The Labour Ministry has proposed that factories with up to 500 workers be allowed to lay off workers or shut shop without seeking government permission, in a bid to give firms flexibility in hiring and firing employees.
The Ministry is set to discuss the proposed Labour Code on Industrial Relations at the next meeting of the Group of Ministers (GoM), scheduled for March 8, a senior Ministry official said.
The GoM is headed by Union Finance Minister Arun Jaitley.
At present, factories with up to 100 workers are allowed to go in for retrenchment, lay-off or closure without seeking government permission, according to the Industrial Disputes Act, 1947.
“There has been demand from the industry to increase the threshold limit for factories to seek permission for retrenchment from 100 workers to 500 workers. We need to discuss the proposal with the GoM before taking a final call,” the official said.
Single code stalled
In May 2015, the Labour Ministry had proposed integrating three labour laws — the Trade Unions Act, the Industrial Disputes Act and the Industrial Employment (Standing Orders) Act — into a single code for industrial relations.
It had then also proposed allowing factories with up to 300 workers to retrench workers or close down without seeking official sanction.
However, the Centre had put the proposals on the back-burner after series of protests from the central trade unions on the proposed labour law reforms.
The Labour Ministry may back its latest proposal to increase the threshold limit for applicability of chapter V-B of the Industrial Disputes Act, citing hard data from Sixth Economic Census report released last year.
The data shows that around 99% of a total of 4.53 crore non-agricultural establishments employed less than 100 workers in 2013-14 and were allowed to retrench workers or close shut shop without government permission.
“Most of the establishments in India needn’t take government permission to retrench workers or close their set up. So, the amendments will only impact a very small proportion of the total establishments in the country. But a political call needs to be taken on increasing the threshold limit for the I-D Act,” the official added.
Earlier attempts
Till 1975, the requirement for prior permission was only for establishments with 1,000 workers that was decreased to 300 workers in 1976 during the Emergency and later brought down to 100 workers in 1982.
The previous National Democratic Alliance (NDA) government in 2002 had also proposed allowing factories with up to 1,000 workers to lay off workers without government permission. In 2005, the Centre had released a discussion paper titled ‘Making Labour Market Flexible’ for stakeholder discussions proposing an increase in the threshold limit for seeking permission for retrenchment or closure under the Act to 300 from 100 workers.
However, subsequent governments couldn’t take the proposal forward due to central trade union opposition.
‘Investors hampered’
“It is incontestable that the law on prior permission has a chilling effect on new investors, particularly in a situation in which there are many other unfavourable factors inhibiting investment,” said a working paper titled Labour Regulations and Growth of Manufacturing and Employment in India: Balancing Protection and Flexibility, released by the Indian Council for Research on International Economic Relations in May 2015.
“New investors are daunted by the requirement of permission as they fear that they would be burdened by the need to continue employing the work force even after it has become unprofitable for them to run the business.”
The trade unions will continue to oppose the move to give more flexibility to industries to retrench or shut shop.
“The Rajasthan government increased the threshold limit under the I-D Act in 2014 but there has been no change in the business development scenario in the State in last three years as per our assessment,” said RSS-affiliated Bharatiya Mazdoor Sangh (BMS) general secretary Virjesh Upadhyay. “If someone can convince us that this proposal will help business prosper, we will fully support it. But as we know, it will only harass the workers.”
