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Reforming Labour laws will help the economy


I had earlier written about the absolute necessity to reform the legal system — not only due to the adversity that the litigant faces, but also for the effects that it has on our economy.

Another aspect that needs to be debated is the nature of labour legislations in India, which are best suited for a socialistic economy, and not a liberalized economy aiming for greater growth like ours.

A sector which has been crying out for reforms is the labour sector, which has been choked not only by short sighted colonial legislations, but also by populist, socialist era policies which give the employer’s the short end of the stick. This is a huge deterrent for International Companies to invest in manufacturing in India. A whole lot of legislations — from the Workmen’s compensation act of 1923, Trade Unions Act of 1926, The Industrial Establishments (Standing Orders) Act of 1946, and the Industrial Disputes Act of 1947 are all remnants of a colonial or socialist understanding of the economy and welfare, unfit for the 21st century free market economies.

This is not to suggest that we must end all protections to workers. But just looking at the amount of statutes that an employer has to comply with and one would abandon any hope of surviving as an entrepreneur in India. Make In India is impossible with the workers to manufacture in India.

The problem is that labour unions are a very politically powerful force, and displeasing them would not be in the best interests of any ruling dispensation. The Bharatiya Janata Party themselves have faced criticism from their trade union, the Bharat Mazdoor Sangh (BMS). This is why reforms at a central level have been delayed. There is only so much political capital the Modi Government is willing to spend, and they have already pushed through both GST and Demonetisation. Labour reforms therefore take a back seat.

Just to look at how insane the current labour regime is, Pilots, Doctors and other professionals fall under the Workmen’s Compensation Act, 1923 (now the Employee’s Compensation Act.) This is only one such inanity. There are numerous such reforms that require urgent reform.

The union government has till now stuck to ‘pro-labour’ decisions, such as increasing maternity benefit to 26 weeks, while on paper seems to be a good decision, it makes it a disincentive or employers to employ women. In the first few months after election too, the Modi Government began ‘pro-worker’ reforms:


Rajasthan, Madhya Pradesh and Gujurat have nonetheless adopted radical reforms. Rajasthan has been a leader in this front, lessening the strict controls on worker retrenchment and reducing the applicability of others. Maharashtra may also follow suit.

There are expectations that major labour reforms — including the codification of the 44 different labour laws to four codes will happen in this budget season, but it seems unlikely to say the least.

Bu one can always hope.

Labour reforms will allow entrepreneurs, espeically on the manufacturing side of the business, greater control over the decisions that I have to make. it will help increase investor confidence in the country’s labour market. In short, for make in India to be successful, there needs to be labour reforms.


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