President Pranab Mukherjee finally giving his assent to Rajasthan’s sweeping labour law reforms opens up a brand new chapter in labour reform across the country; indeed, it will trigger a new phase in Centre-state reforms with the Centre facilitating reforms in various states. Till now, in the case of labour law reforms for instance, if the central law was different from the state law, the central law prevailed. The current central law requires that, if a unit has more than 100 workers, it requires government permission to either close down or retrench workers—Rajasthan raising this to 300, as per the current law, is irrelevant. Or it was till last week when the President signed his assent to the Rajasthan law under Article 254(2) of the Constitution—this allows states to have a law that is different from that of the Centre as long as the President okays it. Rajasthan also proposed other changes—the proportion of workers that needed to be represented has been doubled from 15% to 30% for a union to be recognised, and the Contract Act is to apply to companies having 50 workers instead of the earlier 20—and all have been accepted. In other words, new industrial and other units may find it more attractive to set up shop in Rajasthan; and the state itself is free to, at some point in time, raise this limit even higher if it helps attract investment.
Immediately, the door has been opened to other states who wish to have progressive labour laws. Madhya Pradesh, for instance, has cleared amendments similar to the ones in Rajasthan, and states like Haryana and Uttar Pradesh have also indicated they want to make their labour laws more industry-friendly. So more states can be expected to line outside the President’s door.
Even more exciting is the possibility for other reforms.
Rajasthan’s draft land acquisition policy envisages higher compensation than the Central one, but does not have the social impact assessment clause which is what is holding up land purchases for industry. If the President signs on Rajasthan’s law —which essentially means the Centre has to agree with the proposals—once the state assembly passes it, this opens up a window for states to have more progressive land acquisition laws. In other words, the use of Article 254(2) opens up an exciting new phase in state-level reforms in various fields.