Imperative improvisation

Attracting foreign investment is an imperative for our economy, which could create large-scale employment. While India’s population is its drawback, it is also a positive to achieve this aim. We have working hands. Countries overseas nowadays want to outsource businesses to a country with lower labour cost. This is because outsourcing companies often have access to workers who are willing and able to work for less than the local market rate. This aids in having overhead costs down.

To achieve the objectives, our legislations and procedures need to provide the following – simplified laws and better trained workforce.

Age-old contract labour system of the country needs a revisit. Indian laws need to be made more pragmatic to suit today’s era of externalising work. One of the key reasons for companies to enter into outsourcing contracts is to get rid of employee-related issues, apart from saving on various other counts. However, contrary to the intention, a major chunk of labour litigations in courts pertain to contract labour disputes.

Over a few decades ago, contracting out implied only the call centres and BPOs. Now, almost every sector is into outsourcing, such as IT, customer, accounting, HR, manufacturing, logistics, marketing, etc. In fact, not just the non-core and incidental activities, but even the core and basic ones are being delegated to smaller firms and factories. This makes a powerful impact on growth of smaller firms. MSMEs are, thus, generating more employment, which is a pertinent need for our economy. Such contracts are on a principal-to-principal basis.

Grey areas in laws, which need to be addressed for attracting more of such international businesses, are those which attract litigations. Under the Indian laws, the key question in most of the litigations pertaining to outsourced contracts is, whose baby is the employee, principal employer or service provider? Cases are generally filed by employees seeking reinstatement after termination and also regularisation, higher pay scales, etc. These kinds of litigation discourage overseas companies from investing in India. Laws are ambiguous and judgments are conflicting.

Indian contract labour system is a tripartite arrangement, where there is a principal employer for whom the work is being done, a contractor who undertakes to carry out the work, and the workers of the contractor who carry out the task. Generally, a part of the process, such as finance, administration, human resources, housekeeping, security, catering etc. are outsourced. In such an arrangement, courts dive deep and examine the nature of arrangement in case of employee-related claims. Courts in such cases examine if arrangement is not sham and camouflage, meant only to flout laws, especially in cases of closure, termination, etc. Courts have been given the power to lift the veil and see the real nature of arrangement. Some of the major factors considered in such litigations are — who is the appointing authority, who pays salary, who takes disciplinary action, makes supervisions and controls operations. The party which is seen to be taking care of these factors is saddled with the responsibility. These litigations carry on for years and cost big to the management, which is one of the factors dissuading companies to invest. In modern-day contracting out, where complete product manufacturing is sourced out, regulations may be promulgated to keep such arrangements outside the purview of these litigations, especially for foreign entities. The well-known theory, that while it is easy to open business in India, it is difficult to close, needs to change.

Even with respect to compliance of provisions such as minimum wages, provident fund, employees’ state insurance and other statutory benefits, the law is clear that in case of non-compliance by a contractor, the principal employer shall be responsible. This, too, needs middle-path solutions such as — where there is sub-contracting to registered and recognised brands, especially in cases of renowned international entities, there could be exemption from such compliances. Web-based compliances could be encouraged for protecting the interest of workers.

The trend of outsourcing has increasingly seen the movement of jobs from the west to developing economies like India, Indonesia, Brazil etc. If India can focus on inculcating pedagogies and practical training, it may negotiate and attract better businesses, for then we will have a trained workforce. This may be especially in sectors like IT, research and development, hospitality, manufacturing, etc.

The crux of the issue is that if our laws are clarified, and there is a better trained workforce, we can attract massive foreign investments, thereby utilising the population’s full potential.

The writer is a practising Advocate in Supreme Court and High Court of Delhi. Views expressed are personal