Home / Politics / Policy /  NDA nudge to states on labour reforms

New Delhi: The Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) has identified labour reform as the pivot to enhance skills of India’s labour force, boost manufacturing and create jobs in the country.

Accordingly, the Prime Minister’s Office (PMO) has despatched a letter to chief secretaries of all states to adopt the example of Rajasthan and push for labour reforms.

The letter addressed by Nripendra Misra, principal secretary in the PMO and a copy of which was reviewed by Mint, said, “India has the potential of developing into a manufacturing hub in the global context. We are working at the central government level to facilitate more capital inflows to bridge our gap viz a viz existing domestic saving and desired investments in the economy for higher growth,"

Implicitly, the letter acknowledges that second-generation economic reforms will have to be led by the states. It also comes in the context of the NDA moving to a greater delegation of powers to states to enable them to adapt spending suited to local conditions instead of existing practice of ‘one size fits all’. Mint reported last week as to how the government was likely to accept the recommendations of the 14th Finance Commission for raising the share of states in gross tax revenues of the centre from 32% to 42%.

According to Prime Minister Narendra Modi, this would set the stage for “competitive federalism", as states compete to attract investments. Addressing the Vibrant Gujarat Summit on 11 January, he said, “We want to promote co-operative federalism in the country. At the same time, we want a competitive element among the states to create and attract whatever is needed there. I call this new form of federalism: Co-operative and Competitive Federalism."

Rajasthan had last year, kicked off labour reforms by relaxing the provisions of the Factories Act, Industrial Disputes Act, Apprentices Act and Contract Labour Act.

Later, the Union government passed two labour laws—Apprentices (Amendment) bill and the Labour Laws (Exemption from Furnishing Returns and Maintaining Registers by Certain Establishments) Amendment bill. The third one—Factories Amendment Bill—approved by the cabinet is yet to win parliamentary approval.

“I would need your indulgence in how to best use another factor of production, namely labour, which fortunately we have in plenty and the world may really be short of it. Our manufacturing policy has to be labour intensive and at the same time should move us up on the ladder in the ease of doing business index," Misra added in his letter to the states.

He sought the attention of states in taking forward the vision of Make in India which could productively engage the young and harness the so-called demographic dividend by providing skills and jobs to millions of people.

Modi launched the Make in India programme in September to attract foreign manufacturers to invest in India to produce merchandise for the local and overseas markets.

Experts said the government seems to have realized that initiating labour reform in states was much better than implementing it at the central level and that there was a need for creating a job market in every state.

“I believe 29 chief ministers can do more than one prime minister. So creating 29 labour markets is a much better proposition for manufacturing and for job creation," said Manish Sabharwal, chief executive officer at staffing and human resources consulting company Teamlease Services Pvt. Ltd. “Britishers left India because they realized that the country cannot be ruled from Delhi. This government, too, has realised this for good, understanding that the need for each state is different and cooperative federalism is always good," he said, adding that once the government opens up the market, the states will compete with each other to attract investment, create jobs and improve the business environment.

“Rajasthan has set the base and now other states will compete with each other to better what they have done," he said.

A labour department official in Rajasthan said industries had started showing keen interest in the state.

“Multi-nationals, big industries in the country and small-scale industrialists have all shown their interest. This is the first step before they commit investment," said the official, requesting anonymity, adding that the partnership summit the state staged with the Confederation of Indian Industry (CII) last week had given it confidence that the initiatives are in the right direction.

On 16 January, Rajasthan chief minister Vasundhara Raje said at the partnership summit in Jaipur that her state has initiated a slew of measures in policy, infrastructure and labour to encourage investments,

In Rajasthan, one of the key changes allows companies to retrench up to 300 employees without seeking government permission. Earlier, it had been restricted to 100. It has also introduced a time limit of three years for raising industrial disputes. The modifications also make it tougher to register labour unions—instead of 15% of workers, now 30% of workers in a factory need to join hands to form a union. As part of the Apprentice Act, the state has given more flexibility to companies on compensation, compliance and infrastructure requirement.

Taking the cue from Rajasthan, Madhya Pradesh has amended at least 20 labour laws including 17 at the central level, including the Industrial Dispute Act, Factories Act, and Shops and Establishments Act. The state has sent the amended bills to the central government for approval and a final assent from the President. Similarly, Gujarat has started the process of labour reform, according to an official of the labour department in Gujarat.

“Labour reform is the need of the hour. Many of these laws are rigid and counter-productive. In the name of protection, they are tilted towards trade unionism and largely anti-worker," said K.C. Gupta, labour commissioner of Madhya Pradesh.

As part of the amendment to the industrial dispute act, the state government has proposed that companies with up to 300 workers do not require prior government approval for closing down or laying off workers, Gupta explained. The current threshold is 100.

The problem with such restrictions is that they dissuade industries from giving permanent jobs; after hiring 100 permanent workers, they take on contract or casual workers who aren’t eligible for social security and wage-related benefits, Gupta explained. “We are a large state and would prefer more manufacturing and more jobs. We have taken the initiative in a big way," the commissioner said.

To be sure, labour unions remain deeply suspicious about the proposed reforms. The NDA government is working for the benefit of industries rather than workers, said D.L. Sachdeva, secretary of the All India Trade Union Congress, a central trade union, warning of workers’ protests against such moves.

Gujarat, another Bharatiya Janata Party-ruled (BJP-ruled) state, too, has initiated the process of reforming labour laws and set up a committee to look into the different laws that are seen as restrictive to industrial growth and job creation.

Experts and authorities said that if India wants to improve its manufacturing and realize its target of enhancing its contribution to 25% of gross domestic product from nearly 15% now, the sector will need better regulatory environment and an efficient labour force.

“If we move right on manufacturing, then this sector can double its workers’ intake to 25% from current 12% and add jobs by millions," Sabharwal said.

According to the latest economic survey, India created 59.9 million jobs between 1999-2000 and 2004-05, the time when the BJP-led NDA was ruling India. Between 2004-05 and 2009-10, the country created just 1.1 million jobs and during 2009-10 and 2011-12, the country added 13.9 million new jobs.

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