Crucial labour reforms could be near

Wed, 26 Aug Pre-Open

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The 'ease of doing business' ranking, is a global economic ranking that ranks economies based on various parameters of business friendliness. A high ranking means that the regulatory environment is conductive to business operation. Currently India is ranked at the 142nd place out of 189 countries. The government has set a target to move to the top 50 ranking from the current position within a period of two years. Will this ambitious target be achieved?

In a significant move, the government has moved to overhaul the 67 year old Factories Act. It has proposed to change the definition of a factory. In simple terms, the word 'factory' would mean any premise wherein 40 or more workers are working. All companies employing fewer than 40 people will be kept out of the purview of this law. This will provide relief to the owners from the social security and other obligations towards the employees.

The proposal also allows two separate departments of the same factory to be counted as two separate companies. The move will encourage factory owners to list different branches or departments as separate entities in order to avail of exemptions. Thus, a factory with 80 workers for instance could be shown as two factories, which would mean both entities would be kept out of the purview of the Factories Act and enjoy several relaxations.

The government also proposes to keep non-manufacturing units of a company out of the purview of the law. To give an example if unprocessed milk is simply packed into different volumes or weight without changing the character of the milk, the same shall not be considered as manufacturing  as the process did not result into alteration to the original character i.e. milk.

The draft bill also proposes to introduce modern regulatory practices by creating necessary infrastructure to facilitate electronic processing of various regulatory procedures. The process will be largely web based.  The web based services will help in easing regulatory hurdles and will enable the work flow system to function smoothly.

We believe the proposed amendments will attract negative backlash from the workers unions. However, the draft bill has capability to remove some regulatory hurdles. The proposed bill will certainly give India's ease of doing business ranking a boost. If India is to attract foreign money, it needs to create a congenial environment for investors. A higher rank will go a long way in that regard. However, this should be seen only as a start. Even assuming the bill is passed, a lot more reforms will be needed to make India an attractive place to do business.