Field report

Impact of recent labour law reforms on MSMEs sector: Experience of Rajasthan

Restrictive national labour laws are encouraging medium and large Indian companies to use more capital-
intensive method of production. This is characterized by excess supply of low-skilled labour and excess
demand for skilled labour this economic phenomenon is reflected through rapid rise in the skilled-unskilled
wage-differential.

In recent years some Indian states like Rajasthan, Madhya Pradesh and Andhra Pradesh have undertaken
some labour reforms to simply the existing rigid and complex labour laws. The experience gained by success
of these states can be considered by other Indian states to give boost to MSMEs sector.

Some of the important amendments in labour laws introduced by Rajasthan Government are listed below:

Industrial Disputes Act, 1947

Original Amendments Impact Industry

Provisions associations
views
Time limit for
raising The amendment This step has Industry
disputes: to Section 2A significantly associations are
states that all the reduced the satisfied with this
Section 2A disputes between volume of amendment.
states that all the employer and litigation and
the disputes employees with discouraged However they
between the regard to filing of demanded the
employer and discharge, fictitious time period to be
employees with dismissal, claims. reduced to 1
regard to retrenchment or year.
discharge, termination need
dismissal, to be raised with
retrenchment the Labour Court
or termination or Tribunal for
can be raised adjudication
with the Labour within a period of
Court or three years.
Tribunal for
adjudication.

Representative
Union: The amendment to 1. This Industry
Section 9D raised amendment has associations are

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 Section 9D states the cap from 15 % reduced inter- satisfied with this
that any Union to 30 %. The union conflicts amendment.
which has a amendment states and multiplicity However some
membership of that any Union of unions in a have demanded
not less than which has a MSME unit. that it should be
15% of the total membership of not
number of less than 30% of
2. Number of increased to
workmen may the total number of labour unions 50%.
apply to the workmen may in a MSME
Registrar for apply to the unit has
registration as a Registrar for reduced.
representative registration as a 3.Working
Union. representative environment
Union. has become
more business
friendly.
Retrenching,
laying off or The amendment to This Industry
shutting down Section 25K has amendment has associations are
of units: raised the cap from facilitated them satisfied with this
100 to 300. It states to carry out amendment.
Section 25K that no government their business
nod is required for
states that no companies
activities
government employing up to smoothly and
nod is required 300 workers. has promoted
for companies them to exit
employing up from loss
to 100 workers making
for retrenching, businesses or
laying off or lay off workers
shutting down due to tough
units. market
conditions.

Factory act 1948:

Original Amendments Impact Industrial

Provisions organization
views
Definition of
factories: The amendment states It has reduced the Industrial
that in section 2 of the number of organization
Section 2 states that principal Act- mandatory groups are
"factory" means any (i) for the existing word approval for satisfied with
premises including the "ten", the word "twenty" staring a new this amended
precincts thereof – shall be substituted; and business activity. provision.

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(i) whereon ten or more (ii) for the It is an important
workers are working, or existing word amendment which
were working on any "twenty", the has promoted the
day of the preceding word "forty" establishment of
twelve months, and in shall be new small
any part of which a substituted. manufacturing
manufacturing process is units.
being carried on with
the aid of iipower, or is
ordinarily so carried on,
or
(ii) whereon
twenty or more
workers are
working, or were
working on any
day of the
preceding twelve
months, and in
any part of
which a
manufacturing
process is being
carried on
without the aid
of power, or is
ordinarily so
carried on.

Overall impact of these labour law reforms:

Industrial association was of the view that these labour reforms have been very significant in facilitating
business activities and improving working environment in MSMEs units. However, these reforms have not
directly raised production and level of employment because level of production is mainly determined by
factors like demand for product, market condition and availability of credit.

Some concerns

During the discussion industry associations have raised the following concerns:

 Labour laws are applicable during industrial sickness and slowdown in demand but industrial
association demanded that they should be exempted from these labour laws during this period.
 Labour law inspection should be reduced.
 Storage of skilled labour.

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 Suggestions:
 Hire and fire policy with appropriate compensation to fired worker can be introduced. However
amount of compensation was not suggested by them.
 Skill development especially through ITIs should be promoted as per the needs of MSME sector.
 Linking of MGNREGA work with industry work can be considered to meet the needs of labour
shortage.
 Well-functioning grievance cell for resolving disputes within unit can be setup. These grievance cell
must have members from all stakeholders.
 Mandatory purchase from MSMEs with simplified terms and conditions can be considered.