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Goa’s labour laws rigid, says Economic Survey of India

Reflecting complaints from local industry of long overdue changes in labour laws, Goa is classified as an ‘inflexible’ state in labour policies and placed third from the bottom in the index of labour reform in the recently published, Economic Survey of India 2018-19.

The index is based on findings from 21 states. It reveals Goa’s score in labour responsiveness as below average. The state gets a score of about 16 against an average score of around 20. The score shows that the state’s responsiveness to changing economic environment is poor and only better than Chhattisgarh and West Bengal which are placed right at the bottom in the index and generally regarded as among the worst places for doing business.

The index reflects the extent to which changes in labour regulations have reduced transaction costs for industry.  It indicates that, inflexible states suffer from poor labour productivity.

According to the Economic Survey, flexibility in labour laws makes a more conducive environment for growth of industry and employment generation. “Flexible states grow faster because they attract more capita (investment). Moreover due to rigidity in labour laws employers in inflexible state prefer substituting labour with capital with labour,” says the Survey.

The Survey’s remarks are interesting because the state faces a scarcity of jobs as existing industry is not expanding while new industries are not being set up. To address the situation the government is trying to amend the Factory Act by permitting night shift for women on the shop floor. The amendment, if approved in the forthcoming monsoon session of the state assembly will be the first major revision in labour laws in recent years.

 The labour reform index covers eight major legislations- the Industrial Dispute Act 1947, the Factories Act 1948, State Shops and Commercial Establishment Act, Contract Labour Act 1970, the role of inspectors, maintenance of registers, filing of returns and union representation. Index points are based on the extent to which procedural changes have resulted in lower transaction costs by limiting the scope of regulations, clarity in application of regulations and simple compliance procedures

Other states that are classified as inflexible are Assam, Jharkhand, Kerala, Bihar. In all thirteen states are categorized as flexible with Uttar Pradesh topping the index. 

The index is actually for reforms initiated during the period 2007 to 2014 and updated by the Economic Survey from a previous index prepared by the OECD. However the Economic Survey has studied the effect of reforms in labour laws using 2017 factory data from the Annual Survey of Industries.

The  analysis shows that, states that have made changes in the labour laws and transited towards more flexible labour markets are more productive in terms of output per factory.  “Furthermore the parameters are either deteriorating or growing at a slower pace compared to the flexible states.”

The Survey highlights the case of Rajasthan which in order to become progressive on the shop floor has amended the IDA Act, The Factories Act and the Apprentice Act. Thanks to the amendments industries in Rajasthan do not need government nod for companies employing up to 300 workers or for retrenching, laying off or shutting down units. Earlier the ,limit was 100 workers. A worker has to raise objection to termination within three years. Earlier there was no timeline.

Rajasthan has also revised its Factories Act and increased the threshold limit to 20 or more from earlier 10 or more. To encourage skilling of youth, the stipend for apprentice is fixed at no less than minimum wage. Further the government has to bear a part of the cost for apprentice training. The number of apprentices per factory is predetermined by the government.

The labour reform index is published in Vol 1 of the Economic Survey.

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