Labour law reform remains as onerous as it was three years ago when Modi government came to power in New Delhi. The centre is currently in the process of consolidating more than 50 labour statutes into four codes relating to safety, social security, industrial relations and wages. While this is a welcome step, it is a far cry from the reforms the sector needs.

The labour laws are perhaps the biggest obstacle to the ease of doing business in India. Companies find it difficult to fire and hire workers at will. This affects the level of flexibility in companies and they remain small or simply go out of business due to unsustainability. As a result, only 11 per cent of manufacturing companies in India employ more than 200 people, compared to 52 per cent in China.

Though the central government passes labour laws, the laws can be amended by the states to make them suitable to their local realities. So, the states have to take a big chunk of responsibility for reform in this area.

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According to Goldman Sachs Group Inc. estimates, revamping labour laws and encouraging urbanisation could add about 10 million jobs every year over the next decade. Around 12 million people enter the job market every year. So, reforming labour laws can nearly solve our biggest problem – lack of jobs.

However, the states are not up to the task. Yesterday (9 May), Centre For Strategic & International Studies (CSIS) came out with a breakthrough index on labour reforms, where it analysed the states that have increased the number of employees a business can have before it is covered by the laws. The report reviewed three acts: the Industrial Disputes Act of 1947, the Factories Act of 1948 and the Contract Labour (Regulation and Abolition) Act of 1970.

It found that only one state, Rajasthan, raised employment thresholds under all the three acts. Andhra Pradesh and Maharashtra raised thresholds under two of the three acts while Madhya Pradesh did it for one. The rest didn't amend the central labour acts.