Takshashila Policy Brief - Making India's Labour Market More Flexible

Executive Summary

This policy brief presents a workable approach to labour reforms, to break six decades of deadlock. These are reforms that can result in marginal progress that can ease the transition to bigger reforms in the future. Small tweaks to social security coverage and administration for employee welfare, increasing state freedom for business friendly regulation, and engaging meaningfully with trade unions can build momentum on reforming India’s informal sector. Since the 1991 economic reforms, the growth rate in India quadrupled but the rate of good quality jobs remained stagnant. For India to realise its true growth potential and create good quality jobs faster, it has to reform its heavily regulated labour market. Roughly 400 million informal employees make up 93 per cent of the total workforce, and they stand to benefit from incremental changes in labour market regulation and improve productivity. However, resistance from those with a vested interest in an inflexible labour market has made reforms impossible. Therefore this policy brief focuses on realistic ideas that could be acceptable to all parties – employees, trade unions, businesses and ministries.

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