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Ministries seek cut in red tape in labour laws to spur growth

NEW DELHI: The ministries of industry and micro, small and medium enterprises want a reduction in red tape and abolition of the Inspector Raj in labour laws, to stimulate industrial activity. 

The government will discuss the proposals at the 
Indian Labour conference to be kicked off by Prime Minister Manmohan Singh on Friday. The ministry of Micro, Small and Medium Enterprises (MSME) has suggested excluding firms in the unorganised sector as well asmicro and small enterprises with 20 employees (for firms with power supply) and 50 employees (for entities without power) from the purview of 40 out of 44 central labour laws. 

Just four laws should be applicable on such firms — the minimum wages law, the payment of wages law, and the Acts that require them to contribute to the Employees' 
State Insurance Corporation and the Employees' Provident Fund, it has said. The MSME sector accounts for 26% of the country's total employment and 45% of its manufacturing output. The MSME ministry has also said labour law enforcement should not vest "undesirable discretionary powers in the hands of the inspectors" and the focus should shift from "penal provisions" to encouraging self-compliance with an incentive-based system. 

"The Ministry of MSME may consider linking of compliance of 
labour laws by MSMEs with the incentives which may be provided to MSMEs under various schemes," the agenda note for the labour conference said. In its defence, the labour ministry has argued that inspections no longer have 'territorial jurisdiction' and are carried out only in specific cases assigned by an Assessing Circle Officer. 

"The regular annual inspection has been retained only in cases of major employers employing more than 250 workers," the labour ministry stated, explaining why smaller enterprises don't face such inspection. Specific exclusions from labour laws for micro and small enterprises are not possible, the ministry explained, as the MSME ministry defines them on the basis of 
capital investment rather than number of employees. In any case, all labour laws are applicable at different thresholds of employee numbers, it said. 

Department of Industrial Policy and Promotion has sought simplification of the paperwork involved in complying with labour laws to help implement the National Manufacturing Policy that envisages raising the sector's share in India's gross domestic output from 15% to 25%. The government also aims to create 100 million manufacturing jobs by 2025. 

The labour ministry has already acceded to DIPP's request for simplifying the returns companies must file with labour inspectorates. There are 44 central labour laws and hundreds of state level regulations that require firms to maintain multiple registers and file separate returns. For five laws administered by the Central Labour Commissioner, firms can now file returns in a consolidated manner. 

These five laws are the Payment of Wages Act, Minimum Wages Act, Contract Labour (Regulation & Abolition) Act, the Building and Other Construction Workers Act and the Inter-State Migrant Workmen Act of 1979. The labour ministry has requested the DIPP to issue an advisory to all states to replicate similar simplification in compliance procedures for laws in the state sphere.