Over the last few months, Karnataka has been making incremental changes to its policies and laws to further attract and accelerate manufacturers to set up shop in the state.
Factors Steering Technology & Electronics Manufacturers Advent to Karnataka:
Recently, the Government of India imposed a ban on the import of laptops, tablets and certain types of computers to restrict the inflow of consignments from technology and electronics manufacturers based in countries like China & Korea. Printers, cameras and hard disks are also suspected to face similar bans. A licensing requirement is also planned for by the government for imports of certain electronics. Union IT minister Mr. Ashwini Vaishnaw has announced that at least 38 international electronics companies have applied to make laptops, tablets and servers under the country’s incentive programmes. Manufacturers such as Foxconn Group, HP, Dell and Lenovo are some of the big names wanting to reap the benefits of the incentive programmes.
Another interesting development took place in the early months of 2023. Apple communicated to its suppliers the need to prepare for a significant shift in iPhone production dynamics. Emerging out of the supply-chain crisis as a result of the COVID-19 lockdowns, Apple’s leaders saw a need to protect its future production lines and global supply chain ecosystem. They soon announced that a major step towards this strategy was to focus on augmenting its manufacturing capacity in India, aiming to transform its role from primarily overseeing routine assembly tasks to the creation of more integral mobile phone components. With this, Apple and its major suppliers have committed substantial investment, involving the deployment of numerous R&D units and the collaboration of thousands of engineers.
In June 2023, a noteworthy event took place as US President Biden and India’s Prime Minister Modi celebrated the signing of a Memorandum of Understanding (MoU) related to the Semiconductor Supply Chain and Innovation Partnership. This landmark agreement is seen as a substantial advancement in the alignment of semiconductor incentive-based programs between the two nations, fostering opportunities for commerce, research, as well as talent and skill development.
India’s appeal as a manufacturing hub encompasses its expansive market, cost-effective labour, and
government-backed production-linked incentives. This contrasts with the recent challenges Apple faced due to a COVID-19 outbreak at Foxconn plants in China, which led to disruptions in production during a crucial period leading up to the Christmas shopping season. These disruptions prompted Apple to function at a significantly reduced capacity.
Luxshare Precision Industry, a prominent electronics supplier from China, made an unsuccessful attempt to acquire smaller iPhone assembly plants in Bengaluru, India, owned by Taiwan’s Wistron. The Tata Group also joined the bidding process. As a facet of Apple’s endeavour to strengthen its local supply chain, the company has allocated orders for iPhone metal casing frames in India. This strategy echoes that of other companies like Xiaomi, Oppo, and Vivo from China, which shifted manufacturing to India to mitigate costs and circumvent import tariffs, aligning with India’s “Make in India” campaign introduced in 2014 to boost domestic manufacturing.
India’s government introduced incentives in 2019 to bolster its National Policy on Electronics, aimed at attracting increased technology investments. Although Foxconn maintains investments in China, it has also committed to investment plans in Bengaluru.
A New Frontier – Amendment to the Karnataka Factories Legislation
On February 22, 2023, the Factories (Karnataka Amendment) Bill, 2023 was passed by the Karnataka
legislature. This amendment carries several provisions that enables and attracts companies to invest in the state. Among the several changes, the following are key provisions.
1. Section 54 – 4-day work week: The State Government is empowered by notification in the official gazette to extend the number of hours of work from the existing nine hours up to twelve hours inclusive of rest intervals in any day subject to a maximum of 48 hours.
2. Section 55 – 6 hours of work without interval: State Government is empowered by notification to extend the total number of hours of work without an interval to six hours.
3. Section 56 – Spread-over extended to 12 hours: State Government is empowered to increase the spread over upto 12 hours inclusive of workers intervals for rest.
4. Section 65 – Overtime hours per quarter: The overtime limit per quarter stands extended from seventy-five hours to one hundred and forty-four hours.
5. Section 66 – Women allowed to work at night and work overtime.
The Governor of Karnataka had reserved the bill for Assent of the President of India. The bill has received the assent of the President of India on 10th July 2023. Thus, the bill has become an Act, and the amendment gets incorporated into the respective section of the Factories Act.
Amendments to Sections 54, 55, 56 can be implemented only after the Government of Karnataka frames the rules. The other provisions would come into force with effect from 07th August 2023 (date on which the amendment notification was published in Karnataka Gazette).
These changes are anticipated to facilitate and accelerate the entry of technology and electronics manufacturers into Karnataka.
While these amendments are largely hailed by employers as a positive development, concerns persist about the potential for employee exploitation. The overarching question remains whether these changes will inadvertently lead to the mistreatment of workers. The expectation is mainly the enablement & expansion of manufacturing output in Karnataka. On the flip side, it can further compound existing challenges for employers and workers like:
- Non-payment / irregular payment of overtime wages for increased overtime work by the workers.
- Not ensuring necessary safety measures for the employment of workers during night shifts.
- Engagement of workers on weekly, national & festival holidays.
- Workers engaging in dual employment with direct competitors.
Striking a Balance
In conclusion, the recent amendments to the Factories (Karnataka Amendment) Act, 2023 represent a significant milestone in Karnataka’s efforts to attract technology and electronics manufacturers to the state. These changes, particularly the provisions related to extended working hours, overtime limits, and allowing women to work at night, are designed to enhance the state’s appeal as a manufacturing hub.
While these amendments may provide employers with greater flexibility to meet production targets, it is crucial to strike a balance between increasing productivity and safeguarding the rights and well-being of workers. The principle that should guide these developments is that employers should not transition towards exploiting workers in their pursuit of higher production levels and/or increasing profits.
In the long run, a harmonious and fair working environment benefits both employers and workers. It fosters loyalty, productivity, and a positive corporate image. Therefore, while embracing these legislative amendments and the opportunities they present, it is essential for employers to remain committed to upholding workers’ rights, safety and well-being, ensuring a mutually beneficial relationship that drives sustainable growth in Karnataka’s technology and electronics manufacturing sector.
– Sumanth Nagaraj,
Advocate & Senior Associate
