The Parliament’s monsoon session was billed as the big test of the NDA government’s political risk management and its ability to push through crucial policy changes. It goes to the government’s credit that it was able to secure bipartisan support for the passage of the Constitution Amendment Bill for rolling out a nation-wide goods and services tax (GST).
In the last two years, it has been able implement some politically contentious policies and legislations, including aligning diesel prices with international crude oil costs. It also worked out a consensus on raising the FDI ceiling in insurance to 49% from 26%. Experts also count the passage on the bankruptcy code and the real estate regulation laws as among the NDA government’s reforms triumphs.
That said, its efforts to change rigid labour laws have also run into stiff resistance. In April 2015, the government had proposed major reforms including plans to reduce 44 labour laws to just five as part of its signature ‘Make in India’ initiative to make it easier for companies to do business in India and turn the country into a manufacturing powerhouse. Four of these proposed laws — the Industrial Relations Code Bill 2016, Wage Code Bill 2016, the Small Factories (Regulation of Employment and Conditions of Services) Bill, and Employees Provident Fund and Miscellaneous Provisions (Amendment) Bill — were to deal with wages, social security and welfare, safety and industrial relations. The fifth — the Shops and Establishments (Amendment) Bill — will be a model law for states to adopt. The objective of the exercise was to relook at laws that are seen as a hindrance to growth as well as job creation. The most important of these proposed laws is the Labour Code on Industrial Relations Bill 2015, which will combine the Industrial Disputes Act, 1947, the Trade Unions Act, 1926, and the Industrial Employment (Standing Orders) Act, 1946. Once enacted, the Labour Code will allow companies to sack as many as 300 employees without prior government approval. Companies are now allowed to let go of up to 100 employees without government approval.
Attempts to ease land buying rules and bring about a vastly modified central land acquisition law have also proved to be a difficult political barrier to surmount for the Narendra Modi-led government. Business leaders have often complained that highly restrictive conditions are proving to be a major barrier for industry in buying land. For a capital-scarce economy, allowing investors to deploy funds and buy resources in high growth sectors is, perhaps, the first step in seeking to create jobs and multiply income. It is often the case that contrarian opinion, if politically important, influences the pace, if not the direction, of reforms. The government should now take the learning from the GST to tick the right boxes on the other pending reforms agenda. It is in India’s interest to turn the focus of policy on reforming the complex factor markets of land and labour.