Multiplicity of laws and restrictive provisions are a major source of rigidity in the labour market. Moreover, local authorities have often used the guise of protecting labour for rent-seeking behaviour. India ranks poorly vs. other EMs with regard to how its labour market law environment affects its competitiveness, according to Morgan Stanley Research.
''The adverse labour law environment partly explains India's weak trend in manufacturing exports. Growth in the labour-intensive manufacturing sector has been slow - current labour laws incentivize firms either to remain small, employing fewer workers, or to use capital- intensive approaches. The share of India's manufacturing sector in GDP of is one of the lowest among Ems,'' it said.
''Policymakers are slowly paying attention to the negative impact that tight labour market regulations are having on manufacturing sector job growth. However, most of the changes are still piecemeal and at state level.''
''PM Modi's commitment to boosting manufacturing exports - hope of a new deal? We are only cautiously optimistic about the government's ability to make central-level legislative changes, since the ruling coalition is in the minority in the Upper House of the Parliament. We are more optimistic that state governments can get more courageous in amending the labour laws to boost jobs. We believe the recent amendment in labour laws taken up by Rajasthan could be the beginning of more such reforms by other states,'' it opined.
