An influential international body advised India to overhaul its outdated business regulations such as reservations for small firms, tariff structures, and labor laws for large companies to derive benefits from global economy such as investments and technology.
The Organization of Economic Cooperation and Development (OECD) Chief Economist Jean-Philippe Cotis said that the “existing combination of greater competition and unchanged labor regulation is probably not sustainable.” He said that this approach “if putting pressure on many large employers to expand output through capital investment and reduce employment wherever possible.” This forced behavior is counter to expected goals of restrictive labor laws. Moreover, it is “pushing jobs into the less productive informal sector.”
Such an unexpected outcome is forcing reformers to “have ‘bunched’ their reform into packages so that the net losers from one type of reform may be the net winners from another type.” Cotis said that while the strategy of “spreading the net gains from reforms more evenly across the population, such a strategy may help overcome the resistance to change” may work in the short term but structural changes are required.
Cotis revealed that the OECD is working on its first-ever Economic Survey of India which will provide key insights into the growth drivers and impediments in India . A Columbia University study recently supported Cotis’s assessment saying that India will not be able to overtake China in Foreign Direct Investment (FDI) by 2010 because of restrictive labor laws, rising costs, and costly regulation.