New Delhi: Is the Bharatiya Janata Party (BJP) ready to bite the bullet on labour market reforms?

Vasundhara Raje, the party’s chief minister of Rajasthan, signalled as much after her cabinet approved changes that will make hiring and firing of employees more flexible.

Raje, in conversations with people close to her, has justified the move on the grounds that they are key to create jobs—a promise that was made by the BJP in its election manifesto and campaign.

The changes will expectedly trigger a backlash from organized unions even as Indian industry, which has lobbied hard with several governments over the past two decades, would predictably welcome it.

In a radical move, as reported first in The Indian Express newspaper on Sunday, Raje’s cabinet cleared amendments to three key national labour laws: the Industrial Disputes Act, the Factories Act and the Contract Labour Act. These laws have been identified variously as a constraint to expansion of investments in manufacturing.

The move, if endorsed by the Centre, ruled by a BJP-led coalition, could set off a domino effect if other states follow. Prime Minister Narendra Modi, who has tacitly endorsed reforms of archaic labour laws, is unlikely to oppose the changes sought by Rajasthan.

If indeed this does pan out, analysts say it could well lead to decentralization of the labour market and the creation of 29 labour markets in the country—one in every state—and provides a recruitment flexibility that was hitherto accessed through the back door.

The amendments, once passed, will fundamentally alter the purview of the existing Union government labour laws in Rajasthan and make it more “employment-friendly", according to Rajiv Mehrishi, chief secretary of the state.

“It’s a well-accepted truism that the current labour laws as they stand are anti-employment. The idea is to create more employment opportunities and that is in any case the need of the hour," Mehrishi said in a telephone interview.

As part of the Industrial Dispute Act, Rajasthan’s amendment will allow companies to retrench up to 300 employees without seeking government permission. At present, it is restricted to 100.

It has also for the first time introduced a time limit of three years for raising industrial disputes. The modifications also make it tougher to register labour unions.

This is the first “gift of the BJP government to industries", said D.L. Sachdeva, secretary of the All India Trade Union Congress, a left party affiliated central labour union.

The Rajasthan cabinet has approved amendment in the Contract Labour Act, which once passed will now be applicable to companies with more than 50 workers instead of the current 20 workers. The changes to the Factories Act, once approved by the President of India, will be applicable to factory premises (with electric supply) with workforce strength of up to 40 (from 20 at present), and without power supply to premises with 20 workers (from 10 presently).

The initiative by Rajasthan begins the decentralization process of job creation and labour law reforms, said Manish Sabharwal, chairman of staffing and training company TeamLease Services Pvt. Ltd.

“It’s an important development which will have demonstrative effect on everybody," Sabharwal said. “For the central government, it would be a test case of reform in a sector which has many archaic laws."

“India should not be seen as one labour market but 29 such markets. Every chief minister can create a model leading to decentralization of job creation," he added. “It’s an important political and economic innovation by a state to clear the labour reform logjam."

The just-concluded general election was fought on a job creation agenda and the government has to take timely steps to create jobs for the youth, chief secretary Mehrishi said, adding that the reforms will lead to more investments in the state, especially in the manufacturing sector.

The reforms intend to encourage more labour in the organized sector, better transitional protections for workers, and renewing investments in core sectors like such as manufacturing, Rajasthan labour secretary Rajat Mishra said.

How soon it can come into force?

These are all Central laws and are under the concurrent list of the Constitution. A state can amend these only if the President approves.

“We will go to the assembly, get it passed and then go for presidential assent via the governor," Mehrishi said. “Presidential assent here is not a legislative action but an executive action. We are hopeful that we will get approval. It should take less than three months."

But the approval may not be smooth, with trade unions readying to oppose the move and protest in industrial hubs of Rajasthan.

All the amendments would give a free hand to corporate houses to flout wage, safety and job security norms, Sachadeva argued.

“The United Progressive Alliance government wanted to do it but could not because of pressure from trade unions, but the BJP government at the centre is pushing this through states," he said. “It’s completely anti-worker and we oppose it strongly."

These fears were misplaced, said Mishra. “There would be less inspector raj and more confidence in creating jobs," he said. “At the same time, power of the state is intact to intervene in situations arising out of the need for ensuring security and safety (of workers)."

Arjun Ram Meghwal, a BJP parliamentarian from Bikaner in Rajasthan, welcomed the move by saying that labour law reforms have been debated in the state and the central level for a long time.

“We hope the Rajasthan government will be able to create a greater number of jobs through these amendments," Meghwal said. “We will also urge the Union government to make changes in the labour laws."

These reforms can vary from case to case or from state to state, according to Vinay Sahasrabuddhe, an ideologue of the Hindu nationalist Rashtriya Swayamsevak Sangh and director of Mumbai-based think-tank Rambhau Mhalgi Prabodhini.

“There cannot be a system that since it is applicable in one state, so the same can be replicated at the central level or at (other) state level also," Sahasrabuddhe said. “This issue needs greater study and research to find out how these changes will create more jobs and benefit the people."

R.C. Bhargava, chairman of Maruti Suzuki India Ltd, India’s largest car maker, which has been grappling with labour unrest at its factories in Haryana, was noncommittal on the proposed changes.

“But it is good to see that at least there is some movement happening in that direction," Bhargava said. “It is difficult to say whether this is enough to influence investment decision to that state."

He emphasized on the need for making provisions for temporary workers. “This will stop the misuse of contract workers," Bhargava said.

Another expert welcomed the move.

“Labour reforms, which give flexibility to corporations and ensure fair compensation to employees, are critical for long-term flow of capital," said Kapil Kaul, South Asia chief of aviation consulting firm Capa. “The move could benefit investors of the Jaipur airport post the PPP (public-private partnership) decision. It could make the Jaipur airport project more attractive."

Bhargava said the government needs to modify the exit policy for a company from a particular state.

“At present, it requires the permission of the state government to close down a factory and the state government needs permission of at least 300 workers, which makes it a difficult task," he said. “My view is that if a factory has to close down, then it has to close down."

prashant.n@livemint.com

Amrit Raj and Tarun Shukla contributed to this story.

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