India's ruling party, the United Progressive Alliance government, has made it clear to the various states that it will not permit any relaxation in labour laws in special economic zones, petrochemical hubs and industrial parks, including labour laws such as easing norms for hiring and firing, employment of women and restricting union activity. The Centre has even turned down requests for minor flexibility such as ensuring that an office bearer of the labour union should be a worker of a unit, which amounts to barring outsiders to be part of a union. The move is viewed as a major setback to economic reforms, as easing labour laws in SEZs and other such duty-free zones was considered a key means of attracting more investors, particularly foreign investors, who have been wary of rigid rules governing retrenchment and so on.
Labour is a concurrent subject under India's Constitution, so states are required to submit their laws for central clearance. Some states had also suggested relaxing the Industrial Disputes Act, a Central law, but this has not been considered so far. Significantly, the Centre's own efforts to liberalise labour laws by arming itself with powers under the SEZ Act failed under pressure from Left parties that support the ruling coalition.
States of Gujarat and Uttar Pradesh have enacted SEZ laws before the central law was passed in 2005 to provide a simpler labour law dispensation within the duty-free areas. States that had earlier relaxed the labour laws in such zones will, however, not be required to reverse these relaxations. This means, while some states will continue to have labour law relaxation in such duty-free zones, others will have to do without it. Independent observers said companies in the affected states may alter their investment decisions if two sets of rules are in operation.