Labor Policy and The Second Generation of Economic Reform in India

India Review
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Labor Policy and the Second Generation of

Economic Reform in India
ROB JENKINS
To cite this article: ROB JENKINS (2004) Labor Policy and the Second Generation of Economic
Reform in India, India Review, 3:4, 333-363, DOI: 10.1080/14736480490895660
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India Review, vol. 3, no. 4, October 2004, pp. 333–363
Copyright © 2004 Taylor & Francis Inc.
ISSN 1473-6489 print
DOI:10.1080/14736480490895660
Labor Policy and the Second Generation

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ROB JENKINS
During its time in office, the National Democratic Alliance (NDA)

government1 continued the process of economic reform initiated by
the Congress government in 1991 and sustained by the United Front
government during 1996–98. With the Bharatiya Janata Party (BJP) at
its core, the NDA faced not only the problem of managing its
extremely diverse coalition, but also the complexities of moving onto
a “second generation” of reform – one that required both a broaden-
ing and deepening of the agenda, as well as attention to a number of
reforms that should, by most accounts, have been accomplished in the
first generation, but were not.
Labor reform–along with agricultural liberalization – is often seen
as among the most significant pieces of unfinished business from
India’s first generation of reforms. A complete overhaul of India’s
industrial relations regime – including the conditions under which
workers can be hired and fired, the rules governing union recognition,
and the mechanisms for resolving employment disputes – is consid-
ered long overdue by the World Bank and other observers. India’s
restrictive labor regulations are widely regarded as unsuitable for its
increasingly globalized economy.
The existence of such first generation “leftovers” highlights India’s
unorthodox sequencing of its economic reforms – the result of politi-
cal compulsions, to be sure, but also of genuine uncertainty among
decisionmakers about the right path to follow. At a deeper level, this
unusual sequencing calls into question the very idea of there being
clear-cut “generations” of reform at all – anywhere in the world,
either in theory or in practice.
This paper thus begins from the premise that first and second gen-
eration reforms are not, primarily, headings under which it is possible
Rob Jenkins is professor of political science at Birkbeck College, University of London.

334 India Review
to list specific economic sectors (agriculture, finance), techniques of

economic governance (privatization, fiscal adjustment) or actor-
related processes (labor or civil service reform). Rather, each of these
familiar agenda items, as well as others not listed, is an ongoing pro-
cess, consisting of more than one stage of reform.
In assessing the NDA government’s approach to labor policy,
therefore, this paper does not treat labor reform as either a first or sec-
ond generation matter. Instead, the relevant criterion is whether the
government successfully advanced labor reform from the first to the
second generation. For labor policy – or any other agenda item, for
that matter – to be considered as having progressed into a second gen-
eration of reform, the government must have: (1) moved the issue
from the narrow confines of “elite politics” onto the terrain of what
the literature has called “mass politics,” and (2) assisted the creation of
new (or the resuscitation of existing) institutions of economic man-
agement. Both tasks have political dimensions – the former explicitly,
the latter implicitly.
This paper contends that the NDA government’s performance on
labor reform has been mixed. It makes three interlinked arguments.
First, like its predecessors, the NDA government has continued to
“reform by stealth,” facilitating backdoor policy changes rather than
effecting them through overt decisionmaking. This has involved,
among other things, relying on state-level leaders in India’s federal
system to negotiate awkward political dilemmas. Second, though the
NDA avoided directly reforming the relevant labor legislation, it nev-
ertheless helped to nudge labor reform onto the terrain of mass poli-
tics. Third, while this shift represented an important step in the
direction of a second generation reform agenda, on the other key gen-
erational milestone outlined above – the building (or resuscitation) of
institutions – there has been little progress. Indeed, a case can be made
that the institutions necessary to manage the transition to a new labor
relations regime have been actively undermined, not least as a result of
the Machiavellian politics mentioned earlier.
The paper is structured as follows. The next section discusses some
of the alternative conceptions of second generation economic reform,
indicating which parts are adopted for the analysis of the Indian case.
This is followed by an examination of the ways in which the reform
by stealth tradition has been continued under the NDA government.
The paper then analyzes the NDA government’s performance on the
Labor Policy and the Second Generation of Economic Reform 335
first of the two criteria associated with a second generation agenda:

the movement of reform issues from the terrain of “elite politics” to
one that encompasses what has been termed “mass politics.” Next, the
paper outlines the NDA’s deficiencies on the institution-building
front. It concludes by considering how the trends to date may influ-
ence the willingness and capacity of the NDA’s successors to continue
the process of restructuring India’s labor regime.
Mapping Reform’s Second Generation

There is no universally accepted definition of what constitutes a second
generation reform agenda. It is nevertheless worthwhile to get a feel
for how various analysts have approached the idea of second generation
reform, even if there is no compulsion to buy into one model entirely.
Second generation reforms are often conceived of as delving deeper
into sectoral specificities. They are, in effect, micro-reforms relating to
a particular domain of activity. For instance, USAID’s continuation of
its support to restructure financial sector institutions in India involved
PricewaterhouseCoopers advisors supporting “a second generation
of reform in the Indian financial markets” that would “focus on
strengthening the oversight and risk management capacity of the regu-
lators and self-regulatory organizations, advancing disclosure stan-
dards and information dissemination, expanding investor education,
and supporting insurance and pension reforms.”2 This version of second
generation reform equates deepening with detail.
At the other end of the spectrum is the view advanced by John
Williamson, who at the beginning of the 1990s coined the term “The
Washington Consensus.” More recently Williamson outlined what he
saw an emergent post-Washington consensus. In advocating a gentler
form of market-oriented economics, with a major role for flexible (rather
than dogmatic) international financial institutions, Williamson occupies
a similar intellectual niche as Joseph Stiglitz.3 In a recent book, After the
Washington Consensus,4 Williamson and his co-editor delineated the
contours of this consensus. That he felt this message was relevant to the
Indian context was reflected in an article Williamson published in the
Mumbai-based Economic and Political Weekly, in which his argument
was adapted for a readership concerned primarily with India.
The four key elements in Williamson’s agenda for a post-
Washington consensus world are: a concern with “crisis-proofing”;
completing and, where necessary, correcting first generation reforms;
336 India Review
complementing them with second generation economic reforms; and

broadening the agenda to include a concern with income distribution.5
In his approach to second generation reforms, Williamson argues that
we need a broader view of institutions than is found is most of the
existing literature. Institution-building, he maintains, is not just about
“creating budget offices or Securities and Exchange Commissions.”
Instead, priority must be accorded to reform of the judiciary and the
civil service as well as the national legislative framework governing
labor relations. Even this capsule summary of Williamson’s approach
reveals two key points of relevance for the arguments advanced in this
paper. First, labor reform is as much about building institutions,
broadly conceived, as it is about relaxing regulations. Second, according
to Williamson, second generation reforms are not equivalent to the
post-Washington consensus agenda, but rather a part of it.
This vision of second generation reform is generally consistent
with much of the recent literature. Other views of second generation
reform, for instance, include issues of equity within their definitional
scope, so are fairly equivalent to at least a part of Williamson’s “post-
Washington consensus.” Using India’s first ten years of liberalization as
one of their case studies, Barton et al., like Williamson, also place the
management of crises at the heart of the second generation agenda.6
World Bank president James Wolfensohn shares Williamson’s
belief that the second generation of reform inevitably includes the
unfinished business from the first generation. Wolfensohn sees the
“first and second generations [as] not being sequential.” Indeed, he
maintains “that the first and second generation actually coalesce in
terms of timing.”7 The explicit inclusion by Williamson and Wolfensohn
of first generation leftovers in their respective definitions of the second
generation agenda is a useful reminder that the process of building (or
in some cases resuscitating) institutions – a central component of the
second generation – is constrained by the political complications that
arise when trying simultaneously to clear the backlog from the first
generation. The implication is that institution-building does not proceed
in ways minutely modeled in rational-choice theory: the incentives are
less predictable and the sequencing is messier. When critical processes
run in parallel, rather than serially, the neatly ordered causal arrows
found in reform blueprints are thrown hopelessly out of alignment.
Like Williamson, Wolfensohn also maintains that “[t]he second
generation issues focus around the questions of the structure of the
right institutions, of the improvement of the administrative, legal, and

regulatory functions of the state, addressing the incentives and actions
that are required to have private sector development and to develop
the institutional capacity for reforms.” Again echoing Williamson,
Wolfensohn contends that issues of equity, social justice, and partici-
pation are also an integral part of the second generation agenda: “I
would add to the list of second generation reforms a social framework
that can allow you to deal with the people that fall out of the loop.”
Development and social change, moreover, is “something that must be
owned by the society itself” through widespread engagement in pub-
lic debate and deliberation. “Second generation reforms must also
address the very important question of how you build consensus in a
society.”8 There are clear echoes here of the mass politics criterion
adopted for this paper’s analysis of the NDA government.
Wolfensohn’s approach is consistent with the World Bank’s official
view, adopted as policy under his leadership in the late 1990s, that second
generation reforms will inevitably mean different things in different
countries. The World Bank’s Annual Report for 1997 used the example
of the South Asian region to demonstrate this point:
As the first wave of reforms that started in the early 1990s gained
roots [in these countries] the Bank helped . . . shift the focus to a
second generation of reforms. In India this involved addressing
reform at the state level, and in Bangladesh and Pakistan it
involved addressing governance issues, which, though long
present, have become key constraints to reform.9
Many Indian civil society organizations involved in policy advocacy

work have adopted definitions of second generation reforms similar to
Williamson’s and Wolfensohn’s. The Consumer Unity and Trust
Society (CUTS), based in Jaipur, but with offices in London, Nairobi,
and Lusaka, argued in its 2003–04 memorandum to India’s finance
minister, part of the pre-budget consultation process, that India was only
just “witnessing the beginning of the second-generation economic
reforms.” CUTS saw “the Competition Bill, Electricity Bill, [and]
Right to Information Bill” as “pillars of the second-generation eco-
nomic reforms.”10 CUTS’ approach is representative of a large swathe of
opinion – including, as we have seen, the World Bank – which recog-
nizes that a “necessary condition for the success of the second-generation
338 India Review
economic reforms is good governance through peoples’ participation

in the reform process.”11
While clearly there are many ways to define what constitutes the
second generation of economic reform, what emerges from this brief
review of the literature is that the transition from the first to the second
generation is more a matter of conceptual orientation and approach
than it is a question of assigning specific agenda items to rigorously
defined categories. In practical terms, the sequencing of tasks is messy
and unpredictable. This justifies an analytical strategy which, for any
given reform issue – such as labor policy – assesses government per-
formance in terms of its ability to progress from a first generation to a
second generation approach to that issue. Such a shift can, moreover,
be judged on the basis of two broad indicators suggested by this
review of the literature. The first is whether the reform issue has been
moved from the confines of “elite politics” to the broader terrain of
“mass politics,” a distinction to be spelled out in greater detail later in
this paper. This relates closely to what Wolfensohn’s discussion of sec-
ond generation reform called “the very important question of how you
build consensus.” The second indicator of transition to the second gen-
eration is also suggested by the literature: evidence of government efforts
to create new (or resuscitate existing) institutions, broadly conceived.
Before proceeding further, three clarifications are in order. First,
because of the encompassing nature of labor issues, the analysis in this
paper touches on other policy domains to a limited degree. Trade policy
is, to an extent, a labor issue; so is privatization. These are discussed
insofar as they impinge on the political environment within which
labor reform must unfold.
Second, the paper does not equate labor reform with the repeal of
labor laws. While, as we have seen, a broader view of institutional
reform means expanding one’s view of what constitutes an institution,
it equally involves recognizing that the “reform” part goes well beyond
legislation. There are other aspects of labor reform that are not the
result of law. In fact, many are downright unlawful: the use of paid
muscle to undermine dissident groups within local trade unions and
the outright control of some labor organizations by organized crime.
Finally, whatever argument I am making about the NDA govern-
ment’s ability to advance along some, though not all, dimensions of
the next generation reform agenda, its strategic capacities could well
have been rendered moot – of no effective influence – had not other
enabling factors been in place. For instance, it is questionable whether

the liberal thrust of reform could have been maintained had not
India’s economic performance been as generally positive as it was during
the NDA’s period in power. While certain macroeconomic indicators,
like the fiscal deficit as a proportion of GDP, took a turn for the worse
under the NDA’s stewardship, there was plenty of good economic
news for the government to trumpet: relatively high annual GDP
growth; foreign exchange reserves that stood in great contrast to the
dire 1991 situation; and the fact that (for at least one financial quarter
in 2003) India was able to balance in its current account for the first
time in a quarter-century. And all of this took place in a context of
low inflation; this is critical as India’s polity is notoriously averse even
to what by the standards of other developing countries would be con-
sidered mild inflation.
The NDA and Labor Policy: Reform by Stealth Continues

Reflecting on the challenge that faced his government as it sought to
transform India’s statist economic policy paradigm upon assuming
office in 1991, former prime minister P. V. Narasimha Rao put it this
way: “what it really entails is a complete U-turn without seeming to
be a U-turn.”12 This view is consistent with my own earlier character-
ization of the politics of economic reform in India. In a study which
focused on the period 1991–98, I argued that the reorientation of
India’s development strategy could be seen as a process of “reform by
stealth,” an approach made possible by a combination of three factors: the
political-management skills of India’s politicians, the fluid institutional
environment within which they operated, and the political incentives
thrown up by the initial policy measures they employed to address the
1991 economic crisis.13
These factors have been just as relevant during the subsequent
period of BJP-led coalitions, from 1998 to 2004. The NDA government
adopted similar means to its predecessors in power. Echoing a charac-
terization often applied to Narasimha Rao, one of prime minister Atal
Behari Vajpayee’s long-time political colleagues called him “a master
of ambiguity,” who “sends different – sometimes wholly incompatible –
messages to different communities.”14 It is thus perhaps not surprising
that the process of pursuing reform quietly – avoiding conflicts until
propitious moments, dividing opponents, using illiberal methods to
achieve liberal ends – persisted under the NDA government. Some of
340 India Review
the means employed have remained the same since the days of
Narasimha Rao; others have recently emerged.
One that has long been used is the voluntary retirement scheme
(VRS). While VRSs are not a substitute for the official “exit policy”
sought for so long by India’s private sector, they contribute to solving
the surplus labor problems of many firms. One analysis of the human
resources profile of India’s 30 highest grossing firms found that these
companies have cut almost 90,000 jobs since 1998. It should also be
noted that “this does not include the major companies of the Tata and
Birla Groups that were too shy to reveal their numbers”15 – an indication
of how difficult it is to obtain precise figures on this phenomenon.
The element of stealth involved is not just that VRSs perform some of
the functions that policymakers are too politically timid to effect by
means of policy; other, more flagrant, sins of omission are involved.
Voluntary retirement schemes are often far from voluntary. Sometimes
muscle power is used to intimidate workers. In other cases, firms have
been able to rely on the threat of keeping an employment dispute tied
up in tribunals for so long that workers will never receive any payment
if they refuse to sign up, voluntarily, for early retirement.16 Even a hint
that a company will be launching a VRS nudges unions to the negotiating
table, since union leaders know that rank-and-file members are
inclined to take voluntary retirement, lest they receive nothing. This
leads to more pliant union negotiating positions on wages and working
conditions – achieving, at least in part, what government labor reform
would have. The use and abuse of VRSs softens up organized labor for
more explicit policy reforms in the future – both by depleting its
numerical strength and by reducing the trade union movement’s faith
in the state’s willingness to protect the interests of workers.
The NDA government has also, like its predecessors, sought to
chip away, gradually, at labor rights, rather than making a grand public
gesture. Rather than announcing a comprehensive labor policy, the
government has addressed one micro-issue at a time, often (as we will
see) one state at a time. Like the Narasimha Rao government, the
NDA’s political managers were fond of burying several small doses of
unpleasant news amidst large policy announcements. For instance, in
2002, in declaring its intention to promote a series export processing
zones (EPZ) and special economic zones (SEZ) that would help India
live up to its alleged “trading superpower” potential, the government
had proposed to classify such zones as “public utilities.” This would
require employees of firms in these zones to provide 45 days’ notice

before going on strike – a substantial increase on the existing 30-day
provision. Public discussion focused on whether the new zones could
counter China’s trade prowess, which was portrayed as the major threat
to Indian jobs. Moreover, at the time the “public utilities” provision
was added, unions were already preoccupied with opposing government
proposals to amend the Industrial Disputes Act (IDA) to expand the
number of firms exempted from rules prohibiting worker redundancies
without state government permission.17
A certain sui generis mastery of political opportunism also played
its role in the NDA’s pushing forward, albeit slowly, on labor policy
reform. Prime minister Atal Behari Vajpayee and his team were not
above playing on personal ambition when seeking to secure the cabinet’s
agreement to policy changes. From 2000 onwards, when reforms to
the IDA were being promoted by a small group around the finance
ministry and the prime minister’s office (known as the PMO), the
opposition of the then labor minister, Satyanarayan Jatiya, began
proving politically embarrassing. Replacing the recalcitrant Jatiya with a
supporter of these labor reforms, however, would have provoked
widespread criticism – and public attention – so the PM’s men selected
a known opponent of the reforms, Sharad Yadav, who was told that he
could have the job if he would remain relatively quiet on these matters.
The PMO had accurately gauged the desire of Yadav and his party for
a visible cabinet position. They knew that at least for the short term – all
that was needed to push these reforms through the cabinet – issues of
policy content would take a backseat to ambition.
Another key element in the process of reforming by stealth is fed-
eralism. There are three main reasons why a federal system is useful to
practitioners of stealthy reform at the center. First, competition is created
among subnational jurisdictions for investment. This tends to drive
down regulatory standards by default, with state governments providing
in many cases private assurances to potential investors that labor regu-
lations will not be enforced. For reformers in New Delhi this is a useful
substitute for the policy changes that are deemed too politically risky
at a given moment.
Second, thanks to India’s federal structure, political forces that
present a formidable political force at the all-India level – like the
trade union movement – can be tackled one state at a time. This suits
reformers in Delhi. Quarantining disputes at any given moment
342 India Review
within a single state means squaring off against unions sequentially,

rather than simultaneously, as would be the case if national trade
union federations functioned better.18 For instance, the murmurs of
opposition in Madhya Pradesh when the state government relaxed
labor laws for firms in the Indore export processing zone (EPZ) were
insufficient to attract the attention and support of labor leaders in
neighboring states, who were busy fighting their own battles.19 This
trend is not going unanswered, of course, as organized labor adapts to
this new federalized political environment. It is, for instance, increas-
ingly at the state level that cross-party groups of unions have worked
together most assiduously. In 2002 in Kerala, to take just one example,
three different unions – the Bharatiya Mazdoor Sangh, the Centre for
Indian Trade Unions, and the Hind Mazdoor Sangh – joined hands to
protest the (Congress-led) state government’s plans to water down
regulations relating to “headloaders,” or porters.20 The state government
had taken a stern view of what it called the “extortionary, intimidatory
or unlawful practices” among laborers and unions alike.21 The unions
in Kerala have not had much success in sustaining this state-level mar-
riage of convenience, but even their short-lived unity was more than
their counterparts in Delhi usually manage.
The third benefit of federalism to central reformers seeking to
expend as little political capital as possible in enacting contentious
reforms is policy learning from state to state – and even from the state
to the central level. This last category is perhaps the one that has been
most neglected by analysts of reform politics. Some state governments are
reform trailblazers in certain policy areas, and this helps later travelers
on the path of reform. In the cabinet debates around the proposed
amendments to the Industrial Disputes Act (IDA), for instance,
there was explicit discussion of precursor state-level legislation from
Maharashtra. Maharashtra’s legislation increased the number of employ-
ees a firm could have and still be exempt from the provisions of the
relevant “exit” regulations, which require approval by the state govern-
ment to retrench workers or close down an enterprise. Discussion of
the Maharashtra act was said to have played a role in selling to the cabinet
proposals pushed by the Government of India’s finance ministry.
Insiders vouch for the fact that “the example of Maharashtra’s Industrial
Act was cited by the pro-amendment ministers led by finance minister
Yashwant Sinha.”22 The Maharashtra government had, through example,
provided a powerful argument to otherwise cautious coalition managers
in New Delhi. The announcement of cabinet approval for these amend-

ments to the IDA was greeted by a statement from the head of the
Federation of Indian Chambers of Commerce and Industry (FICCI)
that “The second generation reforms have started with a bang.”23
The government of Andhra Pradesh under former chief minister
Chandrababu Naidu was a trailblazer in some respects, even if many
of Naidu’s reforms proved to have more flash than substance.24 Andhra
under Naidu was the first state seriously to overhaul its contract labor
regulations. This won Naidu accolades from industry associations,
particularly the textile lobbies.25 What most pleased the private sector
was that the amendments to Andhra’s contract labor rules introduced
a distinction between “core” and “non-core” activities in an industrial
firm. The regulatory changes permitted employers to hire contract
labor in ten non-core activities and also to appoint casual workers to
intermittent employment in any area of work even if it was designated
a core activity. Indeed, it is at the state level that some of the more
“difficult” issues are being tackled.
The knowledge shared between states concerns the politics of
reform as much as it does the merits of the economic policies themselves.
For instance, the Southern India Engineering Manufacturers' Association
(SIEMA), noting the action taken in neighboring Andhra Pradesh,
made representations to the government of Tamil Nadu – through
meetings and correspondence with the state’s secretary of labor and
employment – asking it to consider redesigning the state’s contract
labor legislation and regulations, such as the Tamil Nadu Industrial
Employment (Standing Orders) Rules 1947, so that certain jobs
would not be designated as “core activities” and so that fixed-term
employment at peak periods could be semi-regularized.26 Such a
change would allow the firms to use more temporary, contract
employees, creating huge savings in terms of both direct wage costs
and associated employer costs (provident fund contributions, sick
pay, automatic pay increases, and so forth).27 Touting these benefits,
the SIEMA president, whose lobbying efforts referred specifically to
the need to increase competitiveness to adapt to globalization, went so
far as to draw on testimony from industrialists in Andhra Pradesh
with first-hand knowledge of the new (“model”) contract labor regu-
lations in that state. These Andhra businessmen had in fact recom-
mended further reforms. The SIEMA (and most other employers in
Tamil Nadu) sought rule changes that would permit them to hire contract
344 India Review
laborers for core functions as well – in circumstances when, as they put

it, there are specific “time-bound” needs for extra human resources.
What these examples demonstrate is that state-level labor reforms,
occurring as they do in an open, competitive environment, lead not
only state-level governing elites, but also (as we have seen) private sector
actors, to monitor developments in other jurisdictions. These actors
seek out policy innovations, and (as importantly) monitor the political
reactions to these changes.
Some industry associations have cited Naidu’s reforms as an effort
to convince the central government to permit contract labor in the
textile sector on a nationwide basis.28 This highlights the importance of
the “adaptation to globalization” discourse that pervades discussions
of labor policy, and for good reason. At the end of 2004, the interna-
tional textile trade will experience a major regime change, in which
national quotas will no longer govern access to rich-country markets.
This will require adjustments of many sorts from economic agents as
well as holders of state power. There is some limited evidence that
India’s public agencies (particularly at the state level) have begun to
adapt themselves to what will be their new role under the new textile
trade dispensation: facilitating adaptation, and helping to cushion
some of the losers from economic transformation. But, as Errol
D’Souza has argued, this will require a much greater transformation in
the way in which policy is made – in particular the nature of the rela-
tionship between government and industry. Civil servants will have to
engage on a sustained basis not just with industry associations, but
also with independent scientific research institutes, policy-oriented
think-tanks and others that are close to the private sector, but not of
it.29 The new approach to “facilitating upgradation,” to use D’Souza’s
term, has implications for the state’s de facto labor policy.30
There of course remains the question of whether labor policy
reform is a crucial agenda item at all. Those who think its importance
has been oversold sometimes share the belief that the reason why gov-
ernments have consistently delayed taking action on labor reforms is
that there is little economic advantage to be had, and a good deal of
political hazard. D’Souza argues that India’s textile association repre-
sentatives increasingly came to realize that labor costs were not the
key issue, and that their lobbying energies were better expended on
seeking to persuade various agencies of the central and state governments
that other issues, like the allocation of hank yarn, de-reservation (out
of the small-scale sector) of garments production, and so forth, were

far more critical.31 Chandrasekhar and Ghosh argue that:
in the ultimate analysis, labor laws are perhaps far less significant
as factors in affecting private investment, than more standard macro-
economic variables and profitability indicators [such as] . . . the
condition and cost of physical infrastructure, the efficiency of
workers as determined by social infrastructure, and the policies
which determine access to credit.32
Indeed, has not India’s economic performance since 1991 demon-

strated that growth and investment can proceed without far-reaching
reforms to labor markets (even if, counterfactually, one could imagine it
having achieved even better performance had reforms been enacted)?
This argument is even more compelling if we go further back in time,
to the early 1980s, the period when, as Rodrik and Subramanian
remind us, the current era of India’s higher than usual economic
growth began.33
Research by Besley and Burgess suggests otherwise. Labor reform,
they argue, does in fact affect various performance indicators. Rather
than looking at the post-1991-reform period, Besley and Burgess
examine state-wise data from 1958 to 1992. They compare states in which
significant “pro-worker” additions to labor legislation were made
with those in which there were relatively few such amendments. States
with fewer regulatory restrictions had, on the whole, higher investment,
employment, productivity, and output in registered manufacturing
than those that adopted pro-worker measures. But it is not just the
efficiency side that suffers from ill-judged attempts to legislate in
favor of workers. Repeal of such measures could also, on the evidence
produced by Besley and Burgess, be advocated on equity grounds.
“Pro-labor” regulations appear to be correlated with increases in
urban poverty, which to the authors “suggests that attempts to redress
the balance of power between capital and labor can end up hurting the
poor.”34
Whether or not labor reform is indeed such an urgent matter – and
Besley and Burgess’ findings have been criticized on methodological
grounds – labor policy is certainly perceived to be an important area
of reform. This lends urgency to the question of whether and how
governing elites are able to shift the politics of labor reform from the
346 India Review
politics of elite-level bargaining to one in which the issues enter the

domain of “mass politics.”
The Shifting Terrain of Economic Reform: From Elite

to Mass Politics?
There is a close affinity between, on the one hand, a reform by stealth
explanation for the political sustainability of reforms during the 1990s
– which, as noted earlier, involved a powerful combination of political
incentives, skills, and institutions – and on the other, the explanation
advanced by Varshney, which is based on a distinction between “elite
politics” and “mass politics” in the process of economic reform.35
Varshney argued that during most of the 1990s India could sustain libera-
lization in the face of ideological and interest group opposition
because the reforms were not a matter of concern for the great mass of
India’s polity. There were two aspects to this lack of mass attention.
The first was the nature of political cleavages in Indian society – that
is, the relationship between identity politics and reform politics. Identity
politics, Varshney argued, were the primary area of mass concern in
Indian politics. The economic policy matters that consume so much
newsprint are primarily of interest only to an elite. The Centre for the
Study of Developing Societies election surveys show the lack of aware-
ness and interest of voters, during 1996 and 1998, in issues of eco-
nomic liberalization.36 The second dimension of the lack of mass
attention to economic policy issues involved the nature of the reform
program itself: the reform agenda during most of the 1990s steered
clear of the issues of great popular concern, such as cutting agricultural
subsidies or deregulating industrial relations – two of the most prominent
items of unfinished business on the reform agenda.
There is an important point of complementarity between the
“reform-by-stealth” and “no-mass-politics” explanations for the
political sustainability of reform: it was politicians’ skillful deployment
of stealthy tactics – to harness emerging incentives and to manipulate
adaptable institutions – that was part of the reason why India’s paradigm
shift could remain off the mass political radar. To achieve this U-turn
without seeming to perform a U-turn, to paraphrase Narasimha Rao,
required these tactics and skills to be deployed in the arenas of both
mass politics and elite politics. It involved, for instance, both the
manipulation of mass public opinion and the use of deceptive tactics
when negotiating with elite business constituencies whose desire to
maintain the status quo were in no way driven by a concern for the
public interest.
To what degree – and according to what strategic pattern – has the
NDA era seen the politics of labor reform in India shifting onto the
terrain of mass politics? Varshney’s otherwise useful distinction
requires three modifications in order to apply it to this question.
First, for the purpose of analyzing the decisions and actions of a
government over its term in office, the elite/mass distinction must be
conceived as more of a continuous rather than binary variable – as
representing a spectrum rather than a clear dichotomy. Any individ-
ual reform issue can be seen as either mass- or elite-oriented, as long as
an income group disaggregated impact analysis is conducted, and the
results are reported from the relevant perspective. But when we look
at the actions of governments over a span of time (say, a term in
office), then we are interested in the proportion of actions that have
involved mass-affecting issues.
The second refinement required to the elite–mass framework is to
highlight the agency needed to shift the terrain of mass politics to elite
politics, and vice versa. This is what skilled politicians do. Hence,
whether a particular reform dilemma is best characterized as in the
domain of mass or elite politics is not fixed, but can itself be affected
by other factors specific to the situation under analysis, including the
strategic actions of governing elites.37
The third refinement to the use of the elite–mass framework has
been, in effect, suggested by Varshney himself. His argument is not
just that governments will increasingly have to execute reforms on
issues of mass concern – as they already have since his article was pub-
lished – but also that in order to do so effectively, an articulation of
the market and its relations to popular values would have to be under-
taken in the realm of mass politics. As Varshney put it in another
context:
in few countries have . . . reformers been voted in power due to the

commitments of masses to a market-oriented strategy. At the
mass level, the links between markets and mass welfare are not
easily understood . . . [yet] few politicians are emphasizing the
links between markets and mass welfare. Political language and
rhetoric aimed at creating a mass constituency for reforms are not
generally in evidence, and arguments that reforms can make life
348 India Review
better for the masses, not simply for the middle class and the rich,
has not emerged as an electoral argument in mass politics.38
On each of the three refinements to Varshney’s framework it is

possible to make a case that the NDA government has taken labor
policy reform onto the terrain of mass-oriented politics, which is of
course just one of two dimensions of the transition from the first to
the second generation.
First, while the NDA government avoided many of the most
salient mass politics issues – had it not done so, it would be criticized
for un-strategic sequencing – during its term in office there was a
significant increase in the proportion of its reforms relating to labor
that were rooted in mass politics. As we have seen, the government
surmounted certain key hurdles in the process of reforming labor laws
– while, as we have also seen, getting state governments to do even
more on this front. And despite problems encountered late it its term
when seeking to sell off stakes in two high-profile state enterprises in
the energy sector, there was considerable progress on privatization, an
issue very closely aligned to labor issues because of the large unionized
workforce in the public sector.39 Again, there was less progress on
privatization than advocates wanted (or in fact than the government
budgeted for in terms of disinvestment revenues), but more than pre-
vious governments had accomplished. Other government policy
changes that contained a labor dimension related to mass political
concerns were tariff reductions prompted by India’s World Trade
Organization (WTO) commitments. These included the removal of
quantitative restrictions on more than 1200 product categories follow-
ing a WTO dispute settlement ruling that went against India in 1999–
2000. These caused great concern among not only business owners in
these sectors, but also among labor leaders.
With respect to the second refinement to Varshney’s framework,
the NDA government demonstrated its capacity to turn labor reform
dilemmas that could have become mass politics issue into elite politics
issues. These are more susceptible to resolution through behind-the-
scenes negotiation. The main tactic employed to work this political
alchemy was skillful delay and the concealment of reformist intent. It
is helpful in this connection to refer to what Ahluwalia – one of the
major actors in the process of planning and executing at least some of
India’s economic reforms – called “a special type of gradualism.”40
This classification was made in the context of discussing some of the

background dynamics that affected shifts in the evolution of privatization
in India – from what might be considered the first to the second gen-
eration. But Ahluwalia contends that the practice of this “very special
type of gradualism . . . characterized many other reforms in India”41 –
labor among them, I would argue.
The chief trait of this political approach is its capacity to under-
mine the ability of opponents of reform to calculate the costs and benefits
of reform, or the costs and benefits of open protest.41 If opponents
consider reform objectives limited, they can refrain from precipitate
action, in the hope of retaining useful relations with key politicians.
What makes the type of gradualism pursued in India “special” is that
the ultimate reform destination (to be reached gradually) is not
disclosed at the outset of the process. In India such intentions were
usually concealed. Policy then
evolved in a “one step at a time process” in which the full extent of

change envisaged was not clearly spelt out initially. Indeed even
the intention to take further steps was at times denied. At times, it
was also a reflection of political expediency, i.e. policy makers
may have intended to go further in due course, but it was felt
politically inconvenient to spell out all the stages at the beginning.
At times, this reflected genuine uncertainty about the extent of
change envisaged.42
Ahluwalia observes that “[t]he advantage of this approach is that it

makes it easier to develop a gradually moving political consensus in
what is otherwise a highly pluralist and noisy democracy.”43 This
formulation, of course, emphasizes the positive side – the building of
support for reform. But its reverse, the disruption of opposition, is
implied, particularly in Ahluwalia’s reference to the risk factor most
commonly associated with gradualism: when “change takes place over
a long period of time [this] … gives time for opposition to harden.”44
This insight can be extended if we recognize that certain policy
domains are more acutely affected than others by the passage of time
between the first and second generations of reform. Labor policy is
among these. Reformers benefit from the progressive weakening of
organized labor’s capacity to resist policy change. Since economic
liberalization was introduced 1991, many unions have seen their
350 India Review
memberships drop and their leaderships embroiled in conflict and

controversy. Many state governments have also worked assiduously
to undermine independent union power. Roy Chowdhury’s research
on public sector unions in Karnataka demonstrates a slow leeching of
labor’s tendency toward systematic confrontation, as a result of
party–union relations, the internal dynamics of unions, and myriad
other reasons. The result is weakened resistance.45
The third refinement to Varshney’s framework concerns the issue
of articulating a vision of liberalization that can appeal to the mass
imagination. The BJP core of the NDA has progressed on this aspect
of generational transition by shifting its rhetorical focus from liberaliz-
ation to globalization. Its vision looks something like this: “globalization
is a site in which (Hindu) India takes up her rightful place in the inter-
national community; just as this has been accomplished in the global
security field with the nuclear tests in 1998, so will India’s IT expertise
and business acumen allow India to thrive in the global economic field
as well.”
This has sometimes been referred to as “nuclear swadeshi.” Such a
term is useful in one sense: it highlights the way in which the NDA
government used its security policy gambit – a gesture of defiance to
the world community if ever there was one – to shield itself from
attacks by opponents of its economic reform policies. Having asserted
India’s place in the global political order, the BJP could pursue market-
friendly policies relatively immune to the charge – heard often in
domestic politics – that the government was taking orders from the
World Bank, the IMF, the White House, or anyone else. But the term
“nuclear swadeshi” does not fully capture the shift involved. The term
“national interest swadeshi,” drawn from the work of Baldev Raj
Nayar, evokes more closely the dynamic at work.46 Leading figures in
the government, such as Yashwant Sinha, have coalesced around this
vision, in which swadeshi is repackaged as the pursuit of India’s greatness
through a policy of strategic realpolitik to advance whatever is considered
in the national interest.47
Whatever the NDA government managed to achieve by way of
economic reform was to some degree made possible by the BJP’s abil-
ity to neutralize sites of resistance within the party’s organizational
base, the Rashtriya Swayamsevak Sangh (RSS) (“National Volunteers’
Association”). Many elements in the RSS are deeply unhappy about the
BJP’s embrace of a market-oriented version of economic globalization.
This goes beyond the protest actions of the Swadeshi Jagran Manch,
an anti-reform front organization, reflecting a wider feeling within the
RSS, the organization that counts in these matters.48 However, the
nuclear tests in the Rajasthan desert, undertaken by the BJP’s first
coalition government, seriously undermined RSS opposition to the
government’s efforts to globalize the Indian economy. The tests had
promoted India to the ranks of the world’s acknowledged nuclear
powers, which in the eyes of the average RSS-wallah registers as a
huge boost in (Hindu) national prestige on the world stage. Foreign
economic policy received a grant of freedom from domestic political
pressure thanks to the autonomy from international political pressure
displayed by the NDA government on its foreign security policy.
Varshney, it will be recalled, claimed that in India identity politics
tends to be of concern to mass constituencies, whereas elites are pre-
occupied with economic issues. This issue hierarchy, he maintained,
provided a conducive political environment for reformers: policy
issues were out of the political spotlight, not least because political
divisions based on caste, religious, language, region, and so forth
reduced the collective action potential of economically defined interest
groups that might perceive threats from reform measures. But, in
practice, this logic held only for the first generation of reform. As policy
decisions affecting ordinary people begin to occupy more of the policy
space, as they have in India, the arena of mass politics becomes less
dominated by identity politics, proportionately speaking. There is, in
other words, a proportionately stronger need for governing elites to
find a substitute for the declining effectiveness of multiple issue cleav-
ages as political camouflage for the introduction of reform measures.
The BJP responded, as we have seen, with an ideologically charged
narrative about the place of economic reforms in the development of a
globally powerful (Hindu) nation. It represents an attempt to find a
compelling synthesis between ideas across the two domains of eco-
nomic life and identity politics. This replaces the earlier approach, in
which economic and identity issues operated in different registers – a
circumstance which suited politically astute reformers during the first
generation of reform.
Of course, a hard-line nationalist vision of economic superpowerdom
is hardly comforting, and clearly was not what Varshney had in mind
as a humane, social democratic vision of reform that could be sold
politically as generally welfare-enhancing. The only politician in India
352 India Review
to have pursued such a vision – stressing the ability to harness the

market for socially desirable ends – is Chandrababu Naidu.49 He fused
his market-friendly reform agenda with an unabashedly liberal vision
of good governance. Whether Naidu actually delivered on his promises
of reform is another matter entirely. Naidu lost power in the same
elections that ousted the NDA from office in Delhi in May 2004, and
there is no evidence that his party won a second term in the 1999 elections
because of his reformist credentials. Indeed, there is much evidence
that Naidu’s electoral base in 1999 was bolstered by a combination of
clever alliance politics (joining forces with the BJP just prior to the
campaign); using the government machinery to feed clientelist networks
(via his janmabhoomi scheme and other such development interven-
tions); and the subversion of the principles of liberal economics
through fiscal irresponsibility.50
All this was a far cry from the superpower ideology of the NDA
government. Even for those who do not agree with the content of
“national interest swadeshi” – or find its implications unpleasant –
there is little doubt that it allowed the BJP to move quietly beyond its
old policy of “internal liberalization,” which amounted to a kind of
“passive globalization,” or globalization by default. The BJP, and the
coalition it heads, began to engage in “active globalization” – a central
part of bringing reform into mass political discourse.
In the area of labor policy this has occasionally taken the form of a
greater concern with issues of equity, a key dimension of the shift to a
more mass-oriented politics of reform. Vajpayee himself made the
point explicitly that labor reforms are necessary to come into line with
the latest global trends. Rather than treating the casualization of the
workforce as a problematic labor policy issue from the perspective of
equity – which, it can be recalled, is at the forefront of many versions
of the second generation agenda – Vajpayee repeatedly sought to portray
casualization as part of a globalizing process from which India stood
to benefit. “The new economy has changed the nature of employment
fundamentally,” Vajpayee stated in late 2003. As a result of global eco-
nomic integration, “[i]ncreased ancilliarisation in production systems
and contract manufacturing has shifted the focus of employment from
the organised sector to the service and peripheral sectors.”51 This was
deemed a good thing.
Vajpayee also effected a rhetorical inversion of organized labor’s
position on the elite–mass scale with his repeated mantra about the
elitism of existing industrial relations policy. “The existing labor laws

are only for those who are employed in the organized sector, which
forms a very small part of total labor force,” he asserted. “We wish to
bring suitable changes in the legal framework so that it could serve as
an instrument for speedy employment generation in all sectors of the
economy.” This, he proceeded to clarify, included India’s great
“masses.”52 The implications of this discursive shift were played out in
India’s states, which as we have seen were key sites in the battle for
labor reform. During the NDA’s time in office tackling public sector
unions become almost a point of macho honor among state governments.
Senior advisors to former Rajasthan chief minister Ashok Gehlot were
eager to publicize the CM’s “resolve” in dealing with protesting gov-
ernment workers in the first part of his term.53 Similar crackdowns
took place in Kerala, and Tamil Nadu – with state governments taking
great public pride in vanquishing, as they put it, the labor aristocracy
represented by public sector unions. Such talk, matched in many cases
by bolder action than publics were accustomed to seeing from their
representatives, would have to be regarded as an important step in the
transition from elite negotiation to mass politics, even if the budgetary
impacts were less tangible.
Institution-Building?
The second broad component of the transition to second generation
reform is institution-building. While the NDA government has managed
in some sectors to nurture new institutions (such as the Telecom
Regulatory Authority of India), the NDA’s institution-building
record in the labor field has been dismal. Arguably, the government
contributed to the further demise of certain key institutions.
This is particularly the case with respect to the Indian Labour
Conference and the (admittedly ad hoc) National Commission on
Labour. The process by which individuals were appointed to these
bodies, and the manner in which they operated the latter, was fraught
with controversy. Throughout the NDA’s time in office, both bodies
were dogged by complaints of political favoritism, of agenda-rigging,
and of the systematic muzzling of dissenting voices, though one trade
union member of the Second National Commission on Labour
(SNCL) did issue a dissenting opinion. The NDA’s blatantly ideological
and partisan approach to these bodies made it significantly less likely
that either would be able to “contain” the distributional conflicts
354 India Review
likely to accompany continued labor reform. Without good-faith policy

bargaining in these kinds of institutions, disputes will spill over into
strikes and protest politics more frequently.
Another aspect of the NDA government’s failure to assume
responsibility for an institution-building role in the process of
restructuring labor relations is its refusal to take account of what a
substantial portion of the economics profession in India was telling it:
that there appear to be fundamental differences between India’s labor
markets and those upon which the government’s reform theories are
predicated, and that this is manifested in the prevalence (and persistence)
of “dualism.” The extent of labor’s casualization and the proliferation
of arrangements for the contracting of labor have both been key
trends. The results of the fifty-sixth round of the National Sample
Survey, as analyzed by Chandrasekhar and Ghosh,54 reveal what they
call a form of dualism, in which a severely exploited segment of the
workforce appears permanently marooned in the unorganized sector,
which exists in the shadow of the formal sector, where a different set
of social and political relations apply. Chandrasekhar and Ghosh argue
that neoclassical economics, based on “developed country experi-
ence,” expects an industrializing economy to witness “the gradual
demise of excessively small units and units based on more primitive
techniques and primitive forms of organization,” as these “give way to
large or larger units working with hired labour and more advanced
techniques.”55 Why does this not appear to be happening in India?
The authors are clear that it is not simply a failure of regulation to do
its job:
dualism is not a function of just the limited implementation of the

Factories Act, which allows for wage differentials between the
“organised” and “unorganised” sectors. Rather, as analysts have
often pointed out, a number of other factors on the demand side
such as the persistence of “traditional tastes ” that can be catered
to only by more primitive techniques and the existence of poverty
and inadequate market integration, which generate a different
kind of “niche” market for cheap but primitive products, have
also encouraged dualism.56
Such arguments are contestable, but most labor economists in

India see the merit of adapting institutions to facilitate what, in a
strictly neo-liberal view, would be expected to take place automatically

from deregulation. There has been, for instance, much concern about
India’s glacial rate of job creation, even during the years of economic
expansion under the NDA. From 1998 to 2003, employment in India
grew by an average of less than 1% annually. Since India’s workforce
(even if we exclude child labor) is expanding at roughly 2% per year,
the effective rate of employment growth was actually negative.
With a section of the workforce substantially insulated from the
large-scale social processes that give rise to the formation of militant
labor organizations, of the sort that can later fight for worker rights,
two implications for our larger argument arise. The first is that there is
a need for institution-building to overcome these problems. This is
precisely what successive Indian governments, including the NDA’s,
have not been doing, preferring to rely on the time-honored tactics of
delay and division to advance a limited (and therefore most likely
flawed) version of labor reform. Moreover, to whatever extent the second
generation reform agenda lends prominence to issues of equity, this
will require the creation (or adaptation) of institutions capable of coping
with at least the consequences, if not the root causes, of dualism. They
will not rectify themselves through deregulation alone.
The second, related, implication is that, despite Ghosh and
Chandrasekhar’s aforementioned view that non-implementation of
labor laws is only a minor contributor to the continued marginalization
of Indian workers, it is clearly the case that the lack of regulatory
enforcement is a critical issue from the perspective of institution-
building. There is a huge gap between the rather wide coverage of labor
law in India, and the limited number of cases in which it is impartially
applied. Chandrasekhar and Ghosh remind us that the cause of non-
enforcement is not the narrow scope of legislation:
it is not the case that various provisions are actually applicable

only to workers in the formal sector. Laws like the Minimum
Wages Act, the Equal Remuneration Act, the Contract Labour
Act, and so on, apply to workers in both the organised and the
unorganised sectors; even the Industrial Disputes Act [IDA]
applies to large sectors of unorganised labour.57
Many of the flaws of the existing system under the IDA are, in fact,
a problem of the state’s failure to develop adequately insulated institutions
356 India Review
of accountability in the labor field. This, in essence, is a failure of the

liberal half of the liberal democratic state in India. Fareed Zakaria’s
critique of trends in the elaboration of Western political systems – and
in ideas about how best to promote good governance in the developing
world – stressed the need to temper enthusiasm for, and action in support
of, democratization. Equally essential, Zakaria maintains, is progress
toward political liberalization.58 Part of liberal politics is maintaining
the personal liberties that allow civil society to flourish and thus affect
both the nature of governance and the shape of democratic contests.
But part of it is enforcing the rule of law. This, arguably, requires
greater institutional coherence. Indeed, the list of factors the SNCL
sees as contributing to the poor condition of Indian labor include
many institutional shortcomings:
5) the Conciliation Machinery is more eager to consider problems

of employers and today consider issues like increase in productiv-
ity, cost reduction, financial difficulties of the employer, compet-
ition, market fluctuations, and so on; 6) recovery proceedings
against employers who could not pay heavy dues of workers are
not being seriously pursued by the industrial relations machinery,
if the financial position of the employer is very bad; 7) the labour
adjudication machinery is more willing to entertain the concerns
of industry. 59
Ostensibly concerned with institution-building, the SNCL also

recommends that any provision that accords employers discretion in
allocating a benefit negotiated in exchange for labor flexibility provisions
should “provide for a third party or judicial review of the decision,
without affecting the right of the management to decide what economic
efficiency demands.”60 This sort of institutional mechanism provides
the illusion of accountability, while possessing no realistic prospect of
enforcement. The idea that such a “third party” review would enhance
the leverage of workers in their efforts to obtain a decent settlement
with management runs contrary to 40 years of experience with such
bodies in India.
This trend is seen in other statements from the SNCL as well,
which in its report stated that “the Commission is of the view that
changes in labour laws are only one of the issues involved, and that
these have to be visualised and effected in a broader perspective of
infrastructural facilities, social security, and Government policies,”

adding that an institutional mechanism would need to be devised to
make such policies operational: “it is necessary to provide for both
protective and promotional measures, the latter being particularly
relevant for the workers in the unorganised sector.”61 The problem, as
Datt points out, is that there is little chance of this being imple-
mented.62 Another example is the SNCL’s recommendation that each
industrial establishment should have a grievance redressal committee,
with workers and employers represented equally. But given the lack
of proper investment in such institutional mechanisms, and their inevit-
able politicization, these “concessions” to the labor movement end up
providing virtually no practical benefit to workers.
This pattern is repeated in other aspects of labor policy reform.
In early 2002, proposals to exempt firms with up to 1000 employees
from the Industrial Disputes Act encountered resistance within the
cabinet. After much arm-twisting, these were eventually overcome.
Previously, only firms with 100 or fewer workers were exempt from
these provisions. In classic coalition style, a completely unworkable
agreement was reached allowing this derogation from the normal
legislative rules in exchange for an increase in severance compensa-
tion to 45 days from the earlier 15. But as economics commentator
Swaminathan Anklesaria Aiyar pointed out, this is an almost mean-
ingless concession:
The average worker has 20 years of service. Compensation at 45

days wages for each year worked implies 900 days wages for each
retrenched worker, or roughly 2.5 years salary. Now, companies
in trouble can barely pay the next months wages. How on earth
will they provide 2.5 years salary upfront? A few rich companies
have the resources, but not the hundreds in real need. In practice,
businessmen will probably retrench without paying, and the
resulting disputes will be tied up in labour courts for years while
they milk their companies dry. That will not be very different
from the current situation.63
In other words, no one believes these sorts of promises will be imple-

mented, which means that the institutions responsible for promoting
them are lacking the credibility needed to play a role in managing the
politics of the labor reform process.
358 India Review
We must also recognize the importance of institutions like the

Indian Labour Conference, a tripartite body which might easily be
dismissed as at best a talking shop, and at worst a den of cronyism in
which the interests of the least powerful of India’s working classes are
routinely sacrificed in exchange for doctrinal purity. But it can, in theory,
confer at least three kinds of benefit. First, the ILC has the potential to
set clear standards that avoid the ambiguities that often lead to industrial
unrest. For instance, the SNCL’s recommendation on the minimum
wage is that it should be paid to any worker, and should satisfy house-
hold needs as stipulated in the “Need Based Formula” of the fifteenth
Indian Labor Conference. Such agreed standards are a necessary, even
if not sufficient, standard for less adversarial labor relations. Second,
the ILC is also a place where – again, in theory – it should be possible
to lay the groundwork for broadly agreed policy reform, based on
appreciation of longer time-horizons and a comprehensive view of the
problems at hand, including an assessment of labor market rigidities,
social security funds, infrastructural bottlenecks, and so forth. The
ILC has played this role in earlier periods of its existence, though its
current moribund state certainly pre-dates the era of liberalization.
Third, and finally, the Indian Labor Conference could be a useful conduit
for injecting the voice of India’s trade union movement into interna-
tional-level tripartite discussions – at the ILO and elsewhere. In practice,
however, the NDA government has allowed the ILC to deteriorate
further, partly as a result of sheer neglect; but some of the government’s
more active interventions have also harmed this potentially helpful
institution. In its degraded state, the ILC was – at the time of its
thirty-seventh congress in mid-2001 – unable even to generate a con-
structive debate on proposed labor reforms, let alone to forge a workable
compromise. Widespread distrust of the ILC as an institution by
almost all of India’s major trade unions – including the BJP’s own
union, whose leader publicly called the party’s finance minister a
“criminal” – made this an unsurprising outcome.64 By late 2003 the
ILC had virtually ceased to function at all.65
Rather than building alternative institutions – to help formulate
labor policy for an era in which the nature of work is indeed changing,
and to cope with the market uncertainties and distributional conflicts
that lie ahead – the NDA government has relied on strategic devices of
limited long-term political value. For example, it has tactically shifted
debates around labor policy from domestic issues to questions on the
international economic agenda. Making a domestic political issue out

of WTO proposals to link trade with labor standards was a particularly
effective means by which the government placed itself on politically
advantageous ground: the government’s rejection of the WTO “linkage”
proposals were perfectly in line with every major trade union, from
across the partisan spectrum. As a strategy to weaken the political
influence of trade unions that could potentially thwart other reforms,
the government’s strategy has succeeded. But without a countervailing
initiative to rebuild the institutional machinery of industrial relations,
this kind of political approach is severely limited. This may be one of
the greatest drags on the effective articulation, let alone implementation,
of second generation labor reforms.
Conclusion
Even if it is possible to venture assessments of the NDA’s perfor-
mance as a whole, it is nevertheless helpful to recognize the existence
of phases within its term in office. This reveals some of what has
changed since the end of 2002. Beginning with the budget for 2003–
04 – or rather the run-up to the budget from late January 2003 – the
government went into election mode. Some commentators saw elec-
tions as two years away. The governments saw significant state-level
elections as less than a year away. Hence the backtracking found in
the budget statement by Jaswant Singh, who was forced to play the
part of backpedaling finance minister into which Yashwant Sinha was
cast in the early part of the NDA’s term in office.66
Things evolve rapidly in this kind of political environment. In mid-
2002, citing the importance of taking forward the recommendations of
the Second National Commission on Labour, Vajpayee was talking of
a cabinet consensus on labor reforms.67 By late 2003, with elections
well in sight, ministers began claiming that any such reforms were sig-
nificantly down the priority list. Union commerce minister Arun Jaitley,
speaking at the India Economic Summit 2003, initially stated how
positive labor reform would be for job creation, and then reassured
any trade unionists that might be listening that nothing serious would
be done in the short term. It was something for the next parliament.
Asked when he thought action might actually be taken, Jaitley said “I
think in two to three years, work on labour reforms would pick up
momentum.”68
360 India Review
Will the Congress-led United Progressive Alliance (UPA) coali-

tion government that succeeded the NDA in May 2004 be able to take
labor policy further into the next generation of reform? The portents
are mixed. On the one hand, there are those who see little possibility
of reform. As one former senior civil servant put it, given the views of
various members of the UPA “on matters pertaining to the demands
of organised labor . . . [t]here is hardly any possibility of any major
labor reforms being undertaken by this government.”69 On the other
hand, this government may bear the fruits of gradualism. The slow but
steady weakening of organized labor, which has unfolded over the last
20 years – since Rajiv Gandhi’s government began confronting public
sector workers in the telecom sector – may cause the government to
recalculate the political costs and benefits of decisive legislative
reform. Given the pragmatism displayed by the communist parties in
the states where they have governed, their opposition to reform may
be less steadfast than many observers have assumed.
But for any variety of labor reform to receive even tacit approval
from Congress’ allies on the left, it would need to be supplemented by
the sort of institution-building that the NDA government failed to
accomplish, and which India’s adjustment to a more globalized economy
will require. Restructuring, moreover, will need to take place in institu-
tions beyond those traditionally associated with labor relations. India’s
Planning Commission, its bodies responsible for approving foreign
investment proposals, its increasingly anti-labor judiciary – these and
other institutions are essential parts of the governance framework within
which India’s workers operate. Belief in the need for a broader approach
to institutional renovation in support of labor policy reform is not con-
fined to India. That something more radical than deregulated labor mar-
kets must be attempted has been recognized by, among others, David
Held, whose manifesto for an alternative to neo-liberal globalization
advocates the creation of “robust national market institutions” that
would possess, among other capacities, “the ability to focus investment
on job-creating sectors.”70 Such a far-reaching approach may, however,
be beyond the reach of such a fractious coalition.
NOTES
For helpful comments and criticisms, I am grateful to Pranab Bardhan, Kunal Sen, Barbara
Harriss-White and other participants at the two seminars where an earlier version of this paper
were discussed – in February 2004 at the Institute of Commonwealth Studies (University of
London); and in May 2004 at the School of Advanced International Studies ( Johns Hopkins
University).
1. This includes the one-year ad hoc, but still BJP-led, alliance during 1998–99.
2. USAID, “US Supports a Second Wave of Financial Markets Reform in India,” Press
Release, September 6, 2001, via www.usaid.gov/in/MediaCenter/Press.htm.
3. Joseph Stiglitz, Globalization and Its Discontents (London: Allen Lane and The Penguin
Press, 2002).
4. Pedro-Pablo Kuczynski and John Williamson, eds., After the Washington Consensus:
Restarting Growth and Reform in Latin America (Washington, DC: Institute for Inter-
national Economics, 2003).
5. John Williamson, “The Washington Consensus and Beyond,” Economic and Political
Weekly, April 12, 2003.
6. Dominic Barton, Roberto Newell, and Gregory Wilson, Dangerous Markets: Managing
in Financial Crises (New York: Wiley Finance, 2002).
7. James Wolfensohn, “Keynote Address at the IMF Institute Conference on Second
Generation Reforms,” Washington, DC, November 8, 1999, www.imf.org/external/
pubs/ff/seminar/1999/reforms.
8. Wolfensohn, “Keynote” www.imf.org/external/pubs/ft/seminar/1999/reforms.
9. See www.worldbank.org/html/extpb/annrep97/econ.htm.
10. Consumer Unity and Trust Society (CUTS), “Pre Budget Memorandum to the Union
Finance Minister” (Jaipur: CUTS, 2003), para. 3.
11. CUTS, “Pre Budget Memorandum,” para. 4.
12. Shekhar Gupta interview with P. V. Narasimha Rao, broadcast on NDTV program
“Walk the Talk” on May 11, 2004. Transcript via http:\\www.indianexpress.com/
full_story.php?content_id=46723.
13. Rob Jenkins, Democratic Politics and Economic Reform in India (Cambridge: Cambridge
University Press, 1999).
14. This was the view of Balraj Madhok, a retired politician described as an “old-style
Hindu nationalist” who “was Vajpayee’s political mentor in the 1950s and 1960s.” See
“Master of Ambiguity,” Financial Times, April 2, 2004.
15. “India Inc, Getting Lean and Nimble,” Business Line(Chennai), October 17, 2003.
16. See Jenkins, Democratic Politics, Chapters 5 and 6.
17. These proposals were approved by the cabinet in 2002 – itself a major achievement in
that no previous government was willing to go that far – though ultimately they never
made it onto the statute book.
18. The idea of state-level quarantine is drawn from Myron Weiner, “The Indian Paradox:
Violent Social Conflict and Democratic Politics,” in Myron Weiner, ed., The Indian
Paradox: Essays in Indian Politics (New Delhi: Sage, 1989), pp. 3–37.
19. “Labour Laws: A Fresh Breath of Life,” Economic Times, October 12, 2003.
20. “Kerala: TUs [Trade Unions] to Protest ‘Anti-Labour’ Measures,” Business Line
(Chennai), June 20, 2002.
21. “Kerala Notifies Loading and Unloading Bill,” Business Line(Chennai), June 24, 2002.
22. “Labour Reform Stumbles on Cabinet Divide,” Times of India, February 24, 2002.
23. “India Okays Labour Law Reform,” Dawn (Islamabad), February 23, 2003.
24. On this, see James Manor, “Explaining Political Trajectories in Andhra Pradesh and
Karnataka,” in Rob Jenkins, ed., Regional Reflections: Comparing Politics Across India’s
States (New Delhi: Oxford University Press, 2004), pp. 255–84.
25. “FAPCCI [Federation of Andhra Pradesh Chambers of Commerce and Industry] Hails
Contract Labour Law,” Business Line (Chennai), August 30, 2003.
26. Personal communication, December 18, 2003.
27. “SIEMA seeks Changes in Labour Laws,” Business Line(Chennai), November 22, 2003.
28. “India Can Be Major Player in Global Textile Market with Labour Reforms, Business
Line(Chennai), October 31, 2003.
29. See Errol D’Souza, “The WTO and the Politics of Reform in India’s Textile Sector:
From Inefficient Redistribution to Industrial Upgradation,” Working Paper of the
362 India Review
Globalization and Poverty Research Programme, www.gapresearch.org/governance/
wto.html.
30. D’Souza, “WTO and Politics,” p. 18.
31. D’Souza, “WTO and Politics,” p. 18.
32. C. P. Chandrasekhar and Jayati Ghosh, “Regulating Labour Markets for More Employ-
ment,” Business Line (Chennai), November 12, 2002.
33. Dani Rodrik and Arvind Subramanian, “From ‘Hindu Growth’ to Productivity Surge:
The Mystery of the Indian Growth Transition,” NBER Working Paper No. 10376
(Cambridge, MA: National Bureau of Economic Research, March 2004). Available via
papers.nber.org/papers/w10376.pdf.
34. Timothy Besley and Rob Burgess, “Can Labour Regulation Hinder Economic Perfor-
mance? Evidence from India,” Development Economics Discussion Paper Series, No.
33 (London: London School of Economics/Suntory and Toyota International Centres
for Economics and Related Disciplines, 2002).
35. Ashutosh Varshney, “Mass Politics or Elite Politics? India’s Economic Reforms in
Comparative Perspective,” in Jeffrey D. Sachs, Ashutosh Varshney, and Nirupam Bajpai,
eds., India in the Era of Economic Reforms (New Delhi: Oxford University Press, 1999).
36. Sanjay Kumar, “Impact of Economic Reforms on Indian Electorate,” Economic and
Political Weekly, April 17, 2004, pp. 1621–30.
37. Varshney did not explicitly state that the mass-ness or elite-ness of a reform-related
political dilemma was a fixed quantity, but the implications of its variability were not a
subject of his analysis.
38. Ashutosh Varshney, “Why Have Poor Democracies Not Eliminated Poverty? Asian
Survey Vol. 40, No. 5 (September/October 2000), pp. 735–36.
39. Labor reform has obvious close links with privatization, as privatization would lead to
major job losses in the organized sector. The trade unions see it this way as well. The
April 16, 2002 nationwide strike involving over ten million workers (mainly from finan-
cial sector institutions) covered both “labour reforms and the Government's privatisa-
tion plans.” See Mark Ellis-Jones, States of Unrest II (London: World Development
Movement, April 2002), via www.wdm.org.uk/cambriefs/debt/stateunrest3/
unrest3o.htm; and International Confederation of Free Trade Union, “Unions Protest
Harsh Privatisation Plan and Anti-Union Reforms,” Memorandum, April 16, 2002.
40. Montek Singh Ahluwalia, “Privatization: From Policy Formulation to Implementation:
The View from the Inside,” Fifth Annual Fellow’s Lecture (April 17, 2002), Center for
the Advanced Study of India, University of Pennsylvania, p.1. This was elaborated in a
slightly different fashion in Montek S. Ahluwalia, “Economic Reforms in India Since
1991: Has Gradualism Worked?” Journal of Economic Perspectives Vol. 16, No. 3
(Summer 2002), pp. 67–88.
41. Ahluwalia, “Privatization,” p. 1.
41. See Jenkins, Democratic Politics,especially Chapter 6, (“Political Skills: Introducing
Reform by Stealth”), pp. 172–207.
45. Supriya Roy Chowdhury, “Public Sector Restructuring and Democracy; The State,
Labour and Trade Unions in India,” Journal of Development Studies Vol. 39, No. 3
(February 2003), pp. 29–50.
46. See Baldev Raj Nayar, “The Limits of Economic Nationalism: Economic Policy Reforms
Under the BJP-Led Government,” paper prepared for the conference on “India and the
Politics of Developing Countries: Essays in Honor of Myron Weiner,” Kellogg Institute
of International Studies, University of Notre Dame, Indiana, September 24–26, 1999.
47. The Economic Times, June 2, 1998.
48. “Sinha Weaponizes Swadeshi Programme,” I have discussed this at greater length in Rob
Jenkins, “The Ideologically Embedded Market: Political Legitimation and Economic
Reform in India,” in Mark Bevir and Frank Trentmann, eds., Markets in Historical Context:
Ideas and Politics in the Modern World (Cambridge: Cambridge University Press, 2004).
49. See Loraine Kennedy, “The Political Determinants of Reform Packaging: Contrasting
Responses to Economic Liberalization in Andhra Pradesh and Tamil Nadu,” in Jenkins,
ed., Regional Reflections, pp. 29–65.
50. See Manor, “Explaining Political Trajectories.”
51. ‘Statement by Prime Minister Atal Behari Vajpayee at the Inauguration of the 39th
Indian Labour Conference,’ New Delhi, October 16, 2003.
52. “PM Stresses Need to Amend Labour Laws,” Business Line (Chennai), October 17,
2003.
53. Interview with the author, April 7, 2000, Jaipur.
54. C. P. Chandrasekhar and Jayati Ghosh, “India's Unregistered Manufacturing Sector:
Forms of Dualism,” Business Line (Chennai), March 25, 2003.
55. Chandrasekhar and Ghosh, “India’s Unregistered Manufacturing Sector.”
56. Chandrasekhar and Ghosh, “India’s Unregistered Manufacturing Sector.”
57. Chandrasekhar and Ghosh, “Regulating Labour Markets.”
58. Fareed Zakaria, The Future of Freedom: Illiberal Democracy at Home and Abroad
(New York: W. W. Norton, 2003).
59. Government of India, Ministry of Labour, Report of the Second National Commission
on Labour (New Delhi, 2002), Volume II, Chapter 1 (“Conclusions and Recommenda-
tions”), pp. 27–28.
on Labour (New Delhi, 2002), Volume II, Chapter 1 (“Conclusions and Recommenda-
tions”), p.33.
on Labour (New Delhi, 2002), Volume I, Chapter 6 (“Review of Laws”), p.330.
62. Ruddar Datt, Economic Reforms, Labour and Employment (New Delhi: Deep & Deep,
2003), especially Part III.
63. Swaminathan Anklesaria Aiyar, “Labour Reform,” Times of India, February 23, 2002.
64. T. K. Rajalakshmi, “For a United Struggle,” Frontline (Chennai), June 9–22, 2001.
65. “Split Unions Stall Labour Reforms,” The Telegraph (Calcutta), October 20, 2003.
66. “A Budget for Votes, Not Reform,” The Economist, March 6, 2003.
67. “PM for Consensus on Labour Reforms,” Tribune (Chandigarh), July 11, 2002.
68. “Labour Reforms Not to Shrink Job Market, Assures Jaitley,” Business Line (Chennai),
November 26, 2003.
69. Madhav Godbole, “Reform of Political System: Growing Concern after Election 2004,”
Economic and Political Weekly, July 10, 2004, p. 3105.
70. David Held, Globalisation: The Dangers and the Answers (London: openDemocracy,
2004), p. 6, via www.openDemocracy.net.

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Labor Policy and the Second Generation

of Economic Reform in India

During its time in office, the National Democratic Alliance (NDA)

Rob Jenkins is professor of political science at Birkbeck College, University of London.

to list specific economic sectors (agriculture, finance), techniques of

first of the two criteria associated with a second generation agenda:

Mapping Reform’s Second Generation

complementing them with second generation economic reforms; and

right institutions, of the improvement of the administrative, legal, and

Many Indian civil society organizations involved in policy advocacy

economic reforms is good governance through peoples’ participation

enabling factors been in place. For instance, it is questionable whether

The NDA and Labor Policy: Reform by Stealth Continues

require employees of firms in these zones to provide 45 days’ notice

within a single state means squaring off against unions sequentially,

in New Delhi. The announcement of cabinet approval for these amend-

laborers for core functions as well – in circumstances when, as they put

of the small-scale sector) of garments production, and so forth, were

Indeed, has not India’s economic performance since 1991 demon-

politics of elite-level bargaining to one in which the issues enter the

The Shifting Terrain of Economic Reform: From Elite

in few countries have . . . reformers been voted in power due to the

On each of the three refinements to Varshney’s framework it is

This classification was made in the context of discussing some of the

evolved in a “one step at a time process” in which the full extent of

Ahluwalia observes that “[t]he advantage of this approach is that it

memberships drop and their leaderships embroiled in conflict and

to have pursued such a vision – stressing the ability to harness the

elitism of existing industrial relations policy. “The existing labor laws

likely to accompany continued labor reform. Without good-faith policy

dualism is not a function of just the limited implementation of the

Such arguments are contestable, but most labor economists in

strictly neo-liberal view, would be expected to take place automatically

it is not the case that various provisions are actually applicable

of accountability in the labor field. This, in essence, is a failure of the

5) the Conciliation Machinery is more eager to consider problems

Ostensibly concerned with institution-building, the SNCL also

infrastructural facilities, social security, and Government policies,”

The average worker has 20 years of service. Compensation at 45

In other words, no one believes these sorts of promises will be imple-

We must also recognize the importance of institutions like the

international economic agenda. Making a domestic political issue out

Will the Congress-led United Progressive Alliance (UPA) coali-

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