After years of policy paralysis and lack of reforms, the initiatives by the new government have been noteworthy. Among some reforms that the government announced recently, labour reforms is a key area. For a long time, India has been grappling with issues of antiquated labour laws. And this has been severely hampering the country's growth, particularly in the manufacturing sector. In this context, the focus on labour reforms is welcome. But it would be too early to raise the toast. Let's understand why.
Labour reforms by themselves do not mean anything. It is their effectiveness in creating quality jobs and improving productivity that really matters. An article in Livemint points to an interesting dichotomy. In a paper published in 2008, Sean Dougherty had developed an index that ranked Indian states according to the number of labour reforms that had been undertaken. In 2014, the Institute for Human Development created an index that ranked states according to the quality of employment that provided. Ideally, the states that ranked higher on the Dougherty index should have done well in this latter index as well, isn't it? But you will be surprised to know that the findings have been ironical. States that rank higher on the Dougherty index have, in fact, done poorly on the quality of employment front.
What this means is that labour reforms alone cannot solve labour and employment issues. Factors such as lack of education and skill development, predominance of the informal sector and difficult access to regular jobs are key problems that need to be address to make labour reforms effective.