Sunday, March 13, 2005

Labour reforms by another name? 

If you can't get fight them, subvert them seems to be the tactic of choice for India's trade and commerce minister Kamal Nath. For long, several reform minded ministers have tried to reform India's intractable labour laws. To no avail. There are enough left-wingers within India's polity who don't seem to see (or don't want to see) the obvious long-term benefits (increased investments for starters) of having a more flexible labour policy. The answer that Kamal Nath seems to have come up with? Chinese-style special economic zones.

The Indian government is planning to allow the country's 29 states to bypass the country's strict labour laws through the creation of special economic zones. Mr Nath said the proposed legislation would be enacted by May. Mr Nath said the legislation would allow state governments to decide what labour regulations to apply to their own planned SEZs. Critics could accuse the Congress-led government of circumventing a pledge to communist allies not to dilute India's inflexible labour regulations. The creation of SEZs, a concept pioneered in China more than two decades ago, is a central plank of the Indian government's plans to encourage faster inflows of foreign direct investment and boost employment.

If pushed through, the measure would prove popular with foreign companies, many of which say India's labour laws deter them from investing in the country. To lay off workers under existing laws, companies with more than 100 employees need the permission of the state government. They are also prevented from employing contract workers for extended periods without offering permanent employment. However, the new latitude available for SEZ is likely to be subject to a time-limit or “sunset clause” to encourage immediate FDI by overseas companies