2 Rajasthan firms invoked amended law to retrench staff last year

Effect of labour law changes unclear on FDI inflow

In a first, two companies in Rajasthan have shut down their units and retrenched around 100 employees without prior permission of the state government. The units belonged to ADM Agro and Isuzu Garments in Kota and Tonk districts, respectively. The state government said the closure of these units and retrenchment of employees took place under the amended Industrial Disputes Act.

The Rajasthan government had amended the Industrial Disputes Act, 1947, the Contract Labour Act, 1970, and the Factories Act, 1947, as part of its drive to introduce industrial and labour reforms to attract investment in the state. The amended Industrial Disputes Act allows companies to retrench up to 300 employees without prior permission of the government and makes it more difficult for workers to create unions. The Act prescribes a union can be formed only if it gets 30 per cent of the workers as members, against the earlier requirement of 15 per cent.

The amended Bills had received President Pranab Mukherjee's approval in November 2014. The two companies shut operations in the second half of 2015. Senior Rajasthan government officials said the closure of the Isuzu Garments' Tonk unit was a result of a long-standing dispute between the management and labour unions.

"The labour department could not resolve the matter between the two and the matter was referred for adjudication. The unions went on a strike and the management declared a lockout, saying it was unable to meet workers' demands," said a government official. Following a court case and failure of talks with the unions, Isuzu's management shut down the operations in August 2015, laying off 53 staff and 180 workers. The state government said the retrenched employees were intimated 60 days in advance and fully compensated under the Act. Business Standard could not reach the management or unions for comments.

In the case of ADM Agro, an international firm involved in the processing of oilseeds in India, the reason of closure on October 14 was economic. According to state government officials, the unit was not getting adequate raw materials and had become financially unviable.

"The oilseeds market in India has become increasingly challenging and we have not seen adequate returns from our Indian oilseeds operations in several years. These challenges are affecting the entire industry; several other companies have had to close their plants as well," ADM Agro stated.

"ADM Agro will be offering retrenchment compensation for 101 employees in Kota, as per law established. The company also offered outplacement services for them to find suitable alternate employment. This was a difficult decision that was carefully considered, as we do not take lightly the impact it has on our employees," the statement added.

While the amended Act might have served the purpose of helping the companies carry out operations with much ease in Rajasthan, it would be too early to say whether such reforms are resulting in more flow of foreign direct investment (FDI) in the state. Data from the department of industrial policy & promotion suggest that in 2012-13, a year before Vasundhara Raje took over the reins from the Ashok Gehlot-led Congress government in the state, the FDI equity inflow in the state was Rs 714 crore. It fell to Rs 233 crore in 2013-14, the year Assembly elections took place and Raje was sworn chief minister in December. Next year (2014-15), FDI equity inflow rose to a record high of Rs 3,237 crore. In the current financial year (2015-16), the FDI inflow was Rs 117 crore till September 2015.

The record increase in 2014-15 is largely attributed to a couple of big-ticket deals, which might have materialised earlier.

"The FDI inflow doesn't give a trend of improvement in the state's effectiveness of getting foreign investment barring FY15 when equity inflows increased to Rs 3,000 crore. During the rest of the years, inflow remained lacklustre," said Devendra Pant, chief economist, India Ratings & Research, adding, "The state can attract a higher investment inflow by aligning its policies, which are conducive for investment."

Another trend of investment could be gauged from the data related to the implementation of the Industrial Entrepreneurs Memorandum (IEM). It is a form, which is filed by the entrepreneurs with the Centre on completion of their projects in the state.

A total of 30 IEMs with an investment of Rs 3,173 crore were filed in 2013. It was followed by 13 with an investment of Rs 1,544 crore in 2014. Till March 2015, seven IEMS worth Rs 3,022 crore have been filed.

The government is expecting to convert Rs 3.5 lakh crore worth of MoUs, which it signed over the past year, into reality. Among the major investment promises are Sun Edison (Rs 30,000 crore), Cairn India (Rs 12,500 crore) and SoftBank (Rs 60,000 crore). The Union government, watching the impact of these industrial and labour reforms in Rajasthan, is also contemplating similar amendments to the Industrial Disputes Act in Parliament.