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When Exemptions Become The Rule
Shops Acts place many restrictions on offices but exempt the government from complying
On 04 July 2023, Deputy Chief Minister Dushyant Chautala announced that all restaurants in Haryana can stay open 24x7. This is a positive step towards greater business freedom and generating more employment. However, should we wait for each sector of the economy to be exempted, one by one? It is time to end the exemption system and rethink the laws that hinder economic growth and job creation.
Indian cities die at night. Citizens cannot access services like cinemas, cafes, or clubs in most parts of the country after a certain time. Shops and commercial establishments that are bustling in full swing throughout the day, close for the night, leaving city streets dead and deserted. This lack of a vibrant nightlife is usually a result of legislation called the Shops and Establishments Act that imposes multiple restrictions on the working of businesses, for example, forcing businesses to shut down at night or limiting the number of hours a person can work.
These restrictions harm economic activity, and governments are aware of this fact. Consequently, governments exempt many offices and businesses from the law. The legislation may exempt some businesses, or the executive may grant exemptions at its discretion. Such selective exemptions, while providing a workaround, are discriminatory and usually burden smaller businesses with relatively higher costs. The exemptions also place a burden on the state in terms of administrative costs. A better solution may be to do away with certain provisions of the Shops and Establishments Acts completely.
A plethora of restrictions
Businesses in cities in India face multiple restrictions due to the shops and establishments law that harm economic activity and jobs without commensurate benefits. The restrictions range from limits on working hours, standardised opening and closing times, prohibitions on women working at night, and fixed holidays for workers. For example, workers and businesses in Punjab face 15 restrictions that undermine rational business activity. One such restriction limits workers to nine-hour shifts, even if the nature of work is not physically demanding, and even if workers are willing to put in more hours for extra wages.
Like the restriction on workers, the law forces businesses and offices to open and shut down at fixed times. As a result, businesses lose out on the opportunity to earn higher revenue; employees lose out on making higher wages; people lose out on the chance to gain new employment; and finally, cities lose out on earning higher taxes from economic activities.
Apart from workers and businesses, women are specifically discriminated against by the shops and establishments law, which prohibits women from working at night. This means even if female employees consent to work at night, businesses are not legally allowed to hire them, thus hampering their ability to gain employment and earn wages (Anand and Kaur, 2022). Considering the urban female labour participation rate lies at 18.6% in India, cities in India would benefit from removing such restrictions.
A bouquet of exemptions
The government recognises that cities cannot function under the provisions of the Shops Acts. This is shown by the fact that the government (which enforces the law) exempts many entities from the shops and establishments laws. Some types of offices are unconditionally exempted from all provisions of the law, and others are exempted from some requirements but are subject to conditions. Finally, some other businesses/offices must apply to the government and may be exempted from some provisions on a case-by-case basis.
The fact that the law is unworkable is demonstrated by the fact that governments always exempt all government offices from the purview of the law. All 28 Indian states unconditionally exempt the central, state, and local governments from all provisions of their shops and establishments laws. A statement in the legislation itself achieves the exemption. For example, all government offices are exempted from the law. In Uttar Pradesh, there are 16.35 lakh state staff to whom the law is not applicable. As a result, government employees can run modified shifts, female employees can work at night, government offices can stay open for longer, and the government can carry out its functions with more flexibility.
These exemptions are not motivated by any economic difference between activities. For example, in Haryana, establishments that supply water are exempted from all provisions of the law without any conditions being imposed on them. Therefore, water supply systems can employ women at night without additional safety requirements. On the other hand, warehousing establishments can employ women at night, subject to 24 conditions imposed by the government. The establishments supplying water and warehousing facilities have similar storage, distribution, infrastructure, and facilities. Yet only warehouses must provide transportation facilities with CCTV cameras and safety guards to hire women for the night shift. The CCTV requirement is just one of the 24 conditions imposed on private businesses that want to operate at night and hire women for the night shift. Therefore, hiring a female employee increases the operational cost of a business. On the other hand, government offices face no such restriction. The nature of the employer does not change the risk posed to female employees.
Another way businesses are harmed by the shops and establishments legislation is that the laws discriminate between similar economic activities. For example, all IT/ITES sectors in West Bengal can operate throughout the night, but accounting firms need to shut down by 8 pm. The nature of work in accounting firms and the IT/ITES sector is fairly similar. Employees in both sectors carry out high-cognitive, sedentary work, yet one industry can operate at night while the other cannot. This discrimination may even affect the IT/ITES sector because the business cannot obtain other support services at night when they are allowed to operate but others are not. This type of selective exemption creates the same ills that central planning does to economies where the government prefers specific industries instead of allowing the economy as a whole to grow.
Richer employers and bigger businesses stand to gain from the shops and establishments laws as lower-wage workers and smaller businesses are handicapped by restrictions. This happens because governments take a paternalistic attitude towards lower-wage workers or impose compliance costs.
Lower-wage employees may be harmed by the shops and establishments legislation because it takes away opportunities to make a better living. State governments usually exempt higher-earning workers from restrictions under the shops and establishments laws. This may have been driven by a paternalistic approach that lower-wage employees are more susceptible to exploitation while higher-wage employees can care for themselves. For example, in Goa, workers who are paid over Rs 24,000 a month are exempted from the Act. However, the economic consequence is that lower-wage workers are harmed because the restrictions raise the cost of employing lower-wage workers. Higher-wage workers can work longer hours to earn more, but lower-wage workers are restricted from improving their income and lives because of the law.
Like lower-wage employees, smaller businesses are harmed by the shops and establishments laws because the laws do not consider the cost of complying with conditions placed on businesses. As a result, bigger businesses can meet the requirements, while smaller businesses may find it prohibitively expensive. One example of this effect can be seen in the conditions that a business must meet to employ women. In Hyderabad, women can work at night provided their employer meets ten conditions. One of these conditions is that there should be a control room to monitor the movement of vehicles transporting women to and fro work. Any business, whether a large IT firm or a small mom-and-pop shop, can apply for such exemptions, yet the cost of such regulations will impact them differently. Technically, both Google and a local grocery store can apply for exemptions, provided they follow all the conditions laid down by the government. Google can employ 100 women at a very high salary. The fixed cost of setting up a control room will be distributed to 100 employees. On the other hand, a small grocery store that only wants to hire two female employees could not afford to set up a control room, purchase a monitoring system, and employ a person to supervise the travel of one or two female employees. As a result, Google can remain open at night, but the grocery faces a choice—close at night, or discriminate against women.
Red tape and discretion
Governments and businesses are saddled with red tape due to these shops and establishments laws. Due to the restrictions, State governments grant discretionary case-by-case exemptions to businesses and offices to manage the contradiction between the requirements of the shops and establishments law and the needs of a modern economy. Businesses have to apply to the government for such exemptions. For example, Delhi and Maharashtra grant case-by-case exemptions to all enterprises who apply online for exemptions from any provisions of the Act on a conditional basis. The Delhi government has selectively given exemptions to 469 establishments in the last two years. Similarly, on the Haryana E-gazette portal, Prosperiti researchers find that the Government of Haryana granted 592 exemptions to 212 firms between 2015 and 2021. This requires government officers to go through each application, decide on conditions to be imposed, and finally inspect the businesses to check if the conditions are being met. This is a costly, time-consuming exercise that requires considerable manpower.
For businesses, this permission is yet another licence-permit hurdle that invites scrutiny and may also involve rent-seeking by inspectors or officers in charge of granting exemptions. The move to online applications may reduce opportunities for corruption but does not eliminate it. The conditions imposed on businesses cost money, and there will always be incentives to avoid the conditions.
The Shops and Establishments Act now makes news for the exemptions it grants rather than the restrictions it imposes. The government exempts itself from its provisions, preferred businesses are also exempted, and even businesses that are not exempt by law may apply to avoid the law's restrictions. This is indicative of the problem this legislation creates. Instead of continuing with ad hoc exemptions, a better solution would be to repeal provisions regarding opening and closing hours and women working at night in the first place.
Rethinking the law may help fix several problems a city faces. It would allow enterprises to operate at all hours, paving the way for a flourishing nighttime economy. This enables all businesses to have the choice to work at night. Enterprises that respond to economic incentives will use the opportunity to increase revenue streams, leading to an expansion of the service economy. Moreover, a nighttime economy not only leads to growth in the tourism, leisure, and entertainment industries but also fosters the development of ancillary sectors such as the catering, transportation, and retail industries (Hobbs et al., 2005; Heath, 1997). As a result, cities can generate employment, increase consumption, and enhance economic prosperity (Lovatt and O'Connor, 1995).
The central challenge to the nighttime economy is the lack of a public transportation system and law and order. However, the tax revenue collected from enterprises operating at night can solve this problem. For instance, New York's nightlife industry yielded over US$ 697 million in tax revenue for New York City. A fraction of the tax revenue collected can be allocated to maintaining law and order in the city. A bustling nighttime economy also encourages the private transportation sector to set up a robust system for mobility around the city. Resolving the challenges of the nighttime economy makes the city safer and more inclusive, thereby allowing women to work at night (Sappra et. al, 2023).
Anand Bhuvana and Kaur Sarvnipun (2022). State of Discrimination Report: Sub-national comparison of legal barriers to women’s right to choose work in India.
Lovatt Andy and O'Connor Justin (1995). Cities and the Night-time Economy. Planning Practice & Research , 10:2, 127-134, DOI: 10.1080/02697459550036676.
Hobbs, Dick, Winlow Simon, Hadfield Phil, and Lister Stuart (2005). Violent Hypocrisy: Governance and the Night-Time Economy. European Journal of Criminology.
Sapra Saleha, Aggarwal Anupriya, and Alexander Sandra (2023). Sleep And Night Time Economy In A Street Vendor Neighbourhood.
Heath Tim (1997). The twenty‐four hour city concept—A review of initiatives in British cities. Journal of Urban Design.