Other states can learn from it, but be more bold
Given the complete sway of trade unions over labour policy, the Rajasthan government’s decision to amend certain labour laws is a good start. Under the existing labour laws, anyone who employs more than 100 persons has to get government permission before shutting down. Which is why very little employment has been created over the past decade—as compared to a 2.6% per annum increase in jobs between FY00 and FY05, FY05-10 saw a growth of only 0.9%. Matters are worse in the labour-intensive exports sector where, as orders are largely seasonal, no entrepreneur wants to get saddled with hundreds of workers during the lean season—while India’s share in textiles exports has barely grown, from 2.1% of the world market in 1990 to 5.2% in 2013, China's share rose from 7% to 36% in the same period. This is also the reason why, to the extent jobs have been created in the formal sector—this rose just a bit, from 280 million in 2000 to 287 million in 2010—they have largely been contractual ones; ironically, this creates its own tensions as temps want to be made permanent. It is in this context that, more than a decade ago, then finance minister Yashwant Sinha talked of raising the 100-limit to 300, but backed down quickly. Rajasthan’s decision to raise the level to 300, in this context, is a bold one. Yet, given how really big units employ thousands of people, the change is nowhere near bold enough; if not scrapped altogether, the limit needed to be raised to 1,000 persons at least. It is no one’s case that labour be summarily dismissed, but once proper compensation is given, there is no reason why government permission should be needed. Making it tougher for unions to get recognised—at least 30% of workers need to be in favour of a new union, up from 15% today—is also a good idea.
Hopefully other states, who are also trying to create more employment, will not just follow the Rajasthan example, they will be bolder. Indeed, given how there is a process of learning for all employees, the ideal change would be to amend the Apprentice Act to allow firms to employ untrained persons as apprentices and train them over a period of time, without any commitment to eventually hire them. This way, the companies get the requisite flexibility in hiring workers and workers get the much-needed training. Over a period of time, as the economy grows, these workers will get regularised.
Normally, changes of the type Rajasthan has made, even though they are incremental in nature, are not possible unless the central government changes its laws as they are under the Concurrent List. If, however, the President gives his assent to the state’s law, under Article 254(2) of the Constitution, the state can change its law even if the Central law does not change. It is over to Modi now.