws relating to the employment of children and women

India’s labour is handicapped without capital, and our capital is handicapped without labour. We need urgent labour reforms to increase competitiveness and investment flows. China and South Korea have enjoyed decades of supernormal growth believed to be fuelled by high levels of labour market flexibility. Labour reforms in India are long overdue. Economic liberalization of 1991 was instrumental in putting India on a fast track. However, it has run out of breath and needs another shot in the arm of land and labour reforms. Governments at centre and state should start a new chapter of Compliance 3.0 with rationalisation, decriminalisation and digitisation to enable ease of doing business.

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