Restructure rigid employment laws

Labour: 'Inspection raj' regime obstructs factories' growth

Economic Survey, 2013-14, has stressed the need to usher labour reforms to boost the manufacturing sector and safeguard the interest of small businesses.

The Survey’s chapter Issues and Priorities highlighted the need to keep economic growth and job creation in sync with a restructuring of rigid labour laws. “The ultimate goal of economic policy is to create a sustained renaissance of high growth, in which hundreds of millions of good-quality jobs are created…Labour laws create strong incentives for firms to avoid hiring a large number of low-skilled workers,” the Survey said.

It said entries and exits of new firms were marred by existing labour laws and envisaged the need to “unleash the second generation of reforms”. “An array of problems holds back the entry and maturation of new firms. This protects existing businesses, even if inefficient, and limits entry and competition” it said.

The Survey stated labour, along with land and capital, remained “largely unreformed” and was, therefore, a hurdle to growth and employment-generation. While infusing hope the country had the potential to become a global hub for labour-intensive manufacturing, it said, “Labour laws have hindered the creation of large-scale manufacturing in India.”

The Survey emphasised the need to come out of the “inspection raj” regime, which, it said, was an obstacle to expansion of factories. Growth of the informal sector and small businesses was constrained by the many laws, rules and inspections in this regard, the Survey said. “Operational compliances are required individually for almost all activities carried out by small businesses. Because of the regulatory and fiscal burden, small businesses tend to avoid becoming medium and formal,” it said.

To boost the business environment in the short term, the Survey highlighted the urgency to review outdated regulations, strengthen grievance-redressal mechanisms, minimise human interaction during inspection, shift decision-making from inspectors to higher-level officers and amend the Apprenticeship Act.

As a long-term measure, the Survey recommended a committee be constituted to propose a “modern set of laws”.

It said the industrial relations climate had “by and large, remained peaceful and cordial” through the years. In 2013, the number of lockouts and strikes fell to 181 from 421 in 2008. In the same period, the number of man-days lost due to such strikes fell from 13.43 million to 3.29 million.