Change in Factories Act will allow two different departments of same factory to be counted as separate companies

Prashant K. Nanda
The government may also keep non-manufacturing units of a company out of the purview of the law. Photo: SaiSen/Mint

The government may also keep non-manufacturing units of a company out of the purview of the law. Photo: SaiSen/Mint

New Delhi: The government may soon legislate to redefine the word “factory” in order to enable their owners to file for exemption from social security and other obligations, potentially worsening simmering strains between the government and workers’ unions.

Government moves to overhaul the 67-year-old Factories Act include a proposal to allow two different departments of the same factory to be counted as two separate companies.

The labour ministry proposals, which are set to delight industry, suggest that all companies employing fewer than 40 people be kept out of the purview of the proposed law.

The ministry says that the word “factory” should mean “any premises…wherein 40 or more workers are working or were working on any day of the preceding 12 months and in any part of which manufacturing process is being carried on”.

This, trade unions warn, is fraught with difficulty.

D.L. Sachdeva, national secretary of the All India Trade Union Congress, said the move will encourage factory owners to list different branches or departments as separate entities in order to avail of exemptions. A factory with 80 workers, for instance, could be shown as two factories, which would mean both entities would be kept out of the purview of the Factories Act and enjoy several relaxations, including in their social security obligations.

However, the National Democratic Alliance (NDA) wants to set up an independent regulator to deal with health and safety standards in factories.

The proposed law “may be called the Factories (Amendment) Act 2015”, according to two government officials, as well as labour ministry documents reviewed by Mint.

The government introduced the Factories Amendment Bill, 2014, in the Lok Sabha in August last year, but lawmakers sent it to the parliamentary standing committee related to labour matters. The committee has already submitted its report, expressing reservations on some key proposals such as raising the limit on overtime to almost double what is currently allowed and allowing women to work in night shifts.

The government is not bound to accept the parliamentary panel’s recommendations. Instead of persisting with the old bill, however, the labour ministry has now reworked a fresh bill with many more amendments, which it believes promote both workers’ safety and industrial growth.

According to the new proposal, a factory owner can apply to the state government or any other competent authority for permission to declare two different departments or branches of the same factory as two different factories. “If no communication is received within one month, on the application, the proposal shall be deemed approved,” the proposal says.

The government may also keep non-manufacturing units of a company out of the purview of the law. The new draft bill defines manufacturing as any process or activity “resulting in any alteration of original character such as nature, state, shape, size, usefulness and/or making value addition to the original material…” Giving an example, it says “unprocessed milk that is simply packed into different volumes or weight without changing the character of milk shall not be manufacturing”.

S. Srinivasan, chairman, All Indian Manufacturers Organisation (Tamil Nadu chapter), praised the move as an attempt to “unclutter” the current Factories Act, which he said is too complex, with provisions that encourage over-regulation.

He said that all branches of a factory involved in non-manufacturing activity, such as the sales department, should be kept out of the Factories Act. “Instead of tinkering, it needs a huge overhaul. India does not need so many labour laws and the government will do good if it consolidates them,” Srinivasan added.

According to the draft bill, “It is felt that a dynamic policy framework/Act is required to ensure work place safety to workers…many of the provisions of the (current) Act may be inadequate in addressing the contemporary challenge to safety in workplace. Similarly, with huge backlog of unemployed and under-employed youth, it is necessary that more and more factories are set up in this country and produce output competitively. This calls for simplification of the procedure, credible instruments of compliance of safety norms and faster yet effective approval process.”

It says these objectives are sought to be addressed in the new proposals which “introduce a regulator, self-certified declaration, risk-weighted inspection system, modern regulatory practice and IT (information technology)-enabled work-flow system”.

The proposals say entrepreneurs should be allowed to give “self-certified declaration for fuller responsibility” on safety standards.

The regulator will create the necessary infrastructure, service and work-flow system to facilitate electronic submission and processing of request for registration. The process will be largely Web-based. “Provisional registration shall be in real time on submission of self-certified declaration on the notified standards of safety, health and occupational disease, hygiene and other conveniences of the workplace,” the new draft of the bill says.

The request will be deemed approved on the expiry of 15 days of receipt of certificates from a licensed safety auditor or officer, the draft bill says. A government official said such a system will make for faster processing by placing more trust on entrepreneurs.