Industrial Relations in India Essay
Human Resource Management Assignment – I Section: A PGP02. 054 Faculty: Dr. Malay Biswas Indian Institute of Management Rohtak Table of content TopicPage number 1. Introduction3 2. History of Industrial Relations System in India4 3. Few cases of industrial disputes in MNCs a. Honda, Haryana8 b. Mitsubishi Chemicals9 4. Analysis of the current situation and trends in India12 5. Conclusion16 6. Bibliography16 Introduction: Here we start the discussion with the history of the evolution if trade unions and industrial relation laws in India.
Then we focus towards the shift of balance from labour to capital. Then we examine two cases of recent industrial disputes. After that we move towards identifying the recent trends in terms of the strategies adopted by the multinationals and the resulting problems. History of Industrial Relations System in India: The colonial legacy and a centralized post-Independence economic development model have given rise to a system of industrial relations that is highly regulated and state centric.
To ensure that the process of economic development is smooth, the state established itself as the chief mediator of capital-labour relations. State power over labour was achieved mainly through three acts: 1. Industrial Disputes Act 1947: It provides institutional machinery and procedures to investigate and settle organizational disputes through negotiations adjudicated by Boards of Conciliation, Labour Courts, or Industrial Tribunals. The Act stipulates that Govt. ermission must be sought closure of an establishment, layoff or retrenchment of workers. The Act also provides for the financial compensation of affected workers and defines what constitutes unfair labour practices on behalf of employers, unions and workers, including strikes and lockouts. 2. Indian Trade Union Act 1926 It sets out the parameters for the registration and organization of a union. The original Act stipulated that any seven people could register a trade union.
Amendments to the Act in 2001 require a minimum of ten per cent of the labour force to register a new trade union, and that not more than one-third of the office bearers can be outsiders, and mandatory annual elections and auditing of union accounts. 3. The Contract Labour Act: It regulates the use of contract labour. The contracting out of core business activities is not permitted under this act. Where the nature of the work is casual, sporadic or seasonal, the act permits outsourcing and allows workers to be employed on fixed term contracts.
The Act applies to every establishment in which twenty or more people work. In addition to these three acts, the industrial landscape and the well-being of workers are shaped by thousands of state and federal laws. Both the Central and State governments are empowered to make laws for protection and welfare of workers and are responsible for monitoring and compliance. There is a well-established system of labour administration at both levels charged with enforcing labour laws. Between 1950-51 and 1960-61, the number of registered unions increased from 4623 to 11614 (Bhattacherjee, 2001).
The oil shocks of 1973-78 hit the Indian economy hard amd growth targets became impossible to achieve. Inflation broke above ten percent, induatrial production and manufacturing stalled, employment growth slowed and labour markets tightened. Economic insecurity raised new problems for the union movements and industrial disputes became intense and numerous (Bhattacherjee, 1999). While unions struggled to negotiate volatile economic condition, t is he Prime Minister Indira Gandhi called a National Emergency between 1975 and 1977. This had significant implications for industrial relations.
Under the terms of the Emergency the right to strike was suspended, wages were frozen, annual bonuses reduced, and increments in the cost-of-living allowance were transferred to a compulsory saving scheme. As a populist measure, the government also amended the Industrial Disputes Act making it a requirement that enterprises employing more than three hundred people receive government permission before retrenching workers. This amendment effectively politicized employment relations. Difference in collective bargaining strategies began to emerge between unions in successful enterprise and those effacing economic pressure to restructure.
Unions in part of the economy that were doing well wanted to pursue decentralized bargaining based on their interests, whereas unions in struggling enterprises or industries found themselves limited to a centralized system that focussed on universal rights. This led to further fragmentation of labour movement and of bargaining, and a widening of the gap between the wages and working conditions in the private and public sector (Bhattacharjee 1999, 2011). Rising tensions between organized labour and capital boiled over in the Bombay Textile Strike of 1981.
The industry wide strike to decentralize wage bargaining at the mill level and became the longest running strike in post independent India (Bhattacharjee 1989). Frustrated with centralized bargaining regimes by unrepresentative unions, labour fragmented into many independent unions that were not affiliated with any political parties. In 1982, the Industrial Disputes Act was again amended to requiring companies employing 100 workers or more to gain government permission before retrenching workers. This made it tougher for small firms to lay workers off and helped preserve employment security for core public and public sector workers.
In 1984, Indira Gandhi’s assassination and appointment of her son Rajiv Gandhi as the prime minister began a new approach the economic development that focussed on export oriented industrialization. This exposed the protected domestic enterprises to the forces of international competition. As the economy began to open up, greater labour market flexibility was achieved through an increase in sub-contracting, fixed-term contracts and temporary labour contracts. Large firms were often broken up into smaller enterprises that were not covered by the Industrial Disputes Act and which did not require government permission before laying off workers.
Employment security for workers in old-style industrial units was further weakened with the introduction of the Sick Industries and Companies Act 1985 under which the closure and restructure of poorly performing enterprises were made legal. These strategies undermined employment security and reduced employment growth. In 1991, on the face of a macro-economic crisis, India was forced to accept an International Monetary Fund bailout package subject to a variety of neo-liberal reforms. Managerial prerogative was expanded to meet the imperatives of competition, but often at the cost of employment security of workers.
As the economy continued to open up to competitive pressures, many aspects of the prevailing system of industrial relations were revealed to be out of date and unable to effectively respond to the dual needs of labour market flexibility and employment security. To address these concerns, the central government established the second National Commission on Labour (NCL). The commission was charged with: 1. Identifying how the existing labour laws might be rationalized. 2. Identifying what new legislation needed to be introduced to provide employment protection for workers not covered by existing laws.
The commission had representatives from unions, industry and government. But in spite of the general consensus about the need of labour law reform, the commission became highly politicized and unresolved difference between the government, some unions and employer groups meant the recommendations of the Commission have not been implemented. Since 2000, the challenges of liberalization, privatization and globalization have intensified while efforts to reform Indian Labour Law and industrial relations framework continued to flounder.
A string of fragile coalition governments, well organized resistance by labour movement and political volatility at the national level, has meant the political context has not been robust enough for any government to implement the reform agenda. In 2002, the final NCL report suggested that the existing legislative framework be rationalized into single “Labour Management Relations Law”, which would consolidate the earlier Industrial Disputes Act 1947, Trade Union Act 1926 and Industrial Employment Act 1946 into a modern industrial framework.
Part of the reform package included liberalizing retrenchment procedures and reducing the conditions under which government approval had to be sought before closing an enterprise. It argued for a provision of for the appointment of approved “negotiating agents” to bargain and settle disputes with management. Unhappy with the way the report shifted the balance of power from labour to capital, the union movement again labelled the recommendations anti-worker and passionately resisted reforms. Persistent union agitations and the 2004 general election meant the change was once again delayed.
Few cases of industrial disputes in MNCs: 1. Honda, Haryana: The problems in the auto-belt in Haryana date much earlier, from 2005 in fact. On 25th July 2005, about 300 to 700 workers of Honda Motorcycles and Scooters India (HMSI) were reported injured in a clash with Haryana police. About 3000 workers were protesting a lockout of their factory and the dismissal of some colleagues. Trouble broke out when the workers, staging a protest march, were confronted by police. On being held back, the workers injured a deputy superintendent of police and set fire to the SDM’s vehicle.
This acted as a trigger for the police to unleash massive retaliatory violence. Incensed Haryana policemen went berserk and thrashed the agitating workers. Chief minister Bhupinder Singh Hooda ordered an inquiry into the police action, although it was termed by Gurgaon deputy commissioner, as “operations conducted within the boundaries of law” (Sen 2010). Interestingly, HMSI took the stance of injured innocence, saying it had nothing to do with the unfortunate incident which had taken place outside the factory.
But the workers were almost always in fear of management because they had to sign movement sheets for visits to the toilet or for drinking water, accept shift choice without change, receive threats of termination in case of less than expected performance, and stay back each day to complete the production target. The last straw proved to be the behaviour of a Japanese Vice-President, Production, who kicked one worker and pushed off the turban of another. Although he had to apologise and was sent back to Japan, these led the workers to get together and make a list of 50 demands for substantially higher wages, allowances and facilities.
The management offered Rs 3000 increase per month per worker. The workers refused to accept the offer and started to set up a union. The management tried to discourage and suppress the process. Workers were called individually and advised against joining the union. The company then lobbied with the Haryana Government not to allow unionisation and the registrar actually turned their application down. As the workers’ agitation continued the management took the extreme step of dismissing several activists. Production was affected substantially.
The movement picked up strength and a manager was gheraoed and even manhandled. Production was halted for 30 minutes. The incident was followed by further worker demonstrations, visits by MPs to the injured workers in hospital, a flash strike by the local Bar Association, and support from unions of public sector banks and the public works department. However, in 4 days, the workers of HMSI reached an agreement with the management in the presence of Haryana Chief Minister who, congratulated the workers and said, “The episode was politically motivated. ….
We will ensure congenial environment in the industry. ” The pact stated that the striking workers would resume duty and not make any new demand for one year. The labour union would remain. Workers would get full salary for May and June, though after June 27, the principle of “no work, no pay”, instituted by the Supreme Court, would be implemented. Injured workers, not able to resume work immediately, would be given paid leave. The 50-odd suspended workers would be reinstated along with the four dismissed union leaders, though the company could transfer them to any department, except manufacturing.
The dismissed employees would also give a “separate assurance letter” to the management, and an undertaking that they would not engage in any act of indiscipline, before joining duty would remain. Workers would get full salary for May and June, though after June 27, the principle of “no work, no pay”, instituted by the Supreme Court, would be implemented. Injured workers, not able to resume work immediately, would be given paid leave. The 50-odd suspended workers would be reinstated along with the four dismissed union leaders, though the company could transfer them to any department, except manufacturing.
The dismissed employees would also give a “separate assurance letter” to the management, and an undertaking that they would not engage in any act of indiscipline, before joining duty (Saini 2005). HMSI suffered problems later as well and the union became affiliated to the AITUC. Honda’s Chinese factory near Shanghai, suffered a strike on 7th June 2010, less than a week after it settled an earlier dispute by offering a 24% pay rise (The Economist, June 12–18, 2010). 2. Mitsibishi Chemicals
Mitsubishi Chemicals MCC PTA India Corporation Private Ltd (MCPI), a subsidiary of Mitsusbishi Chemicals Corporation (MCC), one of the world’s top ten chemical companies, was established in 1997 in Haldia, West Bengal. Construction was completed quickly and production started in April 2000 with a capacity of 350,000 tonnes per annum. Expansion with an investment of Rs 1665 crores led to a second plant (capacity 8 lakh tonnes) being commissioned in mid-2009 and the total capacity increased to 11. lakh tones at Haldia, with an expected turnover of $ 900 million by end-2010 (Times of India, 10th Feb 2009]. As part of the ‘core-periphery model’ (Das 2006) of Japanese management, the regular skilled employees and the unskilled non-regular employees formed two distinct groups. The latter were unionized (common practice in most large enterprises in the local area) and agreements (with earned and sick leave, festival holidays, annual bonus, statutory HRA and retrenchment benefits) were signed with them, although they earn much less than regular workers.
Eleven elected operators’ representatives (one member for every 20 operators) meet managers formally in a Department Representatives’ Committee for raising employment issues. But when it came to unionization, MCPI tried ‘to build and sustain a strong, manager-driven corporate culture and such strategies that help to build cooperative relations with the employees and avoid unionisation or union substitution’. Apparently, ‘there was an attempt at unionisation but failed due to lack of support according to management’ (Das 2006).
Despite this strategy, there has been simmering tension among the MCPI unions following the victories of the Trinamool Congress in Panchayat and Lok Sabha elections during 2008 and 2009. The Nationalist Contractors Union (contract workers of Mitsubishi, owing allegiance to Mamata Banerjee’s union wing, INTTUC) raised several issues relating to the contract workers’ pay discrepancies with permanent workers, non-lucrative incentive schemes, reduction in bonus, etc. Agitations before the gates were followed by dharnas, and a reported whole night gherao of the HR head.
The CITU Union did not protest. Work was disrupted again at the plant on 7th December 2009, demanding permanent jobs for 150 casual workers and a raise for the rest. Mitsubishi has about 513 permanent employees and around 600 casual staff. The Union blocked the Mitsubishi gates, disrupting work through the day and causing extreme worry to its Japanese management. The GM (HR) said: “not a single employee could enter the premises. Around noon, some of the workers associated with the production division were allowed entry.
Because of that, there was some work in the processing unit… but there was little or no work in the loading, unloading and despatch sections. There was no one to man the canteen and the guards too, joined the Cease-Work’’ (http://www. ilovekolkata. in). At Haldia Petrochemicals next door, CITU had demanded a 300 per cent hike for contract workers and gained a 100% increase in wages after a major strike earlier. The siege at Mitsubishi was lifted late on 8th following the management’s written assurance to look into their demands. Work resumed from the night shift.
It is interesting that MCPI did not hesitate in setting up one of its largest plants abroad, in West Bengal, knowing its long history of militant unionism and leftist government. Obviously it relied on its strategy of centralization of decisions and the manning of ‘all key posts by Japanese managers from its main establishments’. In line with its ‘competitive strategy, its main objective in HR has been to formulate, develop and maintain unique work culture in tune with harmonious industrial relations with committed employees involved in world class manufacturing.
Work practices include Total Quality Management (TQM), Justin-Time(JIT), Kaizen and 5S and Total Productive Maintenance (TPM, covering the entire life of all equipments) (Das 2006). In MCPI, educated, highly skilled employees enjoy regular terms of employment and are recruited through stringent selection procedures. Relations with them are based on ‘skill or knowledge based pay, elaborate communication and complaint procedure, and team work’. More than half of them are in the officer category and ‘even the receptionist is designated as Executive-Secretary. There are no clerical workers.
The remaining are operators (selected from local ITIs, science colleges and polytechnics) classified into five categories with the basic pay of the highest category being double that of the basic pay of the lowest category’. In general, wage levels are ‘much higher’ than locally prevailing rates but are not linked to seniority or bargained annually. In addition all of them go through extensive training, ranging from work practices to fire fighting. In 2002-03 ‘all unskilled and non-core jobs in MCPI were done by 388 contractor workers’ (only 313 permanent employees including 106 executives).
Even though Contractors’ workmen got double the statutory rates, their wages were lower by 40% than the lowest wage in the regular category. Contractors got 8-12% of the total workers’ wages as agency fee. But ‘contract workmen were not restricted to unskilled jobs’. For example in the Instrumentation Department, 3 skilled technicians were under a contractor. These and other skilled contractors’ workmen, like crane operators and welders got about 50% more wages than the lowest category workers (housekeeping, gardener, office boy) (Das 2006). Analysis of the current situation and trends in India:
The new economic policy announced in 1991 signalled a decisive shift in economic policies of the government from regulation to liberalisation. The product market reform measures have increased the bargaining power of capital vis-a-vis labour. Capital has become more mobile and least regulated, while labour is less mobile. Greater ease of mobility gives greater bargaining power to capital (Bardhan 2001:470). Though the formal system has not changed, sufficient signals have been provided for the employers to implement the changes they desire.
This has been dubbed as labour reforms by stealth (Bardhan 2002). The employers grabbed these opportunities with full hands and devised several managerial strategies to achieve labour flexibility, control over work processes and weaken labour power, Illegal closures, prolonged lockouts (often closures in disguise), reduction in regular workers (via voluntary retirement scheme (VRS), labour re-allocation, transfers, multi-tasking, freeze on employment, idleness pay, etc. increased use of contract labour, outsourcing, subcontracting, job freeze are some of the measures employers in both private and public sectors have employed to circumvent the law and trade unions (Bardhan 2002, Shrouti & Nand Kumar 1995, Shyam Sundar 2008 a). As a result of deliberate managerial strategies, the employment of non-regular workers, especially the contract workers, has increased considerably in the last decade or so. Between 1991 and 2001 the number of workers in the organized sector who enjoy the protection of industrial system increased from only 26. million to 27. 8 million – an annualized growth rate of only . 038 percent. In the unorganized sector the number of workers grew at an annualized rate of 2. 68 percent from 287. 4 million in 1991 to 374. 4 million in 2001. Recent data released by the National Commission of Enterprises in the unorganized sector (Government of India [GOI], 2008a) shows that this number has increased still further to equal 422. 6 million workers in 2004-05. Of particular interest is the growing informalization of work in the organized or formal economy.
Between 1999-2000 and 2004-2005, there was a 42% increase in the number of unorganized workers employed in the organized sector, outstripping the 15. 3 percent increase in both total employment and unorganized sector workers. As employment is increasingly informalized, particularly within the organized sector of the economy, the bargaining power of labour is further reduced. There is some legislation that covers informal workers. However, the implementation of these existing laws is increasingly patchy and mostly non-existent for informal workers where the employment arrangement is often difficult to establish.
Many of the trends are related to global competition, and manpower utilization techniques consistent with high tech productivity and production. Labour flexibility is a dominant concern for management in all the cases, and has led to increasing use of non-regular workers. Das (2006) reminds that ‘different types of employment contracts exist even in Japan including non-regular employees … part-time and temporary workers engaged directly by the company and contract workers who are registered with a third party’. The non-regulars are growing in proportion crossing one third of total employment in 1997.
Workers are resorting to violence and are hitting back at management over perceived injustices. Management also have amply demonstrated insensitivity to workers’ sentiments and perceptions the tensions arising out of the measures, policies and strategies of the employers and the government have resulted in increase in the incidence of labour management conflicts (table1). While the number of work stoppages have decreased, workers’ participation in and volume lost due to work stoppages have risen since the late 1990s. Table 1: Indicators of Work Stoppages in India, 1991-2005
Period WS/N WI/N WDL/N 1991-93 6. 07 43. 82 963. 21 1994-96 4. 14 33. 50 694. 25 1997-99 3. 94 42. 37 778. 72 2000-02 2. 44 38. 40 953. 72 2003-05 1. 86 85. 13 1048. 64 Note: Work stoppages include both strikes and lockouts WS /N- Number of work stoppages per lakh employees in the organized sector WI/N- Number of workers involved per thousand employees WDL/N- Number of work days lost due to work stoppages per thousand employees Source: Indian Labour Statistics, Indian Labour Year Book, (various issues) Labour Bureau,Shimla. Two features of workers protests need mention here.
One, worker mobilization in strikes (measured by WI/N and the average size of strike) has increased impressively during the post-reform period – the average size of strikes rose from 722 in 1991-93 to 4497 in 2003-06 (Shyam Sundar 2010 b). The rather frequent incidence of All-India strikes (more than a dozen since mid-1990s), increasing work stoppage incidence in public sector, lockouts by larger establishments and the ‘agitational connect’ that the issues that emanated from reforms and restructuring processes are some of the reasons that could explain the rise in mobilization of workers in the work stoppages.
Employers have also been aggressive in initiating lockouts in the post-reform period (table 2), though it is a continuation of their earlier managerial policies. Table 2: Share of Lockouts in Totals of Work Stoppages, Workers Involved and Work Days Lost, 1991-2005 Period % Share in Totals of All Work Stoppages Count WI WDL Memo: 1985-90 22. 3 15. 3 58. 4 1991-93 34. 86 34. 84 57. 46 1994-96 32. 92 30. 91 64. 97 1997-99 39. 98 29. 14 60. 09 2000-02 46. 00 23. 62 65. 64 2003-06 49. 82 14. 67 76. 80
A lot of the problems relate to managerial styles – summary suspensions and dismissals, pay cuts, intolerance for any interference in their own production plans, insistence on written undertakings of good conduct – and a poor understanding of industrial relations in South Asia and their political linkages. “… The workforce is one of the most context specific factors. Workforce practices have to be tailored to local markets. Headquarters obviously has the final say on everything. But they really have to listen to local managers on these issues… U. S. ompanies, in particular, are used to having a great deal more control over employees than almost anywhere in the developed world. They have more power to fire, more rights with respect to unions in particular and are used to getting their way. This created special problems in countries like India which have more militant unions and more employee power. All foreign national come into countries expecting that things will operate more like their home country than, in fact, they ever could. ” Sabharwal adds, “Obviously it is always dangerous to make generalizations about culture,” he says.
But in his opinion, European companies tend to have stronger country heads and U. S. companies tend to have most functions reporting to some global head. “In most Korean and Japanese companies, the power tends to reside heavily in the head office. I heard a quip about Toyota that they don’t globalize but colonize. Obviously, these structures have important implications for how labour engagement and negotiations are handled. ” “I doubt if obedience and work culture are major issues,” says Chakrabarti of ISB. The typical Indian worker is likely to be more command-driven and Oriental in mindset than Western. Our small business owners are hardly any less demanding of obedience than the Japanese and Korean stereotypes. Yes, in large companies, both public and private sector, a culture of resistance by labour does exist in India owing to union support. But the conflict is not necessarily about management styles. ” Some of the unrest is related to the recession of 2007-08, but several started much earlier and have continued even after the recession has eased significantly.
External union leaders in an era of globalization bring other forms of trouble. They come to the workers with data on how much the same company is paying its people for the same job in, say, Finland, the U. S. or Korea. “They don’t talk about issues such as purchasing price parity (PPP),” says Saxena. According to Cappelli, “Employees may expect Western companies to have Western payscales and that causes mismatched expectations. That’s what leads to conflicts. ” But it’s a double-edged sword, experts note.
If some companies can talk about applying a global wage freeze when the Indian unit is doing well (India never really felt the adverse effects of the recent global recession), they can’t get away from global comparisons in other spheres. MNCs have been facing much-publicized labor problems in China. Are the Indian experiences another facet of the same story? “India and China have something in common, and that is very tight labor markets and rising employee expectations,” says Cappelli. This creates a mismatch, especially with international companies who went there because of cheap labor and are now finding that it is no longer so cheap. They [the MNCs] may have more problems because they don’t know the context as well. They may get into more legal issues as well for the same reason. ” But Sabharwal of TeamLease feels that the situations are completely different. In his view, pay increases are inevitable. “Economic reforms in India are not about goofy rich guys buying Mercedes cars or Gucci bags.
Rising wages are an inevitable and desirable public policy outcome of our reform process. ” But they must be accompanied by productivity increases. “I would obviously view wage increases as a negative if they don’t reflect productivity increases because that is unsustainable. Chakrabarti of ISB makes another point. “The cultural resistance to layoffs is common in both places,” he says. “But it is likely that in China, the skilled labor market is perhaps reaching some kind of saturation — at least without much greater internal migration — which may not be the case in India.
So wage increase demands may be stronger there than here. ” According to Cappelli, “Workers say their demands are realistic. Employers say those demands are unrealistic. [This happens] in every context in every country. There’s nothing new about these disputes. Ultimately, these disputes are settled by power. If employees have the power, as they tend to in tight labor markets, these demands become realistic; when employers have the power, as when unemployment is higher, those demands prove to be unrealistic. (2010, India Knowledge @Wharton) In the Honda case, its strategy was characterized by: – close links with the industry-friendly state government – ability to read the central government’s favourable stance, regardless of the political affiliation (neither NDA nor UPA governments intervened on behalf of the workers) – introducing changes in the employment structure (from permanent to contract)- de-recognition of the union These characteristics ensure that ‘employment and work practices are more similar to the host country than that found in joint ventures’ or in the operating country.
In terms of international human resource strategies this is a good example of the global vs local issue in managing subsidiaries. This may hold true of other Japanese companies operating in India as well (328 as of June 2006). MCPI ’s union avoidance strategy has been fine-tuned for the location it is in and till now appears to have been reasonably successful. However, there appear to be chinks in its armour, and the fact that this has not been replicated in other MNCs across India, indicates the delicacy of the strategy.
Thus we observe that in all the industrial disputes, the conflicts between divergent interests of the actors seem to have resulted in a peculiar constellation of dynamic forces in India and thus we have a mosaic of varieties of responses soft labour reforms, passive state in one context and active in another, new managerial strategies, new forms of labour organizations, empowerment of non-regular workers and so on. Conclusion: As we see, the history of the development of the trade unions in India has influenced the present scenario in a big way.
The state support and higher bargaining power of labour had increased their expectations. Whereas the multinationals came to India in search of cheap labour and they need flexibility of labour. But within the current legal framework, the rights of the employer is limited and there are several restrictions in terms of layoffs, retrenching and wage rates. This is the main reason of all the problems and resulted in multinationals taking strategies like more informal workers, exercising state support etc. Bibliography: Hill E. The Indian Industrial Relations System: Struggling to Address the Dynamics of a Globalizing Economy.
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