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India – Repealing labour laws would boost manufacturing and create jobs

26 February 2014

The National Manufacturing Competitiveness Council (NMCC) has asked the government to replace India’s outdated labour laws to better suit the needs of modern businesses, blaming rigid labour laws for declining manufacturing output and poor job creation, reports The Economic Times of India.

In a letter to Labour and Employment Minister Oscar Fernandes, NMCC Chairman Mr Krishnamurthy said that the existing labour laws are outdated and act as a disincentive to SME growth: "We have 44 laws relating to labour. Repealing the existing labour laws and replacing them with new labour laws suited to the 21st century, and in consonance with our International Labour Organisation obligations, is an essential pre-requisite for success in large scale employment generation in manufacturing.”

He suggested making a single comprehensive law or a maximum of three laws related to labour safety, welfare, and rights. 

NMCC Member Secretary Ajay Shankar said that there is an urgent need for labour reforms: "Every labour law today puts lot of regulatory burden on companies. Big firms can comply with that but SMEs cannot. To reduce these hurdles, there is need to repeal the existing laws. But the move requires political will.”

He added that an estimated 100 million labour intensive jobs can be moved to India from China in the next five years, as China is facing significant challenges; such as rising wages and declining youth population. 

"India has the full potential to grab this opportunity. It is an historic opportunity. We should not duck this issue (labour law reforms),” Mr Shakar explained. 

The manufacturing sector, which constitutes over 75% of the Index of Industrial Production (IIP), declined by -1.6% in December last year, as against a contraction of -0.8% in the previous year. 

Between April and December 2013, the manufacturing sector's output contracted by -0.6%, compared with growth of +0.6% during the same period in 2012. According to a report from industry body Assocham (Associated Chambers of Commerce and Industry of India), job creation in India declined by an estimated -0.4% in 2013. 

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