India: State Reforms Antiquated Labor Laws

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By Amrit Dhillon  

June 20—In an unprecedented move, the state government of Rajasthan will amend its labor laws to help generate jobs and attract investment. Changes to labor law are generally handled by the federal government in New Delhi, but Rajasthan has decided to break the two-decade deadlock over labor law reform resulting from the inability of weak central governments to achieve legislative consensus. Existing law has been criticized as rigid, restrictive, archaic and a deterrent to job creation.

“Since we had promised voters in Rajasthan that we will create one million jobs, we were not prepared to wait until the [Bharatiya Janata Party] in New Delhi got around to amending these laws but decided to push ahead on our own,” Rajendra Singh Rathore, Rajasthan parliamentary affairs minister, told Bloomberg BNA June 11. The BJP controls both the national and the Rajasthan governments.

Major Changes

On June 5, the Rajasthan cabinet approved three major changes to the state's labor law:

  •  Employers need government approval only for mass layoffs exceeding 300 workers. The threshold had previously been 100.
  •  A three-year limit has been set for raising industrial disputes. Current law prescribes no limit.
  •  Thirty percent of workers must approve the establishment of a union. The previous threshold was 15 percent.
  • The cabinet also approved changes requiring firms to give workers three months' notice of termination and three months' wages as severance pay.

    The proposed amendments will be introduced in the state legislature next month and, given the BJP's large majority, are expected to pass easily. They must then be approved by the Indian president, a process expected to take up to three months.

    Setting an Example

    The new BJP government in New Delhi has set a target of generating 100 million jobs and increasing the share of manufacturing from 16 percent of GDP to 25 percent and has pledged to review labor laws it describes as “outdated, complicated and even contradictory.”

    Analysts believe that even if the BJP faces opposition in the national parliament to proposed changes in the labor laws, the example of Rajasthan might encourage other state governments to go their own way.

    “They might decide to go and reform, regardless of what New Delhi is doing, to create their own labor market based on the policies they need to create jobs and boost economic growth,” said political analyst Satish Jacob.

    To contact the reporter on this story: Madhur Singh in Chandigarh at:

    To contact the editor responsible for this story: Rick Vollmar at