The Bharatiya Janata Party has not been shy about its plans to improve the business environment in India through a reshaping of the labour market. Its manifesto promises to carry out labour reform that will create a “conducive environment for investors” and Finance Minister Arun Jaitley has spoken often about “improving sentiments”, presumably those of the owners of industry above all else. It seems these improvements are being tested in Rajasthan.

Earlier this month, Rajasthan chief minister Vasundhara Raje's cabinet approved amendments to three different laws that govern the way businesses treat their employees. The impending changes to the Industrial Disputes Act, the Factories Act and the Contract Labour Act all change the threshold above which safeguards for employees are triggered.

For example, under the Industrial Disputes Act, companies needed prior government approval if they wanted to retrench more than 100 workers. That bar has now been raised to 300 workers. Similar limits that govern the applicability of the Factories Act and the Contract Labour Act have been raised.

Other changes affect the way employees are able to deal with firms. The amendments will introduce a three-year time limit for any dispute – think of it as a statute of limitations especially for corporates. Crucially, it also impacts workers’ ability to collectivise, requiring that anyone attempting to register a representative union has to show the support of 30% of the workforce, up from just 15%.

Proposed Changes

Industrial Disputes Act

- Prior permission is now only needed when retrenching 300 employees or more, up from 100.
- Three-year time limit set for raising disputes. Currently there is no such time-frame.
- Recognised trade unions need support of 30% of the workforce, up from 15%.
- Three months’ notice and three months’ compensation wages for workers. Previously, this was one month's notice and 15 days compensation wages.

Factories Act

- Now only applicable to firms with 40 or more employees doing electrified work, up from 20 earlier.
- Now only applicable to firms with 20 or more employees in non-electrified work, up from 10 earlier.

Contract Labour Act

- Only applicable to firms with 50 or more employees, up from 20 earlier.


The state has been clear that it expects these changes to add flexibility for employers in Rajasthan’s job market just in time for an expected boom in infrastructure and manufacturing. The cabinet hopes that the assembly will approve the proposals during its session next month. With the Narendra Modi government planning to push forward on everything from a Golden Quadrilateral to the Delhi-Mumbai Industrial Corridor and a Freight Corridor, Rajasthan is expecting plenty of business to come its way.

Reactions to the changes have followed predictable lines. Trade unions have staunchly opposed the changes. The Krantikari Naujawan Sena called it “incentivising investment by easing exploitation”, while industry leaders welcomed the measures, saying they would bring jobs and development to Rajasthan.

Yet not everyone is convinced that policies are truly being altered significantly. “The actual amendments are harmless in a sense,” said KR Shyam Sundar, a professor of Economics at the Xavier Labour Relations Institute, Jamshedpur. “It is a simple, safe transition from requiring 100 workers to requiring 300 workers, which is not a big jump. Back in 2002, Yashwant Sinha made an announcement that would have raised it to 999 workers. That would have had drastic effects. This is small and harmless.”

Dr V Krishna Ananth, a legal commentator and academic with Sikkim University, concurred, arguing that the law that required companies to take permission when firing 100 employees or over was not enforced as well as it could have been. “We are talking about a law that nationwide has not really worked, particularly in the private sector,” he said. “Since 1991, textile mills have shut down, the jute mills have closed. In many cases, they have not retrenched labour, but closures have been effected in other ways. Employers provoke violence or strikes, and make sure they shut down.”

Supreme Court advocate Gyanant Kumar Singh questioned the logic of simply altering the threshold, especially keeping in mind Prime Minister Narendra Modi’s promise of a government that works for the poor. “Do they believe that the law is draconian?” he said. “If so, they should change the law altogether. Why does it matter if it applies to a company with 100 workers or 300?” he said. “And if they don’t think it is draconian, are they saying it is fine to exploit workers in small companies?”

Game Changer

Even if the proposed changes do not have significant impact, there is great benefit to be derived from being seen to be instituting labour reform. “The impact is more in signalling than content,” Sundar said. “The central government gave up this reform because there is tremendous opposition at the national level from the trade unions. If this Raje government in Rajasthan successfully carries out the amendment, it may be a game changer in Indian labour policy. All the other states will be watching the fallout. If one state cracks the nut, then it’ll be easier for the other states to emulate it.”

But before all that Raje’s government could face trouble on the home front. Along with traditionally left-wing trade unions, which have already opposed the measures, the Bharatiya Mazdoor Sangh – linked to the BJP and the Rashtriya Swayamsevak Sangh and one of the largest unions in the nation – has protested against the move. The BMS insists that a review of labour policy is needed, not wholesale reform.

“These reforms are more due to the Modi-effect than any earnest desire for reform,” Sundar said. “It might be difficult for them now that the BMS has opposed it. It all depends on the weight the BMS is able to throw around.”

National impact

The changes may not be limited to the desert state. The centre’s Ministry of Labour and Employment has signalled its intentions to amend a number of Union laws, while representatives of the corporate world have been pushing for the Centre to follow Rajasthan’s lead.

The ministry is currently inviting comments on proposed amendments to the Factories Act, the Minimum Wages Act and the law that governs child labour. Though the proposed amendments do not include measures that will be tested in Rajasthan, there have been indications that they are looking to see what happens in the state.

Commentators and captains of industry, meanwhile, have been calling for the reforms to be replicated in other parts of the country. Manish Sabharwal, chairman of Teamlease Services, called on the rest of the country to “photocopy” Rajasthan, saying the “virus” of labour reform needs to spread.

However changing the relevant Central laws might be daunting even with the legislative majority this government enjoys. Instead, if Rajasthan’s proposed changes are successfully passed, New Delhi could nudge other states to emulate the model.

“Comprehensive labour reform is not going to win in the Indian context. It is more like scratch a bit here, scratch a bit there, and leave everything to flexibility in the field,” Sundar said. “It is much easier for the union Labour Ministry to keep quiet and not provoke any outrage at the national level. They will be overjoyed if Rajasthan ends up succeeding.”