More reports on: Government policies

Government set to revamp outdated labour laws: report

30 June 2014

Prime Minister Narendra Modi has set in motion the first major revamp in decades of India's outdated Socialistic labour laws in keeping with the new government's promise of turning around the economy, according to a Reuters report.

Without citing any sources, the report says successive governments have agreed that labour reform is critical to absorb some 200 million Indians who will reach working age over the next two decades; but fears of an ugly and politically divisive union-led backlash and partisan politics have prevented changes to free up labour markets.

Now, with the benefit of a single party majority in Lok Sabha for the first time in 30 years, laws that date back to just after the end of British rule are set for an overhaul. Officials at the labour ministry say this is a top priority in the government's first 100 days in office.

India has a plethora of labour laws, including anachronisms such as providing spittoons in the work place, and are so complex that most firms choose to stay small.

In 2009, 84 per cent of India's manufacturers employed fewer than 50 workers, compared to 25 per cent in China, according to a study this year by consultancy firm McKinsey & Co.

The World Bank said in a 2014 report that India has one of the most rigid labour markets in the world and "although the regulations are meant to enhance the welfare of workers, they often have the opposite effect by encouraging firms to stay small and thus circumvent labour laws".    

Business leaders hope Modi, who advocates smaller government and private rather than state-owed enterprise, will be a liberaliser in the mould of Margaret Thatcher or Ronald Reagan. Perhaps the most important change, they say, is to rules making it hard to dismiss workers.

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