Narendra Modi eyes first labour overhaul in decades to create jobs

Jun 30 2014, 09:50 IST
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Successive govts have agreed labour reform is critical to absorb 200 million Indians reaching working age over the next two decades. (Reuters) Successive govts have agreed labour reform is critical to absorb 200 million Indians reaching working age over the next two decades. (Reuters)
SummaryModi Govt's agenda includes relaxing laws restricting hiring and firing of workers.

Prime Minister Narendra Modi has set in motion the first major revamp in decades of India's archaic labour laws, part of a plan to revive the flagging economy, boost manufacturing and create millions of jobs.

Successive governments have agreed labour reform is critical to absorb 200 million Indians reaching working age over the next two decades, but fears of an ugly union-led backlash and partisan politics have prevented changes to free up labour markets.

Now, with the benefit of a single party majority in the lower house of parliament 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 forest 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 percent of India's manufacturers employed fewer than 50 workers, compared to 25 percent 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 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.

First up, though, to win public support, his Bharatiya Janata Party (BJP) government is looking to make changes that benefit workers, three senior officials at the labour ministry said. Among the changes: making more workers eligible for minimum wages, increasing overtime hours and allowing women to do night shifts.

"We are trying to provide a hassle free environment that helps both workers and industry," a senior labour ministry official involved in the deliberations said. "It is a priority for us."

Next on the reform agenda will be the most sensitive issue of loosening strict hire and fire rules. Officials said they have begun preliminary talks with concerned groups about slowly implementing the changes.

"There is a definite push ... you

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