Reform of India's archaic and restrictive labour laws are central to any reform programme. This is a well-understood fact now; that the unfortunate stunting of India's manufacturing sector, particularly in labour-intensive industries, can largely be laid at the feet of these statist laws is undeniable. Not only do they provide bureaucrats with a reason to harass entrepreneurs, and place an excessive and unfair burden on small and medium enterprises, but they have signally failed to protect India's workers. The fact that every employer wishes to avoid the incidence of these laws has led to widespread casualisation of the workforce. As a consequence, over 90 per cent of Indians work in the unorganised sector. Any comprehensive approach to restarting the economy from the new government will need to include a complete overhaul of labour law.
It is unfortunate, therefore, that the new government has shown little interest in pushing the envelope as far as this essential reform is concerned. Instead, the Bharatiya Janata Party (BJP), which leads the National Democratic Alliance government, has stressed that the Rajasthan government - which it also runs - is conducting labour law reform. The Rajasthan government will alter the application of related central laws: for example, raising the threshold of the number of employees who can be laid off without government permission from 100 to 300, and applying the Contract Labour (Regulation and Abolition) Act only to companies with more than 50 workers, compared with 20 now. Similar labour law changes are being contemplated in Madhya Pradesh, also ruled by the BJP, and even Haryana, which is ruled by the Congress. These are certainly welcome developments, indicating that labour law changes as necessary reforms to revive the manufacturing sector have begun to gain wider acceptance in many states.
But the problem is the BJP's reluctance so far to initiate labour law reforms at the Centre and the argument that its acceptance of states' changes in these rules, when they come up for the president's assent, should be enough to demonstrate its commitment to reform. At best, this is a half-hearted approach to labour reform, raising questions as to whether the BJP has surrendered to anti-reform voices, such as its own affiliated trade union, the Bharatiya Mazdoor Sangh. If Prime Minister Narendra Modi is serious about pro-market reform and restarting manufacturing, he must act to change the labour laws at the Centre on the lines of Rajasthan's amendments. The Centre is where the problematic legislation is, not at the states. If the legislation is bad - which it is - the Centre must repeal it. Otherwise India faces the prospect of its states haphazardly and selectively applying various parts of central labour law. A patchwork of law will be as confusing for smaller enterprises, and increase their compliance cost. Mr Modi has been granted a majority in the Lok Sabha - what is he waiting for? It cannot be for a majority in the Rajya Sabha, too. After all, the Congress manifesto was more positive on a flexible labour market than was the BJP's; Rahul Gandhi told a meeting of industrialists earlier this year that labour law reform must happen. In other words, the conditions are ripe for Mr Modi to reach across the aisle and ensure support for an amendment in the Rajya Sabha, as well. At the very least, the amendments should be introduced into the Lok Sabha forthwith.
