India Parliament Passes Labor Bills to End Investors’ Hurdle

(Bloomberg) -- India’s parliament approved a set of long overdue labor legislations that aim to attract investment and make it easier for companies to do business in the South Asian nation.

The new bills include the industrial relations code that will allow companies with as many as 300 workers to fire them without seeking prior government approval, a three-fold jump from the current threshold.

The other two bills that have been approved are related to social security and occupational safety. The upper house of parliament passed the bills Wednesday after they were cleared by the lower house a day earlier. As routine procedure the bills now require the president’s assent to become laws.

The bills strike a balance between worker welfare and the ease-of-doing business, Santosh Gangwar, minister for labor and employment, said during the debate on Tuesday.

“These labor reforms are aligned more towards the employer and seek to provide more flexibility when dealing with labor issues especially redundancy,” said Madan Sabnavis, chief economist at Care Ratings. “These laws will hence be positive for potential investors as rigid labor laws have been a concern.”

India’s maze of labor regulations, both at federal and state level, are considered to be rigid and complex, forcing companies to either remain small, employ fewer workers or use capital-intensive methods of production.

India ranks 103rd out of 141 countries for the competitiveness of its labor market, according to the World Economic Forum.

Changing the archaic rules has been a challenge for successive governments because of the fear of trade union backlash and partisan politics. Prime Minister Narendra Modi’s administration has tried to overhaul the laws several times in the past six years but has had little success, until now.

The current changes are part of a process to streamline 44 different federal labor laws into four codes -- a step toward formalizing the $2.8 trillion economy. Several states too have progressively eased their labor laws.

“We believe the impact of labor reforms would be felt more in the macro economy and broader markets over the medium term,” said Gautam Chhaochharia, a strategist at UBS Group AG in Mumbai. “Along with the large cut in the corporate tax rates this signal’s government’s intent on capitalizing on the manufacturing shift from China.”

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