How changes to labour laws helped improve Andhra's business-friendly image

The state topped in ease of doing business twice, was ranked second once in past four years; labour reforms were seen as a key factor that helped it attract new investments

Changes in labour laws were among the key initiatives taken up by Andhra Pradesh government in the past four years towards creating a business-friendly environment in the state.

Andhra Pradesh stood first in ease-of-doing-business (EODB) rankings in the country twice and was ranked second once during this period, while labour reforms were seen to be a key driver in attracting new investments into the state. Labour reforms linked to EODB targets were achieved cent per cent every year, according to officials.

The state government brought about three major legislative changes in labour laws concerning the functioning of industries and establishments. The first of these was an amendment to the Industrial Disputes Act, 1947 (ID Act). Before this amendment was made, the management of a company or an industrial unit with more than 100 workers on its rolls had to obtain prior approval if it wanted to lay off or retrench workers or shut down the unit. The state government raised this threshold limit to 300 workers by amending the ID Act in 2016. Today, an industrial unit that has a work force of up to 300 employees does not have to take prior permission from government to either remove the workers or to shut down operations altogether.

The AP government had also amended the Contract Labour (Regulation and Abolition) Act, 1970. Prior to this amendment, a labour contractor or an industrial unit having more than 20 contract workers on its rolls was required to obtain a labour license to employ this workforce. The amendment has done away with the requirement of such a license for a labour contractor or company that employs up to 50 workers.

The government had enacted a new legislation called 'The Andhra Pradesh Integrated Registration Act, 2015', for online registration of establishments under 14 existing acts, with a single application. Under this facility, a company or an establishment can file a single application to obtain approvals under 14 different labour laws. Before this Act was implemented, an establishment was required to file separate applications for each of these approvals. What's more, there was no uniformity in the validity period of these approvals. 

With this new legislation, any company or establishment can now file a single online application for all the approvals and generate the same instantaneously by way of self-certification, while all these approvals will be in valid for three years. Among other initiatives, the government has also introduced an online inspection system while removing the individual discretion of an inspecting agency or officer with regard to timing and periodicity of such inspections. Under this system, a scheduled factory inspection would be notified to the employer beforehand, while the officer who has completed the inspection will have to upload the report to the database from the site, as all inspecting officers have been provided with computer tablets.

Besides this, the government has allowed all retail shops to remain open 365 days a year while removing the time restrictions as well, subject to the fulfilment of other laws involving minimum wages, eight-hour work among other things.

More than 90 per cent of the existing units in AP will have access to a hassle-free exit route after the government raised the work force limit to 300 people under the ID Act for prior permission. The state currently has about 26,400 registered factories employing about 0.71 million workers.  

Labour commissioner D Varaprasad says the ID Act amendment sought to assure prospective investors that they wouldn't face bureaucratic hassles or legal problems in case they resorted to layoffs in extreme circumstances.

According to state government data, about 2,612 new projects entailing a combined investment commitment of Rs 15 trillion and 3.2 million jobs were at various stages of execution in the state. Chief minister N Chandrababu Naidu keeps highlighting the labour reforms and other business-friendly initiatives of his government whenever he addresses investors or invites them to Andhra Pradesh.

However, opposition parties, more particularly the left-wing trade unions, have been terming these reforms as a direct attack on the workers' rights. Former CPM MLA and CITU state general secretary, M A Gafoor, says a situation of anarchy has prevailed in the state after the 300-employee rule and other labour law amendments were introduced by the state government.

"A company employing more than 300 workers in Vijayawada Autonagar (industrial area) closed its factory without any intimation. The employer has taken shelter under the ID Act amendment by falsely claiming that his factory had only 250 workers at the time of closure. The employer did not even bother to pay gratuity and other statutory benefits to the workers, who have nowhere to go now," Gafoor told Business Standard. He also claimed that not many industries had come in the past four years despite the changes in labour laws.

Industry representatives also have a slightly different view regarding the effectiveness of labour reforms in attracting the investments into the state. The Chairman of the Confederation of Indian Industry (CII)'s, AP Chapter, R V S Rudra Raju, says that barring the ID Act amendment, the changes made in the labour laws were small and not so relevant to the present conditions compared to other big steps taken by the state government to attract the investments into the state.

"Labour laws were created to ensure that workers are not subjected to undue exploitation at the hands of their employers. But the situation is completely different on the ground today. The industry is suffering from lack of availability of skilled workforce in the state and these labour reforms have little relevance in the current context. Instead of playing the role of a monitoring agency, the government should take active part in producing skilled workers in ITIs and other institutions. That would help in promoting industry in the state," Raju said.

Apart from bringing changes in labour laws, the state government has increased the financial benefits under various social welfare measures for 26 million workers in the unorganised sector.