This article attempts to formulate and examine two hypotheses: (i) the presence of modern labour institutions as trade unions and protective legislation is not incompatible with the objectives of economic growth and efficiency, and (ii) the presence of such traditional labour institutions as caste- and gender-based segmentation of the labour markets is supportive of neither growth nor distribution and constitutes itself as a formidable constraint in the process of economic development. On the basis of empirical evidence implications for labour policy are discussed.