Economic Survey 2020-21: Drastic reduction in compliances with 41 central labour laws reduced to four

Though 2020 was an unprecedented year with the pandemic raging a blow to a host of sectors, the Economic Survey 2020-21 has highlighted how major structural reforms launched by the Government – in agriculture markets, labour laws and definition of MSMEs – provided unparalleled opportunity for growth.

“The modified definition of MSMEs facilitates expansion and growth of these enterprises without them fearing the loss of government incentives, thereby avoiding the phenomenon of dwarfs among MSMEs. The resulting economies of scale can enhance productivity without the MSMEs losing out on several government incentives including interest subvention, collateral-free loans, market support, export promotion, preferential procurement in the public sector and enabling of IT ecosystems,” the Survey tabled by Finance Minister Nirmala Sitharaman on Friday stated.

Last year was a particularly tough time for the MSME sector which faced an acute financial crunch and shuttered businesses amid the virus outbreak.

Delving into the issue of labour reforms, the Survey added that these would benefit MSMEs to increase employment, enhance labour productivity and thereby wages in MSMEs. “The use of fulltime equivalents provides flexibility to MSMEs to tailor their labour strength to market conditions and thereby enhance employment. The increase in the size thresholds from 10 to 20 employees to be called a factory, 20 to 50 for contract worker laws to apply, and 100 to 300 for standing orders enable economies of scale and unleash growth,” it elucidated.

The drastic reductions in compliance stem from the 41 central labour laws being reduced to four, the number of sections falling by 60 per cent from about 1200 to 480, the maze due to the number of minimum wages being reducing from about 2000 to 40, one registration instead of six, one license instead of four, and de-criminalisation of several offences. “These reforms balance the interest of both workers and employers. These codes provide social security, protection, safe and working environment and effective conciliation dispute mechanism to workers.” it said.