Insolvency Bill fixes a large part of the problem quietly
Prime minister Narendra Modi has come in for a lot of flak for going slow on labour reform, especially after his WSJ interview where he said hire-and-fire was a western concept and that labour reforms couldn’t just be in the interest of industry. Certainly a bolder approach would be welcome and only the naive would argue India’s pro-unions policy hasn’t hit both economic growth and employment creation. Yet, if reform seen as anti-labour unites the Opposition, as the government’s attempt to reform the UPA’s anti-development land law managed to do, it probably makes little sense. More so since, with labour a concurrent subject, even if the centre did enact a law allowing units with less than 300 persons to retrench without asking for government permission, each state is free to enact laws restricting this to, say, units with 100 or 125 or 150 employees. Since it all boils down to legislation in individual states, all that Modi has done is to tell states that, should they desire to change their laws, he will guarantee them smooth passage by agreeing to this—that’s a Constitutional requirement. Rajasthan and Madhya Pradesh have adopted the 300-persons criterion the centre was planning while Gujarat has given complete hire-and-fire in NIMZs and special investment zones like the Delhi Mumbai Industrial Corridor; more states are bound to follow.
Meanwhile, as FE reported on Tuesday, a very big labour reform is that brought about by the insolvency bill that allows firms to voluntarily liquidate subject to having no dues—in such a situation, whether a firm has 100 or 1,000 employees, it does not require to, as of now, apply for government permission to shut. It is true, this applies only to firms shutting down and not to those who just want to sack staff, but while the problems of a large proportion of firms have been dealt with, few have put this down as a big reform. Solutions will still have to be found for firms, like readymade garments ones, who have only seasonal demand for labour, but surely the best time for labour reforms is when jobs are growing, not stagnating? A low-key but steady chipping away at the problem is more sensible than a big-bang approach that makes for good optics but has a large chance of failure.