ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Revisiting the Futility Thesis

Reforming Labour Markets in States

Presenting a critical review of the issues in labour market reforms in India, this article places them against the backdrop of trends in labour force participation and formal/informal employment in the organised/unorganised sectors. Critically assessing the theoretical literature on labour market flexibility in the advanced economies, discussions in the Government of India's Economic Survey and the evidence in India, it asks if the reforms aimed at making the labour market more flexible will succeed in raising the economic growth rate and generating more employment, as advocates of labour market reform would have us believe.

The “need” for reforming the labour market in India has been forcefully articulated by protagonists of economic reform ever since major reform measures were implemented in several sectors of the economy in the 1990s to make a decisive break from the past. Industry and business interests, the corporate media, and a section of economists have been repeatedly complaining about the so-called rigidity in the labour market in India allegedly because of a bunch of protective legislations that has made the retrenchment of workers difficult, and has been clamouring for labour market reform.

In the Constitution, labour belongs to the concurrent list, which means that both the centre and the states can legislate in the area and the central law will prevail in case of any contradiction. As there are major central laws on labour, individual states can amend them. Once a state legislature passes a bill, the union government forwards it to the president for assent. If the president assents, it becomes a law in the state.

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