Management Labour & Employment Issues in India

01 June 2007

M R Prasanna, Aditya Birla Group

The labour market in India has undergone significant changes since the country’s independence in 1947. India’s first Prime Minister, Jawaharlal Nehru, established inter alia, several iron and steel industries within a socialist and protectionist socio-economic framework. Stateowned corporations formed the backbone of the economy and their employees were guaranteed security of tenure by way of certain statutory safeguards. Judicial pronouncements in the first few decades of the enactment of the Constitution (1950) brought most of these corporations within the definition of ‘State’ as laid down in article 12 of the Constitution, thereby making it possible for their employees to petition for a writ of mandamus to protect their fundamental rights in cases of wrongful dismissal, unjust working conditions etc. 

Between 1950 and 1980, economic growth averaged around 3.5 per cent, though the net effect on per capita income was an average annual increase of a mere 1.3 per cent due to the rapid growth in population. Finally, economic compulsions compelled the government to undertake massive economic reforms in 1991, ushering in an era of globalisation and privatisation. 

These reforms have faced severe opposition, most notably, from the employees of the public sector enterprises that are set to be privatised. To illustrate, in January-February 2006, the country witnessed widespread disruption and chaos at some of its major airports due to strikes called by the workers’ unions of the Airports Authority of India in protest of the government’s decision to privatise and modernise the Delhi and Mumbai airports, a move that is believed to entail job cuts. 

Another recent governmental move that has been subjected to intense criticism, albeit for entirely different reasons, was the proposal to introduce a legislation mandating job reservations for “backward classes” in the private sector. The corporate sector strongly resented the imposition, arguing that such caste-based reservations would at worst lead to deterioration in quality and further divisiveness in society, and at best, serve as a placebo. Corporate leaders have expressed their commitment to social equality by proposing alternative initiatives in this regard, such as scholarships, partnership with government schools and in-house vocational training. 

The government is said to be continuing with its efforts to build a consensus on this contentious issue. In the event that a legislation or constitutional amendment to this effect is brought into force, it is unlikely that the courts will strike it down, as it is a settled position in law that the fundamental right of equal protection does not prohibit affirmative action by the State, so long as the differential treatment is reasonable and welldefined. Hence, the fundamental right to practice any trade or profession may be circumscribed by a legislation borne more out of political compulsions than social ones. 

At the heart of these issues is the fact that the country’s demographic advantage – about 567 million persons in the 20-59 age group – is yet to be converted into a competitive strength. Studies indicate that in 2020, the nation may be faced with an unemployed population of 211 million and an unemployment rate of 30 per cent. Going forward, the challenge lies in generating adequate employment opportunities, imparting training and skills suited to the demands of the industry and increasing overall labour productivity, together with the overhauling of labour laws, which have remained untouched for 20 years. 

To illustrate one: an area requiring urgent legal reform is the government’s industrial exit policy. Chapter V-B of the Industrial Disputes Act, 1947 provides that the prior permission of the appropriate government (generally, the State Government for private enterprises) is mandatory in cases of closure of a factory establishment employing 100 or more workmen and for retrenchment or lay-off of the workmen thereof. The establishment is required to make an application for such permission at least 90 days in advance of the intended date of closure and follow the elaborate procedural framework prescribed in this regard. Although the decision on the application for permission falls within the administrative responsibilities of the concerned State Government, actual experience shows that the decisions are influenced by the political considerations of the party in power. More often than not, State Governments tend to pass orders refusing permission and such orders are final and binding on the establishment and remain in force for a period of one year. Some State-specific provisions allow appeals to the Industrial Tribunals in case of refusal, but the existing backlog of cases, coupled with the lack of adequate judicial infrastructure results in inordinate delays on this front. 

These legal and bureaucratic uncertainties pose serious impediments for establishments that wish to close down business because of mounting financial losses, lack of profitability or on account of obsolete technology, erosion of customer base etc – and undermine the ability of an establishment to cut costs by right-sizing itself. On the one hand, industrial policy is being liberalised so as to attract investment that would fulfil the country’s aspirations of high growth, whereas on the other, the archaic exit policy works as a major deterrent. 

To address this issue, the Planning Commission in September 2006, has recommended amendments to the Industrial Disputes Act which would provide for a more flexible, efficient and employer-friendly exit route to private industrial units. Certain other governmental studies have proposed that industrial units be allowed an automatic exit route, upon payment of mutually agreed compensation to workmen. To prevent the misuse of this provision, it is suggested that workmen be granted the right to appeal against the settlement on a post facto basis, with the Industrial Tribunal being authorised to order the employer to pay exemplary damages in case of proven misuse. Changes on these lines will undoubtedly be welcomed by the business community and will go a long way in promoting investment in the country, which would in turn generate employment opportunities. 

Labour reforms are also required in order to expand the organised sector and extend the protection of labour laws to the large unorganised sector, which continues to be exploitative in nature. The recent notification under the Child Labour (Prohibition and Regulation) Act, 1986 banning the employment of children under the age of 14 years as domestic servants or in food stalls, hotels, spas and other recreational centres is a positive step in this direction. Strange though it may sound, India has more than 12.6 million child labourers, a majority of whom are engaged in the food and hospitality sector. However, this ban may remain ineffective unless the fundamental issue of poverty is dealt with.

A trend that promises great benefits to the unorganised sector in India’s cities is that of reverse migration. With more and more nonresident Indians opting to return home, an added impetus is being provided to indirect employment, particularly for household help, drivers, etc. 

On the issue of contract labour, till recently, the judiciary was perceived to be rendering prolabour judgments, reminiscent of our socialist legacy. The Supreme Court’s pronouncement in the Air India case (1996), requiring several contract labourers to be automatically absorbed as regular employees in industries where contract labour was abolished and the nature of the work was permanent and perennial in nature, had created concern among the business community, as it was prevalent practice to engage contract labour in many areas. With the reversal of this judgment in the SAIL case (2001) and several other rulings by the judiciary taking serious exception to indiscipline and insubordination at the workplace, a more practical and industry-friendly approach is now being taken. 

The global and domestic shift from a thrust on manufacturing to an emphasis on services will have a long-term impact on employment patterns, as service sector requirements include a workforce that is educated and possesses high quality technical and managerial shills. The nascent retailing business in the country, which large business houses including our Group have recently entered, promises high rewards and offers tremendous opportunities in the fields of sales and marketing, which our labour-surplus economy needs to seize. 

The BPO sector in the country continues to boom and provide employment to a large number of educated youths. ITES-BPO exports from India are estimated to grow to US$6.3 billion by the end of the financial year 2005-06, with the total direct employment in the sector set to rise to more than 400,000. A large number of women have greatly benefited from the gainful employment offered, while still being able to balance the demands of their household. In fact, in March 2005, an amendment was added to the Factories Act, 1948, which took into account the rising number of women being employed in call centres and allowed them to work in late night shifts. The increasing opportunities in this field have created a new genre of employment for young graduates. However, one notes with surprise that it is not only high-school pass-outs and fresh graduates, but also highly qualified youngsters who choose to take up jobs in call centres. This trend may be here to stay, given that the BPO sector is now extending to the KPO and LPO businesses. 

On a related note, the high salaries and plush working conditions in the sector have not deterred trade unions from enticing BPO professionals into their folds. Early last year, the Union of ITES Professionals formally announced the formation of a union for BPO professionals. While the management has questioned the necessity of these moves, trade unions argue that notwithstanding their pay packages, these white-collar professionals have their own set of grievances (such as odd working hours, stressful working conditions and the consequent health hazards, women’s safety, insecurity of tenure, especially since their employers tend to be foreign entities against whom they may not have adequate bargaining power and so on) that necessitate an appropriate redressal forum. Employee participation and interest in these propositions has been very limited thus far and it remains to be seen whether the unions will be able to garner significant support in the future. Based on the Group’s experience in the BPO industry, we believe that this is unlikely, given the demandsupply inequation and the resultant employeefriendly HR policies that are adopted. 

To conclude, it is important to have a blend of sound economic policies and public-private partnerships in order to address the issue of comprehensive labour reform in India. 

The views expressed in this article are that of the author and not those of Aditya Birla Group

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