Save Industry to Save Economy

Even before the outbreak of COVID 2019, Indian economy was already facing recession. Automobile industry, infra-projects and constructions business, retail chains supplying consumer goods and agriculture, all were in a bad shape. In addition to this, fiscal stimulus from Government of India in the Annual Budget also failed to cheer Industry. Few days back, banking giant, Yes Bank too collapsed like a pack of cards. Ratings of three other leading Private Banks were downgraded from “stable” to “negative” or from “positive” to “negative”. Even the Credit Rating of one of India’s Automobile giant’s was reduced. Owing to this, richest of Indians have suffered severe setbacks. Recession therefore has engulfed one and all. Google, based on analysis of location of billions of users revealed about a stark drop in number of people visiting retail and recreation spots. So when economy was undergoing recession – in India entered COVID-2019, through channels not even expected by the Government. It was an unprecedented situation offering problems which no individual organization or any Government all over the world, had either experienced or anticipated. Disregarding the meagre situational references as projected by some work of fiction, there are no real-life parallels to combat such a situation. Though we are extremely fortunate to have a strong leader to attend this crisis head-on, however some of the decisions made by the Government have been arrived at, without examining their legal repercussions and consequences on economy. One such decision was that of directing private employers to pay 100% wages to employees irrespective of the hefty salaries and perquisites drawn by them, along with the non-termination of employees especially casual or contract workers, during this period.

The Government of India was so unprepared for the onslaught posed by COVID 19 that it had to rely on the Epidemic Diseases Act 1897 and Disaster Management Act of 2005. In this regard, the coverage of COVID 19 under the definition of “disaster” as provided u/s 2(d) of the Disaster Management Act can also be argued as a far-fetched interpretation of the said definition. Nevertheless, both the Government of India and all State Governments started acting with lightening speed and every State Government hurriedly introduced its own COVID 19 Regulations (for example “The Maharashtra COVID Regulation 2020). One brilliant decision, on this background, was to implement a “lockdown” throughout the country. Governments also issued various other directions particularly u/s 24 of Disaster Management Act to combat the crisis. One such compassionate decision was to direct private sector not to terminate services of employees including casual/contractual worker and not to reduce wages. But whether State has examined, if it is empowered to do so, is a subject which should and is also likely to be examined in the Court of Law.

The Disaster Management Act was introduced with the objective to provide for the effective management of disasters and for matters connected therewith or incidental thereto. Section 24 of the said Act which has 12 sub sections which deal with the powers of State Executive Committee constituted under the Act during such a crisis. Though the Government has not stated that under which sub sections, the said directions were issued. However for the sake of reference, only sub section (l) may be relevant in this regard, which provides for steps as required or warranted by the form of any threatening disaster situation or disaster. It is apparent that such a decision has been enforced hastily to avoid any strong reaction from working class. However it was imperative for the Government to have analyzed the impact of such a decision on every party likely to be affected by it.

Also though, these directions are in the interest of weaker section of the society, however they are silent on its applicability regarding the particular class of employees, which such directions intend to protect. The intent of the legislature appears to be the protection the rights of weaker section of the society but scope of such directions are not confined to the definition of workman as defined u/s 2(s) of the Industrial Disputes Act. Such an arbitrary exercise of power has created more confusion. If all notifications are to be considered, employees irrespective of their pay package need to be paid 100% wages, as the said Directions provide no reasonable classification on the basis of either salary or class of employee. However it is not too late, and even now Governments can offer clarification in this regard, at least for the month of April. Otherwise in a recessionary economy which is already saddled with COVID-2019 crisis, there will be more unemployment than anticipated, leading not only to mass unrest but also severe crisis in economy. If Government wants to protect the interests of the working class employees, then employers can be directed to pay minimum wages depending on the category that the person is employed in. Obligation for the payment of PF/ESI contributions too can be waived off. This will also ensure that there is more money in the hands of beneficiaries. In Western India, Industrial sector is already paying anything between Rs. 40,000/- to Rs. 75,000/- per month, as wages to workers. Therefore there is no necessity for Government to direct private sector to pay 100% wages to such employees. Executives drawing fat salaries and perquisites too can afford salary cuts to save the Organization. This is based on the legal principle of “better neutralization of dearness allowance for employees drawing lower salaries and lesser neutralization of employees drawing higher salaries.”

Directions of Central Government under Article 256 of the Constitution of India are binding on the Government of each and every State. Non-fulfilment of such directions will invite penal provisions under sections 55 and 56 of the Disaster Management Act. In view thereof, State Governments too have also issued similar directions independently. However prima facie, it can be argued that u/s 24 of the Disaster Management Act, State Governments have no power to direct employers in the private sector to pay 100% wages to its employees /workers. One understands that the State Governments may have considered that non-payment of wages would have added into law and order problem, however State governments should have also considered that besides workmen, there are other stakeholders, who shall be detrimentally impacted by such an arbitrary and irrational decision. The Governments have also overlooked that with regard “workman”, reasonable relief for providing 50% wages was already available u/s 25(c) of Industrial Disputes Act.

In any case, even if the said Notification is challenged before the Hon’ble Supreme Court and such a Notification is upheld, whether small scale and medium scale businesses can pay full wages in this moment of crisis shall still remain a challenge that the respective State Governments would need to address. This is because though the object of Notification appears to be to protect a particular class, at the same time is should have been examined whether Notification can be considered “manifestly arbitrary” and beyond the power of delegated legislation.

During the lockdown, several small scale and medium sized businesses shall have substantial fixed costs which would require to be borne in spite of not undertaking any production or profit generation. One aspect, which is inevitable but which has skipped common attention is the problem of migration of workers or problem of transport etc. that businesses would face post-lockdown period. Though RBI has provided moratorium but ultimately liability has to be paid in future, without any income. Similarly interest at the rate of 9% interest would be charged on TDS in spite of the relief of deferred payments. Also after lockdown, achieving 100% productivity or even the survival of several businesses remains an uncertainty. Lastly purchasing power of common consumers too is affected by this epidemic. This would normally force people tend to save more than they spend thereby reducing demand for consumer goods to a great extent. In such circumstances, small scale and medium sized business would be constrained to find a way out to dodge directions issued by Government, to ensure sustainability.

Understandably, what remains the prime concern today is to protect working class of employees drawing up to Rs. 25,000/- to 30,000/- a month. Obligation for payment of Provident Fund or ESI contribution for such employees can be waived off. This shall benefit both the interest of both employees as well as employers alike. With regard to those employees drawing more than Rs. 25,000/- to 30,000/- per month, reasonable reduction in wages can certainly be considered. Various Wage-Agreements have the provision of block closure in the event of such unprecedented situations. In this regard, allowing such arrangement to prevail instead of issuing sweeping directions is the need of the hour.

Last but not the least, the Provident Fund Department has bounteous accumulation of over 351 Crore Rupees only from “unclaimed PF Deposits”. The said amount can be used to support the Industry for payment of wages of employees in this unprecedented crisis. Since this amount has been accumulated from the contribution of the Industry and its workforce, therefore it is only appropriate to utilize a part of this amount to pay wages to the workers and ensure survival of the industry. In the alternative, Industry will find out its own solution to the problem. It is pertinent to note that the concept of contract labour, which is today used by Governments more than private sector, was also such a solution found by the Industry when Government cornered industry with outdated and detrimental laws.

Today India’s economy is facing one of its most fatal economic crisis. News Reports suggests that tax collection has gone down by Rupees One Lakh Crore. Looking at News Reports, it may not possible for the Government to provide support to the Industry. But to save the economy from further deterioration and to prevent private sector taking different routes, some courageous decisions are essential. Therefore in order to prevent any further downslide, the suggestions mentioned hereinabove should be seriously considered and acted upon by the Government. The mantra of the Government should only be “SAVE INDUSTRY TO SAVE ECONOMY”.


Adv. Abhay Nevagi