The months of July and August in 2004 saw announcements from India's BJP-led government preparing citizens for major changes in the country's labour laws. This is an important undone task from the reforms initiatives of the early 1990s. I have, over the years, written about the need to revise our labour market policies, and welcomed these announcements. At the same time, the statements from the government were so conflicting that I could not help feeling apprehensive that the effort would be botched once again.

A proper reform of labour laws requires intimacy with the field of law and economics, and a modicum of understanding of the role of incentives in markets. But there is no sign of the Indian government wanting to marshal the kind of research and knowledge needed for this purpose.

Judging by past laws and policy debates, the Indian policy-maker's understanding of the role of labour legislation is deeply fallacious. The first fallacy is to view the marketplace as a zero-sum ‘game’, where, as I said earlier, one person's gain is invariably another person's loss. This has led to the oft-repeated observation that for India to progress, organized labour must be prepared to make sacrifices. So the reform is presented as something that will hurt organized labour but is justified in the interest of the nation's overall growth. In fact, a properly revised labour policy can help us achieve faster economic growth and at the same time benefit all workers, including organized workers.