Future Implication of Labour Reforms on MSMEs

The Need for employment has never been more pressing in India than today, at a time when the
youth bulge is underway in the countrys demographic profile, we can see radical changes
ploughing through the economy. The employment challenges includes several dimensions- jobs
must be generated on a larger scale than ever before. The workforce must be adequately skilled;
employers must have the flexibility to manage a rapidly-changing global manufacturing
environment, and employees need recourse to an effective social security programme.

A holistic labour policy would take into account all these issues. A healthy policy would take into
account all these issues. A healthy industry-worker relationship is of paramount importance for
increasing productivity and competitiveness, and both sides are partners in Indias progress.

Labour reforms focused on wider and inclusive growth is the need of the hour; they are imperative
for attaining higher levels of productivity and competiveness. Moreover, there is pressing need to
simplify and rationalize labour laws and its enforcements. Simplification and flexibility in
engagement and deployment of labour should be the two key cornerstones for the labour law
reforms.

The two of the reforms that needs the most attention is

The Exit Clause under the Industrial Dispute Act, 1947 and
Contract labour Act, especially the provision related to abolition of Contract Labour.

Many of the overseas corporates shy away from transferring manufacturing activity to India
because under the current provisions of the law, there is no flexibility in adjusting the labour force
to requirements and not certainty about what it would cost to right size.

Some of the legislative changes that we suggest are:

Section 10 of the Contract Labour (Regulation and Abolition) Act, 1970, providing to
abolition of Contract Labour should be deleted and the Act renamed as Contract Labour
Regulation Act.
Fixed Term Employment (FTE) option should be reinstated. This was available earlier.
Under FTE, a worker is engaged on the basis of contract of employment for a fixed period.
 However, his working hours wages, allowances and other benefits should be similar to
regular workers, as per the paying capacity of the company.
Remove differentiation in core and non-core nature of jobs by amending the CLRA
Act.
Distribution of wages via bank to reduce corruption. This will reduce corruption by the
contractors.

While legislative changes are necessary, it is important to maintain the dialogue process between
employer and employee to develop the trust factor. Both the stakeholders will have to realize that
the growth path of the organization and labour are tied by the umbilical cord which keeps them
together.