Return to Story Page
To print: Select File and then Print from your browser's menu

Revised ID Act to allow factories closure freedom

Santanu Saikia

New Delhi, Oct 22: In a major policy initiative, the government is slated to modify the Industrial Disputes (ID) Act to allow factories to close down without prior permission and, at the same time, substantially boost the compensation package to workers for loss of jobs.

A crucial change, which is being given finishing touches by the labour ministry, is removal of chapter VB of the Industrial Disputes Act requiring industrial establishments to obtain prior permission of the government for closure. The ministry also plans to eliminate the requirement of prior consent before laying off workers or allowing for retrenchment.

As a corollary, the retrenchment compensation for workers is being sought to be brought on par with the voluntary retirement scheme, now being implemented on a selective basis for public sector undertakings. This will bring about an across-the-board jump in compensation, from 15 days salary for every completed year of service to 45 days salary.

According to a status note prepared forthe finance ministry by labour secretary L Mishra, "The proposed changes will be statutory in nature and will be neutral across the public and private sector." Unlike VRS, the new compensation package will have legal backing. The note goes on to say that "Since the retrenchment compensation will be broadly brought at par with the voluntary retirement scheme, for any new scheme of voluntary retirement in future, the benefits to be offered to the workers would have to be substantially higher than at present."

The elimination of chapter VB of the ID Act will come as a major boost for closure of sick and unviable units. At the same time, the hike in the compensation package will provide the necessary cushion to workers in the short run. At present, only small units employing less than 100 workers are not required to approach the government for permission and retrenchment. This, in turn, led to exploitation of labour in the small sector.

The note provides two reasons why the compensation package to workersshould be raised: First, there is no alternative safety net for workers in the form of social security as in developed countries and, second, there is an increase in redundancies as a result of industrial sickness and restructuring of non-sick units wanting to become more competitive.

The need for a higher package deal for retrenched workers was highlighted after the newly formed BJP government raised the issue of adequate compensation for private sector employees who are laid off. The new leadership criticised the fact that the VRS scheme was supposed to have been meant for the private sector as well but only the public sector is now the beneficiary.

The labour ministry acknowledges the fact that the VRS scheme was meant for the private sector as well but this aspect remained unimplemented because of the close ended nature of the VRS scheme and also on account of resource constraint. Even the entire public sector is not covered under the VRS - the total demand for funds under the scheme is Rs 800 croreas against this year's budget allocation of Rs 300 crore only.

The ministry admits that considerations governing payment of compensation to workers in PSUs are different from those governing the private sector. The government apparently has the "moral responsibility to ensure that adequate compensation is paid to its employees as it has to fulfil the role of a model employer with social obligations." What is more, VRS is a non-statutory arrangement which is not legally binding. It is purely voluntary from the side of the employers as well as the employees. Both the parties can be persuaded or influenced but cannot be compelled to offer or to avail the benefits of the scheme. The compensation package now being drawn up will bridge the gap between the public and the private sector, the labour ministry note proclaims.

Shine To Golden Handshake