Suchita Dutta, Executive Director, Indian Staffing Federation, tells Business Today's Sarika Malhotra that despite the challenges and policy lags, the staffing industry in India is growing steadily. Here are edited excerpts of the interview
BT: What challenges are the staffing companies facing?
Dutta: One of the major challenges is that there is no licensing of the staffing firms due to which there are many frivolous organisations operating in the market that are responsible for informal workforce.
If the government recognises the flexi staffing industry, employers will gradually have to shift to work with the national license holding staffing companies to operate in this industry. Secondly, laws have to be conducive for the contract staffing industry. Complying with over 44 central labour laws and nearly 100 state laws can be tough for any company, forcing many to explore loopholes, often at the expense of efficiency.
The legal complexity faced by the industry due to inefficient labour law ecosystem is choking the growth. The labour laws should reflect the needs, aspirations and realities of the current economic and business environment, and should not be prisoner of our past. Additionally, the operating margins that the industry is working upon is very less and are perhaps fighting against the organised sector itself. Service tax is being paid on the gross income of which many categories like social security, reimbursement are not earned by the staffing organisations.
This means it leaves out with a minimal percent of not more than 1-2 per cent capital or profit for the staffing organisations after the deductions. Moreover, the market is increasingly becoming competitive with 3 of the member staffing companies shutting operations due to the sustainability model currently operating. The credit of the industry is minimum of 6 months. And the firms need to make the necessary monthly dues like TDS, service tax and salary that is needed to be done by the first 10 days of the month while the client companies pays within 30-90 days. So if the staffing companies are not adequately funded or have a decent cash-flow, they fail to sustain during this span.
BT: Despite the challenges and thin margins, why are companies still in staffing services?
Dutta: The Indian industry has seen dynamic changes in the recent past, with fast changing labour demands impacting the need for staffing industry. Manpower outsourcing is a globally high demand industry thus innovative models of staffing, makes it the most appealing market across the global arena. The staffing industry is growing at a rate of 12.3 per cent p.a. from 2015 to 2018, from 10.3 per cent p.a. in 2013-15.
India is to become the 3rd largest country to employ 2.9 million flexi- staff by 2018, moving from 2.1 million in 2015. There has been a surge of contract workers into organised staffing -- from various sectors like IT-ITeS, BFSI, manufacturing -- from blue collar workers to white collar workers. These facts testify that despite the ongoing challenges, there is immense potential and flexi staffing industry is here to stay. It is one among India's fastest growing job creation engine, in a country where for the next 20 years over 9 million youth would be added to the organised workforce. And Indian Staffing Federation is the only federation working for the organised flexi-staffing industry with over 7 lakhs organised contract workers currently.
BT: What are the demands from the policy side?
Dutta: ISF works closely with ILO and UN bodies across Asia to understand the flexi labour laws. ISF has been advocating the adoption of the ILO convention181. They had submitted 20 recommendations to the government last year, of which 2-3 recommendations have already been implemented by the government. The primary demands from the policy side include national licensing of staffing firms, amendments in CLRA Act and the necessity for lowering the TDS amount. The major impact happens because of cash flow.
The companies get restricted due to huge amounts being blocked under TDS and Service tax. Government needs to identify the way to understand and take into account that beyond fees adding salaries that is payable to flexi staff along with their reimbursement, effects business and it should not be taken under taxation since it's not the earning. National License for Staffing Companies: The big change as advocated by ISF is to bring a National License to operate in flexi staffing industry. This will not only regulate the staffing industry but also reduce the unorganized sector. Lower the amount of TDS for contract work simplify labour laws. Minimum Turnover as threshold base to allow organisations to operate in the space.