Labour-Industry Ties and the Bottom Line

Tools down A workers union protest meeting in Manesar, Haryana, Photo: Garima Jain
Tools down A workers union protest meeting in Manesar, Haryana, Photo: Garima Jain

Indian industry is not new to labour problems. But is it also partially not to blame for these problems? Have both parties — the workers and the management — taken advantage of arcane labour laws? More importantly, will changing laws change anything?

Industry experts feel the fault lies with both parties, although the balance would tilt more towards the management. “Don’t protect the job, protect the worker,” says Jagdish Khattar, former managing director of Maruti Udyog Ltd. “If the job has to go, then compensate the worker or find him another role.”

In the Bajaj Auto plant in Pune, Maharashtra, around 1,500 employees — including 600-odd contract, temporary workers — have downed tools since 25 June, demanding wage revision, better work conditions and stock options. This is a clear signal of the changing times: workers now feel the need of long-term financial security.

“You have to make the workers a part of the growth story,” says labour relations expert and lawyer Sanjoy Ghose. “When you are making profits and don’t plough it back, there is bound to be resistance.” Ghose has represented both workers and managements in labour-related disputes.

Besides monetary rewards, a lot can also be achieved by giving the worker proper recognition for his efforts. “Don’t treat them as hands alone, but also as minds,” says Subhodh Bhargava, chairman of Tata Communications and adviser to several manufacturing firms.

Global rating agency CRISIL’s 2010 report ‘Skilling India: A Billion People Challenge’ points out that Indian industry has not been able to absorb the available labour force for two reasons: (1) industrial expansion has failed to match the pace of economic growth, thereby not creating enough jobs and; (2) India’s rigid labour laws discourage employment by the organised sector.

The National Sample Survey Organisation’s (NSSO) findings support this premise. According to the survey, employment in the manufacturing sector increased by just 4.4 million from 2004-05 to 2011-12. In contrast, the economy grew at a galloping rate of 8.3 percent per year.

But the most contentious issue is the use of contract labour, particularly in large organised sector units. According to companies, rigid labour laws are driving them to increasingly hire off-roll workers to supplement full-time employees.

“While hard data is difficult to come by,” says Roopa Kudva, MD, CRISIL, “there is anecdotal evidence that the proportion of contract labour to permanent workers has increased significantly.” In the auto sector, there have been instances where the proportion is as high as 40-50 percent for certain categories of workers, especially in areas involving more mechanised and less-skilled work. As contract labour is cheaper, this would partly explain the drop in employee costs (as a percentage of income) from 8.1 percent in 2008-09 to 7.2 percent in 2012-13, reflected from a sample of 4,200 CRISIL-rated companies.

Tensions arise when contract workers feel they are doing the same work as permanent workers but getting paid much less with no benefits. This was evident in the case of Maruti, where last year, clashes over wage disparities led to the death of a manager and the arrest of 147 workers and dismissal of 2,000 more.

Besides bringing the shop floor to a standstill, this sort of disparity can prove dangerous in the long run. The Contract Workers Abolition & Regulation Act does not provide for equal pay for equal work. However, it stipulates that companies cannot engage contract workers in an area of work that is permanent in nature.

“Contract labour is a ticking time bomb,” says Bhargava. “I believe firms are beginning to correct the incongruence in pay. It should ‘be like pay for like work’.”

The practicability of Indian labour laws has oft been debated. However, experts feel what is really needed is a simplification of existing regulations. Says Ghose, “We are overregulated and also have the most corrupt labour implementation machinery.”

But R Seshasayee, executive vice-chairman, Ashok Leyland, says he doesn’t see any ambiguity in the law. According to him, where the law fails is in not encouraging organised sector employment. As a result, only 8 percent of the workforce today is in registered businesses, while the rest work in the unorganised sector.

The solution, however, cannot always be labour-friendly and company-unfriendly. “If you hire contract labour, pay them equal to permanent labour,” says Seshasayee. “But also give industry the option to fire them when needed. It’s unfair that managements have no flexibility and must also pay higher wages.”

In these times of low economic activity, the pitch on this has risen. “The law doesn’t permit downsizing. We have to shift workers and train them on new roles. If companies cannot survive costs, what should they do? Shutdown?” asks Arvind Kapur of Gurgaon-based automobile components manufacturer Rico Auto.

It’s an interesting question. Should companies be forced to absorb losses that happen due to labour redundancies when the demand slips. “In Europe, the understanding is that while labour will be paid well, if there is a downturn, jobs will go,” says Seshasayee.

Then there’s political will to contend with, or rather, the lack of it. “Labourers are seen as vote-banks and unions are largely politicised,” says Bhargava.

If anything, the government remains a part of the problem. As the biggest employer of non-permanent workers, it too has come under criticism for not helping to improve worker conditions. “The government and public sector companies are the biggest violators,” says DL Sachdev, national secretary of the All India Trade Union Congress (AITUC). “They outsource jobs to contractors and this leads to more exploitation of the workers.”

Sachdev shares that “post liberalisation, the government’s policies were designed for growth and development and have been distinctly pro-corporate. We have been seeking not only wages but some basic human rights.”

All the more reason, therefore, to address this issue now, for it can spiral out of control if ignored for long. The signs of this happening can already be seen in the increasing instances of unrest and the preference to machines over human labour. “We are going for automation because of labour trouble,” says Bhargava.

Even when labour laws are reformed — if that happens — a balance has to be maintained between responsibility towards workers and flexibility allowed to the management. Safety nets have to be put in place in the form of reskilling workers and providing a workable social security mechanism. This will help build worker confidence and also allow firms to reduce their dependence on contract labour. “Germany successfully introduced flexibility in its labour market regulations in 2003, which helped make the country a beacon of industrial success and reduced youth unemployment,” says Kudva.

A common criticism within workers’ organisations remains that new corporations, too, are not letting employees create a union or be part of one and that takes away their lobbying power. “The government is clearly trying to protect corporates in the name of investment. How is it possible that worker welfare interferes with investment?” asks Sachdev.

A valid question, that. And ironical too. For it is the politician himself who while championing the cause of the disgruntled workers, ensures his party’s coffers get filled by generous donations from the company he opposes. Who then should change? The law or the lawmaker?


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