Trade Analytics

Go Back

Centre to relax labour laws for MSMEs to boost job creation

Livemint:  May 31, 2016

New Delhi: After start-ups, the labour and employment ministry has moved to relax labour-related compliance measures for micro, small and medium enterprises (MSMEs), a sector that can play a significant role in boosting manufacturing and making Prime Minister Narendra Modi’s Make in India mission a success.

The ministry has decided to exempt MSMEs from inspections related to key labour laws—including the Contract Labour Act, the Employees State Insurance Act, the Trade Union Act, the Employees Provident Fund and Miscellaneous Provisions Act and Industrial Disputes Act—in a bid to dispel fears and encourage entrepreneurs to help promote manufacturing in the country.

“Government of India is promoting setting up of new MSMEs to catalyze the creation of employment opportunities through them, and therefore various incentives and ease in regulatory compliance are being conceptualized for MSMEs,” a labour ministry circular said.

The internal circular issued by labour secretary Shankar Aggarwal proposes to simplify the compliance burden of MSMEs in the first three years of establishment. The move comes months after the ministry took a similar step for start-ups in January.

The circular on MSMEs issued to its own autonomous institutions such as Employees’ State Insurance Corporation, Employees’ Provident Fund Organisation (EPFO) as well as state governments underlines the need for handholding the sector.

Modi too has on occasion touched upon the importance of the sector in generating both self-employment and jobs.

The MSME sector contributes around 8% of gross domestic product, 40% of exports and around 45% of manufacturing output, according to the official website of the MSME ministry. The sector consists of 36 millions units and provides employment to over 80 million people.

An EPFO official said that they have received the directive and have asked their field offices to implement it with immediate effect. “As per the direction, we will allow MSMEs to furnish self-certification. We shall rely on their certification and reduce inspection to the minimum,” said the official, who asked not to be named. “There is a common sentiment in the government of allowing industries to grow and in return they will help in job creation and growth of the economy,” he added.

“In order to promote the setting up of MSMEs to generate employment opportunities through them, it is proposed to have an inspection for... labour laws taking into account the self-certified returns filed by them. For MSMEs which are less than three years old and have given self-certified returns... the inspection scheme may provide that only a small percentage of these units shall be verified through a random risk-based inspection system,” the ministry circular said. It has also urged the states to develop their single-window compliance system to unburden these factories.

Shreekant Somany, chairman of the MSME committee of the industry lobby group Confederation of Indian Industry, said easing the labour compliance is a progressive step. “But we have to remember that labour is not everything. The sector needs more handholding in terms of finance, availability of land, simplified labour laws and common facilities,” said Somany, who is also the chairman and MD of Somany Ceramics Ltd.

He said MSME clusters face huge shortages of water and electricity, and if the government can help set up water treatment plants in such clusters, it will be a huge boost for factories.

“The intention of the government is very good, but it has to work with industry to transform that intent to real implementation on the ground. MSME clusters in India can become hubs of global supply chains and the government cannot turn a blind eye towards the sector. For better manufacturing and more jobs, MSMEs hold the key in India,” Somany added.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.