The Minister of Railways, Dinesh Trivedi, presented the Railways Budget 2012 to Parliament on 14th March.  While commenting on the financial position of Railways, the Minister said that 'the Indian Railways are passing through a difficult phase'. The Operating Ratio for the closing year is now estimated to equal 95%. This is significantly higher than the 91.1% figure budgeted last year. Operating Ratio is a metric that compares operating expenses to revenues. A higher ratio indicates lower ability to generate surplus. Surplus is used for capital investments such as laying of new lines, deploying more coaches etc. Therefore, a smaller surplus affects the Railway’s capability to make such investments. Budget v/s Revised estimates 2011-12 Budget 2011-12 had estimated the performance of Railways for the financial year. Revised estimates have now been submitted. Taken together, these two figures help in comparing actual performance against targets. Some observations are enumerated below:

  • Total receipts decreased by Rs 2,746 crore.
  • Total expenditure increased by Rs 2,102 crore.
  • Operating Ratio increased from 91.1% to 95%. This implies a decrease in surplus.
  • Appropriations to the ‘Development Fund’ and the ‘Capital Fund’ decreased from Rs 5,258 crore to Rs 1,492 crore (a decrease of 72%). The ‘Development Fund’ finances expenditure such as passenger amenities; the ‘Capital Fund’ is used for capital augmentation such as laying of new lines.

Budget estimates 2012-13 In 2012-13, Railways plan to improve Operating Ratio to 84.9% and to increase surplus to Rs 15,557 crore. This is more than 10 times the surplus generated in 2011-12 (Revised Estimates). The effective increase in freight rates is estimated to average 23%. During this time, passenger fares are also estimated to increase by an effective average rate of 19%. [1] Infrastructure Performance during the 11th Plan Under the 11th Five Year Plan, the total plan expenditure for Railways had been approved at Rs 2,33,289 crore. The Outcome Budget shows that the actual expenditure is only likely to be Rs 1,92,291 crore. Thus, expenditure will fall short by Rs 40,998 crore. This gaps exists despite a significant increase in the Gross Budgetary Support approved by Parliament. Plan expenditure during 2007-12 (In Rs Crore)

 

Approved Expenditure

Actual Expenditure

Gross Budgetary Support

63,635

75,979

Internal Resources

90,000

67,763

Extra Budgetary Support

79,654

48,549

Total

2,33,289

1,92,291

The Standing Committee on Railways, in its 11th report presented in August 2011, had sought an explanation from the Ministry. According to the Ministry, lower mobilization of internal resources and lack of extra budgetary support are the main reasons for the shortfall.  Internal resource mobilization has been low because of (i) impact of the 6th Pay Commission; and (ii) slow growth in freight earnings due to the economic slowdown. Extra budgetary resources have been low due to non-materialization of funds through the Public-Private Partnership route. Proposals for the 12th Plan Two recent committees – Kakodkar Committee on Railway Safety and the Pitroda Committee on Railway Modernization – have called for large investments in the next five years. The Kakodkar Committee has recommended an investment of Rs 1,00,000 crore in the next five years to improve safety; the Pitroda Committee has recommended an expenditure of Rs 3,96,000 crore in the next five years on modernization. The Railway sub-group of the 12th Five Year Plan has also estimated a requirement of Rs 4,42,744 crore for various other investments proposed to be undertaken during the Plan period. [2] All three groups have called for significant investments in infrastructure augmentation in the next five years. Budget proposals 2012-13 According to the Minister’s speech, the Annual Plan outlay for the year 2012-13 has been set at Rs 60,100 crore. The plan would be financed through:

  • Gross Budgetary Support of Rs 24,000 crore
  • Railway Safety Fund of Rs 2,000 crore
  • Internal Resources of Rs 18,050 crore
  • Extra Budgetary Resources of Rs 16,050 crore. Of this, Rs 15,000 crore would be borrowed from the market through IRFC (Indian Railway Finance Corporation).

What happens now? The Budget is likely to be discussed in the two Houses within the next few days.  Post the discussion, the Ministry's proposals will be put to vote.  Once passed, the Ministry can put its proposals into action. For more details on the Railway Budget, including the projects proposed this year and the status of proposals made last year, please see our analysis here. To understand some of the challenges faced by the Indian Railways, see our blog post from last year. Notes: [1] The ‘effective average fare’ has been calculated by dividing the total income from the segment (freight/ passenger) by the total traffic (in NTKM/ PKM).  This would vary with changes in fares as well as the usage by different categories of users (including the proportion of tickets booked through Tatkal). [2] Source: Report of the Expert Group on Railway Modernization (Chairman: Sam Pitroda)

To contain the spread of COVID-19 in India, the central government imposed a nation-wide lockdown on March 24, 2020.  Under the lockdown most economic activities, other than those classified as essential activities, were suspended.  States have noted that this loss of economic activity has resulted in a loss of income for many individuals and businesses.  To allow some economic activities to start, some states have provided relaxations to establishments from their existing labour laws.  This blog explains the manner in which labour is regulated in India, and the various relaxations in labour laws that are being announced by various states. 

How is labour regulated in India?

Labour falls under the Concurrent List of the Constitution.  Therefore, both Parliament and State Legislatures can make laws regulating labour.  Currently, there are over 100 state laws and 40 central laws regulating various aspects of labour such as resolution of industrial disputes, working conditions, social security, and wages.  To improve ease of compliance and ensure uniformity in central level labour laws, the central government is in the process of codifying various labour laws under four Codes on (i) industrial relations, (ii) occupational safety, health and working conditions, (iii) wages, and (iv) social security.  These Codes subsume laws such as the Industrial Disputes Act, 1947, the Factories Act, 1948, and the Payment of Wages Act, 1936.   

How do state governments regulate labour?

A state may regulate labour by: (i) passing its own labour laws, or (ii) amending the central level labour laws, as applicable to the state.   In cases where central and state laws are incompatible, central laws will prevail and the state laws will be void.  However, a state law that is incompatible with central laws may prevail in that state if it has received the assent of the President.  For example: In 2014, Rajasthan amended the Industrial Disputes Act, 1947.  Under the Act, certain special provisions with regard to retrenchment, lay-off and closure of establishments applied to establishments with 100 or more workers.  For example, an employer in an establishment with 100 or more workers required permission from the central or state government prior to retrenchment of workers.  Rajasthan amended the Act to increase the threshold for the application of these special provisions to establishments with 300 workers.  This amendment to the central law prevailed in Rajasthan as it received the assent of the President. 

Which states have passed relaxations to labour laws?

The Uttar Pradesh Cabinet has approved an ordinance, and Madhya Pradesh has promulgated an ordinance, to relax certain aspects of existing labour laws.  Further, Gujarat, Rajasthan, Haryana, Uttarakhand, Himachal Pradesh, Assam, Goa, Uttar Pradesh, and Madhya Pradesh have notified relaxations to labour laws through rules.

Madhya Pradesh:  On May 6, 2020, the Madhya Pradesh government promulgated the Madhya Pradesh Labour Laws (Amendment) Ordinance, 2020.  The Ordinance amends two state laws: the Madhya Pradesh Industrial Employment (Standing Orders) Act, 1961, and the Madhya Pradesh Shram Kalyan Nidhi Adhiniyam, 1982.  The 1961 Act regulates the conditions of employment of workers and applies to all establishments with 50 or more workers.  The Ordinance increases this threshold to 100 or more workers.  Therefore, the Act will no longer apply to establishments with between 50 and 100 workers that were previously regulated.  The 1982 Act provides for the constitution of a Fund that will finance activities related to welfare of labour.  The Ordinance amends the Act to allow the state government to exempt any establishment or class of establishments from the provisions of the Act through a notification.  These provisions include payment of contributions into the Fund by employers at the rate of three rupees every six months. 

Further, the Madhya Pradesh government has exempted all new factories from certain provisions of the Industrial Disputes Act, 1947.  Provisions related to lay-off and retrenchment of workers, and closure of establishments will continue to apply.  However, the other provisions of the Act such as those related to industrial dispute resolution, strikes and lockouts, and trade unions, will not apply.   This exemption will remain in place for the next 1,000 days (33 months).  Note that the Industrial Disputes Act, 1947 allows the state government to exempt certain establishments from the provisions of the Act as long as it is satisfied that a mechanism is in place for the settlement and investigation of industrial disputes.

Uttar Pradesh

The Uttar Pradesh Cabinet has approved the Uttar Pradesh Temporary Exemption from Certain Labour Laws Ordinance, 2020.  According to news reports, the Ordinance seeks to exempt all factories and establishments engaged in manufacturing processes from all labour laws for a period of three years, subject to the fulfilment of certain conditions.  These conditions include:

  • Wages:  The Ordinance specifies that workers cannot be paid below minimum wage.  Further, workers must be paid within the time limit prescribed in the Payment of Wages Act, 1936.  The Act specifies that: (i) establishments with less than 1,000 workers must pay wages before the seventh day after the last day of the wage period and (ii) all other establishments must pay wages before the tenth day after the last day of the wage period.  Wages must be paid into the bank accounts of workers. 

  • Health and safety:   The Ordinance states that provisions of health and safety specified in the Building and Other Construction Workers Act, 1996 and Factories Act, 1948 will continue to apply.  These provisions regulate the usage of dangerous machinery, inspections, and maintenance of factories, amongst others. 

  • Work Hours:  Workers cannot be required to work more than eleven hours a day and the spread of work may not be more than 12 hours a day. 

  • Compensation:  In the case of accidents leading to death or disability, workers will be compensated as per the Employees Compensation Act, 1923. 

  • Bonded Labour: The Bonded Labour System (Abolition) Act, 1976 will continue to remain in force.  It provides for the abolition of the bonded labour system.   Bonded labour refers to the system of forced labour where a debtor enters into an agreement with the creditor under certain conditions such as to repay his or a family members debt, due to his caste or community, or due to a social obligation.  

  • Women and children:  Provisions of labour laws relating to the employment of women and children will continue to apply.  

It is unclear if labour laws providing for social security, industrial dispute resolution, trade unions, strikes, amongst others, will continue to apply to businesses in Uttar Pradesh for the period of three years specified in the Ordinance.  Since the Ordinance is restricting the application of central level labour laws, it requires the assent of the President to come into effect. 

Changes in work hours

The Factories Act, 1948 allows state governments to exempt factories from provisions related to work hours for a period of three months if factories are dealing with an exceptional amount of work.  Further, state governments may exempt factories from all provisions of the Act in the case of public emergencies.  The Gujarat, Himachal Pradesh, Rajasthan, Haryana, Uttar Pradesh, Goa, Assam and Uttarakhand governments passed notifications to increase maximum weekly work hours from 48 hours to 72 hours and daily work hours from 9 hours to 12 hours for certain factories using this provision.  Further, Madhya Pradesh has exempted all factories from the provisions of the Factories Act, 1948 that regulate work hours.  These state governments have noted that an increase in work hours would help address the shortage of workers caused by the lockdown and longer shifts would ensure fewer number of workers in factories allowing for social distancing to be maintained.   Table 1 shows the state-wise increase in maximum work hours. 

Table 1: State-wise changes to work hours

State

Establishments

Maximum weekly work hours

Maximum daily work hours

Overtime Pay (2x ordinary wages)

Time period

Gujarat

All factories

Increased from 48 hours to 72 hours 

Increased from 9 hours to 12 hours 

Not required

Three months

Himachal Pradesh

All factories

Increased from 48 hours to 72 hours 

Increased from 9 hours to 12 hours 

Required

Three months

Rajasthan

All factories distributing essential goods and manufacturing essential goods and food

Increased from 48 hours to 72 hours 

Increased from 9 hours to 12 hours 

Required

Three months

Haryana

All factories

Not specified  

Increased from 9 hours to 12 hours 

Required

Two months

Uttar Pradesh

All factories

Increased from 48 hours to 72 hours 

Increased from 9 hours to 12 hours 

Not required

Three months*

Uttarakhand

All factories and continuous process industries that are allowed to function by government

Maximum 6 days of work a week

Two shifts of 12 hours each.

Required

Three months

Assam

All factories

Not specified

Increased from 9 hours to 12 hours 

Required

Three months

Goa

All factories

Not specified

Increased from 9 hours to 12 hours 

Required

Approximately three months

Madhya Pradesh

All factories

Not specified

Not specified

Not specified

Three months

Note: *The Uttar Pradesh notification was withdrawn