ABSTRACT
The quality of institutions has appeared to be the most important and detrimental factor for industrial growth in recent literature. During the last few decades the developing world has moved towards a more market-friendly and liberalised economy in order to accelerate industrial growth, and the countries with a better environment have benefited to a greater extent than others (Rodrik, 2008). This is also true for regional growth in a large democratic country like India. Since a regional or state government enjoys sufficient autonomy over the planning and execution of governance for regional development in the federal structure, the quality of institution and environment must be an important criterion for the regional growth in India. The quality of institutions at the regional government must differentiate the level of governance and, as a result, the extent of benefits from economic liberalisation must vary across regions. In India, it is observed that some states like Delhi, Gujarat and Tamil Nadu have been growing faster than states like Assam and Uttar Pradesh. The conventional literature largely blames pro-worker labour legislation and rigidity of labour unions for poor performance in growth in some other states in India. By over-emphasising the labour market rigidity, it undermines or ignores other important institutional factors that have been limiting the industrial expansion in the country. The present chapter would like to investigate the relative importance of labour rigidity to the problem of industrial growth.
