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Saturday, 19 July 2014 00:00
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Haryana’s labour law talk augurs well for Modi govt

Though the Budget disappointed by, primarily, postponing big-bang expenditure reforms to next year, what is impressive is the quiet change that is already underway. The few instances that stand out are the ongoing changes to the Land Acquisition Rehabilitation and Resettlement (LARR) Act and those in the APMC Act provisions, the Food Corporation of India (FCI) operations apart from the various labour laws. With the APMC Act provisions for fruit and vegetables are in the process of being abolished, a parallel set of markets is being worked out for Delhi and other metros to provide an alternative to farmers. In the case of FCI, while the larger task of restructuring the body is yet to be tackled, a small beginning has been made with the Centre warning the states offering farmers bonuses, above the MSP, that procurement from them will be restricted. By far, the biggest changes since the government has come to power, however, relate to the LARR Act and labour laws.

Since the big lesson of the 2014 general elections was that voters wanted jobs, Modi is tapping into the desire of all states, whether BJP or non-BJP ones, to try and create an investment-friendly atmosphere. When Modi was the chief minister of Gujarat, one of his demands was that labour be made a state subject—the state wanted to make changes to labour laws for both SEZs as well as Industrial Parks, but the Centre agreed to just the one on SEZs, which allowed companies to lay off workers without seeking the government's permission, by simply serving them a month's notice. With Modi in power at the Centre, the first state to take advantage of this was Rajasthan, which announced that any unit with under 300 workers—the existing statute sets the threshold at 100 workers—does not require government permission to shut down. The state has also promised changes in the Apprentices Act that will allow firms to take on workers for training without the obligation to absorb them—in other words, workers get trained while industry gets more labour flexibility. And now, Haryana is readying to carry out labour law reforms shortly, as per a senior state government official's statement. Given there is enough evidence that states with more flexible labour laws have more employment—a recent McKinsey study points out that states with industry-friendly labour laws had 35.3% of their non-farm employment in 2010 housed in the organised sector versus 23.2% for states which had less labour-friendly policies—if more states follow suit, investment levels are certain to rise.

The other prominent example of non-BJP states coming on board is the change in the LARR Act. Though the Act was passed by a Congress-led coalition, some of the biggest votaries of change are Congress states. Given the Trinamool Congress, the Samajwadi Party and the AIADMK have also opposed various provisions of the Act, this suggests the government should be able to get critical changes through. If a beginning is made on land and labour, a significant change in India’s investment climate is on the horizon.


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