Labour laws not to be eased in tax-free zones

Over the past two weeks, at least three state governments have seen their proposals for relaxing labour laws in duty-free areas being rejected by the Centre.

On Wednesday, a committee of secretaries headed by cabinet secretary KM Chandrasekhar turned down a proposal from the Andhra Pradesh government to provide labour law flexibility within a petrochemicals and petroleum investment region (PCPIR) in Kakinada.

Last week, a proposal from the Maharashtra government for labour law relaxation under its SEZ law was also rejected.

The Gujarat government received the same response to its request to relax labour laws in industrial parks.

The move is considered a major setback to economic reforms. Easing labour laws in SEZs and other such duty-free zones was considered a key means of attracting more investors, especially foreign investors, who have been wary of rigid rules governing retrenchment and so on.

Labour is a concurrent subject under India's Constitution, so states are required to submit their laws for central clearance. Some states had also suggested relaxing the Industrial Disputes Act, a Central law, but this has not been considered so far. Significantly, the Centre's own efforts to liberalise labour laws by arming itself with powers under the SEZ Act failed under pressure from Left parties that support the ruling coalition.

States that had earlier relaxed the labour laws in such zones will, however, not be required to reverse these relaxations.

"Some states got away by relaxing labour laws in these specific regions before the United Progressive Alliance came to power. But this government has made it clear that all existing laws will be applicable in states. Flexibility in hiring or firing or any other element will not be provided," a senior labour ministry official told Business Standard.

This means, while some states will continue to have labour law relaxation in such duty-free zones, others will have to do without it. Independent observers said companies in the affected states may alter their investment decisions if two sets of rules are in operation.

At least two states