India's Modi kicks off overhaul of archaic labour rules

[New Delhi] India will simplify employment rules and smooth the way for people to move social security funds when they change jobs, Prime Minister Narendra Modi said on Thursday, unveiling steps to reform the labour sector and boost employment.

India's archaic labour laws strictly regulate hiring and firing, while an onerous 'inspector raj' deluges employers with paperwork, discouraging them from expanding and taking on new staff. "Fifty types of departments chase them, 50 types of forms have to be filled in. The world has changed," Modi said, adding that companies would now only need to fill a single form online.

The change would chiefly benefit firms that employ just a few employees, he said. In 2009, 84 per cent of India's manufacturing workers were employed by firms with fewer than 50 workers, research by the Asian Development Bank shows.

It is difficult to estimate the size of this workforce, but just 8 per cent of Indian workers have formal jobs with any security and benefits, such as the Provident Fund, while most are employed in the informal sector, experts say.

Even though the World Bank says India has one of the world's most rigid labour markets, fears of a trade union backlash and partisan politics have deterred successive governments from reform measures.

Business leaders have high hopes that Modi, an advocate of smaller government and private enterprise, will change that.

On Thursday, the Hindu nationalist leader also promised easier movement of accounts in India's Provident Fund scheme by using a universal account number. The payroll-funded programme has 80 million members.

Because transfers are so difficult, more than 270 billion rupees (US$4.4 billion) lie idle in such accounts. "I need to return this money to the poor," the prime minister said. "The world asks, 'What is Modi's vision?' They will see it in this effort." Inspection of businesses will be made more transparent, with a computer lottery being used to pick the enterprises to be inspected and officials required to upload a report within 72 hours, Modi said.

A new website, managed by the labour ministry, will allow companies to fill forms online and raise their grievances. REUTERS