Modi: the great reformer?

Despite all the fuss, Prime Minister Modi’s proposal to reform India’s ‘rigid’ labour laws faces major problems and obstacles. Even if his changes are implemented, there are no guarantees they will have the economic impact that neo-liberals are hoping for.

Indian Prime Minister Narendra Modi will be a high profile visitor at the G20 summit in Brisbane in mid-November and, whilst in Australia, is also booked to address parliament in Canberra. It’s also nearly six months since he became leader so it seems like a good time to assess his record so far. I’m not in a position to provide any sort of ‘score card’ of his government, but I want to provide a few thoughts on what his prime ministership represents and to focus, in particular, upon his proposed economic and labour market reforms.

First, it should be acknowledged that Modi is incredibly popular in India. The scale of his victory at the May general election was enormous. His Bharatiya Janata Party (BJP) won 283 seats (that’s not including its coalition partners) while the incumbent Indian National Congress, the party of India’s independence, won just 43 seats. To put this on some kind of historical scale, Congress won a total of 414 seats at the 1984 general election, 30 years ago. At this election, the BJP, which had formed only two years earlier, won a total of two seats. While there have been many twists and turns in Indian national politics in the past three decades, I want to emphasise a simple point: the BJP’s seat-count in 2014 represents a massive increase from its origins in the 1980s and that Congress’ result represents a similarly massive decline. It also appears that the vote surge for the BJP reflects Modi’s individual credibility. It seems, for instance, that Modi’s time campaigning in Maharashtra and Haryana made a difference to the number of votes his party gained in October 2014 elections in those states, leading to further historically important victories for the BJP.

Why was Congress so comprehensively crushed in May? While I’m not an expert in Indian politics – I mainly follow developments in the economy and in labour movements – my guess is that Manmohan Singh’s government was judged as a massive failure. Despite their unexpected win at the previous general election in 2004, big business, large media organisations and international financial institutions had high hopes that Congress could deliver on a series of (mostly neoliberal) economic reforms and continue to raise economic growth levels which had spiked in the early 2000s. In particular, big business pushed for reforms to labour laws and financial regulation. Even though it did not deliver on these demands in its first term, Congress was reelected with an increased majority in 2009—it increased its number of seats in the Lok Sabha (lower house) from 145 to 206, to large (now largely forgotten) media acclaim internationally.

But there were continuing problems at the ‘bottom’ of Indian society that Congress failed to fully address. By the late 2000s, many economists and other academics recognized that economic growth in the first half of the decade had been largely ‘jobless’. In particular, female labour force participation—which was already low by international standards—fell further from 53 per cent in 2004 to 40 per cent in 2010. A range of new protective laws were introduced by Congress, but these tended to suffer from poor implementation or lack of enforcement. The Unorganised Workers’ Social Security Act 2008 was supposed to provide social security for ‘informal workers’ but lacked the fiscal support needed to assist enough eligible households. The Right to Education Act 2009 stipulated compulsory free education for all children below 14 years of age yet child labour remains rampant. Perhaps most well-known is the Mahatma Gandhi National Rural Employment Guarantee Act 2005 (NREGA), which was passed to provide 100 days of voluntary manual work per year at the minimum wage for one member of each rural household. While the NREGA has had created some work, established programs involving tens of millions of poor workers and has had uneven results depending upon the region, it has also suffered from endemic problems of ‘leakages’, corruption and abuse by local officials. During its second term, the government also saw economic growth and investment start to fall. Per capita Gross National Product was eight per cent on average from 2005 until 2008. From 2008 until 2012, it averaged below six per cent and, in 2013, fell below five per cent. Investment-to-GDP fell from 33 per cent in 2007 to 29 per cent in 2012 (whereas investment-to-GDP tended to rise during this period in the other so-called BRIC economies).

So Congress failed to placate elites in business and politics or the aspirations of workers and the poor. It was also faced with various corruption scandals and an anti-corruption movement led by an assortment political and civil society figures. Draft legislation to create an anti-corruption watchdog – the Lokpal Bill – failed to pass through the national parliament and could not be implemented. Modi was – and is – widely regarded as a ‘clean’ politician with a record as an efficient, straight-talking administrator who can get things done.

His agenda during the general election campaign was also contradictory as the BJP attempted to appeal to various classes, castes and regional interests. BJP election material varied from region to region but tended to place a big emphasis on rural and agricultural infrastructure. For example, Modi promised a national optic fibre network and emphasized his record as Chief Minister in his home state of Gujarat, in northwest India. In Gujarat, Modi was known for diverting investment to rural infrastructure, like dams and irrigation as well as developing electricity for large farms. His policies coincided with a boom in cotton production and, in return, Modi received strong backing from many medium- and large- commercial farmers. Modi also received strong support from middle-income city dwellers (the so-called ‘middle classes), who form perhaps a fifth of Gujarat’s population.

However, Modi’s record in Gujarat is also highly controversial. Many people, including high profile academics like the economist Jagdish Bhagwati, argue that Modi developed a successful, pro-development ‘Gujarat model’. Others, like the economist Amartya Sen, have been much more critical, pointing to ongoing problems of rural poverty and marginalization in the state. While Modi encouraged infrastructure in rural areas, one of his most controversial measures was to encourage the construction of the enormous Sardar Sarovar dam in the Narmada Valley, which dispossessed thousands of locals and sparked a long-lasting campaign that drew considerable international solidarity in the 2000s.

Most controversial of all is Modi’s role in the 2002 riots which targeted Muslims and, according to official figures, led to well over 1000 deaths. While Modi himself has been officially cleared of any wrong-doing, it is widely accepted that leading members of the far-right group, Rashtriya Swayamsevak Sangh (RSS), were responsible for initiating and leading an anti-Muslim pogrom. RSS members and sympathisers in the police have also been implicated in the violence. Modi’s Minister for Women and Child Development, Maya Kodnani, personally led one gang of thugs targeting, beating and killing Muslims. In August 2012, Kodnani was jailed for 28 years for murder. Modi himself is a lifelong member of the RSS and was chosen to lead the BJP, the movement’s electoral wing, in Gujarat in the mid-1980s. The controversy over his role in 2002 led to United States’ nine-year refusal to grant him a visa to enter the country. This ban was only lifted by the Obama administration as it became clear that Modi was poised to win the 2014 general election.

This is not simply a historical issue. It seems that the RSS and the BJP are actively encouraging anti-Muslim agitation in New Delhi right now, where local elections are imminent. While the BJP currently rules in the neighbouring states of Rajasthan and (since October) Haryana, it is aiming to capitalize on Modi’s recent surge by contesting for power in the Government of the National Capital Territory, formerly a Congress stronghold. In recent weeks, BJP/RSS activists have been targeting low-caste colonies with minority Muslim populations, leading to violence in Trilokpuri, in East Delhi, and tensions in Bawana, in northwest Delhi. In Trilokpuri, the local BJP MP swiftly blamed Muslim youth for clashes between young men and, in Bawana, the local BJP MP – and, shamefully, a Congress councillor – spearheaded local mass meetings against a traditional procession marking the Muslim holy month of Muharram.

Much of Modi’s role as a one-time RSS organizer, and the public face of this viciously anti-Muslim political movement, has been downplayed by Indian and international media since his election victory in May. Attention has turned to the promise of economic ‘reform’ that he supposedly represents. In this context, the French academic and India specialist, Christophe Jaffrelot, wrote a very interesting appraisal of Modi’s first 150 days in office in which he emphasized the continuity in economic policy between Congress and the BJP. Jaffrelot notes that that there was little radical change in Modi’s Union budget. His also suggests that Modi’s proposed changes to labour laws are ‘contentious’ but ‘not revolutionary’. In my view, this is a very important point that worth exploring. Modi’s proposed overhaul of India’s labour laws is central to his vision of economic reform and is one of the main reasons why big business welcomed his election victory with such enthusiasm.

In October, pledged to end the ‘Inspector Raj’ as part of his ‘Make in India’ campaign. ‘Make in India’ is a broad slogan which represents Modi’s desire to encourage greater private and foreign investment in India, particularly in manufacturing. The idea of an ‘inspector raj’ is similar to the old ‘license raj’, which was a system of industrial controls and restrictions on private industry that most post-independence governments implemented as part of a state-centric, import substitutionist model of economic development. Most of these rules – which limited how many large private firms could be established, limited what they could produce, whether and how much they could export or how much they could diversify production – were dismantled in 1991, although several restrictions on private capital had been gradually eased since the 1970s. The ‘inspector raj’ refers to ‘harassment by officials’—specifically, inspectors employed by state labour departments who are meant to ensure that employers comply with labour laws. Modi is proposing to computerize the labour inspection system so that employers are able communicate directly with government through a single ‘portal’ to reduce paperwork. Inspectors will apparently be given a random, computer-generated number of firms to inspect, rather than the current alleged ‘arbitrariness’.

Modi calls this ‘minimum government, maximum governance’. One of the problems with this is that there it assumes inspectors are doing their jobs. My own research in New Delhi and nearby industrial zones in Gurgaon, Faridabad and Manesar suggests that the Department of Labour, which is based hundreds of miles away in Chandigarh, lacks the resources to properly inspect industrial units. In addition, bribery is rife. I remember an employer in a large auto components firm in Manesar telling me in April 2013 that ‘100 per cent of industry is paying bribes’. His firm, with about 400 employees, was paying Rs 2-3 lakhs (about $AU 3700-5600) in bribes each year to various government officials, including a single labour inspector who drove his scooter to the factory every Saturday to pick up an envelope of cash. (This research is forthcoming in the Journal of Development Studies in December—more to follow.)

I have written about Modi’s labour reform agenda in a post on 18 September. My colleague, Surendra Pratap, in Delhi has also posted some really useful information about this (also see this very useful article). Just to reiterate the key aspects of his agenda, Modi says he will make some changes to the Minimum Wage Act, the Labour Laws Act and the Apprenticeship Act, which will allow inter-state migrant workers to be hired as apprentices, set their wages as a ‘stipend’ of 70-90 per cent of the minimum wage (with no medical insurance) and pay half this stipend for one year for ‘small’ enterprises—defined as firms with a turnover below Rs 100 crore, or c. AU 18.6 million)! In addition, Modi is a fan of changes proposed by the BJP governments in Rajasthan and Madhya Pradesh. These governments are planning to:

  • lift the threshold for the Contract Labour (Abolition and Regulation) Act from firms with 20 or more workers to firms with 40 or more workers
  • lift the threshold under the Industrial Disputes Act on requirements that employers seek permission to sack workers or close factories from firms with 100 or more employees to firms with 300 or more employees. In addition, no party to a dispute (e.g. a sacked worker) will be able to officially challenge an employer’s decision for three years after it is made. And the legal threshold for recognition of trade unions will be raised from 15 per cent density in an enterprise to 30 per cent.
  • lift the threshold for the Factories Act from firms with 10 or more workers (20 for firms without power) to firms with 20 or more workers (40 for firms without power). This Act sets working conditions, such as working hours, for most medium-to-large firms in India.

If you are interested how Indian labour laws work, you can read the posts cited above or you can consult some of the excellent academic studies on this topic (Shyam Sundar, 2005; 2012; Hill, 2009). Briefly, the Indian labour law makes a distinction between the ‘organised sector’, defined as firms with 10 or more employees, and the ‘unorganised sector’, defined as firms with fewer than 10 workers. Rules and regulations are relaxed for these smaller firms, where the vast majority of Indians work.

In this sense, Christophe Jaffrelot is right—Modi’s ‘reforms’ are unlikely to spark a radical transformation in investment or growth as the lion’s share of workers are already employed in circumstances where most of these ‘rigid’ laws don’t apply. A neoliberal retort is that such restrictive laws are the main reason why most workers are employed outside the organized sector. In truth, most workers were employed in the unorganized sector decades before economic liberalization started. And, following several years of jobless growth in the 1990s and early 2000s, organized sector employment started to grow again—despite the existence of supposedly ‘rigid’ labour laws (Ghose, 2012).

Major union confederations—the Central Trade Union Organisations as they are officially known—are planning to organize a major national protest, including some strike action, later in the year against Modi’s plans. In my view, they are quite right to do this but, as Jaffrelot suggests, these reforms hardly seem likely to produce the results that neoliberals have pushed for. They simply do not address the issues that most Indian workers (or, for that matter, employers) have to face. It is also worth concluding that the BJP-led national government from 1998-2004 had very similar aspirations to transform labour laws—and demonstrably failed to deliver. Despite Modi’s current popularity, he still has to get his legislation through a less-than-favourable upper house (Rajya Sabha), where Congress and its allies retain more seats than the BJP.

So, despite Modi’s rhetoric, there are few guarantees that he will be able to deliver this time or that, should he succeed, his ‘reforms’ will have any significant impact on the economy, other than to formalize something that already happens, i.e. the mass employment of low-paid, precariously-employed workers who lack genuine collective bargaining and trade union rights.


Ghose, A. K. (2012) ‘The growth employment interaction in a developing economy’, Indian Journal of Labour Economics, 55(1): 23-31.

Hill, E. (2009) ‘The Indian industrial relations system: Struggling to address the dynamics of a globalising economy’, Journal of Industrial Relations, 51(3): 395-410.

Shyam Sundar, K.R. (2005) ‘State in industrial relations system in India: From corporatist to neo-liberal?’ Indian Journal of Labour Economics, 48(4): 917-37.

Shyam Sundar, K.R. (2012) Contract Labour in India: Issues and Perspectives, New Delhi: Daanish Books

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