Amid fears over their costs rising once the new labour codes are implemented, Micro, Small & Medium Enterprises are planning to make representations to the new government after the general elections for phased implementation of the codes and will seek stakeholder discussions.
“We will put a request before the government to have stakeholder discussions before implementation of the labour codes. The last stakeholder discussions were held in 2021. Also, the implementation should be in a phased manner,” Federation of Indian Micro and Small & Medium Enterprises (FISME) vice president Rakesh Chhabra told Moneycontrol.
The Industrial Relations Code, Code on Social Security, and Occupational Safety, Health and Working Conditions Code were passed during the Monsoon Session of Parliament in 2020. In the Monsoon Session of 2019, the Code on Wages had been passed. But the rules necessary for their implementation have not been formulated and notified since then.
The MSMEs are apprehensive that the labour codes will increase their financial burden due to employee insurance, gratuity and a higher basic wage, which will be aligned to livelihood instead of the minimum wage. While the minimum wage is the income level to ensure that the workers are not pushed into poverty, the livelihood wage is the income needed for a decent standard of living.
“The cost burden should not increase on MSMEs because of gratuity. For medical insurance, the workers should be included under the Rs 5 lakh Ayushman Bharat scheme, and the MSMEs should not be charged for it,” Chhabra said. “Instead of minimum wages, livelihood wages will come into place. Under livelihood wages, the basic wage may increase by 40 percent. MSMEs will be badly affected. For labour-intensive MSMEs, the cost will go up. The financial part under the labour codes will strain finances.”
FISME fears that if the wages are aligned to livelihood wages under the new labour codes, it may push up costs by 40 percent for MSMEs. In Uttarakhand, which has aligned its wages to livelihood wages, the minimum wage has increased over the last three years from Rs 8,600 per month to Rs 12,500 per month. If the same is implemented in Haryana, the minimum wage is likely to increase to over Rs 14,000 from Rs 10,300 per month now, he added.
Thus these businesses, uncertain about the regulatory landscape, are hesitant to readily adopt the labour codes. The ambiguity surrounding compliance and regulations creates an environment of caution rather than confidence, say MSMEs.
“Though the delay in implementation of the new labour codes for rationalisation and simplification of the existing complicated and outdated 44 labour laws is quite frustrating, it would not be correct to jump to the conclusion that this is causing any significant delay in boosting employment. I am of the opinion that the rapid pace at which our economy is progressing would not have been possible without a proportionate increase in the labour component,” Ravi Sood, President of the Badli Industrial Estate Association, told Moneycontrol.
The labour codes were envisioned to create a balance between the interests of employers and employees. The government is aiming at equitable improvement in per capita income and overall wages and formal job creation through the labour codes.
“We will discuss with MSME associations, and then put forth a representation with the new government. Availability of labour may get affected for MSMEs and in effect their costs will go up. Minimum wages have been increasing over the years,” Harsh Mittal, member of the MSME association Network of Indian Industries and Enterprises, told Moneycontrol.
Hire and fire becomes easier
On the other hand, MSMEs are of the opinion that apart from the increase in financial burden, ease of exit and layoff provisions in the labour codes provide ease of doing business.
Under the labour codes, industries having less than 300 workers will be allowed to lay off staff and even shut down operations without government approval. These businesses will also have the discretion to hire workers for a certain period of time.
“The biggest problem currently is the layoff policy for labour. If there is an easy exit policy, more employment will be created. Without resorting to the labour court, businesses should be allowed to lay off labourers. More employment can be generated with more clarity. Timely implementation of labour reforms will help clear the air,” Sanjivv Shiv Kapoor, CEO of chartered accountancy SP Kapoor and Company, which provides consulting services to many MSMEs, told Moneycontrol.
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