Expectations of Foreign Investors in Terms of Labor Laws

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  • Topic: Employment, Labour law, Labour market flexibility
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  • Published : November 4, 2012
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Human Resource Management

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Expectations of Foreign Investors in terms of Labor Laws
India, like other countries worldwide, is experiencing the effects of globalization. In order to make conditions friendlier for investors, there is a need for adaptability. Labor legislation, such as the Indian Disputes Act and Contract Labor (Regulation and Abolition) Act, are now under debate, along with issues concerning special economic zones.

Submitted by: Introduction

There has been a steady expansion of foreign investment in recent decades. The upward trend is particularly strong for less developed countries, signifying the increased importance for these countries of FDI, as well as the increased presence of multinational firms. Alongside the expansion of FDI have risen concerns regarding competition between countries or regions to attract FDI. After adopting new economic policy by government of India in July 1991 many foreign investors came in the Indian economic scene because the government of India gave many incentives to the foreign investors. So it is clear that government opened the doors of Indian market to foreign investors. With more companies operating internationally, the impact on various business functions and labour laws in India is becoming more pronounced. Globalization, and the need to attract foreign investment, inevitably leads to an attack on workers’ rights by diluting existing labour standards, as trans-national corporations concede to the demands of multinationals. This dilution of stringent labour standards and strong resistance to any strengthening of workers’ rights (which sometimes become an obstacle to competitiveness in the global economy) is becoming prevalent in India. Since the beginning of the reforms in the early 1990s, there have been demands from industry for liberalization in the stringent labour regulatory framework. The influx of foreign companies has increased the demand for more relaxation in labour laws to make investment conditions more conducive. This article identifies the areas in Indian labour laws where change is demanded in the wake of increased foreign participation and steps taken to adapt to the changing time of globalization.

International Labour Standards: A world of division
This section reviews international labour standards and its progression in the context of divergent geo-political and economic environments of global trade. The 1947 preamble of the original General Agreement on Tariffs and Trade (GATT) states: ‘Relations among countries in the field of trade and economic endeavor should be conducted with the view of raising standards of living and ensuring full employment’. Little towards this end has been achieved as the debate between developed and developing countries continues to play out at WTO negotiation meetings (e.g., Human Rights Caucus 2005). A major reason behind this is the political economic conflicts between developing and developed countries, as market liberalization offered both challenges and opportunities for developing countries. At the first WTO Ministerial Conference in 1996, the US and the European Commission supported labour standards enforcement on a human rights basis, whereas minimum wage and labour rights were missing from the agenda. Asian nations questioned Western countries’ motivation and resisted linking trade with enforceable labour standards because such standards could be used as non-tariff barriers to trade (Fields 2003). The Ministerial Conference concluded: ‘We reject the use of labour standards for protectionist purposes, and agree that the comparative advantage of countries, particularly low-wage developing countries, must in no way be put into question’ (WTO 1996). The task of ensuring labour standards was delegated to the...
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