When I suggested that the micro, small and medium enterprises (MSMEs) should be defined based on the twin criteria of employment and turnover, a senior bureaucrat confronted me with the question: can you tell me for sure that the micro and small enterprises maintain a clean disclosure of engagement of labour in their firms – particularly defined categories like the skilled, semi-skilled and unskilled? He also argued that the turnover criterion would stand the scrutiny of the Goods and Services Tax (GST) and, therefore, a single criterion is adequate.
One may question the relevance of this dialogue to labour reforms. It relates to the host of laws that the industry should comply with: Industrial Disputes Act (IDA), Factories Act, Minimum Wages Act, Laws governing Contract labour, Apprentice Act, etc. Next to agriculture, MSMEs are the largest employers and hence the relevance.
No Muster Rolls
It is a fact that most MSMEs do not maintain muster rolls properly. They find it less expensive to bribe a labour inspector than to maintain the muster roll and show how much wages are actually paid for the labour.
Labour and employment statistics in this country are most unreliable. There is no proper census. The National Sample Survey Office (NSSO) and the Central Statistical Office (CSO) periodically release data. It is just an analysis of data given by the interviewee and not verifiable as no employer permits it.
Some engineering MSMEs mention that they get cheap labour from Odisha or Bihar or Madhya Pradesh compared with either Telangana or Andhra Pradesh or Tamil Nadu. But if they show the actual wages and the actual number of persons employed, and it does not conform to the Factory Act and/or Minimum Wages Act, they are penalised heavily. If they want to conform to laws and pay the minimum wages, their competitiveness erodes. Therefore, they prefer to hide the real figures.
The only effective strategy is the one that has been adopted in developed countries – making non-compliance bad economics. Retrenchment compensation, severance pay should be graded in relation to the number of labour employed – from less than 20 persons to 50 and 50 to 100 including those engaged on a contract basis. Certain steps proposed by Gujarat, such as payment by bank transfer, will go a long way in eliminating exploitation of labour.
Debate Sans Result
Every time the discussion on labour reforms is brought to Parliament, there is intense debate, references to the Joint Parliament Committee or Select Committee and later the reports and discussions are buried. But with the majority mandate in favour of the NDA government this time, it Is hoped that labour reforms take the shape of labour code.
The most crucial question is the aspects that the code deals with. Would it address the huge demand of the corporate sector to freely ‘hire and fire’ or would it balance the welfare and interests of labour with such demand?
Participatory management is more in script than in practice. Industry and trade associations should come up with a voluntary code to ensure worker safety, fair wages, and contributory benefits like health, severance package a priori.
The law should be lucid and unambiguous; simple enough to get approvals and compliances — easier than ever. It should be non-discretionary in enforcement, make compliance good economics and breach the reverse. The law should be such that the enterprise should voluntarily comply with the provisions and feel the comfort of disclosure.
The law should be win-win for exit. The reform must facilitate an easier exit regime for the industry ensuring simultaneously a fair deal for the workmen. In this process, law reform should put in place a system of determination of entitlements to ensure that parties benefit from quicker resolution of conflict rather than through protracted litigation. The law should be so framed that it shall not allow different interpretations by different judges to ensure certainty of consequences.
Labour administration that centres around worker participation, trade union law, arbitration and conciliation in labour-management disputes and industrial adjudication machinery needs a thorough revamp. This would require sensitising the administration to the new regime, intense training and synchronising judicial interventions with labour administration.
‘Parivartan’ (Change management) campaigns and evaluating the effect of such campaigns in live situations and retraining the personnel must be high on the agenda.
There is a need for reliable data on labour and employment if the economic policies were to be realistic and development-oriented. Such policies would also enhance competitiveness of the industry, both domestically and globally.
(The author is an Economist and Risk Management specialist)