India will simplify employment rules and ease the way for people changing jobs to move social security funds, Prime Minister Narendra Modi said on Thursday, unveiling steps to reform the labor sector long sought by investors.
India's outdated labor laws strictly limit hiring and firing, while an onerous 'inspector raj' deluges employers with paperwork, discouraging them from expanding and adding staff.
"Fifty types of departments chase them, 50 types of forms have to be filled in. The world has changed," Modi said, adding that companies would now only need to fill a single form online.
The change would benefit chiefly firms that employ just a few people, he said. In 2009, 84 percent of India's manufacturing workers were employed by firms with fewer than 50 staff, research by the Asian Development Bank shows.
Just 8 percent of Indian workers have formal jobs with any security and benefits, such as the Provident Fund, while the vast majority work in the informal sector, experts say.
Even though the World Bank says India has one of the world's most rigid labor markets, fears of a trade union backlash and partisan politics have deterred governments from reform.
Business leaders have high hopes for Modi, an advocate of smaller government and private enterprise, to change that.
Industry groups said Thursday's measures would warm business sentiment and help boost the slowing economy.