The Indian Economy Blog

July 30, 2005

Labor Reform In India

Filed under: Labour market,Politics,Regulatory reforms — Prashant @ 8:48 am

Nitin Pai highlights the urgent need for labor reforms in India, in the aftermath of the Gurgaon fracas

If anything, the Gurgaon incident is a wake-up call to the Indian government to speed up labour reform. The existing maze of labour legislation only encourages bureaucratic rent-seeking and cynical trade-unionism and comes at the cost of greater employment and economic growth. And it also ends up creating the conditions for that occasional riot to break out.

More than a decade ago, as finance minister, Dr Manmohan Singh used another moment of adversity to unshackle the Indian economy. Now, as prime minister, he has an opportunity to do the same with employment. Instead of reacting like yet another cynical Congress party leader, Sonia Gandhi would do well to emulate the example of Dr Singh’s former boss, P V Narasimha Rao, and provide political cover as the good economist gets on with his job.

Ravikiran concurs

If you really want to get a better deal for workers, unions aren’t going to get them. They might for some workers, but it will be at the expense of other, non-unionised workers – like contract labourers. If you force the industry to compulsorily allow unionisation, you will end up retarding industrial growth and causing massive unemployment, as they have managed in Kerala and West Bengal.

Here’s an idea – do away with our awful labour laws. If we need to have them, they should only provide for enforcement of contracts between workers and the management. Make the right to form unions and the right to strike presumptive rights – i.e. valid unless the workers agree not to do so, as a condition of employment. You will find that the lot of workers will improve from the only cause it has ever done – a tight labour market.

2 Comments »

  1. [...] Indeed. Would that we saw more of the above, and less of this. For more on labor reforms, read Naveen’s post or Nitin and Ravikiran’s points of view. [...]

    Pingback by The Indian Economy Blog » Markets Work…IF You Let Them, That Is… — December 3, 2006 @ 1:03 pm

  2. Labour Laws in India need to be reform as early as possible to get the Higher divident from the recent economic developemnt. We can infact learn from China which has transformed into “World Factory” only because of rational labour laws.
    Our current laws not only promots inefficiency also causing harm to our growth in terms of employment,productivity,Lead time, missed Investment & a negative atmosphere for entrepreneurship.
    We hope government will act on this & will be able to cope with Left parties dissent with this very important issue.

    Comment by Rajesh Patidar — August 28, 2007 @ 12:35 pm

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