India Liberalizes Foreign Investment Rules In A Win For Apple
Hercules Montero
In this webinar, a panel of Business Intelligence Leaders will help you understand key differences between the main markets in South / Southeast Asia and discuss their evolving supply chain ecosystems, enabling you to make informed decisions to de-risk your supply chain.
In a landmark move, industries in the southern state of Karnataka can now extend the working hours for labor by up to 12 hours a day but must cap the maximum weekly work hours to 48. Further, rules are being eased to allow night-time work for women.
For Karnataka industries to be able to integrate into global supply chains, flexible labor rules will play a role in matching the incentives available to production firms in Southeast Asian markets, China, Japan, and Taiwan, says Koushan Das, Business Intelligence consultant at Dezan Shira & Associates.
The amended law allows the Karnataka government to raise the number of work hours from the current 9-hour day to 12 hours, inclusive of rest intervals, on any day. This will remain subject to the maximum of 48 work hours in a week.
The Karnataka government is now empowered to allow women to work round-the-clock shifts and facilitate equal opportunities to work and earn. Such an arrangement will be subject to provision of safety and secure working conditions and upon obtaining the written consent from the women workers interested in working night-time shifts.
The Factories (Karnataka Amendment) Bill, 2023 was passed in the Karnataka Legislative Assembly without debate and was opposed by members of the Congress and JDS political parties as well as a member of the governing party, the BJP. The amendment bill was subsequently passed in the upper house of state, the Legislative Council, amid a walkout by opposition parties.
Labor union representatives are apprehensive of the amendment provisions setting an unhealthy precedent in the state, overstretching worker capacity to the detriment of their health and well-being, and not hiring more employees to cut costs.
India Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Delhi and Mumbai. Readers may write to in...@dezshira.com for more support on doing business in in India.
We also maintain offices or have alliance partners assisting foreign investors in Indonesia, Singapore, Vietnam, Philippines, Malaysia, Thailand, Italy, Germany, and the United States, in addition to practices in Bangladesh and Russia.
Tables
- Merchandise exports as percentage of GDP in sample countries
- Comparison of world exports and turnover in foreign exchange markets
- Correlation between capital flows and real exchange ratesof selected countries
- Household income distribution before and after trade liberalization
- Part-time work as a share of total employment
- Temporary employment as a share of total salaried employment
- Indicators for "unprotected" salaried employment
- Taxes on international trade and government revenues
- World exports of goods and services as a share of world GDP
- Exports of goods and services as a share of GDP by group of countries
- World exports of services as a share of total world exports
- Trends in capital flows
- Switzerland: Labour market characteristics of the industrial specialization
- Bangladesh: Diverging trends in real per capita income of richest and poorest households
- Chile: Estimated determinants of wage and income inequalities
- South Africa: Labour market performance of manufacturing sectors by trade orientation
- Republic of Korea: Estimated impact of trade on employment by level of education
- Trade and inter-sectoral employment flows
- Mauritius: Percentage of government current revenue from international trade
- Top marginal tax rate on individual income in 1986 and 1998:
A. High-income countries
B. Middle-income countries
C. Low-income countries
1. The Office has completed studies on the social impact of globalization in seven countries (Bangladesh, Chile, Mauritius, Poland, Republic of Korea, South Africa and Switzerland). The purpose of this report is to provide a synthesis of the main results of this work and to discuss a range of analytical and policy issues of relevance to ILO member countries in general. This final report is an updated version of the progress report issued in March 1999.(1)
2. Though the term globalization is widely used, its meaning is not always entirely clear and the report defines it as a process of rapid economic integration among countries driven by the liberalization of trade, investment and capital flows as well as rapid technological change. Compared with past episodes of economic history, globalization involves enterprises and workers of nearly all countries, in goods as well as services sectors. As a result, the bulk of the workers are directly concerned, whereas in the past practically only industrial workers were affected by international competition. International trade and foreign direct investment flows have intensified and the information technology revolution has facilitated economic transactions. Short-term capital flows have grown spectacularly and, partly reflecting the integration of financial markets, transactions in foreign exchange markets are nearly 80 times larger than world trade. Globalization gives rise to concern on the part of developed countries which fear competition from low-wage economies, while firms from developing countries find it difficult to compete against powerful multinational companies from the "North".
3. Given the multifaceted nature of the process, it is not possible to identify a simple relationship between globalization and social progress. As historical experience and empirical evidence show, the liberalization of trade and foreign direct investment hold the prospect of rising standards of living, but the process is neither instantaneous nor painless. Adjustment costs of some size are involved. Moreover, the report shows that trade is associated with greater labour market turnover, with particularly detrimental consequences for workers with only modest transferable skills. A trend towards wider income inequalities can be observed not only in most of the countries under study, but also in other member countries. There is little evidence that trade is the main direct factor at work. The adoption of new technology in response to greater pressures from international competition has tended to increase the demand for skilled labour, to the disadvantage of unskilled workers. In addition, the study documents a near-universal trend towards lower taxation on high incomes, suggesting that the tax system is becoming less redistributive. Indeed, between 1986 and 1998, 67 countries out of the 69 for which information on their tax systems could be collected for this report had witnessed a decline in the maximum tax rate on high incomes. In certain cases the cut in taxes on high incomes has been spectacular. The taxation of high-incomes had reached excessive levels in some countries and its reduction may well be welcome. However, the phenomenon might also reflect competition, since high-income earners tend to be relatively mobile internationally. If the trend continues, governments will soon be deprived of an important mechanism that can help correct rising income inequalities. The fact that globalization occurs in a context of rising inequalities and perceptions of job insecurity gives rise to preoccupations about the social and political sustainability of the process.
4. In addition, there is some concern among developing countries that globalization has rendered their economies more vulnerable to international shocks, especially where their export base is very narrow and their exposure to changes in the terms of trade is correspondingly high. There is also a more practical problem regarding the effective participation of those countries in multilateral discussions and conflict-resolution bodies, which often require highly technical expertise.
5. There is growing international concern about the volatility of short-term capital flows. Especially detrimental are the effects of free capital mobility on countries where internal financial institutions are probably too weak to sustain the large swings in short-term capital movements. The report shows that there is a danger that short-term capital flows, far from being a mere reflection of economic fundamentals, will determine exchange rate fluctuations and, consequently, output and employment.
6. Importantly, none of the countries under study has expressed a desire to adopt protectionist solutions. Instead, the policy challenge is to improve the benefits of globalization while minimizing the costs. Contrary to the commonly held view that social institutions and policies would be threatened by globalization, the report advocates action in the areas of education and training, social safety nets, labour law and industrial relations, and core labour standards. Adequate enforcement of these four "social pillars" can greatly contribute to making globalization successful and socially sustainable. Finally, the last section of the report presents areas for possible follow-up activities by the ILO.
7. Concerns about the effects of labour standards on the competitive advantages of exporters from different countries are by no means new (Charnovitz, 1987; Servais, 1989). However, the debate on the subject attracted unprecedented attention during the 1980s, when controversy erupted over proposals for including a social clause in agreements negotiated during the Uruguay Round of multilateral trade negotiations. In the event, no reference was made to a social clause in the Final Act embodying the results of the Uruguay Round that was signed at Marrakech in April 1994.(2) Within the ILO, the Governing Body decided in 1994 to set up a working party to discuss "all relevant aspects of the social dimensions of the liberalization of international trade".(3) At the WTO's first regular biennial Ministerial Conference that took place in December 1996 in Singapore, the ILO's competence in relation to core international labour standards was explicitly recognized.(4)
7fc3f7cf58