Blog: Ending factory tyranny – The Financial Express

By Manish Sabharwal and Rishi Agrawal

The wonderful book Behemoth by Joshua Freeman chronicles how the modern world was built by factories that make the medicines we take, the clothes we wear, the planes we ride, and the phones we carry. It also reminds us of historical arguments of factory critics and champions (Karl Marx and Friedrich Engels, Charles Dickens, Alexander Hamilton, Henry Ford, Joseph Stalin, among others) and the ability of factories to inspire and horrify artists and writers (Charles Sheeler, Margaret Bourke-White, Charlie Chaplin, Diego Rivera, Edward Burtynsky, to name a few). The biggest story about factories in recent decades has been China. But recent Chinese policy decisions, increasingly dexterous robots, and pervasive digitisation are an opportunity for factories in India. The lowest-hanging reform for exploding manufacturing employment is abolishing the flabby Factories Act and converging the regulatory regime for factories and service employers.

The divergent regulatory regime for manufacturing and services is a wonderful natural experiment that shows how good intentions can create painful and unintended consequences. Manufacturing only employs 11% of our labour force, the same as post-industrial America. The Factories Act of 1948 is a Central Act that combines with State Factory Rules to create excessive regulatory cholesterol for factories like Tata Motors, while TCS complies under the Shops and Establishments Act. The best way to understand the divergence between a software employer with 10,000 employees and a factory with 100 employees in Maharashtra is to dive into specifics.

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A software employer with 10,000 employees comes under Maharashtra Shops and Establishments (Regulation of Employment and Conditions of Service) Act, 2017 and Maharashtra Shops and Establishments (Regulation of Employment and Conditions of Service) Rules, 2018. This regime prescribes 98 compliances, filing one annual return (Form R), and maintaining two registers (Form 0: leave register, Form Q: Muster Roll cum Wage register). It also includes four event-based filings (Form I: Notice of Change; Form M: Notice of Hours of Work, Rest-Interval, Weekly Holiday; Form T: Details of Persons Discharging Managerial Functions; and Form U: Details of Persons Discharging Managerial Functions).

In contrast, a factory in Maharashtra with 100 employees needs to comply with the Factories Act of 1948 & Maharashtra Factories Rules of 1963. This regime prescribes 502 compliances, requires filing one annual return (Form 27) and maintaining nine registers (Form 7: Health Register; Form 8: Record of Lime-washing; Form 9: Humidity Register; Form 10: Register of Workers Attending to Machinery; Form 16: Notice of periods of work for Child Worker; Form 17: Notice of periods of work for Adult Worker; Form 20: Register of Leave with Wages; Form 29: Muster Roll; and Form 30: Register of Accident and Dangerous Occurrences). There are two event-based filings (Form 5: Notice of Change of Manager and Form 6: Certificate of Fitness).

An abstracted sample of compliance includes maintenance of records of white-washing, cleanliness, disposal of effluents, ventilation, temperature, humidity, and lighting conditions. There are stipulations on toilet facilities in the ratio of employees, privacy requirements in the lavatory, water taps, construction and maintenance of drainage systems for latrines, number of sweepers, and provision for spittoons. The rules lay down requirements on the maintenance of the register of specially trained adult workers, clothing, periodic examination, and employment of young persons on dangerous machines. There are specific directions for the maintenance of registers of hoists, lifts, examination of lifting machines, and pressure plants. Other conditions prescribe the protection of eyes, minimum dimensions of manholes, and fire protection including water supply, standards of fire extinguishers, and ladders. There are instructions on safety precautions for hazardous processes, occupational health centres, ambulances, drivers, maintenance of health records, accident records, and first-aid facilities.

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Additional examples of health, safety, and welfare include prescriptions on quantity, source, cooling, storage, and periodic quality checks of drinking water. The directions have requirements for regular medical examination of all workers, painting requirements for the walls and ceiling, latrine and urinal requirements, creche facilities, canteen infrastructure, canteen committees, and dining hall size, among others. There are specific directions for the appointment, roles, and responsibilities of the safety officer, safety committee, and the canteen committee.

Stepping back from manufacturing to the broader economy, our employer regulatory protocol that blunts job creation and breeds corruption needs a brutal reform programme of rationalisation, decriminalisation, and digitisation. The digitisation phase must replicate the Indian stack value proposition of cashless, presenceless, and paperless in compliance by government departments asynchronously broadcasting regulatory stock and flow. Both stock and flow matter—flow matters because last year we had more than 4,000 changes to compliance that will will reach employers via service providers. This collection of open APIs called the National Employer Compliance Grid (NECG), published by all Union, state, and local bodies, will enable service providers to innovate in providing employers with a seamless flow of payments, challans, returns, filings, notices, and inspection requests.

Only a fool would make the case that factories are not different from software offices. And only a bigger fool would suggest that job creation needs no regulation and effective regulation is invisible. But as Renaissance physician Paracelsus said, the dose makes the poison. Anything powerful enough to help has the power to hurt. The Factories Act breeds corruption, sabotages manufacturing jobs, and delays India’s mass prosperity. It must go.

The authors are with Teamlease Services and Teamlease Regtech, respectively

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