A hire-and-fire policy on labour is required in textiles to realise its full export potential, an expert panel has suggested.

The commerce ministry panel has also proposed a review of the trade pact with Bangladesh that allows duty free access of items from the neighbouring country, which limits the operations of Indian textiles players.

The industry needs to adjust its operations to the rise and fall of demand and to scale down or scale up operations as the situation warrants, necessitating a freedom to retrench or hire labour.

“Modify labour laws (such as the Industrial Disputes Act, 1947) to remove limitation on firm size and allow manufacturing firms to grow,” according to the high-level panel, headed by economist Surjit S. Bhalla.

The textile industry, which is the second highest job generator after agriculture, directly employing about 45 million people, has been demanding the removal of rigid labour laws that hurt its operations.

The bone of contention has been the law prescribing that any firm employing 100 or more workers has to seek permission from the labour department before any layoff or retrenchment.

“This is a reform which is necessary from the point of view of industrial flexibility as well as employment. Economic cycles are going to be the norm and industry expects to have some degree of flexibility here, according to Madan Sabnavis, chief economist at Care Ratings. “Therefore, it would be necessary to look into this issue and come up with a solution in a time-bound manner,” he said.

Rating agency Crisil said “land and labour reforms are tough nuts to crack, but must be done. The government should begin the process of creating census by taking on board all states and stakeholders”.

The Bhalla report said free-trade pacts such as the South Asia Free Trade Agreement have led to intense competition from countries such as Bangladesh, which have zero-duty access to India. The expert group recommended that the government should take a re-look at such pacts and try to work out a solution.