Litmus test for Modi: Land, labour reforms

The clamour for reforms in land and labour laws is finding increasing resonance in India, as the country handed an overwhelming mandate to Prime Minister Narendra Modi.

The corporate sector, which has increased its pitch for reforms in these two sensitive sectors, has found support from bureaucracy, thereby putting the Prime Minister in a tight spot. Any move to tinker with land and labour laws is not an easy task for Modi as it may make him unpopular among the working class.

"Going forward, we see potential reforms focusing on four key themes: land – transparent auctions, and digitisation of records; labour – creating an enabling regulatory environment; privatisation – in areas such as agriculture and banking; and export promotion – through targeting new export markets such as Eastern Europe and Central Asia; and creating a credible system of grading and certification," global investment banking behemoth Goldman Sachs said in a research note.

The corporates have long been against the Indian labour laws, as they see the current regulatory framework as a hindrance in achieving their desired bottom-line.

Yet another global advisory, UBS, seconded the opinion put forth by Goldman Sachs. "Major structural reforms on land, labour and privatisation will excite markets. Political capital is higher vis-à-vis 2014 but a majority in the upper house (Rajya Sabha) is unlikely by 2022," UBS said in its post-election note.

The requirement in the Industrial Disputes Act that no factory employing more than 100 workers can go for lay-offs without prior permission from the government -- which, according to the corporate point of view, leaves companies with no incentive to maintain anybody on the regular muster rolls.

Any tinkering to this law may cause furore among the working class in the country, many of whom are staunch supporters of PM Modi.

Earlier this week, Chief Economic Advisor, Krishnamurthy Subramanian, who is seen as close to PM Narendra Modi had also batted for the land reforms.

“These are areas where we need reforms,” Subramanian said in an interview to Bloomberg. The “2013 Act on land reforms had made it very costly to acquire land,” he said.