The government needs to use the opportunity opened up by demonetisation to usher in regulatory reforms in the licensing and taxation of staffing companies, the industry body representing the sector, Indian Staffing Federation (ISF), has said.
“Demonetisation has been very helpful to us. The government itself has said that it is meant to be a push toward cashless payments. The flexi-staffing industry has been at the forefront of promoting cashless wage payments. We credit wages directly to bank accounts, along with social security such as EPF and ESIC. It would therefore boost the government’s cause if it facilitates the sector’s growth by introducing the long-pending reforms we have been asking for,” said Suchita Dutta, executive director, ISF.
According to a research study conducted by the ISF, the Indian flexi-staffing industry was the fourth largest in the world, with 2.1 million flexi-staff in 2015, and growing at 12.3 per cent per annum. But it has been hamstrung by a maze of administrative and compliance requirements, which has meant that flexi-staffing is dominated by unlicensed labour contractors with no regulatory oversight, complain industry representatives.
“Because our clients don’t want the trouble of obtaining the multitude of licenses under the existing Contract Labour (Regulation and Abolition) Act, 1970 (CLRA), the bulk of contract workers continue to remain informal workers, vulnerable to the exploitation of unscrupulous labour contractors. After demonetisation, many of them have not even paid wages to workers.” Ms. Dutta said.
India has a very low flexi-staffing penetration of just 0.51per cent, as opposed to a global average of 1.6per cent. The corresponding figure for China is 3.60per cent. India’s workforce is about 406 million, of which 356,6 million are in the informal sector. “If we exclude the self-employed, 157.6 million are casual and salaried workers. If even 1per cent of these informal workers are converted into flexi-staff, it would expand the sector by 1.5 million workers. But regulatory bottlenecks are preventing the industry from growing as per its potential,” Ms Dutta said.
The staffing industry has been lobbying the government for two changes. Firstly, they would like to replace the current area-wise licensing regime of the CLRA with a system where staffing companies that meet requisite criteria will get a national license. This would leave their clients (the companies that need man power on a temporary basis) out of any licensing requirement.
Second, they would like the government to issue a clarification that the TDS (tax deduction at source) for contract staffing companies is to be done under section 194C of the Income Tax Act, 1961 and not 194 J, as at present. Under 194C, which includes man power suppliers under its purview, they would be taxed at 2 per cent, whereas under 194J, which is meant for professional and technical services, TDS is deducted at 10 per cent.
