The Indian labour market is known for being highly regulated and compliance-oriented. The debate over labour reforms continues. There is an attempt to find a balance between a pro-labour stand and providing flexibility in the labour market.

India has to go a long way to improve its ranking in the Ease of Doing Business (EoDB) index. According to the World Bank Report 2017, India’s EoDB ranking increased only by a notch to 130 from 131 the previous year. The fifth Annual Employment–Unemployment Survey (2015–2016) states that the unemployment rate in India is 5%. As per the report, the unemployment rate among females is 8.7%, as against 4% among males. The Central Government’s promise of creating 10 million new jobs remains a far-fetched goal.

Nevertheless, the Centre has taken a step towards this goal by approving the Model Shops and Establishments Act in 2016.

Improving productivity and gender balance

The Shops and Establishments Act is enacted by State Governments to regulate the operation of shops and establishments in their respective states. The Model Shops and Establishment Act is a progressive move by the Centre that aims to ensure uniformity in the provisions of state laws across India, hence favouring EoDB. It is expected to boost employment generation, especially among women.

One of the proposals of the Act is that shops and establishments be allowed to operate 365 days a year and 24/7 a day. This provision of extended working hours may aid employment generation and boost the country’s economy. The Act also gives entrepreneurs the freedom to decide the opening and closing times of their shops and establishments without seeking exemption from the Labour Department.

The Model Act states that women should not be discriminated against in the matter of recruitment, training, transfer or promotion. It allows them to work in night shifts if they are willing to do so. As per the Act, the employer should provide facilities such as shelter, restroom and transportation, and adequate protection to women employees.

Better regulation for employee safety

The Model Act purports to make the best of technology to simplify the registration process through one-common registration online. It asserts that every establishment should get a Unique Labour Identification Number. Another noteworthy proposal is the inclusion of distribution and packaging centres in the definition of shops in the Act.

The State Governments have the power to make rules regarding adequate measures to be taken by the employer for the safety and health of employees. They also regulate the provision of safe drinking water, first aid, lavatory, crèche and canteen by either an individual establishment or a group of establishments in a block/neighbourhood.

As per the Model Act, employees are entitled to five paid festival holidays, in addition to national holidays. The penalty for contravention of the provisions of the Act can extend up to Rs 2 lakh. In case of continued contravention, an additional fine of Rs 2000 per day will be charged, provided the total fine does not exceed Rs 2000 per employee.

The State granting freedom to retail establishments to operate 365 days a year and 24/7 a day is like passing the baton from the bureaucrats to the entrepreneurs, as they no longer need to seek exemptions to decide the opening and closing times of their shops and establishments. The point that needs to be promulgated is not just the potential for employment generation but the freedom entrepreneurs will have in deciding the operating hours.

Ensuring transparency through technology

Tuning in with technological advancements can make things a lot simpler and efficient. It is high time that the potential of technology was adopted in ensuring compliance and transparency. The Model Act proposes web-based inspections, where the system allocates the inspectors. Further, the establishments for inspection are identified based on a computerised risk assessment.

The proponents of the Act envisage that web-based inspections should aid in hobbling corruption and ensuring less discretionary power to inspectors in choosing establishments for inspection. It ascertains that entrepreneurs should not be looked upon with suspicion and compliance should not be due to fear. The judgemental nature of inspection has impinged on its effectiveness and made compliance with labour laws difficult. In addition to inflexibility in the labour market due to regulations, the hawkish attitude of inspectors towards employers has taken its toll on their scope to reap economies of scale. The Model Act purports to bring about a transition in the role of inspectors to being facilitators, who will help the employers and employees in complying with the provisions of the Act.

Though it is too soon to assess the actual impact of the Model Shops and Establishments Act, it is deemed to be progressive, setting the path for change, not just in the retail trade sector, but in the mindset and culture of the society.

An opportunity for Kerala

Kerala occupies the 20th rank among Indian states in the EoDB ranking released by the Department of Industrial Policy and Promotion (DIPP) in 2016. The state falls under the category of ‘Jump Start Needed’ as regards EoDB. Stringent and archaic laws and a multiplicity of laws and authorities make compliance a cumbersome and time-consuming process for the state.

Andhra Pradesh, Karnataka and Maharashtra are a notch above Kerala in implementing reforms along similar lines. These states have come up with retail trade policies to accelerate investment flow. Kerala could take a cue from them and implement major reforms in the retail trade sector, thus giving a lift to its economy and EoDb initiatives.

*This article is written by Sara John (Project Associate, Centre for Public Policy Research). Views expressed by the author is personal and does not reflect that of CPPR.

This article was first published in ‘Qruis’ (formerly, ‘The Indian Economist’), Click to read: Being progressive: Setting a ‘Model’ for retail trade

Sara John
Sara John
Sara John is Senior Associate (Business Development) at CPPR. She conducts research, contributes to proposal writing and writes articles on various public policy-related aspects. She had earlier worked as a Senior Project Associate at CPPR and has published many articles and papers.

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