Labor Market Regulations: Implications on Micro,

Small and Medium Enterprises

Submitted by:
(PGP08139) Anurag Singh
(PGP08150) G D S Karthikeyan Amirineni
(PGP08161) Mohit Dugar
(PGP08172) Rahul Sharma
(PGP08183) Sarath Babu M
(PGP08194) Vaibhav Gangwar
(PGP08140) Arnav Bansal
(PGP08151) Gaurav Borah
(PGP08162) Naveen Kumar
(PGP08173) Rajat Jain
(PGP08184) Saurav Sarkar
Date: 25-08-2017

Indian Institute of Management Rohtak

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 Table of Contents
Introduction ................................................................................................................................................. 3
Background- ................................................................................................................................................ 5
MSME-Micro Small and Medium Enterprises ........................................................................................... 5
Labor Regulations- .................................................................................................................................... 6
History of Labor Regulation in India- ...................................................................................................... 6
What is an MSME?..................................................................................................................................... 7
Importance of MSME in India ................................................................................................................... 7
LABOUR LAWS......................................................................................................................................... 9
A brief about condition of labour in India .............................................................................................. 10
The Employees Provident Fund And Miscellaneous Provisions Act 1952 ........................................... 10
Payment of Gratuity Act, 1972: ............................................................................................................... 11
Eligibility for Gratuity: ................................................................................ Error! Bookmark not defined.
Implication of this act on MSME: ................................................................................................... 12
Employee State Insurance (1948) ............................................................................................................ 13
Applicability of the ESI act: ........................................................................ Error! Bookmark not defined.
Coverage .................................................................................................... Error! Bookmark not defined.
Infrastructure .......................................................................................................................................... 14
Minimum Wages Act, 1948 ...................................................................................................................... 15
The Payment of Bonus Act 1965 .............................................................................................................. 16
The Contract Labour (Regulation & Abolition) Act ............................................................................. 16
Responsibilities of the Act....................................................................................................................... 16
Recent Amendment to the Act ............................................................................................................... 17
Implications of the amendment ............................................................................................................. 17
Industrial Employment (Standing Orders) Act, 1946 ........................................................................... 18
Industrial Disputes Act, 1947 ................................................................................................................... 19
Strikes- .................................................................................................................................................... 19
Lay Off ..................................................................................................................................................... 19
Effect ....................................................................................................................................................... 20
Selection the different MSME Sectors and its possible implications due to the labour law ............. 20
Future Implication of Labour Reforms on MSMEs ............................................................................. 23
Summary....................................................................................................... Error! Bookmark not defined.

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 Executive Summary
In the given project we have studied various labour laws that exist in India and how they impact
the different industries. We have also studied the micro, small and medium enterprises or MSMEs
in India which in recent times have been considered as the growth engine for job creation. MSME
sector significantly contributes to GDP, Exports and Employment. The sector, earlier known as
Small Scale Industries in India (SSI) was provided with a many concessions such as reservations
of products for exclusive manufacture by the SSI sector, excise duty exemptions up to a specified
limit etc.

There was, no exemption to this sector from the labour laws. With a goal to provide focused
attention to this sector (including Medium enterprises), government enacted the MSME Act, 2006
which came into operation from June 2006. We have analyzed that how the labour laws in India
impacts the MSME and what are its implications. Currently, there are 44 labour laws in India that
deal with matters such as wages, labour welfare, social security, occupational safety and health
and industrial relations. Apart from this, there are number of labour laws which are under
implementation in the states.
MSME play a crucial role in enabling India to achieve the goal of job creation for all, but there are
many obstacles and challenges in the form of red tape, lack of access to financing, complex
procedures etc. The informal economy has been identified by Indian labour Organization (ILO)
as an obstacle to the goal of job creation for all. The workers, working in informal economy receive
fewer wage and fewer benefits as compared to the formal economy. Also the enterprise operating
in informal economy fails to achieve its full growth potential as it misses out on various benefits,
the government provides to the formal economy.
Labour laws in India are perceived as complex, archaic and not so conducive to promote the
interests of the industry. The complexity arises from the fact the labour laws are enacted and
enforced by centre but are administered by states. This complexity makes any reformation of the
labour laws a herculean task and many laws are old and outdated. Thus with changing times these
laws have lost their relevance.
Definitions under different labour laws vary in respect of workman, establishment etc. and has
given rise to a lot of confusion. Thus there is a need for uniform definition across. MSMEs also
have been complaining of high compliance cost because of the filing of multiple returns, various
inspections and strict penal provisions. Some countries have already incorporated a single filing
of returns by the MSMEs, which is reported to be working well. We need similar modifications in
India as well, which will help MSMEs to become more competitive.

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 Introduction

Micro, small and medium enterprises (MSME) account for over 37% of Indias GDP and a major
chunk of employment. Now as such, in order to propel the economy of the government,
exceptional care must be given to this vital supporter of our GDP.

In the event MSME is given the important drive, at that point can our GDP increment substantially.
Just on that premise we can transform into a developed country owing to the reason, that after
agriculture, small business houses account for the biggest share in the economy.
MSMEs constitute 45% of the manufacturing division, 42% of exports and over 37% of GDP.
There are more than 7,000 manufacturing products produced by small businesses and employment
generation so far has been more than 11 crores. Only MSME can provide maximum jobs,
maximum entrepreneurs and maximum products: for domestic use, in the global arena or for
defense. Just through this one be able to grow more as a country.

Today we have more than five crore companies in this sector registered as well as unregistered.
If we can organize them into clusters then we can create a decent circumstance. For instance, for
conventional artisans, we had had many schemes from earlier such as Sfurti (Scheme for Fund for
Regeneration of Traditional Industry). For many years, there were hardly 15-20 Sfurti clusters in
India. We consolidated old schemes and gave new focus. The result is that today we have more
than 49 Sfurti cluster areas and 71 more are in the process of being created.
Labour reforms are taking place at phenomenal pace and touch all aspects of business investment
and operations cycle. Doing business in India is becoming easier by the day.

Reforms in labour laws are an ongoing process to update legislative system to address the need of
the hour and to make them more effective and contemporary to the emerging economic and
industrial scenario.Over 1,200 laws have been repealed and 7,100 measures for ease of doing
business in India have been taken by central and state governments in the last two years.

This will save efforts, costs and lessen the compliance burden by various establishments. These
legislative initiatives will not only streamline compliance for establishments yet in addition
improve the wage security, job security and social security of the workers.

India is among the most open economies in the world. Foreign investors can go into almost all
industries, often with up to 100 per cent equity through programmed course. Indeed, more than 90
per cent of investments in India is through automatic route.

India's long-term progress will not only ensure the prosperity of one-sixth of humanity, it will
likewise provide a new engine of global prosperity and an anchor of its steadfastness.

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 Background

MSME-Micro Small and Medium Enterprises

In India MSME sector emerged as vibrant and dynamic sector which provides large employment
opportunities at comparatively lower capital cost than other sectors.

MSMEs are served as complementary to large industries as additional units and this sector
contributes significantly to social and economic development of India.

On 9th May 2007, the erstwhile Ministry of Small Scale Industries and the Ministry of Agro and
Rural Industries were merged to form Ministry of Micro Small and Medium Enterprises.

This Ministry is responsible for Scaling up of MSMEs in India and thereby creating employment
opportunities. And also creates policies, schemes, programmes and projects in order to assist in
development of MSMEs in India

MSME sector plays a crucial role in Indian economy. MSMEs have been contributing to the
entrepreneurial culture expansion in India through business innovations. In India MSMEs are
widely spread across various sectors, production diverse range of the products and services to meet
local as well as Global market demands. These MSMEs contributes to 6% GDP from
manufacturing sector and about 25% from services sector.

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 Following figure details the Top 10 states India with MSME establishments (2016-17)

Labor Regulations

Mahatma Gandhi once said, 'A nation may do without its millionaires and without its capitalists,
but a nation can never do without its labor'.

Need of Regulations
Labor regulations are required for the maintaining positive relationship between employers and
workers, thereby contribute to the economy growth. These are needed to protect workers from
unfair treatment of Employers and to ensure efficient contracting between employers and workers.
Labor market regulations can be used to correct market imperfections, support social unity and
encourage economic efficiency.
Labor market regulations cover a broad functions, from rules governing arrangements for
individual contracts to mechanisms for collective action. Governments are supposed to avoid over
and under regulation by balancing labor flexibility with worker protection, by that way
contributing for economy.

Some of the factors for measuring labor market regulation - hiring, working hours, redundancy
rules and cost as well as a number of job quality aspects such as the availability of unemployment
protection, maternity leave and gender non-discrimination at the workplace.

History of Labor Regulation in India

During the pre-independence period, industrial relations policy of the British Government is
designed with respect to employers. There were hardly any labor welfare schemes. After

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Independence, labor regulations have formed the basis for industrial relations and social security.
Several regulations, including the following, were enacted to maintain industrial peace and
harmony: Factories Act 1948, Employees State Insurance Act 1948 and Minimum Wages Act
1948. The payment of bonus act was passed in 1965. During initial 1990s, the process of economic
reforms was set in motion when the government introduced a series of measures to reduce control
on industries, particularly large industries. There are many other amendments of existing
regulations and addition of new regulations even now in 2017.

These changes in labor regulations will have crucial impacts on the industries productivity in
various sectors and also labors daily routine who works in those industries.

What is an MSME?

Micro Small Medium Enterprise (MSME) concept has been created under the purview of Micro,
Small & Development act (MSMED) Act, 2006 and is governed by Ministry of Micro, Small &
Medium Enterprises. The act defines the Micro, Small and Medium Enterprises based (i) on the
investment in plant and machinery for the firms engaged in manufacturing, production, processing
or preservation of goods and (ii) on the investment in equipment for enterprises engaged in
providing or rendering of Services.
The parameters are as following:

Source- development commissioner (MSME)

Importance of MSME in India

MSME sector is extremely important for development of a country as huge and as diverse as India.
MSME sector promotes self-employment and also leads to a huge employment, especially in rural

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and tier 2, 3 cities. As per data collected by MSME Ministry, MSMEs provided Employment
to 804.5 lakhs in 2015, so it is imperative that it is an important point of focus for the government.
MSME also adds a huge share to the GDP of the country with a share of 37.54 % in GDP source
(SME-STREET). The MSME sector also contributed 44.70% in the total exports of the country
source. The following data has been collected from the annual report 2015-16 of MSME compiled
by the ministry of MSME of India. (source-MSME). The data proves how important and crucial
are the MSMEs to the economy and development of the nation. As per the latest data collected,
96% of the companies registered in India belong to MSME segment.

Source - MSME Annual Report 2015-16

Benefits given to MSMEs in India

1. Credit guarantee scheme

For assisting MSMEs Government of India has established a trust named Credit Guarantee
Fund Trust for Micro and Small Enterprises (CGTMSE) to provide MSMEs a collateral
free loan up to INR 50 lakhs.

2. Priority sector lending

Banks are directed by the government for easy sanctions of loans to MSMEs

3. Raw material assistance Scheme

This scheme is applicable for MSE- Micro and Small Enterprises wherein the government
provides Financial Assistance to the enterprises for procurement of raw materials up to 90
days.
4. Reduced Income tax
The government declared in 2017 budget that MSMEs would be taxed at 25% rather than
the 30 % for other enterprises..
S

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 5. Reimbursement of the charges in acquiring ISO 9000/ISO 14001
The scheme envisages reimbursement of the expense incurred in gaining the certificate,
Up to 75% of the expense, with a limit of 75,000 per enterprise.

6. Lower taxation rate in SEZ (Special Economic Zones)

SEZ are established by various States to promote business in those areas, normally SEZs have
lower taxation rate, lower rates for electricity, water etc. Govt. provides special assistance to
MSMES in the SEZs which acts a fillip for them to invest more.

LABOUR LAWS
The labour laws all over the world are passed to protect the interests of the workers, the labour
laws mandate certain things like , maximum hours a day a worker can be asked to work , the
minimum wages he/she must get , what all other benefits he/she must get from the employer etc. .

The constitution of India also grants some rights to workers in India, Article19 (1)(c) gives
everyone a right to form associations or unions , article 23 prohibits any kind of trafficking and
forced labour and article 24 prohibits Child labour in a factory , mine or any other hazardous
employment , wherein child is defined as anyone less than 14 years of age.

There are numerous acts which have been passed to protect the interests of public, they are as
follows

Act name Year Brief description Firms included

Minimum wages Act
The payment of gratuity
act
The Employee provident
fund and miscellaneous
provisions act
Employee state insurance
act
The factories Act
1948 As per latest amendment , minimum wage Every firm is required to
should not be less than INR160 per day follow except unscheduled
1972 The firm has to pay gratuity to retiring or Every firm having or have
resigning employee at the rate of 15 days for had more than 10 employees
each completed year with maximum amount working there
being INR10,00,000
1952 Equal contributions made by employee and Firms employing more than
employer for payment to employees at the 20 people
time of retirement
1948 The employer must contribute a fixed share In general firms employing
to ESI fund to provide for maternity, disease 20 or more employees (more
, accidents etc. of the employee earning less detailed explanation in the
than 15,000 per month report)
1948 Specifies working hours ,overtime pay and Factories employing more
notice for overtime than 20 people

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The contract Labor 1970 The main purpose of the act is to regulate the Any principal employer
(Regulation & abolition) employment of contract labor and provides which engages 20 or more
Act rules regarding payment of wages and other contract labors and to
things for contract labors contractors having 20 or
more workers
Payment of bonus act 1965 The acts states that a bonus of atleast 8.33 % Every firm employing more
or 100 , whichever is higher has to be paid at than 20 workers
the end of year for workers earning less than
INR 3500 pm

A Brief about Condition of Labour in India

Its a requirement for any government to protect the interests of the poor, and it is thus of
paramount importance that government passes laws and guidelines to help the poor laborer in the
economy. As per a current research, around 94% of labour workforce in India is part of the
unorganized sector. The hourly wage costs in India were $3.1 in 2014 compared to $11.2 in Brazil
and $5.8 in Russia, so it is quite evident that India is lagging behind in the average wage, but this
data doesnt take into calculation the Purchasing Power Parity, including which , the situation
might not be that grim , but nonetheless , protecting the interests of labour is important to India .

Distribution of workers by
production units and employee
status , 2014 source ILO REPORT

The Employees Provident Fund and Miscellaneous Provisions Act 1952

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The Employees provident fund and miscellaneous provisions act, 1952 is created for the purpose
of social welfare of an employee. The primary objective is to provide substantial security and
monetary benefits to employer and their family members.

Any factory or establishment engaging in any industry specified in Schedule 1 in which twenty or
more persons are employed, whether directly or through contractors is liable to be covered under
this act.

The contribution from employees is calculated on the basic wages and dearness allowance. The
wage limit, which has to be followed under EPF & MP Act, is rupees 15000 per month. In general,
the contribution from an employee is calculated as 10% of the wages and 12% in certain other
cases of establishment as suggested by Central Government.

The employee shall pay equal share of contribution as paid by his/her employer. It is mandatory
for every employer to contribute to the provident fund of employee working in his organization.
Otherwise he is liable to pay damages on being a defaulter, which can extend up to imprisonment
of three years and a fine of 10000 rupees.

The contribution to pay under the insurance scheme is calculated from the monthly pay of
INR15000. In the event of death the benefits assured from Insurance scheme has been increased
by 20% after September 1, 2014 in addition to already paid benefits. To avail pension from pension
fund a person should have ten years of experience and with an age more than 50 years. Thereby
Employee provident fund grants the employee to have regular income in the form of pension.

In order to promote employment in the country, Employee Provident Fund Organization (EPFO)
has announced that the central government will bear the burden of 8.33 percent employers PF
contribution for initial three years for those who undertook employment beginning 1st April 2016.
In such a way MSMEs are exempted from Provident Fund contribution for three years.
Since, Government has exempted MSME from complying with EPF act, and in general, MSME
on an average employs an average of 4 workers , so they arent covered under this act .The impact
of this act LOW.

Payment of Gratuity Act, 1972

This act is a scheme for the payment of gratuity to employees engaged in factories, ports, mines,
oilfields, plantations, railway companies, shops or any other such establishments. The act states
that the firm which employs 10 or more than 10 people shall be required to comply with the act,
the act states that the firm will have to pay a gratuity equavelent to 15/26*(basic+Dearness
Allowance)*number of years of service. The number of years of service should be a minimum of
5 years of continuous service .

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Implication of this act on MSME:

The MSME firms follow the avoidance strategy for not complying to the gratuity act. The major
reasons for the same are-

Time consuming procedure

Too costly for small firms
No reason to comply since their employees do not fulfil the criteria for being applicable
for the gratuity

But most of the firms which are not under the compliance terms of this act, that is, which do not
employ more than 10 employees, are not aware about this act. This means that very few firms
associate the existence of gratuity payment as a plausible growth trap. According to the ILO report,
which took into account the responses of the firms with less than 10 employees from three states,
found that

Table

From the above stats, it can be easily seen that the MSME is majorly not affected by the Gratuity
act because of the unawareness of the act among these firms. These firms cite that the reason for
the non-compliance of this act is that the workers do not demand for it.

The fact that workers do not demand it should be seen in light of their low bargaining capacity
arising partly out of the small employment size in firms along with their low education and need
for some kind of employment as a means of livelihood security.

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Employee State Insurance (1948)

Mission Statement: To deliver for certain benefits to Workers in the situation of Sickness,
Maternity and Service Injury and to make provisions for Associated Matters.

The Employee State Insurance scheme is a combined measure of Social Insurance come to life
through the Employees State Insurance Act 1948, and is intended to complete the task of
protecting Employees as defined in the ESI act 1948, against the dangers of Sickness, Maternity,
Impairment or Death due to Service injury and to provide full Medical care to insured persons and
their families

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Infrastructure

The main benefits given under ESI Scheme are:

As these are all health-related benefits, so these apply to SMALL and MEDIUM sectors. The
employees of these enterprises can avail all the benefits. But these benefits are being restricted for
the enterprises that have less than ten employees working in the company.

1. The Sickness Benefit is compensated to the protected person at the rate of 70% of the average
daily wages for maximum 91 days in two consecutive Benefit periods. Greater Sickness Benefit,
100% of the average daily wages, is payable for 14 days for tubectomy and seven days for
vasectomy Expendable given medical guidance.

2. Under the Disablement Benefit, the protected person who becomes disabled due to the work-
related injury is paid 90% of the average daily wages until short-term disablement lasts. For
permanent or total disablement, 90 % of the average daily wages are paid for whole life and
permanent incomplete disablement.
3. Dependents Benefit is paid at the rate of 90 % of the average daily wages divided in fixed
proportion among all dependents if the protected person dies due to service injury. This is payable
to the widow for life or until her re-marriage and also to the reliant children till the age of 25 years
and also to the reliant parents, subject to conditions.

4. The Maternity Benefit is paid to the insured at the rate of 100% of the average daily wages for
a maximum of 12 weeks in case of confinement, up to 6 weeks in the event of a miscarriage. This
can be increased by one month on medical advice in the event of sickness arising out of pregnancy,
confinement, and miscarriage. The total Spending incurred during 2013-14 on cash benefit
payments is Rs.598.69 crores otherwise this significant amount should have put an extra burden
on the low-income bracket of the work-staff of the country.

5. Medical Benefit provides Reasonable medical Care' for self and family from day one of
entering insurable service which continues till the protected person remains in insurable
employment. Treatment is provided by Allopathy and AYUSH system of medicines. ESIC
Dispensaries are providing the necessary medical treatment. Medical Benefit is also allowed to the
widow/ spouse of the deceased/ superannuated Insured Persons as well as to the widow/ spouses
of

6. Retirement Benefit when a protected person who leaves the insurable employment on
attainment of the age of superannuation or takes premature retirement, after being a protected
person for not less than 5 years, shall be eligible to get medical benefits for himself and his wife
subject to production of proof thereof, and payment of a contribution of Rs.120/- for one year. In
case, the protected person expires, his wife is allowed to have the medical benefit for the left period
for which the contribution was made, and she can continue to receive the medical benefit on a sum
of the contribution of Rs.120/- per annum for a further period.

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7. Other Benefits include Confinement Expenses for a Protected Woman or an IP in respect of
his wife in case confinement happens at a place where essential medical facilities are not eligible,
for which Rs.5000/- is paid up to 2 confidence only.
8. Rs 10,000/- is paid as Funeral Expenses in case of death of an insured person.

9. Unemployment Allowance under RGSKY is payable in case of involuntary loss of employment

due to the closure of factory, retrenchment or permanent disability due to an- employment injury
and contribution for three years before the loss of employment, 50 % the average daily wages is
owed for a maximum period of 12 months during life time.

Implication of the act The ESI act promotes workers to join Regulated firms thus providing
skilled and motivated labour to MSM Establishments. The workers can work more freely and with
more security as they know they are insured , which in turn increases Effeciency . The act can be
costly for the firms in the short run ,but in the long run , this would be very beneficial for the firm
as the employees would feel more safe thus increasing their efficiency and attrition rate.

Minimum Wages Act, 1948

. In the minimum wages act, 1948, the Indian Constitution has provided a definition of a 'living
wage' which is the level of income of a worker which ensures a basic living standard which
includes good health, comfort, dignity, education and also provide for any contingency. On the
other hand, there is industrys capacity to pay, which the constitution has taken in consideration
and has accordingly defined a fair wage.

The minimum wages can be fixed differently as per different employments and different location
of the work. Section 8 of the act states that minimum wages shall be paid in cash and it has to be
paid without any deductions except statuary deductions. Any payment which is less than the
minimum wage is considered to be illegal, can call for fine of 500 or imprisonment of 6 months.
The act also takes care of the working hours and the maximum working hours a week is 48 hours
with a weekly holiday. Hours excess to 48 hours are treated as overtime and the overtime wage is
twice that of the normal wage.

There is also provision for payment of salary in case the employer couldnt provide the work.
Section 20 states that in case of non-payment of minimum wage worker can approach to Labour
Commissioner. The major implication of Minimum Wages act is in the micro and the small
enterprises and traditionally the workers have been exploited in these enterprises. The act provides
them the right to their minimum wage and they can maintain their minimum living standard.
Unskilled and skilled both the workers are covered in the act, so MSME which usually employees
the skilled workers benefit from the act.

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Due to the guarantee of minimum wage a lot of people are migrating from agriculture to services
sector and hence MSME are having a better skilled workforce which helps the enterprises to
function properly. This is helping MSME to produce goods and products which are exported to
earn the foreign exchange. The presence of a strong minimum wage act protects the workers from
exploitation and hence helps in forming a robust foundation of workforce.

The Payment of Bonus Act 1965

The Payment of Bonus Act 1965 is applicable to any factory or establishment in which 20 or more
employees are working in a day during an accounting year. Employees of social welfare
institutions along with LIC, RBI, IFCI are not entitled to bonus under the payment of bonus act.

An employee can be denied bonus if he has been expelled from the company on charges of fraud,
theft, riot etc. The employer can also deduct some amount from the bonus if the employee is found
to do any misconduct which has caused financial losses to the company. The rights and duties of
both employer and the employee have been taken in consideration in the act. Any failure to comply
with the act can attract a fine of 1000 or imprisonment up to 6 months.

The directors, partner or principal officer are generally held responsible in case of any misconduct
or offence from the company. The major implication of the act is in the small and the medium
enterprises. Skilled workers, who work in these small and medium enterprises, generally have a
salary of up to 21000 a month and hence are entitled to the bonuses. Also in the revised act, the
maximum bonus payable was 20% of 3500 per month has been revised to same percentage on
7000. Thus, the act has made the services sector and the MSME lucrative places to work more than
ever.

There are some challenges as well, which the enterprises face due to the bonus act such as
complexities in paying the bonuses retrospectively. The focus of government on the employee
through such laws attracts employee to work in MSME, where they can have skill development
and can earn a fair amount of salary according to their skills. The bonus act also pushes the MSME
to give bonuses to the employees even if the firm incurs losses, this can be detrimental to the
growth of the firm.

The Contract Labour (Regulation & Abolition) Act

Responsibilities of the Act

The Object of the Contract Labor Regulation and Abolition) Act, 1970 is to prevent exploitation
of contract labour and furthermore to present better conditions of employment. A workman is
deemed to be employed as Contract Labour when he is hired in connection with the work of an
establishment by or through a Contractor.

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Contract workmen are indirect employees. Contract Labour differs from Direct Labour in terms of
employment relationship with the establishment and method of wage payment. Contract Labour,
by and large is not borne on payroll nor is paid directly. The Contract Workmen are hired,
supervised and remunerated by the Contractor, who in turn, is remunerated by the Establishment
hiring the services of the Contractor.

Recent Amendment to the Act

The Law and Judiciary Department, vide its notification published in the Government Gazette on
5 January 2017 has announced that the CLRA Act will now be applicable to (i) every establishment
in the States of which 50 (fifty) or more workmen are employed or were employed on any day in
the preceding 12 (twelve) months; (ii) every contractor in the State who employs or who employed
on any day in the preceding 12 (twelve) months 50 (fifty) or more workmen (Amendment).

Prior to the Amendment, the utmost for relevance of the CLRA Act in the State was constrained
to 20 (twenty) or more workmen.

Implications of the amendment

The Amendment to the CLRA Act can be perceived as initiative aimed at enhancing the ease of
doing business in the country, Bandaru Dattatreya-led labour ministry has notified draft rule that
would permit principal employer or contractor enlisting contract labour to document a bound
together yearly return under the Contract Labor (Regulation and Abolition) Act, 1970.

Under the rules, to be called as the Contract Labour (Regulation & Abolition) Central
(Amendment) Rules, 2017, every contractor or principal employer shall transfer a brought together
return in the Form XXIV specified in these rules on or before the February 1 following the close
of the year to which it relates. The draft rules expires on April 14, 2017 after which the said
guidelines will apply from the date of notice without any protests raised.

Moreover, the employer or the principal contractor additionally have the alternative of filing the
return manually or online. The principal employer or contractor shall also file a Unified Annual
Return to the concerned authorities manually. In case, if, an employer maintains registers or
records or reports in electronic form, such registers or records or reports shall also be taken into
consideration.

Due to the Amendment, establishments or temporary workers operating in the States and who
employ less than 50 (fifty) workmen as contract labour, wont be required to enroll / acquire a
permit under the CLRA Act in the State of Maharashtra. This change would be considered
significant by establishments with small scale operations and individuals who depend on an
outsourced workforce for multiple aspects of such operations.

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Both the adminstration and the corporate sector utilize an expansive number of contract workers.
Contract labour accounts for 55% of public sector jobs and 45% of those in the private division.
Just about 300,000 contract labourers out of an estimated 80 million are expected to be employed
in the organized sector.

This Amendment would bring in the much-needed radical reforms that would catapult India in the
Ease of doing business Index. An extensive section of the general population would be subjected
to a better sense of employment stability and accountability due to the passage of this amendment.

Industrial Employment (Standing Orders) Act, 1946

This act asks employers in industry to formally define conditions of employment and submit draft
standing orders to certifying authority for its certification. This act applies to every industrial
establishment in the whole of India wherein one hundred or more workers are or were employed
in on any day of the preceding twelve months, provided the government gives a 12-month notice
of its intention to do so.

This law cant be applied to any of the industries which come under the provisions of Chapter VII
of Bombay Industrial Relations Act,1946 or to any industrial establishment to which the provisions
of Madhya Pradesh Industrial Employment (Standing Orders) Act, 1961 are applied.
Minimum wages revised by Ministry of Labour & Employment w.e.f. 1/8/2017 are as under:

No changes to certified standing orders shall be made, except on agreement between the employer
and workers, until the expiry of six months from the date of last modifications.

The Labour Laws Amendment Bill, 2011 was introduced for exemption from furnishing returns
and maintaining registers by certain establishments, the main proposals of the new Bill, 2011 were
to:

1. Change the definition of small establishments to cover 10-40 workers as against 10-19
workers

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 2. increase the number of Acts to be covered under the Principal Act from 9 to 16
3. Simplification and consolidation of returns to one form for very small and small
establishments
4. maintenance of 1 register for very small establishments and two registers for small
establishments
5. Maintenance of registers and returns in the computer, floppy, diskette or other electronic
media and return submitted through e-mail.

The MSME sector contributes around 8% to G.D.P. of India, 40% of exports and around 45% of
manufacturing output, according to the official website of the MSME ministry. The sector consists
of 36 million units and employs over 80 million people which are humongous in all aspects.

Industrial Disputes Act, 1947

Industrial dispute is defined In the Section 2(k) of the Industrial Disputes Act, 1947 as, any
dispute or the difference between employers and employers or between employers and workmen
or between workman and workmen.

This is connected with the employment or non-employment or the terms of employment or with
the conditions of labour of any person. Following are the various terms related:

Strikes

Industrial Disputes Act, 1947, deals with this type separately in section 2(q) and defines it as strike
means a cessation of work by a body of persons employed in any industry acting in combination,
or a concerted refusal under a common understanding of any number of persons who are or have
been so employed to continue to work or to accept employment.

Lay Off
Lay Off Means setting aside laborers briefly. The term of lay off ought not be for a period longer
than the time of crisis. The business worker relationship does not arrive at an end amid the time of
lay-off yet is just suspended amid the time of crisis. Any such refusal or inability to utilize a worker
might be by virtue of:shortage of coal, power or raw materials
1. Shortage of coal, power or crude materials
2. The collection of stock
3. The breakdown of apparatus
4. Natural disaster
5. Any other associated reasons

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Another sub-segment (3) has been embedded to segment 2-A, which gives that the applications
alluded above might be made to the Labor Court or Tribunal before the expiry of three years from
the date of release, expulsion, conservation or end all things considered.

Effect

The amendment is a not too bad help for specialists to sue managers straight forwardly against
heedless and unlawful end, discharge and dismissal. Will assemble the amount of bodies of
evidence from specialists against the organizations.

It is importan to say here that few states had influenced such arrangements to even before the
alterations above, by making corrections to segment lo of the I.D Act.

For Instance Karnataka has a comparative arrangement by embeddings sub area 4-An after
segment 1.0 sub (4), which gives that the question identified with release, rejection, conservation
or end, the individual laborer may, inside a half year for the date of correspondence to him the
request of release, expulsion, conservation or end, apply in endorsed way, to the Labor Court for
mediation of the debate. Indeed, even Delhi state had comparable revisions.

The businesses with a specific end goal to secure and shield the undesirable suits must have solid
interior debate redressal component, ought to have a decent approach while enlisting and master
worker strategies and solid Labor/H.R compliances.

Selection the Different MSME Sectors and Its Possible Implications Due To the
Labour Law

Indian Constitution provides provision for both regulation and protection of labour. Under its
federal system, both Central and state governments can enact legislation about the subject of
labour. There are currently 52 central labour laws in addition to several state labour laws.

Labour laws can be divided into three categories in the context of this discussion in this report.
The first group would consist of laws which apply to all type of employment. Laws in the second
category apply to the MSME sector. The third category would include laws pertaining to the new
type of medium enterprises. While there is a plethora of Labor laws in India, a selection has been
made regarding their relevance.

As enterprises grow from the first threshold (column 1) to the second (column 2) and then the third
(column 3), they come under a larger number of labour laws. It should be noted that nearly 97
percent of the enterprise in India fall under the first threshold. The Indian MSME sector is
dominated by micro-enterprises with employee count less than ten workers and a capital
investment not more than 2.5 million rupees.
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 Employee Number
1-10 Workers 11-20 Workers 21- 60 Workers
Shops and Labour Laws Act The Contract Labour
Establishments Acts of (Regulation and abolition
state government act, 2970
Workmens The Payment of Gratuity The payment of Bonus
Compensation Act, 1923 Act, 1972 ACT, 1965
Child Labour The Factories Act, 1948 The Employees Provident
(Prohibition & Fund and Miscellaneous
Regulation) Act, 1976 Provisions Act.
Bonded Labour System The Payment of Wages
(Abolition) Act, 1976 Act, 1936
Equal Remuneration Act, Maternity Benefits Act,
1976 1961
The Industry Disputes Labour Laws Act, 1988
Act 1947
Minimum Wages Act,
1926

Whether the Labour laws that apply to all wage employment constraint MSME sector is a
debatable point, the fundamental objective of such laws is social welfare. The Shops and
Establishments Acts (varying from state to state), these Acts are intended to regulate hours of
work, payment of wages, ban on night work for women and so on.

The Bonded Labour System (Abolition) Act of 1976 was passed to abolish the bonded labour
system. To prevent the physical and economic exploitation of the weaker sections of the society,
although the reporting of such incidents is negligible. Similarly, the Equal Remuneration Act of
1976 demands equal pay to men and women performing the same work to prevent discrimination
against women. In practice employers assign women to different task, enabling employers to
remunerate the female workers less than male workers.

Table Absence due to Sickness factors

Reason for sickness/ Proportion of sick/ incipient sick

S.No.
incipient sickness units*

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 Total SSI Regd. SSI Unregd. SSI
Sector sector sector
1 Lack of demand 66% 58% 69%
Shortage of working
2 46% 57% 43%
capital
Non-availability of
3 12% 12% 12%
raw material
4 Power shortage 13% 17% 12%
5 Labour problems 5% 6% 4%
6 Marketing problems 36% 37% 36%
7 Equipment problems 11% 9% 12%
Management
8 4% 5% 3%
problems
* The total in each column will exceed 100 %, as some units have
reported more than one reason.

Amongst all the laws given in table that apply to MSME sector. The most important are the Child
Labour Act of 1986 and Minimum Wages Act of 1948. Although there are laws to prevent child
labour and exploitation of children in our country, there are particular types of work where it has
not been abolished. But there are regulations regarding time, weekly holidays and safety of the
children. In manufacturing Industry, child labour is mainly concentrated in activities like carpet-
making, hosiery, firecracker and bidi-making. Laws for preventing child exploitation should not
be seen as a hindrance for the MSME sector. These laws are present to enable children to go school
and become educated citizen of the country.

There are a large number of legislations by state governments under the Minimum Wages Act,
categorised according to trade/ occupations as well as regions of the state. These Acts are hardly
enforced. Many states have a statutory minimum wage well below the poverty line. The design
and structural weakness of the Minimum Wage Act is shown to be partly responsible for its
ineffective implementation (Sankaran, 1997).

A report by Department of MSME on the sickness (problems) of small -scale industrial

undertakings (SSI) shows variety of grounds for the sickness of MSME sector. The major reason
being lack of demand (66 percent). The other main reasons being shortage of working capital and
Non-Availability of raw material.

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Future Implication of Labour Reforms on MSMEs

The Need for employment has never been more pressing in India than today, at a time when the
youth bulge is underway in the countrys demographic profile, we can see radical changes
ploughing through the economy.

The employment challenges includes several dimensions- jobs must be generated on a larger scale
than ever before. The workforce must be adequately skilled; employers must have the flexibility
to manage a rapidly-changing global manufacturing environment, and employees need recourse to
an effective social security programme.

A holistic labour policy would take into account all these issues. A healthy policy would take into
account all these issues. A healthy industry-worker relationship is of paramount importance for
increasing productivity and competitiveness, and both sides are partners in Indias progress.
Labour reforms focused on wider and inclusive growth is the need of the hour; they are imperative
for attaining higher levels of productivity and competiveness. Moreover, there is pressing need to
simplify and rationalize labour laws and its enforcements. Simplification and flexibility in
engagement and deployment of labour should be the two key cornerstones for the labour law
reforms.
The two of the reforms that needs the most attention is

The Exit Clause under the Industrial Dispute Act, 1947 and
Contract labour Act, especially the provision related to abolition of Contract Labour.

Many of the overseas corporates shy away from transferring manufacturing activity to India
because under the current provisions of the law, there is no flexibility in adjusting the labour force
to requirements and not certainty about what it would cost to right size.
Some of the legislative changes that we suggest are:

Section 10 of the Contract Labour (Regulation and Abolition) Act, 1970, providing to
abolition of Contract Labour should be deleted and the Act renamed as Contract Labour
Regulation Act.
Fixed Term Employment (FTE) option should be reinstated. This was available earlier.
Under FTE, a worker is engaged on the basis of contract of employment for a fixed period.
However, his working hours wages, allowances and other benefits should be similar to
regular workers, as per the paying capacity of the company.
Remove differentiation in core and non-core nature of jobs by amending the CLRA
Act.
Distribution of wages via bank to reduce corruption. This will reduce corruption by the
contractors.

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While legislative changes are necessary, it is important to maintain the dialogue process between
employer and employee to develop the trust factor. Both the stakeholders will have to realize that
the growth path of the organization and labour are tied by the umbilical cord which keeps them
together.

Summary
India is a huge and diverse country and MSMEs are extremely important to provide employment
to people in the deep corners of the nation, as the data we have shared, around 804 lakhs get
employment due to MSMEs. Labour laws in India are quite stringent and some of the acts were
passed in pre-Independence era, so it is important to revamp the act to meet the changing needs of
labours and employers.

Through this report we have also concluded that current labour laws and regulations might not be
seen by the MSMEs as business friendly, rather they might see it as business deterrent. The laws
should be made simpler as currently the laws are quite complex and stringent. But still MSMEs
dont consider the labour regulations to be a big growth deterrent as evidenced by table A9, which
states that only 5% small scale units gave labour problems and laws for it being a sick unit.

The average wages in India is very low compared to both developing and developed nations, but
after factoring in PPI, the situation isnt as grim. As per our studies, child labour act 1996 is very
important for the nation and shouldnt be compromised for any firm, but payment of gratuity act
should be revised as employers are trying to keep the number of employees below the minimum
threshold for the act being applicable on the firm, and in a bid to do this, they are using unorganized
labour, part time workers and contract workers, so an act.

The contract act passed in 2017 is a progressive law which has a fine balance between employee
interests and employers interests. The factories act passed in 1948 is an extremely important act
for safety of workers and protecting interests of children and women, this act should be followed
by employers to a tee.

To provide relief to the MSMEs government has exempted MSMEs from Provident Fund
payment for three years.
From our project, we have concluded that there are some acts which needs to be revamped and
some acts which are very progressive and are being followed by MSMEs without many qualms.

Labour regulations is bit too stringent, for instance, firing workers is a very difficult task which
sometimes lead to firms going bankrupt as they are not able to trim the workforce to reduce costs,
such stringent regulations should be eased for the firms to function efficiently.

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End Notes

MSMED Act, 2006: http://www.msmeodisha.gov.in/PDF/MSMED_Act.pdf(Accessed: 18th

August, 2017).
MSME Website: http://msme.gov.in/Media-and-press-release/e-book(Accessed: 20th August,
2017).
MSME Website: http://msme.gov.in/sites/default/files/Pocket_Final_Size_English__21-05-
16_.pdf (Accessed: 20th August, 2017).
DCMSME Website: http://www.dcmsme.gov.in/ssiindia/census/ch7.htm (Accessed: 20th August,
2017).
ILO Website: http://www.ilo.org/empent/units/boosting-employment-through-small-enterprise-
development/lang--en/index.htm (Accessed: 23th August, 2017).
MSME Website: http://www.msme.nic.in/Chapter%203-Eng_200708.pdf

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MSMED Act, 2006: http://www.msmeodisha.gov.in/PDF/MSMED_Act.pdf
EXIM Development Bank of India, Strategic Development of MSMEs: Comparison of Policy
Framework and Institutional Support System in India and Select
Countries. http://www.eximbankindia.in/sites/default/files/Full%20OP/op153.pdf (Accessed:
12th October, 2014)
International Finance Corporation, Micro, Small and Medium Enterprise Finance in
India, http://www.ifc.org/wps/wcm/connect/4760ee004ec65f44a165bd45b400a808/MSME+Rep
ort-03-01-2013.pdf?MOD=AJPERES (Accessed: 27th October, 2014)
Press Information Bureau, Government of India, Generation of Employment Opportunities in
MSME Sector, http://pib.nic.in/newsite/PrintRelease.aspx?relid=106671 (Accessed: 27th
October, 2014).
Confederation of Indian Industry, Micro, Small and Medium Scale
Industry, http://cii.in/Sectors.aspx?enc=prvePUj2bdMtgTmvPwvisYH+5EnGjyGXO9hLECvTu
NuXK6QP3tp4gPGuPr/xpT2f (Accessed: 27th October, 2014).
International Finance Corporation, Micro, Small and Medium Enterprise: Finance Market in
India, http://intellecap.com/sites/default/files/publications/micro_small_and_medium_enterprise
_finance_market_in_india_2012.pdf (Accessed: 29th October, 2014).
World Bank, Ease of Doing Business Index, http://www.doingbusiness.org/rankings
Rowe Julian T, 2008. SME Managerial Incompetence and the Pitfalls to
Avoid. http://ezinearticles.com/?SME-Managerial-Incompetence-and-the-Pitfalls-to-
avoid&id=1693502. Accessed: 29th October, 2014.
Union Budget 2014, http://indiabudget.nic.in/vol1.asp.
Elin Grimsholm and Leon Poblete, Internal and External Factors Hampering SME
Growth, http://uu.diva-portal.org/smash/get/diva2:323837/FULLTEXT01.pdf Accessed: 29th
Augutst 2017.
OSMEP, 2007. The Office of Small and Medium Enterprises Promotion - (2007). The 2nd SMEs
Promotion Plan (2007-2011). Accessed 29th August
2017. http://www.sme.go.th/cms/web/homeeng/plan

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