Rajasthan hits the ground running

With ‘Make in India’ taking centrestage in India’s plan to position itself on a high growth track, far-reaching reforms in the labour, tax and land laws hold the key to the government’s ambitions.

The abundance of workers is undoubtedly India’s biggest asset for its emergence as a preferred manufacturing destination.

While the Centre has initiated the process of labour reforms – by making a series of announcements related to provident funds, apprentices training and its intent to put a curb on the prevailing ‘inspector raj’ in the country – the real set of interventions have to be taken up at the State level.

The Rajasthan government has made the first move towards State-specific amendments to the Industrial Disputes Act, the Factories Act, the Contract Labour Act and the Apprentices Act.

Through the Industrial Disputes Act amendments, the Rajasthan Government has provided a definition for the term “go slow”; prescribed a time limit of three years (extendable in suitable cases) for raising industrial disputes (covered under Section 2A in conciliation proceedings); increased membership of trade unions eligible for registration as a representative union from 15 per cent to 30 per cent of the total labour workforce of the industry; allowed employers engaging up to 299 workmen (up from 100) to unilaterally effect a lay off; and retrenchment or closure without seeking permission of the competent authority, while retaining the flexibility to require such employers to obtain such permission if necessary for maintenance of industrial peace.

In the case of retrenchment, a provision has been made for the employer to provide three months’ notice, besides payment of three months’ average pay to retrenched workmen in addition to retrenchment compensation.

The existing threshold limit of 10 (in factories where work is carried out without electricity) and 20 (in factories where work is carried out with electricity) in the Factories Act has been changed to 20 and 40 respectively, thereby putting small factories in Rajasthan outside the purview of the Factories Act.

Further, a provision has been made for compounding of offences to reduce the number of prosecution cases. Courts are restricted from entertaining complaints against employers unless prior written permission of the state Government is obtained by the inspector for entertaining the complaints.

As against the existing threshold of 20 contract labour/workmen, the Contract Labour Act will be applicable only to those establishments and contractors in Rajasthan who employ 50 or more contract labour/workman in the preceding 12 months.

The amendments made to the Apprentices Act, among others, make the health, safety and welfare standards prescribed under the Rajasthan Shops and Commercial Establishments Act, Factories Act and the Mines Act applicable to apprentices undergoing training in shops/commercial establishments, factories and mines.

They require an employer to pay stipend to apprentices at a rate not less than the minimum wages notified pursuant to the Minimum Wages Act for unskilled labour and authorise the State apprenticeship council to fix the number of apprentices for an industry, the period of training for various designated trades and settle disputes between employer and apprentices in place of the central apprenticeship council.

The Industrial Disputes Act provisions, which prohibited employers from retrenching workmen or shutting down an undertaking without the permission of the competent authority, have for long inhibited the growth of India’s manufacturing sector and impeded doing business in India. This has kept thousands of workers unemployed as foreign investors, being wary of such ,have increasingly refrained from establishing manufacturing facilities in India and from hiring workers whom they may not be able to retrench.

While the intent behind the law is to protect the interest of workmen, such provisions are draconian from an investor’s perspective and is one among the several major hurdles to setting up a business in India. It is against this backdrop and in an ambitious attempt to project itself as an investor-friendly State that the Rajasthan government has shown the way.

With the amendment, the Rajasthan government is trying to give employers a sense of control over their workforce and encouraging them to employ more workmen without being stuck with an inordinately large number of semi-qualified and inadequately skilled staff who lack the ability and the will to adapt to modern management techniques.

Naturally, industry leaders and associations are ecstatic over the amendment. The Madhya Pradesh government is all set to tread the path shown by the Rajasthan government by bringing in State-specific reforms on similar lines.

As expected, this move has not gone down too well with trade unions and certain sections of the labour workforce. However, it is definitely a promising step forward in the direction of labour law reforms, which were long overdue. This move, coupled with education and training of the workforce ensuring their fungibility across industries, will be a positive step towards realisation of the ‘Make in India’ dream.

The writers are partners at J Sagar Associates. The views are personal