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Labour Laws and Relaxation for the MSME Sector

, March 14, 2015, 3 Comments

MSME  Labour MarketExpress-inLabour laws in India are perceived by trade and industry circles as complex, archaic and not conducive to promoting the interests of the industry. The complexity stems from the fact that some of the labour laws are both enacted and enforced by the Centre; in respect of some others, Centre enacts the law while implementation is done by both the centre and the states. Besides, there are labour laws which are enacted by the centre but are administered by the states. This complexity makes any modification of the labour laws a difficult task. Some of the major problems concerning labour laws in India are listed below

Many laws are old and outdated, with a few almost a century old. Consequently, they have lost their relevance with the changing times.

Some of the Labour laws contain provisions, which are not perceived to be industrial friendly (i.e. Section 25(F) of the Industrial Disputes Act 1947). Further, the Trade Unions Act, 1926 allowing multiplicity of trade unions, stringent panel provisions under the Contract Labour (R&A) Act, 1970 etc. are also not perceived to be industrial friendly. Besides, the foreign investors are critical of the absence of a comprehensive exit policy.

The process of tripartite consultations, which is mandated under the ILO Convention, often results in break down of the consultation process in respect of contentious issues and the resultant delay.

Definitions under different labour laws vary in respect of workman, establishment, appropriate government, etc. The threshold levels for applicability of the Act are also different under different labour laws. This has given rise to a lot of confusion. There is a need for uniform definition and threshold levels to the extent possible.

Separate filing of returns under different labour laws creates difficulties for industries particularly for the small units.

Small units look down upon frequent inspections as inspector raj since this adds to the compliance costs.

The recent emphasis on Make In India and the suggestion for enhancing the share of manufacturing necessitates rationalization and simplification of labour laws.

MSME Sector: Broad Outline

MSME sector constitutes an important segment of the economy with significant contribution to GDP, Employment and Exports. This sector, earlier known as SSI sector (without medium industries) was provided with a number of concessions such as reservations of items for exclusive manufacture by the SSI sector, excise duty exemptions upto a specified limit etc. The concessions failed to make this sector competitive. There was, however, no exemption to this sector from the applicability of labour laws.With a view to provide focused attention to this sector, government enacted the MSME Act, 2006 which came into operation from June 2006.

Labour Concerns

From time to time, MSME units have been complaining of high compliance cost because of filing of multiple returns, inspections and stringent penal provisions. They have been seeking exemption to this sector from some of the major labour laws as also requesting for merger of some of the labour laws as indicated below:

Exempting MSMEs from the definition of ‘factory’ under the Factories Act, 1948

Permitting engagement of contact labour under the Contract Labour (R&A) Act 1970.

Exempting the MSME units from the coverage of Shops and Establishments Act.

Merger of Industrial Disputes Act and Trade Unions Act into a single industrial relations law. Similarly, ESIC Act, EPFO Act and Maternity Benefit Act etc. may be merged into a single law on social security.

Procedural simplification such as filing of single returns under different labour laws, uniform definitions etc.

It may be stated that most of the MSME Units are self-owned engaging very few labour. Therefore, they face a genuine difficulty in implementing many of the labour laws such as minimum wages act, payment of wages act etc. They are also not in a position to bear heavy compliance cost by way of filing multiple returns etc. similarly, many of the small units engaged in welding units, auto components, leather manufactures, handlooms & hosiery units etc. find it difficult to comply to the rigorous requirements of some of the labour laws such Factories Act 1948, Minimum Wages Act etc. There is a definite case to provide relaxed norms for these units.

Any exemption from operation of labour laws in the MSMEs, however, has wider implications and therefore needs detailed examination. Further, the trade unions have been resisting such a demand. Besides, every labour law has a specific role and therefore any blanket exemption may not be desirable. However, the suggestion for merger of some of the labour laws into umbrella legislation as mentioned in para above merits consideration.

Similarly, the suggestion for procedural simplification such as uniform definition, self-certification, and filing of single returns etc. will be of considerable help to the small units and should be given effect to at the earliest. These changes do not require any amendment of the law and therefore easier to bring about. Countries like Brazil have already incorporated a single filing of returns by the MSMEs, which is reportedly working well. Similar modifications can be adopted in India too which will help making the MSMEs more competitive.

  • PVRajeevS

    The writer says Countries like Brazil have incorporated a single filing of returns by the MSMEs. Let us introduce this in India too.

  • pramodpadhy


  • pramodpadhy

    PVRajeevS I agree.We can adapt the Brazilian law and practice appropriately to suit to our requirements.Some examination has already been done in this regard. We need to carry it forward.