Panel suggests flexible labour laws in its report to Cabinet Secretary

A government panel has suggested flexible labour laws and simplified taxation system, among other things, to improve manufacturing in small units.

The inter-ministerial committee (IMC), headed by Micro, Small and Medium Enterprises (MSME) Secretary Madhav Lal, has submitted its report to Cabinet Secretary Ajit Kumar Seth.

The panel was set up to look into issues faced by MSME units and suggest ways to boost manufacturing in the sector.

Besides flexible labour laws, the committee also suggested ensuring easy flow of credit to the sector, simplified taxation system, improved infrastructure and effective marketing techniques for improving manufacturing activities in the sector, a senior official said.

The MSME sector has been witnessing a slow growth phase with its share of exports falling from 40% to 36% in the last two years, official said.

Also, exiting unviable units is a cumbersome procedure for entrepreneurs as the existing insolvency laws do not support them.

The MSME Ministry, however, expects that the trend would change if necessary steps are initiated. The share of MSMEs is targeted to increase up to 50% in the country's total exports during the 12th Plan (2012-17).

The MSME sector contributes over 8% to India's GDP and accounts for 45% of manufacturing sector. There are about 3.6 crore such MSMEs, employing over 8 crore people.

The country's manufacturing sector, which constitutes over 75% of the index of industrial production (IIP), grew meagre by 0.6% in September as against a decline of 1.6% a year ago.

"The IMC is looking at the entire issue from the perspective of the life cycle of MSMEs like what kind of assistance they require at the stage of the start-up and what is that they require for doing business or expanding it," the official said.

The panel has also suggested simplification of rules for entry of small units along with creating an efficient framework for exit of sick units.

IMC members, besides Lal, are Textiles Secretary Zohra Chatterji, Secretary in the Ministry of Labour M Sarangi and Department of Industrial Policy and Promotion (DIPP) Secretary Saurabh Chandra.