interview
Why is it Difficult to De-regulate Labor in India?
2019
Summary
An unnamed speaker (likely a policy commentator or economist) argues that while India's labor regulations create perverse incentives — encouraging firms to stay small to access subsidies and evade heavy-handed rules — complete deregulation is politically unsellable in the near term. The reason, the speaker contends, is institutional: India is a 'fairly lawless society' with a sluggish judicial system, so heavy labor regulation has served as a crude substitute for affordable, timely legal recourse for aggrieved workers and consumers. Removing that protective layer before strengthening the courts would leave workers exposed, especially given the conduct of industrialists like Vijay Mallya, who allegedly fled India owing employees thousands of crores.
The speaker frames this as a 'chicken and egg' sequencing problem: judicial reform and labor deregulation must move together, but the order matters. While conceding that a 'nanny state' or maibaap relationship between citizen and state is undesirable in principle, the speaker insists that Indian industrialists must first become 'far more socially responsible' before the regulatory scaffolding can be safely dismantled.
Key points
- Labor regulation creates incentives for Indian firms to remain small and capture small/medium sector subsidies.
- Complete labor deregulation is politically unsellable in India in the near term.
- India's slow, expensive judicial system means heavy regulation has served as a substitute for accessible legal recourse.
- The Vijay Mallya case — an industrialist and former MP who left India owing employees thousands of crores — illustrates why workers cannot yet be left to courts alone.
- Reform requires sequencing: judicial strengthening and corporate social responsibility must precede or accompany deregulation.
- The 'nanny state' or maibaap model treats citizens as perpetual children and must eventually go — but not first.
Transcript
Why is it Difficult to De-regulate Labor in India?
Source: https://www.youtube.com/watch?v=iO8hP9ZwUhc Duration: 275.2s
Speaker (00:26): On labor relations, the problem is a little larger. That it is undisputed that as soon as you provide an incentive for industry to remain small or for industry not to grow, it will do so. Because it is profitable for them to use the incentives, the subsidies that are provided for the small and medium sector. It is also useful for them to evade the heavy handed regulation that we do of the labor sector. But I think that it would be in the Indian context is it would be politically unsellable to completely deregulate on the labor regulation aspect for the simple reason that we are a fairly lawless society in that sense. Our judicial system is not as active as it should be. So a person who is aggrieved by let us say his employer or a person who is a consumer who is aggrieved by a supplier, they have no recourse really in the near term and at an economical level of cost to the judicial system. As a result of that, heavier regulation, right, was one way of ensuring a low level of security from risk. That’s a short term solution we need to— Yeah. The forming the issue is strengthening. Absolutely, yeah. But the chicken and the egg situation also have to be thought of. You know, which do you do first? Do both do both together? Or should there be a sequencing? I mean, in a very practical sense, imagine if you were a minister tomorrow, and you stood up in parliament and you said that I am deregulating labour completely. Right? Knowing full well that no other legal recourse then, real legal recourse would be left to those people amongst the labor force who may have genuine grievances. I mean, consider the case of Vijay Mallya for instance. This is a guy who is living in luxury even in London today. But he left the country without paying his employees a few thousand crores, which is probably the cost of his buttons or, you know, maybe the cost of one month’s culture. But he didn’t pay these guys, and he left. And he’s not a small time entrepreneur. He’s been a member of parliament. He was one of the biggest, you know, formal sector industrialists. They have to be they have to become more socially responsible in a far more positive way than they are today. And until that is done, just removing labour regulation is a long call politically. In terms of, you know, if you take a very technocratic approach, certainly, you know, the more you know, a nanny state is no good for anybody. And labor regulations are part of the nanny state where you’re considered to be a child all your life and there is a mother which is the state, the maibaap, you know, which is looking after you. Certainly that has to go but I think we need to think a little more about the sequencing.
Notable passages
"He's been a member of parliament. He was one of the biggest, you know, formal sector industrialists."
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