Modi faces dissent from within on India labour laws overhaul

[NEW DELHI] Indian Prime Minister Narendra Modi is again facing dissent from members of his own camp who oppose proposals that would make it easier for companies to do business.

The country's top 11 unions - the biggest of which is linked to Mr Modi's ruling party - have called for a nationwide strike on Sept 2. They are resisting his plan to merge 44 labor laws into four, a move that would simplify some of the world's most rigid rules for hiring and firing workers.

Mr Modi on Monday is due to meet top labor leaders, government officials and business owners at a conference in New Delhi where they are likely to discuss the strike. A similar move by unions in 2013 shut down transportation networks including in the financial capital of Mumbai and prompted arson attacks.

"If there's no satisfactory reply from the prime minister, the strike will continue," Baij Nath Rai, president of the Mr Modi-linked Bharatiya Mazdoor Sangh, said in an interview. The union will oppose "tooth and nail" any policies by any government that go against the interests of workers, he said.

Failure to pass labor laws would add to the disappointment since Mr Modi's election on the slower than anticipated pace of reforms. India's benchmark stock index, which surged 30 per cent last year on expectation Mr Modi will make sweeping legislative changes, has gained 3.5 per cent this year.

An indication of the path ahead will come in the parliament session starting Tuesday, which could be stormy. While last year Mr Modi passed some minor labor-related laws including one related to apprentices, others are stalled. Two more substantial bills have been drafted but not yet introduced into parliament.

One of the most controversial provisions is allowing companies with as many as 300 workers to lay them off without government approval. The cap is currently at 100, while existing retrenchment compensation is three times lower than proposed. Another is an attempt to make it tougher to form unions.

"There are differences of perception between the government and unions," Shankar Aggarwal, the Labour Ministry's top bureaucrat, said in an interview, adding that the government won't take sides in the tussle between employers and workers. "We are confident that we will bridge that perception gap." The government and unions failed to reach consensus on key issues such as retrenchment, closure of factories, formation of unions and minimum wages at a meeting on Sunday, said D.L. Sachdev, secretary of the All India Trade Union Congress.

The country's biggest union is linked to the ideological parent of Mr Modi's Bharatiya Janata Party. While it differs from unions connected to the main opposition Congress party and Communist groups, they all see eye to eye in opposing Mr Modi's overhaul of India's labour laws.

Backlash Feared The political affiliations of labor groups makes it tough to change the status quo, Morgan Stanley said in a report last year. Successive Indian governments have failed to change the laws, fearing a backlash from unions and working-class voters.

Mr Modi is treading carefully ahead of an election later this year in Bihar, one of India's poorest states and home to about 100 million people. He's already facing opposition from farmers over a bill to make it easier for companies to acquire land, opening him up to criticism that he cares more about big business than about the poor.

"Mr Modi has been caught between a rock and a hard place," said Satish Misra, a political analyst at the Observer Research Foundation in New Delhi. "If he moves ahead he will lose votes. If he doesn't then investors will lose faith in him." Economists and business groups say existing laws incentivize firms to stay small, hurting productivity and preventing the majority of workers from accessing legal safety nets. About 81 per cent of Indian laborers were "vulnerable" in 2010 because they didn't get regular wages, the second-worst ratio among 81 countries tracked by the World Bank.

Mr Modi has sought to make it easier to do business and boost local manufacturing since he took power last year. Even before his BJP won India's strongest electoral mandate in 30 years, Goldman Sachs Group Inc said Mr Modi was "an agent of change." Whether that's still the case 14 months later remains to be seen.

"There could be much more resistance from trade unions and from other opposition parties because this issue is very sensitive to their constituencies and supporters," said Walter Rossini, who oversees Indian assets at Aletti Gestielle SGR SpA in Milan. "It will be a very tough job for Mr Modi."

BLOOMBERG