Maharashtra shelving its labour reforms proposal sets a worrying precedent. The state government blinked as coalition partner Shiv Sena joined ranks with agitating trade unions and decided against tabling a Bill that sought to reform existing labour laws in the Assembly—it was scheduled to be presented in the upcoming winter session. One of the reforms proposed was an amendment of the Industrial Dispute Act to allow firms employing less than 300 persons to close down or lay-off workers without having to seek permission from the government—this is currently allowed for firms employing less than 100 persons. This reform is not path-breaking, in the sense that other states, including Rajasthan and Madhya Pradesh, have implemented this, and much earlier at that. However, it would have carried more weight had Maharashtra gone ahead because the state is much more industrialised than a Rajasthan or a Madhya Pradesh.
For perspective, it would have given over 30,000 factories in the state the option of closing down or retrenching workers without having to seek government permission. From an ease of doing business point-of-view, such reforms are desperately needed, and states must collectively move on this front. The sclerosis from labour regulation is one of the factors stymieing industry, and it is not just limited to hire-and-fire or ease of shutting down. Much foul is also done by, say, capping of overtime and pushing minimum wage legislation as well as EPFO/ESIC deductions.
Some laws seem antediluvian in the fast-evolving context of labour in times of automation and the need for lifelong skill-acquisition—Section 9A of the Industrial Disputes Act, for instance, makes it difficult to even reassign workers across the shop-floor. Dogmatic labour laws have led to big manufacturers decisively shifting towards hiring more contractual labour than permanent employees. Against such a backdrop, Maharashtra having second thoughts bodes ill. To be sure, job-creation depends on a raft of factors. How liberal the regulatory regime for labour is, however, remains one of the most important variables. At a time when job creation must rise logarithmically, it is worrying that industrialised states go slow on labour reforms, like Maharashtra, or even regress, like Karnataka which allowed IT workers to unionise.