Drained cash reserves, force majeure clauses, and an array of executive decrees have crippled India’s private sector. The lockdown has pushed the workforce into their homes with no clarity with respect to the resumption of business. Meaning that business continuity plans are being made in the dark, in anticipation of a much-needed stimulus package. With clients invoking force majeure clauses to avoid/delay performance, revenue streams are also drying up.
In light of the above circumstances, it is pertinent to ask how long the government can ask employers to continue paying full wages. Further, it is also relevant to examine whether the notifications prohibiting retrenchment are valid? These questions may be discussed as follows:
Extent of Government Powers at the Central, State and District Level
The Central Government invoked the provisions of the National Disaster Management Act, 2005 on 24th March. It declared COVID-19 an ‘emergency’ under Section-10 of the Act and used the enactment to impose a nationwide lockdown. However, since then it has released numerous notifications pertaining to essential services, closure of establishments, and standard operating procedures.
Directions issued to state governments under the above enactment are binding, despite public health being a state subject under the Seventh Schedule. This is indicative of the almost plenary powers the government has been exercising.
A flurry of government notifications left businesses scrambling, as they tried to ascertain the extent of their liability and requirements for compliance. ‘Lockdown’ has not been defined in any of the aforementioned executive issuances nor has there been any Parliamentary deliberation on the same.
The State Government’s intervention came through the Epidemic Diseases Act, 1897, a statute from our colonial past. Under Section-2 of the same, state governments are empowered to pass any regulations they deem necessary to prevent the spread of an epidemic disease.
Action at the district level has been confined to orders passed by senior police officers restricting the movement of persons. These are implemented when the movement of individuals poses a threat to human health, safety, and life.
Prohibition of Retrenchment & Mandatory Payment of Wages
Executive issuances in this domain have originated from both the Central and State governments, with the former’s being advisory in nature. States like Delhi, Telangana, and Haryana have issued directions that are binding and mandatory in nature. However, other states like Maharashtra and Karnataka have refrained from mandating the same, releasing issuances that are advisory in nature. Therefore any questions with regards to wages and retrenchment have to be state-specific.
Presently it seems as though the government can extend/relax the application of the Epidemic Diseases Act, 1897 depending on the situation prevailing in the state. However, the repeated imposition of the salary burden and bar on retrenchment won’t be received favorably by the private sector. With cash reserves dwindling and no stimulus package in sight, India’s businesses need some respite to be able to survive the economic aftermath of COVID-19.
Where Does the Solution Lie?
‘Stimulus package’ is a phrase with a nice ring to it, but the date of its arrival and measures that it may contain remain unknown. Countries like the Philippines and Singapore have announced wage subsidy packages, with the former’s being worth approximately $1 billion. The latter supplemented its Jobs Support Scheme with an additional stimulus of $3.8 billion, extending the 75 percent wage subsidy to all sectors for the month of May.
Wage subsidies provide businesses with breathing room and allow companies to retain their workforce without being burdened with debt. Things seem to be moving in a similar direction in India, with the Ministry of Labour and Employment announcing that it is exploring the possibility of a wage stimulus package for the private sector. The clock is ticking, as each day poses a challenge for businesses, it is essential that the government rolls out its plan expeditiously.
Do you think India’s private sector requires a wage subsidy scheme? What other measures do you think the government should enact to assist the private sector? Drop your thoughts below.
Click for Audio Version: How Long Can India’s Private Sector Withstand the Effects of COVID-19?