July 20, 2011 / 10:46 AM / 6 years ago

Flagship Indian manufacturing policy snags on labour laws

NEW DELHI, July 20 (Reuters) - A flagship policy to beef up India’s manufacturing sector with world-class investment zones has stuttered with objections from the labour ministry on freeing up employment laws, a top bureaucrat said on Wednesday.

Industry Secretary R.P. Singh told a business lobby meeting he expected a draft policy on manufacturing zones to be ready within two months as his department sought to build consensus. A discussion paper was released in 2010, but struggled to bridge differences with other ministries.

With an eye to its emerging market rival China, India is pushing the creation of such zones to ramp up its goods exports and revamp a manufacturing sector that has struggled to be competitive since before economic liberalisation in 1991.

To entice investors, the zones promised to provide world-class infrastructure such as ports and airports, slash regulation in a notoriously bureaucratic country and free up labour laws -- including making it easier to fire workers and easing regulations on wage payouts after a company closes down.

“I didn’t expect the labour department’s response to be so lukewarm,” Singh said. “We are coming round with some kind of a consensus, but I am not fully satisfied.”

The labour ministry had raised objections that the manufacturing policy did not meet India’s obligations under the International Labour Organization (ILO), Singh said.

“I hope in the course of the next one-and-a-half to two months, we should be able to come out with a reasonable draft which will give some kind of confidence to industry,” he said.

SHIFTING GEARS

Heavily reliant on services, India must shift economic gears towards manufacturing if it is to maintain near-double digit growth and absorb the more than 10 million people set to join the workforce annually in the coming years.

New Delhi wants to lift manufacturing’s share of the economy to 25 percent over the next decade from about 16 percent now.

A separate policy to create special manufacturing zones for exporters, which was rolled out six years ago, was thrown into doubt in this year’s budget amid differences between the finance ministry and the trade ministry over how such zones should be taxed.

“What about creating jobs for the millions of people who are going to join the workforce? That should be their (labour ministry‘s) concern now,” Singh said. (Editing by Malini Menon)

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