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The principal guiding force of managing the Indian economy for close to three decades now is the neoliberal economic order. This has undisputedly given rise to two major challenges, accepted by even the most ardent votaries of neoliberalism, namely, rise in inequality and dismal performance on the employment front. This has led to severe discontent among the masses, which has been very effectively exploited by the political right to mobilize people in the name of religion, national security and the myth of a strong leader, among others. However, the question as to what the right-populist force in India has to offer to solve the crisis ushered in by neoliberalism remains open. In this chapter, we document the outcome on the employment front, which broadly coincides with the first-term of the right-populist government in office.

This article empirically investigates two propositions normally advanced to explain employment stagnation in the organised sector of the Indian labour market namely, rigid labour laws regulating the ‘hiring and firing’ of workers (along with factory closures) and militant trade union activity boosting workers’ bargaining power. It is claimed that labour laws arrest employment creation by making the labour adjustment process difficult. Additionally, it is claimed that workers’ increased bargaining power raises the effective cost of labour, hindering employment creation. This article critically examines both these claims. First, it questions whether labour laws can be held responsible as an explanation for employment stagnation in the organised sector as a whole, since a close reading of the Indian legislation reveals that labour laws apply in less than 35% of aggregate employment in the organised sector in India. Next, it investigates whether employment stagnation in those industry segments where labour laws apply – namely, organised manufacturing – is due to restrictions on ‘hiring and firing’. We find no evidence to support this hypothesis. Finally, it analyses the trend in workers’ bargaining power through various indicators, and finds such power to be unambiguously declining. Thus, the study finds no empirical support for the two conventional arguments put forward to explain employment stagnation in the organised sector of the Indian labour market. JEL codes: J31, J63, J88

Supplemental material, ELR-831245-Supp-Mat for Application of job security laws, workers’ bargaining power and employment outcomes in India by Anamitra Roychowdhury in The Economic and Labour Relations Review

A major focus of India's ongoing policy debate over labour market flexibilization has been the statutory requirement that firms employing 100 or more workers cannot dismiss employees without prior government permission. The case for repealing that requirement (or greatly increasing the workforce threshold) is notably underpinned by Basu, Fields and Debgupta (2009). Here, the author challenges their particular theoretical argument for hiring and firing at will based on the voluntary signing of contracts, demonstrating that their general policy conclusion is logically unsustainable even within the framework of that model. The case for labour market flexibilization through voluntary contracting thus remains unfounded.

Un punto candente del debate sobre flexibilizacion laboral en la India es la obligacion de que las empresas de 100 asalariados o mas obtengan permiso del Gobierno para los despidos. Quienes abogan por revocar dicha ley (o elevar sustancialmente el umbral de trabajadores) se basan en Basu, Fields y Debgupta (2009), cuya argumentacion teorica a favor del despido y la contratacion libres sobre la base de acuerdos voluntarios se cuestiona aqui: la recomendacion politica general de estos autores no se sostiene logicamente ni siquiera en el marco de su propio modelo, por lo que esta alternativa de flexibilizacion sigue sin fundamento.

Resume Le debat sur la flexibilisation du marche du travail indien porte notamment sur l'autorisation administrative de licenciement pour les entreprises de plus de 100 salaries. Le plaidoyer en faveur de sa suppression (ou de l'elevation du seuil) est etaye par Basu, Fields et Debgupta (2009). L'auteur conteste leur argumentation theorique en faveur de l'embauche et du licenciement au gre de l'employeur, avec libre signature d'un contrat, et demontre que leur conclusion politique est logiquement insoutenable, meme dans le cadre de leur modele. Le plaidoyer pour la flexibilisation du marche du travail et la liberte contractuelle s'en trouve infonde.