governments, with swinging levels of support for employers or workers. Besley and Burgess (2004) have documented how these amendments have in practice introduced significant variation in the rigidity of labor regimes across Indian States.

Chaurey (2015) and Ramaswamy (2012) have also shown how the IDA regulations might affect the composition of a firm’s labor force, providing strong incentives to employ contract workers (i.e. workers hired through registered labor contractors). As IDA is not applicable to non-permanent workers, their layoff or termination does not require notice, compensation or permission. Moreover, the size thresholds in the Act are defined based on the number of permanent workers in a given factory, and hence contract labor use is a way to stay below the legal cut-off size for IDA’s provisions. Although an _Amendment Act_ to the IDA in 1982 declared the continuing employment of workers on casual or temporary contracts to be an “unfair labor practice” (Mitchell et al., 2014), and despite some restrictions contained in the _Contract Labor (Regulation and Abolition) Act_ of 1970,<sup>27</sup> the use of contract labor has in fact been shown to have increased substantially during the 1990s (Ahsan et al., 2008).

The _Contract Labor (Regulation and Abolition) Act_ is applicable to establishments employing at least 20 contractors on any day over the previous 12 months, and entitles contract workers to minimum wages, workplace health and safety provisions, and social security cover such as Employee Provident Fund benefits. This is the primary responsibility of the contractor, but needs to be verified by the employer (the firm).<sup>28</sup> This shared responsibility may have introduced ambiguities in the enforcement of the Act. Another regulatory grey area is whether contract workers can be used for the ‘core’ activities of an establishment. In general, the Act does not prohibit this, but some states governments have made amendments to prohibit the use of contract labor for core activities (Rajeev, 2009).

# 5.2 Land

According to some authors (Ghani et al., 2012; Lall and Chakravorty, 2005), land is probably the factor that most severely affects the efficient location choices of manufacturing establishments in India, and as such it might be among the most important drivers of misallocation of industrial production in the country. Despite a long history of land reform ever since Indian independence in fact (cf. Besley and Burgess, 2000), high spatial inequality can be observed in the allocation of agricultural land (Chakravorty, 2012),<sup>29</sup> and, at the same time, various policies restrict both the transfer of farmland and the supply of land in urban areas.

The transfer of land and the change of land usage are under the jurisdiction of State governments. For example, the transfer of farmland to a non-agriculturist<sup>30</sup> is strictly prohibited in Gujarat, Himachal Pradesh, Karnataka, and Maharashtra, with further restrictions for agriculturists from different States. In general, nevertheless, buyers do need to apply for non-agricultural clearance (NAC) from local/State governments to convert farmland to other uses (Morris and Pandey, 2007).

Another barrier to efficient land transactions is the requirement in the _Indian Stamp Act 1899_ that nonjudicial stamp duties be paid on the sale and purchase of real property. As each State enacts its own stamp

> 27 At the Central government level, the Act prohibits the employment of contract Labor in certain categories of work in certain sectors (for example in mines, on railways, and port facilities), and variously regulates work conditions of contract Laborers (cf. Mitchell et al., 2014).

> 28 Among other provisions, the Act mandates that if the contractor fails to pay contract workers’ wages, the principal employer is liable to pay the workers (ILO, 2008).

> 29 The 2005-2006 Agricultural Census of India documented a national average size of agricultural landholdings of around 3 acres, the lowest average ever recorded. Chakravorty (2012) notes however how the national figure masks significant cross-state variation in plot sizes: while some States like Bihar and Kerala have fragmented, very small holdings, others such as Gujarat, Haryana, Madhya Pradesh, Punjab, or Rajasthan, have much larger, more consolidated ones.

> 30 A non-agriculturist is defined as an individual not involved in the cultivation of crops and lacking family ties to agriculture.

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