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Reforms on a Roll!
Thu, 7 Jul Pre-Open

Important legislations are getting cleared in the parliament. Recently, bills such as Insolvency and Bankruptcy Code, Aadhaar Bill, Civil Aviation Policy and SBI Merger got approval from the parliament. This indicates that the parliament is finally functioning. Government is also confident of clearing the goods and service tax (GST) bill in the upcoming monsoon session of the parliament. The clearance of this bill would be a cherry on the cake. However, will these reforms boost economic activity?

The deemed answer to that would be a YES. However, certain structural changes need to be implemented desperately for the reforms to be productive. One is a change in the labour laws. Other is improvement in infrastructure. Both the factors hold utmost importance for India to grow at a rapid pace and the reforms to be productive.

Taking about labour laws, it is often argued that Indian entrepreneurs do not expand beyond a certain point because it is very difficult to fire workers once they have been taken on.

The Chapter V B of the Industrial Disputes Act, 1947, makes it very difficult for companies with 100 employees or more, to fire an employee without the permission from the government. This prevents entrepreneurs from expanding. This is a binding constraint on the manufacturing expansion.

A report in The Indian Express seems to suggest that the government is working on this front. It is planning to make amendments to the Industrial Disputes Act, 1947.

Secondly, issues pertaining to infrastructure needs to be addressed. Manufacturing expansion is often halted on account of erratic power supply, wretched roads, bureaucratic regulations and inadequate credit and marketing opportunity.

Further, banks are increasingly trying to reduce their exposure to corporate lending on account of their current situation of pilling bad loans. This too can halt growth in the manufacturing sector.

We believe, unless this issues are addressed, the reforms won't take a productive shape soon. The need of the hour is to strike the right balance and ensure that there are no more hurdles in boosting the economic growth. This would be critical in ensuring a sustained high GDP growth for the country in the long-term.

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