In what may be a sign of the changing political environment ahead of general elections, the Centre has turned down the Maharashtra government's proposal to provide labour law flexibility in special economic zones.

The Centre communicated its opinion on the Maharashtra Special Economic Zones and Designated Areas Bill after a two-year wait.

The move is expected to impact investor sentiment in Maharashtra, which tops the state-wise charts for the maximum number of duty-free enclaves.

The SEZs in Maharashtra are expected to see investment of over Rs 120,000 crore ($30 billion) and may generate 3-4 million direct and indirect jobs.

After Parliament approved the central SEZ law in 2005, states were asked to put in place similar laws covering land acquisition, labour laws, VAT and other taxes.

The Vilasrao Deshmukh government had proposed that state laws like the Bombay Shops and Establishment Act and Maharashtra Registration of Trade Union and Prevention of Unfair Labour Practice Act should not be enforced in SEZs.

The Maharashtra cabinet cleared the SEZ Bill in 2006 and sent it for the Centre's approval but it was only cleared last month. The approval came with the rider that provisions related to exemption to SEZ units from implementing many labour-related laws should be dropped, said a senior officer in the state's industry ministry.

Besides, the Centre has asked the state to incorporate provisions like making town planning law also applicable to SEZs. The state has also been asked to put in place provisions to make it mandatory for companies to follow the new building code in SEZs.

Uttar Pradesh was the first state to enact a law specifically to deal with SEZs and had provided flexibility in hiring and firing. Gujarat has also amended its law to simplify labour laws. Madhya Pradesh is awaiting central approval.

When the Centre introduced the SEZ Bill in Parliament it was also keen to provide certain flexibilities � including labour laws � and had incorporated a provision in section 49. But Left opposition meant that the clause had to be dropped to ensure passage of the Bill.

A senior executive with a large company setting up a mega-SEZ in the state said although flexible labour laws were desirable, companies would still opt for SEZs owing to tax benefits and the promise of better infrastructure.

• The great Indian rush for SEZs: Complete Coverage