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Employment generation: Tax sops, flexi hiring key

From extending income tax benefits to the services sector to faster clearances and enabling women factory workers to work night shifts, a govt-appointed panel has recommended a slew of measures for improving job prospects in the country.

By: ENS Economic Bureau |
Updated: February 23, 2016 6:51:48 am
employment generation, india employment, job creation, GDP growth, tax incentives, Factories Act, provident fund, indian express The Group concluded that real problem was in the context of underemployment as is evidenced by the chart. It is visible from the chart that only around 60% of the employed were engaged for the entire duration of the year.

The 11-member committee set up by the government to review and suggest strategies to push employment generation has concluded that job creation has not kept pace with the GDP growth, at least over the last decade and underemployment remains a key challenge. The panel is learnt to have recommended a series of measures that include initiatives like providing tax incentives, reforms in industrial employment, Factories Act, provident fund and a targeted effort for job creation in specific sectors such as textile, defence, railways and agro-based industries among others.

The committee was formed as part of the government’s decision to set up 8 separate groups of secretaries to suggest strategies for selected areas. The 11-member panel on employment generation held 10 formal meetings, before it submitted its set of recommendations. The group held interactions with industry associations and individuals, that included secretaries of different departments such as commerce and revenue, who would be involved in taking decision on some of the recommendations.

The key findings of the committee underline that there has been a lag in generation of quality jobs, commensurate to rising education levels and that the female labour force participation rate (LFPR) at around 33 per cent is very low. Also, a majority of the jobs created have been in the informal sector, characterised by low remuneration and low skill content. The group noted that although manufacturing had grown at the rate of 9 per cent per annum in the period between 2005-2014, employment in the corresponding period grew by only 1.32 per cent. The panel in conclusion observed that, “It did not necessarily follow that growth would automatically lead to commensurate employment generation,” and therefore suggested measures to push employment generation.


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Interestingly, while the recommendations come ahead of the 2016-17 Budget announcements, one of the suggestions has already been taken up by the Cabinet. While the group said that every project/investment proposal brought before the Cabinet for consideration should also be appraised in the context of employment generation as it would force ministries/departments to look at the potential of job creation in such projects, a directive has already been issued by the Cabinet Secretariat in this regard.

Key recommendations

One of the key suggestions is linked to income tax where the committee has argued for extending tax benefit under Section 80JJAA of the IT Act to the services sector and even to contractual workers. While the Section provided for deduction of 30 per cent of the additional wages of new regular workmen employed in that year, for corporate assessees who are factory owners employing atleast 100 regular workmen, the Budget 2015-16 proposed to extend this benefit to all assessees owning manufacturing units and to units employing at least 50 workmen, so that smaller units can also avail this benefit. The committee, however, felt that this restricts the benefit to direct manufacturers only and the services sector, which is a major employer, should not be deprived. It also said that since the trend is more towards contracting out the work, contractual workers should also be included. It also has said that the incentive should be 30 per cent of additional emoluments, not limited to wages and that it should be given for a minimum increase of 2 per cent in workforce instead of 10 per cent.

“This would benefit a wide swath of employers in not only manufacturing but also service sectors and definitely make hiring easier and more attractive, especially in the unskilled/ semi-skilled sectors, leading directly to greater employment generation amongst the section of the workforce that needs it the most,” observed the committee.

It has also called for extension of the interest subvention scheme (providing loans at 3 per cent lower than the prevailing rates) to all MSME and other labour intensive sectors, in line with that for exporters in MSME, subject to an increased employment by the unit.

Sensing the fact that delays in clearances adversely impact businesses and employment generation, the group has suggested that registration forms should be allowed to be submitted electronically and such submissions should itself be deemed as registration. While web-based monitoring of clearances has helped the Project Monitoring Group (PMG) at the Central level to fast-track clearances of projects that are valued above Rs 1,000 crore, the group argued that this needs to be extended to help micro, small and medium sectors too, as they have immense potential for pushing employment opportunities.

In a bid to provide flexibility in hiring workers for a shorter period of time, the committee has proposed to include ‘fixed term employment’ in the classification of workmen under the Industrial Employment (Standing Orders) Act, 1946. “This can be done through a notification by the Ministry of Labour and Employment and can be accomplished by 31st March 2016. This is a progressive move as it gives the “fixed term employment” worker the same statutory benefits as a permanent worker in a proportionate manner,” the committee said.

While there has been a lot of debate and concern over Rule 25 of the Contract Labour (Regulation and Abolition) Central Rules as they stipulate that contractual workers should be paid the same wages as regular workers doing the same or similar nature of work, the committee has proposed that, “The wages for contractual workers can be the higher between the minimum wage or the mutually agreed wage which shall not be less than Rs 10,000.” It said that this can be done by Amendment to Rule 25 by the Ministry of Labour and Employment and can again be accomplished by March 31 2016.

Enable women to work night shifts

In another landmark proposal, the panel has ruled that Factories Act, 1948, which prohibits women from working in any factory between 7 PM and 6 AM, is discriminatory and recommended to bring necessary changes in the Regulation to enable women to work in night shifts in the factories. “This can be done by issuing suitable advisory to the states by the Ministry of Labour and Employment for permitting women workers in the night shift with adequate provisions for safety, security and transportation and this can be accomplished by March 31, 2016,” it said.

The committee also looked into the interest of low-wage workers and has proposed to provide relief to them from own contribution towards pension and provident fund. “If a waiver is given to the employee’s contribution which is 12 per cent of the wage, this would result in higher wages in hands of the workers and also ease the total cost to the company … Therefore, the Group recommends to give a relief to low wage workers (less than Rs 10,000 per month) by enabling waiver of employee’s contribution in such cases,” the committee said.

Other than these reform steps the committee has also proposed that preference should be given to indigenously designed and manufactured items in public procurement in sectors where significant import is taking place. It said that in sectors such as defence, railways etc., where large quantities of capital goods are imported, such preference could play a catalytic role for domestic manufacturing.

In a bid to incentivise the textile sector and employment within it the committee also proposed for a 5-year tax holiday for garment companies, and reduction of excise duty on manmade textiles from 12.5 per cent to 6 per cent. It also called for providing working capital to textile and apparel manufacturers at a reduced interest rate of 7 per cent. Other than for these, the committee called for creating employable skills, giving infrastructure status to hotel industry and promoting agri-processing zones by setting up primary processing facilities and cold chains among others.

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