How amending four labour laws spurred Rajasthan’s MSME sector

The latest Economic Survey of India praised Rajasthan, holding it up as a role model for the rest of the country.

Narendra Kumar Jain, president of Employers’ Association of Rajasthan is a happy man, thanks to the labour reforms, initiated in 2014-15 under the then Chief Minister Vasundhara Raje. “There is industrial peace in the state,” says Jain. Ishwar Chand Agarwal, Chairman of Genus Power Infrastructures Limited, agrees. “For the last 4-5 years, there has been no labour unrest (in Rajasthan)”.

In 2014-15, the Raje-led Rajasthan government amended four labour laws: The Industrial Disputes Act, 1947; The Contract Labour (Regulation & Abolition) Act, 1970; The Factories Act, 1948; and The Apprentices Act (1961). Under the amended Industrial Disputes Act, employers could retrench up to 300 employees without permission of the government — this was capped at 100 employees earlier; a worker should raise an objection regarding discharge, dismissal, retrenchment or termination within three years while there was no time limit earlier; and that the trade union can be formed only if it gets 30 per cent of the total workers as members, up from 15 per cent earlier.

Further, complaints against the employer about a violation of the Factories Act do not receive cognisance by a court without prior written permission from the state government. The Contract Labour (Regulation and Abolition) Act, 1970 was made applicable only to companies that employed more than 50 workers, up from 20 workers earlier. And under The Apprentices Act, the stipend for apprentices was “no less than the minimum wage”.

Not surprisingly, the latest Economic Survey of India praised Rajasthan, holding it up as a role model for the rest of the country. Comparing the change in Compound Annual Growth Rates (CAGR) two years before and two years after the law change, the Survey noted, “It can be clearly seen that, for all variables, CAGR post labour reforms in Rajasthan has increased significantly vis-à vis the Rest of India”. Moreover, the number of firms with 100 employees or more have increased (see box) at a significantly higher rate in Rajasthan than in the rest of India.

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