It has often been claimed, whether as explanation or justification, that the reason the National Democratic Alliance government at the Centre has chosen to ignore important factor market reforms, such as to labour laws, is because of a strong belief in federalism. Competitive and co-operative federalism, goes this argument, is Prime Minister Narendra Modi's preferred approach, and as such his government will leave it up to the state governments to take the lead on this issue. In fact, this argument did not exactly originate from the Centre but was a readily available explanation for New Delhi's unwillingness to reform major central labour laws - but its apparent willingness to sign on to Rajasthan's reforms of those laws. However, this argument stands in tatters with news that the central government has been delaying Madhya Pradesh's chosen labour law reforms. These were approved by the state Cabinet as long ago as September 2014, and sent to the President for his assent as ordinances in October (since the state Assembly was not meeting till December).
Madhya Pradesh's proposed reforms were to 20 different labour laws. Some of them were far-reaching indeed, such as allowing enterprises with less than 50 workers to terminate employees without conducting a specific enquiry. Companies with capital of less than Rs 25 lakh - genuinely small enterprises - would be exempted completely from seven onerous central laws. The package of reforms went further and deeper than those that were passed by Rajasthan and presented as a fait accompli to the Centre. They also held out the promise of energising investment and entrepreneurship in an under-performing state. Sadly, however, as this newspaper has reported, these state-level reforms have foundered on the rock of objections from the Centre about their scope and content. While central officials have said they are concerned about the legal tenability of some of these reforms, the question arises: how is that their concern, if Madhya Pradesh has consulted lawyers and is satisfied? If serious about federalism, then surely the legal tenability of the reforms is the business of the state government - or of the courts. In effect, six months after being asked to clear these laws, the government has rejected six of the most far-reaching amendments, including the exemption of small businesses. One other rejection is telling. The Madhya Pradesh government wished prosecution under the Factories Act to be rare and depoliticised, and so handed permission for such prosecution over to the relevant regulator, the labour commissioner. However, the Centre insists it stay with the ministry concerned, which will not help in depoliticising matters.
This example shows that it is unwise to have allowed the central government to miss the boat on the reform of labour markets. State-level reforms will necessarily be patchy, which makes compliance for companies difficult. And even if the Centre's argument about legal questions is taken at face value, it shows that in the absence of repeal of these central laws by the Centre, the sword of judicial review will always hang over state-level "amendments". There can no longer be any pretence about it: reform of restrictive central laws must happen at the Centre, and soon.
