Growing labour cost is trimming India's competitiveness in manufacturing vis - a - vis Europe, which may decline from about 44 percent at present to 30 percent by 2023, according to a study.
Archaic labour laws should be done away with for the growth of the manufacturing sector, including automobiles, noted the study 'Indian Auto Industry: The Way Ahead'.
It also gave a host of other suggestions to the government.
"Manufacturing in India is currently 15 percent cheaper than Europe but the cost difference is decreasing due to increasing labour wages and other costs, " it said.
The study was conducted jointly by the Associated Chambers of Commerce and Industry of India (Assocham) and Roland Berger Strategy Consultants.
It said India has a natural cost advantage in engineering works vis - a - vis Europe but it is imperative to do away with archaic labour laws for the growth of the automobile and manufacturing sector.
"There is a need to set clear guidelines on compensation to contract workers and permit downsizing of contract and permanent labour with proper compensation, " it said.
The study said red tapism and convoluted processes were the primary reasons for India's tough business environment and recommended tax reduction steps to expand the domestic market potential.
"There is a need to implement goods and services tax (GST) to integrate state economies, eliminate local body taxes, " it said.
Highlighting that implementation of Mahatma Gandhi National Rural Employment Guarantee Act scheme and wage assurance had led to acute labour shortage and wage hike pressures, the study said "rather than an employer, the government should be a facilitator for private sector to absorb the rural workforce and promote skill development in rural areas".
The study also suggested the government to encourage foreign direct investment by providing benefits for special economic zones and tax holidays to overseas investors.