Lessons from Rajasthan’s reforms

Slow progress in liberalising India’s rigid labour market has been one of the biggest disappointments of PM Modi’s term in office so far. However, there are signs of improvement at state level, most notably in Rajasthan. While it wouldn’t be easy, the ruling party could achieve a great deal by adopting similar policies at the national level or, failing that, in states that are under the BJP’s control. Labour market policy falls into the jurisdiction of both the central and state governments, which has resulted in an extremely complex system. In total, there are nearly 200 laws regarding the labour market. Perhaps the most restrictive is a clause in the Industrial Dispute Act which requires companies with over 100 employees to obtain permission from state governments to fire employees, restructure, and even relocate. To avoid these bureaucratic hurdles, Indian firms typically remain very small in size.