The Rajasthan cabinet gave the green signal for the amendment of three Central labour laws on Thursday. The related amendment bills will be introduced in the state assembly next month, and, once passed, will have to secure the assent of the president to come into force in the state. The Vasundhara Raje government is seeking to amend the Industrial Disputes Act, 1947, the Contract Labour Act, 1970, and the Factories Act, 1948. While this move is welcome, and bold in political symbolism, the planned changes to the labour legislation don’t go far enough. For instance, the government is seeking to make the Contract Labour Act applicable to firms with over 50 employees up from the current 20. Similarly, it wants the Factories Act to be enforceable on factories using power with over 20 workers (up from 10) and on factories without power with over 40 workers (up from 20). But the scale of the job growth problem in India is huge. Fifty-one million job seekers will have to be accommodated over the next seven fiscal years and if formal employment generation is to be encouraged, more radical alterations to labour laws will be necessary. We need to be talking about how to stimulate firms employing hundreds, if not thousands, of people.
The liberalisation of labour legislation is a sine non qua for job creation and growth. By some estimates, there are as many as 45 Central laws on labour, and about four times as many state laws. A procedural and compliance nightmare, such legislation drains entrepreneurial energy (in 2000, for instance, 28,864 of the 5,33,038 pending labour regulation-related disputes were over 10 years old), discourages firm growth and spurs informalisation. It’s no wonder then that since 1991, 100 per cent of net job creation has been in the informal sector. Even in the organised sector, according to the ILO, 84.9 per cent of all new jobs created between 2009-10 and 2011-12 have been contractual and, therefore, beyond the purview of labour legislation. But most damagingly, the tedium of labour regulation discourages firm growth and is one of the main reasons for the “missing middle” — the near total absence of formal sector firms growing from small to medium enterprises.
The Rajasthan government has shown the way for other states. By taking advantage of Article 254 (2) of the Constitution, which allows states to enact laws on concurrent list subjects that do not conform to Central legislation as long as the president assents to such laws, the state government has seized control and demonstrated how states can take the lead in ensuring that important reform sees the light of day.
