To encourage jobs and industry, Narendra Modi must drastically overhaul labour laws

The Union cabinet decided on Wednesday to approve changes to three labour laws, a welcome measure even if it was a long time coming. Details on proposed amendments are not available, but the overarching goals are to give companies more flexibility in extending working hours, whittle down paperwork for small firms and give women seeking manufacturing employment a fair deal. The primary beneficiaries of this move will be women, unskilled workers and small companies. NDA should not stop with these changes. Changes in labour laws have long been taboo, held hostage to misplaced notions. The victims of these notions have been job seekers.

One way to get a sense of how counter-productive the 44 central labour legislations have been is to consider the composition of workers. India’s labour force had 465 million workers in 2010, of whom only 6% were in the organised sector including state-owned companies. The rest were in the unorganised sector with little protection. Many workers who could have come into the organised segment remain outside as really small companies find the cost of compliance with unrealistic laws burdensome. The laws also destroy incentive for firms to get bigger and generate more jobs. Many of the bigger companies, in turn, find it easier to substitute workers with machines. Either way workers suffer.

PM Modi and his colleagues have gone after low hanging fruit, deciding to amend the Factories Act, Labour Laws Act and Apprentices Act. For example, companies that want to tap a seasonal surge in demand can extend overtime. Or women, who are at the receiving end of discriminatory laws in manufacturing, can work longer hours in the evening like their counterparts in services industries. Compared to labour law changes Rajasthan has tried to bring about, Modi’s cabinet has taken tentative steps. Perhaps the idea is to make the least controversial changes at first to get the process moving. It is difficult to see unions opposing fair treatment of women employees in factories or a reduction in paperwork for small companies.

However, India can ill-afford to be content with incremental changes. With around 10 million young people entering the workforce every year, a stifling regulatory environment chokes opportunities. Soon, Modi will need to shift gears if jobs are to be created at a faster pace.