Experimenting with labor reforms in India

In a previous post I discussed how the current global financial crisis seems to have forced policy makers in India to take another look at existing labor laws in the country. The Economic Survey (2008-09) of India released by the Ministry of Finance in early July this year clearly noted the imperative need to facilitate the growth of labor intensive industries, "especially by reviewing labor laws and labor market regulations."

Labor market reform is a contentious and politically sensitive issue in India and its mere mention in the Economic Survey suggests that we might see some action this time around. A few weeks ago, the government exempted the IT and software establishments from the Industrial Employment (Standing Orders) Act 1946 (Central Act 20 of 1946). These laws are strict in the way they classify workers, their working hours and shifts, and the wages payable, besides other archaic rules on leave and attendance.

The Head of Human Resources in Infosys Technologies, one of the biggest IT companies in India, has this to say about the reform:

We have antiquated labour regulations, which do not fit the requirement of the knowledge-based industry. This reform is necessary. We do not want inspector raj here, what we want is more such reforms across industries. (Times of India, 8/31/2009; online edition).

The exemption to the IT industry is valid only for a period of two years—to help the industry fight the global slowdown. Nevertheless, the experiment could help break the status quo and pave the way for more lasting labor reforms in the near future.