TV Mohandas Pai & Rajesh Moorthy
The ongoing strike at Bajaj Auto in Pune for over five weeks has once again brought the issue of uneasy relations between workers and management in Indian manufacturing sector to the fore. In the last 2-3 years, unfortunately, we have witnessed some very violent incidents including death and injuries on factory premises, which remind us of the combative and belligerent environment that prevailed over two decades ago. All these incidents are undoubtedly denting India?s image as a potential global manufacturing hub, an alternative to China, and driving local investment overseas. India needs large-scale manufacturing to create jobs for the 1 crore people entering the workforce every year.
As per a report by Ficci, industrial disputes declined significantly from 1991 till the global economic crisis in 2008. The growth phase and increase in consumer demand played a key part in maintaining ?harmonious? relationship between the management and workers. However, in the last five years, the scenario has changed dramatically with the economic slowdown causing a considerable increase in the number of incidents, especially in the automobile sector.
Manufacturers need to have a flexible workforce to respond to rapidly changing economic cycles/demand pattern. This is clearly evident from the most protracted slowdown in 10 years in automobile sector with passenger vehicle sales declining 7 months in a row and commercial vehicles 16 months in a row. To meet these macro challenges, employers have a huge number of contract/casual workers. Over 94% of India?s 470-million-plus workforce is employed informally.
So, the most obvious reason for industrial unrest has been a huge increase in the number of contract workers as well as a significant difference in pay and benefits between permanent workforce and contract labour. Some reports suggest that ?casualisation? of labour force in the manufacturing sector has reached alarming proportions with 30% of labour force being made up of contract labour and a 50-60% wage differential between permanent and contract labour. Only after large-scale violence in Maruti Suzuki premises in Manesar some of the employers have acknowledged this anomaly and have decided to reduce contract labour or give them preference whenever permanent workers are being recruited.
The breakdown of trust is leading to perception amongst workers that automation, improvement in productivity etc has resulted in a significant growth in profitability and the benefits are not being shared equitably by the management. This has resulted in workers making audacious demands as in case of Bajaj Auto, where they are demanding 500 shares per worker at R1 per share in addition to higher wages!
The demand for shares at face value by labour unions at R1 is really absurd. Bajaj will have to account for the value of these shares; they are not free shares to issue. There are very well-established norms for grant of stock options or for issue of shares at discount as the underlying cost of these options/shares needs to be accounted to reflect the true cost of running a business. No doubt, over the years, the Indian industry has granted stock options to employees but it has, barring a few instances, been selective and never as part of union negotiations. Instead, it is always done voluntarily by the management to recognise the extraordinary efforts to create value. A stubborn stand by the unions may unnecessarily vitiate the atmosphere forcing the management to cut jobs, move production to other favourable location etc, further adversely affecting employment.
The employers and employees certainly have valid arguments supporting their actions but what is compelling them to take a stance that leads to confrontation? The real villain is the outdated, antiquated labour laws in our country. The law has not really kept pace with the changes in the global and local economic environment. No one bothered to address the challenges when the things were good, the economy was growing at 8% per annum and consumer demand was upbeat. There was no leadership to take the issues head-on as it was most convenient to postpone the problem to a later date. Now, in the face of mounting management and labour tensions, the government authorities are passing the buck to employers without ever having attempted to create an environment that is fair to all the stakeholders. We are all used to listening to the ministers promising changes to the archaic labour laws but as soon as things calm down the subject of ?sweeping changes? becomes ?no changes?.
What is the biggest concern of the workers and unions about flexible labour laws? It is the fear of job loss and the absence of a social security network leading to a fear of loss of livelihood and being pushed into destitution. Post the global economic crisis, we have seen a huge increase in unemployment in all developed countries and hardship faced by all sections of society but their suffering was softened to some extent by a robust social security system.
Indian lawmakers along with the active support of Indian industry should create a social security system, universally applicable to both permanent and contract labour. Both employer and employee can contribute 5% of wages to a fund, which should be independently managed by the Life Insurance Corporation of India (LIC). The fund should be utilised to provide unemployment allowance to people at the rate of 50% of their last pay up to a defined period and also to re-skill them. Any employee who does not utilise the benefit of unemployment allowance should get his entire contribution back from LIC on retirement.
In an uncertain economic environment, all the parties are trying to stick to their point of view and to protect their interests. However, the government needs to take the lead and with the assistance of the enlightened section of society find a long-term solution to this problem. A few years ago, we were taking 8-9% per annum growth in GDP as granted but unless the government takes some bold steps on labour law reforms, without ignoring the interests of the workers, India would wish away a golden opportunity to expand formal employment and we would be compromising the interest of our future generations.
The authors are with Aarin Capital Partners. Views are personal
