Want to attract more FDI into India? Make labour laws flexible, says report

Mumbai: As existing companies have learnt to manage and expand despite labour laws constraints, formal flexibility and improved compliance would help attract more FDI, especially in the manufacturing sector, says a report.

“Labour costs are low in India, compared to China. Lack of reliable infrastructure (energy or transport) is arguably a more inhibiting factor for growth of manufacturing in India, including for exports. Besides competitiveness, reliability is a key metric to become a successful and meaningful part of any global supply chain,” says the UBS report on labour reforms released on Friday (September 26).

The report said that existing companies, including MNC subsidiaries, appear to have learnt to manage and expand even despite these constraints.

“Formal flexibility in labour laws and improved or simpler compliance regime will definitely help attract new Foreign Direct Investment (FDI), especially in export-oriented manufacturing,” it said.

More from Economy

Inflation likely to be a big focus area for budget 2024, say sources Explained: Will the Bank of Japan break tradition and raise interest rates?

A lot of proposed labour reforms by the government appear to be towards simplifying compliance and processes, it said. This, should aid ’ease of doing business’, lack of which is often cited as a big constraint for Indian business, it said.

The government also proposed to inject flexibility into the process of employing women and driving skill development through the apprenticeship route.

The template emerging for tougher reforms (such as easing restrictions on firing) is to let states drive them, aided by healthy competition among states to attract investment, it said.

At present India’s labour laws are cited as ‘archaic’ or regressive. There are many as 44 different laws on labour at the Central government level, often with contradictions, the report said.

PTI