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NEW DELHI: Prime Minister Narendra Modi is preparing to launch India's biggest
overhaul of labour laws since independence in a bid to create millions of manufacturing
jobs.
Three officials at the labour ministry told Reuters that the ministry was drafting a bill
for the upcoming parliamentary session that proposes to loosen strict hire-and-fire rules
and make it tougher for workers to form unions.
The changes, if approved by Parliament, will be the biggest economic reform since 1991.
Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight, said Modi has little option
but to push ahead with the measures.
"Without these reforms, the economy would stagnate, and frustrated investors would look
elsewhere," he said.
"You cannot make political opposition an excuse for not taking tough decisions."
Since taking office in May last year, Modi has taken a series of incremental steps to make
labour laws less onerous for businesses.
BJP governments in Rajasthan and Madhya Pradesh have taken some steps in this area.
Encouraged by a successful and peaceful implementation of the measures in those states,
the labour ministry now intends to replicate them at the national level, one of the ministry
officials said.
Manish Sabharwal, one of the brains behind Rajasthan's labour reforms and co-founder of
recruitment firm Teamlease, said the Centre would have been better off without attempting
these changes.
"Let states carry out these changes and save your political energy for other policy reforms,"
he said.
EASIER FIRING
As part of the proposed revamp, a factory employing fewer than 300 workers would be
allowed to lay off workers without government permission. Currently, factories employing 100
workers or more need approval for layoffs.
But they will have to pay three times the current severance package, the labour ministry
officials said.
Companies have long been demanding an increase in the ceiling as governments rarely
grant such permissions for layoffs, making it difficult to respond to business downturns and
encouraging them to stay small.
"It will facilitate ease of doing business while ensuring safety, health and social security of
every worker," a senior labour ministry official involved in the deliberations said.
The official said the bill was expected to be finalised in the next three or four weeks, and
would then be sent to cabinet for approval.
The planned changes would also make it tougher for employees to form unions or go on
strike, but would make all employees eligible for minimum wage.
The World Bank says India has one of the most rigid labour markets in the world. That in turn
has been a drag on manufacturing, which accounts for only 16 percent of India's $2 trillion
economy, compared with 32 percent of China's.
Some 84 percent of India's manufacturers employed fewer than 50 workers in 2009,
compared with 25 per cent in China, according to a study published by consultancy firm
McKinsey & Co. last year. Economists cite current labour rules as the biggest constraint on Modi's 'Make in India' ambition.
Just 8 per cent of manufacturing workers in India are in formal employment, the rest are short-term contractors who enjoy minimal social security benefits. It will take deft political management to ensure a speedy passage for the bill. Opposition parties have blocked Modi's land bill in parliament, calling it "anti-farmer". The labour reforms, which are being opposed by labour unions, could also end up being labelled as "pro-corporates".
An official in Modi's office didn't rule out holding off the bill due to short-term political
considerations.
"They may introduce it, but the progress would be very slow," said Kilbinder Dosanjh, a
director at the Eurasia Group consultancy
overhaul of labour laws since independence in a bid to create millions of manufacturing
jobs.
Three officials at the labour ministry told Reuters that the ministry was drafting a bill
for the upcoming parliamentary session that proposes to loosen strict hire-and-fire rules
and make it tougher for workers to form unions.
The changes, if approved by Parliament, will be the biggest economic reform since 1991.
Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight, said Modi has little option
but to push ahead with the measures.
"Without these reforms, the economy would stagnate, and frustrated investors would look
elsewhere," he said.
"You cannot make political opposition an excuse for not taking tough decisions."
Since taking office in May last year, Modi has taken a series of incremental steps to make
labour laws less onerous for businesses.
BJP governments in Rajasthan and Madhya Pradesh have taken some steps in this area.
Encouraged by a successful and peaceful implementation of the measures in those states,
the labour ministry now intends to replicate them at the national level, one of the ministry
officials said.
Manish Sabharwal, one of the brains behind Rajasthan's labour reforms and co-founder of
recruitment firm Teamlease, said the Centre would have been better off without attempting
these changes.
"Let states carry out these changes and save your political energy for other policy reforms,"
he said.
EASIER FIRING
As part of the proposed revamp, a factory employing fewer than 300 workers would be
allowed to lay off workers without government permission. Currently, factories employing 100
workers or more need approval for layoffs.
But they will have to pay three times the current severance package, the labour ministry
officials said.
Companies have long been demanding an increase in the ceiling as governments rarely
grant such permissions for layoffs, making it difficult to respond to business downturns and
encouraging them to stay small.
"It will facilitate ease of doing business while ensuring safety, health and social security of
every worker," a senior labour ministry official involved in the deliberations said.
The official said the bill was expected to be finalised in the next three or four weeks, and
would then be sent to cabinet for approval.
The planned changes would also make it tougher for employees to form unions or go on
strike, but would make all employees eligible for minimum wage.
The World Bank says India has one of the most rigid labour markets in the world. That in turn
has been a drag on manufacturing, which accounts for only 16 percent of India's $2 trillion
economy, compared with 32 percent of China's.
Some 84 percent of India's manufacturers employed fewer than 50 workers in 2009,
compared with 25 per cent in China, according to a study published by consultancy firm
McKinsey & Co. last year. Economists cite current labour rules as the biggest constraint on Modi's 'Make in India' ambition.
Just 8 per cent of manufacturing workers in India are in formal employment, the rest are short-term contractors who enjoy minimal social security benefits. It will take deft political management to ensure a speedy passage for the bill. Opposition parties have blocked Modi's land bill in parliament, calling it "anti-farmer". The labour reforms, which are being opposed by labour unions, could also end up being labelled as "pro-corporates".
An official in Modi's office didn't rule out holding off the bill due to short-term political
considerations.
"They may introduce it, but the progress would be very slow," said Kilbinder Dosanjh, a
director at the Eurasia Group consultancy
