“LABOUR REFORMS- NEED AND IMPLICATIONS”

Complied by Nilesh Kumar Soni

Table of Content

Executive Summary 6

Concept of Industrial Relation 8

Definition of Industrial relations 9

Nature of industrial Relations 10

Scope of industrial Relations 11

Objectives of Industrial Relations 12

Need for Labour Reform 13

Labour Reform in India 18

Honda Case 20

Labour Unrest 22

Root Cause Analysis 23

Effect of liberalization and globalization 25

The structural analysis of labour reform 26

Industrial dispute act (id act), 1947 26

Contract Labour (Regulations and Abolition) Act, 1970 30

Social security net 32

Cover during Unemployment 33

Implication for Labour Reforms 34

Recommendations 36

Conclusion 38

Bibliography 39

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EXECUTIVE SUMMARY

Clash between the Labour and Management of Honda Motors and Scooters India in

Gurgaon has again brought back the bogey of strikes of socialist era. Everyone

including MNCs, government, economist and employers are sceptical of resurgence

of Labour movement. If labour Movement gets a new life, it can give a severe jolt to

Indian economy. Therefore, it is necessary to analyze the reason behind these

events and curb the nip in the bud.

Globalization and Liberalization has forced government to give a serious thought to

our anarchic labour law, which makes our companies uncompetitive globally and

discourages foreign companies from investing in India. Indian labour laws are among

the most rigid in the world. Some recent data compiled by the World Bank collate the

level of rigidity of hiring and firing rules in different nations -100 being the score of

the highest conceivable rigidity. India is among the most rigid countries with a score

of 48. China has a score of 30, Korea 34, Norway 30; Singapore closes to 0. 

Therefore this crisscrossing network of chaotic, strangulating, overlapping and often-

contradictory laws need an overhaul. The single most important labour law is

arguably the Industrial Disputes Act (IDA), 1947. This was enacted a few months

before India's independence and guides the hiring and firing rules of the industrial

sector and is a good example of a well-meaning policy that is founded on antiquated

economics and a handsome misunderstanding of the way markets function. The IDA

makes it very hard for firms to fire workers. This law has probably done more to hold

back the growth of India's manufacturing sector than any other policy.

In this scenario, Government recognized the need for increased flexibility in Labour

market, but they cannot bring the policy of hire and fire approach, more so, since the

institutions of social security, particularly unemployment insurance are not well

developed in our country. Therefore structural reforms in labour laws must ensure

the welfare of workers. Reforming labour laws will boost industry and create more

jobs.

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Besides Government, it is the responsibility of the employer to develop some well

specified procedure that must not create undue unrest among workers and

whenever they need more manpower ,they should a give preference to the workers it

is retrenching at present. They should also introduce some Unemployment

Insurance schemes made by the contribution of employees and employer.

The fact that the less rigid nations also have more efficient economies, higher wages

and a smaller share of labourers who are long-term unemployed is not a matter of

coincidence. Given that the reform of labour laws is, contrary to popular perception,

in the interests of the workers, what government needs to do is have this topic

debated and explained so that workers, instead of opposing such reform, become its

advocate.

Industrial relations has become one of the most delicate and complex problems of

modern industrial society. Industrial progress is impossible without cooperation of

labours and harmonious relationships. Therefore, it is in the interest of all to create

and maintain good relations between employees (labour) and employers

(management).

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Concept of Industrial Relations:

The term ‘Industrial Relations’ comprises of two terms: ‘Industry’ and ‘Relations’.

“Industry” refers to “any productive activity in which an individual (or a group of

individuals) is (are) engaged”. By “relations” we mean “the relationships that exist

within the industry between the employer and his workmen.”

The term industrial relations explains the relationship between employees and

management which stem directly or indirectly from union-employer relationship. 

Industrial relations are the relationships between employees and employers within

the organizational settings. The field of industrial relations looks at the relationship

between management and workers, particularly groups of workers represented by a

union. Industrial relations are basically the interactions between employers,

employees and the government, and the institutions and associations through which

such interactions are mediated.

The term industrial relations has a broad as well as a narrow outlook. Originally,

industrial relations was broadly defined to include the relationships and interactions

between employers and employees. From this perspective, industrial relations

covers all aspects of the employment relationship, including human resource

management, employee relations, and union-management (or labor) relations. Now

its meaning has become more specific and restricted. Accordingly, industrial

relations pertains to the study and practice of collective bargaining, trade unionism,

and labor-management relations, while human resource management is a separate,

largely distinct field that deals with non-union employment relationships and the

personnel practices and policies of employers.

The relationships which arise at and out of the workplace generally include the

relationships between individual workers, the relationships between workers and

their employer, the relationships between employers, the relationships employers

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and workers have with the organizations formed to promote their respective

interests, and the relations between those organizations, at all levels. Industrial

relations also includes the processes through which these relationships are

expressed (such as, collective bargaining, workers’ participation in decision-making,

and grievance and dispute settlement), and the management of conflict between

employers, workers and trade unions, when it arises.

Definition of Industrial relations:

Industrial Relations or Labour relations, is an expression used not only for

relationships between employers and Trade Unions, but also for those involving

Government with the aim of defining policies, facing labour problems. 

As Industrial Relations definition we can accept the concept of the outfit of: 

1) Rules for employment management; 

2) Methods defining those rules;

3)Typology of actors (both employers and workers organisations and

representatives, but also State and institutional bodies; 

4) Interaction processes between these entities.

Many authors have quoted various definitions of Industrial Relations. Some of the oft

quoted definitions

• “The term Industrial relations explains the relationship between employees and

management which stem directly or indirectly from union-employer relationship”– V.

Agnihotri.

• “Industrial relations are broadly concerned with bargaining between employers and

trade union on wages and other terms of employment. The day-to-day relations

within a plant also constitute one of the important elements and impinge on the

broader aspects of industrial relations” – C.B Kumar

• “Industrial relation is an art of living together for the purpose of production” –

J.Henry

• “The subject of industrial relations deal with certain regulated and institutionalized

relationship in industry” – Allan Flanders.

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• “The field of industrial relations include the study of workers and their trade unions,

management, employers’ association and state institutions concerned with the

regulation of employment” – H.A Clegg

Nature of industrial Relations:

Industrial relations are concerned with the organisation and practice of multi-pronged

relationship between the workers and the union in an industrial enterprise. Such

relationships may be either in organised form or unorganised plants.

Industrial relation do not function in a vacuum but multi-dimensional in nature and

are conditioned with three determinants (i) Institutional factors (ii) Economic factors

(iii) Technological Factors.

(i) Under institutional factors are included items such as state policy, labour laws,

voluntary codes, collective agreements, labourers’ unions and employers’

organisation, social institution like the community, caste, joint family, creed, system

of beliefs, etc, attitudes of work, systems of power status, relative nearness to the

centres of power; motivation and influence and industrial relations.

(ii) Under economic factors are included economic organisation (socialist, capitalist,

communist, individual ownership, company ownership, government ownership)

power of labour and employers, the nature and composition of the labour force and

the sources of supply and demand in the labour market.

(iii) Under technological factors come the techniques of production, modernization

and rationalisation schemes, capital structures etc.

The development of industrial relations is not due to any one single factor but rather

been largely determined by the conditions existing at the eve of the industrial

revolution in the Western Europe, and the social economic and political situation

available in different locations. The changes which took place, since earlier days, did

not follow a uniform pattern in different countries but they reflected such economic

and social forces which ad long times shaped the principle and practices of the

industrial relations in the western countries. From the earliest phase of

industrialization from which the workers formerly working with their own tools entered

into power driven factories, owned by owners: to minimization of breakdown due to

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industrial conflicts of later state and further to industrial peace and hence to human

relations approach to raise productivity in an democracy based on labour

partnerships not only for sharing the profits but of managerial decisions themselves

has been a long journey indeed.

Scope of industrial Relations:

The concept of industrial relation has a very wide meaning and connotation. It means

that the employer-employee relationship confines itself to the relationship that

emerges out of the day-to-day association of the management and the labour. In its

wider sense, industrial relations include the relationship between employers in the

course of running an industry and may project it to spheres which may transgress to

the areas of quality control, Marketing, price fixation and disposition of profits among

others. 

An industry is a social world in miniature. Associations of various persons, workmen,

supervisory staff, management and employer in industry create industrial

relationships. This affects the economic, social and political life of the whole

community. Thus, industrial life creates a series of social relationship which regulate

the relations and working of not only workmen and management but also of

community and industry.

Industrial relations are inherent in an industrial life:

a) Labour relations: Relations between union-management (Also called Labour-

management relations

b) Employer-employee relations: relations between Management and employee

c) Group Relations: Relations between various groups of workmen

d) Community or public relations: Relations between industry and society.

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Objectives of Industrial Relations:

Industrial Relations are a bonding between the employee and employer. It also adds

many other relations which are chain of previous relations. So the motto of any

industry should be sustaining good relationships between the employer and

employee.

Primary objective should be to bring about good and healthy relationship between

two partners in the industry. As per Kirkaldy “The state of industrial relations in a

country is intimately connected with the form of its political government and the

objectives of an industrial organisation may change from economic to political ends” 

Labour management committees have recognised certain fundamental principles as

objectives of social policy in governing industrial relation:

• Good labour management relations depend on employers and trade unions being

able to deal with their mutual problems freely, independently and responsibly.

• The trade unions and employers and their organisation are desirous of resolving

their problems through collective bargaining though in resolving such matters the

assistance of appropriate government agencies may be necessary in public interest,

collective bargaining, therefore is the corner stone of the good relations and hence

the legislative framework of industrial relations should aid the maximum use of their

process mutual accommodation.

• The workers and employers organisation should be desirous of associating with the

government agencies in consideration of the general public, social and economic

measures affecting employers and workers relations.

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Need for Labour Reform:

In order to prepare an Agenda for Labour Reforms, Several Commissions have

examined the various issues involved in the light of available empirical evidence,

nationally and internationally, so as to arrive at conclusions that are not influenced by

dogmatic opinions held by many participants in the debate on the subject. Some of

the important issues, which have been identified as need for labour reforms, are

discussed below:

1. Multiple and Parallel Labour Legislation: There is the burden of multiple and

parallel legislation that has created confusion and complexity and has resulted invast

paraphernalia of regulation. Currently, there are around 50 Central Labour Laws and

more than 100 State Labour Laws. Moreover, many Acts go intounnecessary details.

There appears to be a need to reduce the number of laws through simplification,

rationalization and codification.

2. Issues relating to appropriate government and jurisdiction: Labour is a

concurrent subject in the Constitution of India implying that both the Union and the

state governments are competent to legislate on labour matters and administer the

same. The bulk of important legislative acts have been enacted by the Parliament.

These statutes have sought to determine the respective jurisdiction of the Central

and state governments through the device of introducing the concept of appropriate

government in most statutes for various purposes. This matter of jurisdiction has led

to much confusion. What is the most appropriate way of demarcating jurisdiction of

the central and state governments in matters of labour laws, therefore, needs to be

examined.

3. Multiplicity of authorities: Due to debates over the jurisdiction, not only most

statutes have central authorities but state authorities too. Not only various levels of

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administrative or implementing authorities but also adjudicating authorities that have

been instituted under different laws differ. This proliferation of authorities needs to be

checked. The feasibility and the desirability of having a single Labour Authority

dealing with all aspects of labour at the state as well as central level need a thorough

examination. (In this regard the desirability and feasibility of Industrial Relations

Commissions as recommended by the first and the second National Commissions of

Labour may need to be examined).

4. Lack of uniformity in definitions: There is a lack of uniformity in respect ofkey

definitions in many of the labour laws. Many common items like workmen, wages,

employee, and industry are defined differently in different Acts pertaining to the same

sector. The Payment of Wages Act comes up against the different definitions of

wage in different labour legislation. Thus, while defining wages in any statute, the

cognate definition in another statute does not appear to have been kept in mind. In

this context, it needs to be examined as to what is the best way of finding common

definitions so that these are not subject to different interpretations.

5. Minimum wages: There are a bewildering variety of minimum rates of wages that

have been fixed by various state governments under the Minimum Wages Act, 1948.

Moreover, while setting wage limits for the applicability of a statute, the wage limits in

other statutes do not appear to have been kept in mind. Most wage limits are also

out of tune with the industrial realities today. Following questions need answers in

this context: What is the rationale for fixing minimum wage? What is the rationale for

industry or occupation specific minimum wages? Can the number of minimum wages

set be reduced to manageable levels? How realistic would the concept of a basic

minimum wage or a national minimum wage be which would serve as a floor level?

What is the methodology followed while fixing minimum wage? This needs to be

examined and recommendations made for improving upon it.

6. Inspector Raj: Streamlining of the present inspections regime is an important

issue. Satisfactory answers to the following questions will have to be found for this

issue to be resolved.

• What may be better and less vexatious alternative to the present system of

inspection? Can the inspection system be replaced by a system of selfcertification?

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Can self-certification be introduced for all labour laws or whether it may be desirable

to have it in case of selected labour laws only?

What are the correctives which may have to be prescribed to cope with the problem

of moral hazard which would be present under such a system? What may be the

level of authority that should certify? What may be the frequency of inspection once

this system is put in place? Whether simple certification would suffice or certification

on oath/affidavit? The experience of some of the States which have introduced self-

certification schemes or put restrictions on inspection by the labour inspectors would

have to be critically examined in this context.

• Can a system of labour audit on the lines of conventional audit be considered to

cope with the shortcomings of the inspection system? Who would qualify to be

labour auditors? What would be the merits and demerits of such a system? What

changes would be required in the legal framework for having a system of labour

auditors?

• The feasibility of replacing the system of maintaining and submitting to different

authorities multiple registers and records by one register for each broad area such

as muster roll, accidents, wages etc. needs to be explored. Any other feasible

alternative may also be looked into.

7. Industrial Disputes Act, 1947: Under the Industrial Disputes Act,

1947downsizing cannot be resorted to without Government permission. The Act is

applicable to establishments employing 100 workers or more. IDA has been one of

the most controversial aspects of the on-going debate on labour law reforms leading

to sharp, polarized views among employers and labour unions. Following aspects

need clarifications for a satisfactory solution to the problem.

What is the rationale for obtaining Government permission for downsizing, the need

for which may be arising due to sharpening economic competition? Has the

prevailing legal framework really worked or has it created problems? What

suggestions can be made for reducing the difference between the positions of the

trade unions and employers? Is there any scope for reaching a common ground

between the two positions? What has been the position of earlier Labour

Commissions/ other relevant committees in this respect? What has been the

international experience in this regard? To what extent provision of adequate

compensation and/or unemployment allowance to retrenched employees will act as

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a reasonable solution? This requires fresh thinking and an examination of feasible

ideas. The feasibility and desirability of having a system of unemployment insurance

need to be examined in this context.

8. Contract Labour (Regulation and Abolition) Act, 1970: Given the competitive

pressures, businesses are constantly striving to increase efficiency by cutting costs.

Employment of contract labour is one of the ways in which such cost cutting is being

attempted. The following questions appear relevant in this context:

Are there ways in which the employment of contract labour can be encouraged

without making the employees feel that they are losing out in terms of important

benefits?

How can flexibility in employment be promoted best? By putting aside a few

categories of occupations in a list which is exempted from the provisions of the

Contract Labour Act or by putting a ceiling on the percentage of labour force which

could be employed as contract workers by an enterprise? What are the merits and

demerits of the two systems? Are there any alternatives to contract labour that may

provide employment flexibility without affecting labour rights?

9. Sectoral Demands: Demands have been voiced that if economy-wide labour

reforms cannot be implemented immediately, attempts may be made for providing

flexibility in labour laws at least in certain areas, eg Textile industry, SEZs. In case of

Textile industry, it needs to be examined as to what is the best way of meeting the

requirements of such units, which are catering to the export markets. As far as SEZs

are concerned, if their promotion is to be viewed as part of a growth strategy to

increase employment, then the question arises as to what is the best way of

promoting growth – whether through giving exemption to selected production units

from applicability of labour laws or through other promotional measures. The relative

importance of the two sets of factors needs to be examined. Other promotional

measures for increasing growth and employment generation need to be identified

and recommended for adoption.

10. Labour standard and size of establishment: Whether labour standards can be

divided as core labour standards which are applicable to all enterprises and other

labour standards which may be linked to the capacity to pay of an enterprise? Core

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labour standards may include standards relating to treatment of hazardous material,

prohibition of child labour etc.

11. Better enforcement of workers’ rights: How can enforcement of labour laws

be improved? How to limit the extent of judicial scrutiny so as to check the number

of cases that end up as court cases? How can the process of in house/domestic

disposal of dispute or grievances within an establishment be made more fair, just

and transparent? How can the process of collective bargaining be improved and

made more effective in solving disputes? How can mediation and arbitration

provisions of the labour laws be strengthened?

12. Labour laws and the unorganised sector: At present majority of labour laws

are applicable to the organised sector and only a few to the unorganized sector. Is

there a need for review of the existing system? If yes, is there a need to link labour

laws in the unorganized sector to the enforcement of a set of core labour standards?

Many of the issues discussed above do not admit of clear-cut answers. The need is

to examine them with an open mind, taking in view the available empirical evidence,

the ground realities, and the relative importance of the issues being examined. For

instance, there is a demand for flexibility for hire and fire by large enterprises by

relaxing Chapter VB of the Industrial Disputes Act wherein government permission is

mandatory for layoffs and retrenchment. However, the applicability of Ch.VB of the

IDA is perhaps limited to one percent of the workforce in the economy (i.e. units

employing more than 100 workers). Moreover, the Act itself allows for deemed

permission under certain circumstances if no reply is forthcoming within sixty days.

Indeed, as noted by many studies, there is hardly any problem for such units to take

recourse to layoff and retrenchment whenever they feel necessary. Permission to

downsize has been fairly easily accorded to existing enterprises in the past few

years. In fact, this points to the need for an income security for workers while they

are out of work. Therefore loss of job needs to be considered in relation to the

existence of an income security net.

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Labour Reform in India

There is a general talk about the labour reforms being necessary in the industry and

business house especially in the context of FDI.  There is also demand from the

trade union that the labour reform is highly necessary because some of the labour

laws are out dated. In the context of the demand from the employer and workers

particularly the business communities it is necessary to examine the above subject

deeply and some meaningful decision should be taken in this regard.First, to

examine the demand of the investors and the industrialist as they want the labour

reforms in the form of hire and fire system and should permit the management  to

retrench the surplus  workers whenever they feel.  They also demand that the

engagement of temporarily and contract labour in place of permanent workers and

they do not want to talk about the social security net with regard to the retrenched

employees or to carry the burden of higher wages to the contract workers/temporary

staffs doing so, there should not be any strike, tool down etc. and disturb industrial

peace.

Most of the employers do not want trade union activities in their company  and the

workers involved in trade union activities are victimised and harassed.The trade

unions also demand for reforms in the labour law which means more protection for

the permanent workers and their jobs and the workers should be allowed full

participation in the management and all should get bonus if the industry is making

profits.The trade unions further vehemently demands implementation of the labour

reforms in the first instance of the contract workers who are working on the

permanent nature of work and should be made permanent. They want to improve

their salary and other perquisite, pension and bonus etc. for which review of labour

laws is essential to give more job protection and security.

It is the strong view that the Govt. should seriously think over about the labour

reforms as key to economic reforms. Very often it was expressed by the government

that it is necessary to bring the labour reforms into force but the Govt. is not willing to

bring the reforms. According to them the “problem of the industry” should be

equally shared by the workers and the management.   There are a number of

industries which were closed down without paying legal liabilities to the workers. 

There are number of industries which are not paying the normal regular wages. The

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workers are suffering and not extending co-operation to the industry/business.There

must be some of understanding between the management and the workers/trade

union about the labour reforms.  The problems of the workers in the industry are very

serious and it is required to sort-out the problems through mutual discussions. There

should be a proper analysis of each issue individually such as contract labour, job

guarantee, Social Security etc.   These 3 issues are come under one issue. Further

to set up a tripartite committee, “protection of employment and protection of

industries”. This can be discussed separately.  And the third issue about social

security net whereas the workers should be paid fair rate of retirement benefits, self-

service benefits, health and housing, educational benefits etc.

The demand of the trade union about sharing the profit even for those who are today

out of ceiling the bonus act need to be amended or through applying the “LAT”

formula which was in vogue prior to Bonus act. a new methodology to make workers

share the prosperity.Working Committee after thoroughly examining these issues

and has decided to place before the Govt. of India suggestion to set up a high power

committee to examine these issues, with 6 month so that the Govt. of India can take

a pioneering decision about the labour reforms.

Labour laws need to be amended to suit the changing economic scenario. However,

different stakeholders like Employers, trade unions and political parties seem to differ

on the issue. For e.g. the political parties in the ruling coalition of the Central

Government possess contradicting ideologies on labour related matter. Leaders of

the Communist Party of India (CPI), an important party of the coalition, have been

opposing the flexibility to industry on labour related matters. The congress has been

arguing for "labour reforms" to attract Foreign Direct Investment in the country.

However, the journey for labour reforms seems to be difficult owing to inherent

contradictions among the stakeholders involved in the process.

The trade union opposes the Employer's demand saying that any loosening of

government control over the industry by way of labour reforms would throw workers

out of job safety net. They want among other thing strengthening of social security

for the workers, extension of social security benefits to workers in the organized

sector, and participation of workers in the management.

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HONDA CASE

Are the labour unions back? The riot that followed the labour management dispute in

Gurgaon over the Honda Motorcycle and Scooter India spat could be the first major

sign of things to come. After a decade-and-a-half of market friendly policy changes,

the union seems to be sticking their neck out again to ensure they are being heard.

Some says the left parties in power are the force behind this resurgence, the central

unions disagree. They see the UPA government in the Center as a major conducive

environment for their woes to be heard. For now, the battleground has been cleared

and the soldiers are back home. A peace pipe is being passed around and the

warring factions appear momentarily happy to take a drag as they put behind them

the images of mayhem that hit the industrially flourishing Gurgaon-Manesar region in

Haryana. But behind the wall of silence, tremors can still be felt. The question on

everyone's mind is how to ensure that what happened on Black Monday in Gurgaon

does not happen again.

Research has revealed that labour strikes globally hit once in eight to 10 years. That

period is now nearing. "The Honda incident should be taken as early warnings of a

big wave of labour militancy in the future." The All India Trade Union Congress

(AITUC), which has just claimed a conquest by bringing Honda Motorcycle & Scooter

India's workers' union into its fold, has now trained its guns on Maruti Udyog Ltd, the

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leading producer of passenger cars in the country pertaining to the dismissal of 92

employees during a labour trouble at Maruti in 2000-2001 and several hundreds

opting for a voluntary retirement scheme, which, it is alleged, is not exactly voluntary.

Honda says its 50 workers who were suspended for indiscipline will not be reinstated

pending an independent inquiry - an issue that caused bloody clashes between its

workers and police on Black Monday. Dismissing four employees, 13 more were

suspended without reason in May, followed by suspension notices to 37 others a

month later. HONDA took a stand of not allowing the suspended workers into gates

until the third party inquiry is completed and management gets the report.

Management decided to take a call on their reinstatement based on the inquiry's

findings. But in any case, four employees who had caused the initial disruption of

work will not be taken back under any circumstances.

The trouble at the group's two-wheeler unit began when some 2,000 workers

protested a lockout of the factory and dismissal of some colleagues. This was

followed by clashes with the police that left scores wounded after some irate workers

vandalized civic facilities, police vehicles and shops.

But it stresses the need to study and find out the reasons for the labour unrest

at Honda.

The misgivings between the Honda management and employees find roots in the

demand for a union to protect workers' interests. Though the demand for a union did

not go well with the management, the government and other companies in Gurgaon,

the workers applied for registering the union. And even after the union was

registered, there was a lot of pressure from the management, which finally dismissed

four employees in the first two weeks of May.

To conclude, an idea of forming union did not go well with the management of HMSI.

This finds the root in Industrial Dispute Act (IDA), 1947 which restrict the labour

market flexibility. Had IDA included sections allowing labour market flexibility,

HONDA would not have taken action against employees forming a union. It

necessitates the changes in labour laws and calls for labour reforms in such a way to

protect the interests of both employers and employees.

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LABOUR UNREST

A labour unrest is a social phenomenon of enormous complexity and it is very

difficult to give any complete explanation of this phenomenon. It is a matter of

controversy whether the predominant factors underlying labour unrest are economic

or non-economic. It has been concluded that so long as income remained the all

important means for satisfying human wants and needs, wage would continue to be

major consideration in labour unrest.

Considering the nearing period of labour unrest with the recent cases of Honda and

Maruti, it is the time to do root cause analysis and find out what are the possible

reasons which lead to labour unrest so as to address these issues and untide the

tide of labour unrest.

STATISTICS OF THE LABOUR UNREST

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ROOT CAUSE ANALYSIS 

From the study of some of the strikes and lockouts over last 10 years, we concluded

that all the possible reasons can be classified into five major heads. As specific

problems are branched out from the major effect area, the result appears to look

something like a fishbone diagram. The potential problems can then be researched

to find the root cause and correct it. The five heads are as follows: –

Monetary

Political

Legal

Job Specific

Others

FISHBONE DIAGRAM FOR ROOT CAUSE ANALYSIS

All the causes mentioned above have some impact on the labour dissatisfaction

which may eventually lead in Labour Unrest depending on the intensity of the

problem. But the study done for the last 10 years led to conclude that major reasons

for the strike and lockouts are as follows:

Wages

Retrenchment of labour which calls for sorting out the differences between

employers and employees regarding Industrial Disputes Act, 1947.

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Management's decisions to go for contract labours without giving them

permanent job security and denying fair wages. This issue can be adderessed

by bringing consensus between trade unions, employers, government and

political parties in Contract Labour Act, 1947 based on their interests.

In order to bring down Labour unrest, there is need to cater for these issues

separately.

UPGRADE LABOR SKILLS TO JUSTIFY HIGHER WAGES

Workers will not be happy to sacrifice on wage and job security. So long as income

remained the all important means for satisfying human wants and needs, wage

would continue to be major consideration in labor unrest. Government official warned

that failure to upgrade labor skills in a globally integrated economy will make it more

difficult for unskilled and low-skilled workers to demand higher wages. This situation,

in turn, may worsen labor unrest.

As the economy globalizes, it would be difficult to increase wages for unskilled or

low-skilled laborers. Companies need to continue improving their training programs

to meet the critical skills needed in a globalizing economy, which can be identified

through industry signals. Improving labor skills would effectively solve labor unrest in

the country, as it will result in higher wages and, therefore, better quality of lives for

the people.

A shortage in skilled labor would discourage investors from putting up factories or

companies in the country. They might opt to transfer to other neighboring countries

whose labor skills are comparative to those of the Philippines yet require less pay.

So managers and factory owners should invest in people and machines in order to

compete globally.

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EFFECT OF LIBERALIZATION AND GLOBALIZATION ON LABOUR MARKET

Liberalization of the Indian economy is almost a decade and a half old. Of all the

economic liberalization reforms, labour market reforms have gained maximum

attention. It is widely argued by many economists that in the open economy and

liberalized trade, the country can no longer afford to carry on labour market rigidities.

The employers (industrialists) have been vehemently pressing for labour reforms on

the plea that these are necessary for making Indian industry globally competitive and

for attracting more of foreign direct investment. The existing laws, it is contended by

employers, slow down growth and job creation. They say that under the existing

labour laws the churning of new skills is slower, companies lose cost cutting flexibility

and ability to bounce out of recession quickly. The employers further contend that

Labour Market will become more flexible with the amendments; more workers can be

hired legitimately and can ask for better benefits including better work conditions,

safety standards, welfare measures and health benefits.

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The structural analysis of Labour Reform

Any change or reform in labour law will depend on the four competitive forces: Trade

Union, Employer, Political parties and Government. In these forces, Trade Union and

Employer take diametrically opposite stand on any issue. Employer wants more

flexibility in retrenchment policy to become competitive, whereas Trade Union

primary concern is on Job security and their influence on workers, which determines

their bargaining power with Management. Political parties want vote bank from

workers as well as financial support from businessmen. Whereas Government is

keen to bring the labour reforms in order to keep Country on the fast track of

development but don't want to create unrest among the workers.

THREE ISSUES THAT NEED TO BE ADDRESSED

Industrial Disputes Act, 1947

Contract Labour (Regulations and Abolition) Act, 1970

Social security net

INDUSTRIAL DISPUTE ACT (ID ACT), 1947

It is a principal legislation dealing with the core labour issues like investigation and

settlements of industrial disputes, regulation of strikes, lockouts, lay-offs,

retrenchment, and other related matters. According to the chapter VB of ID Act it is

compulsory for any industrial establishment employing more than 100 workers to

seek permission before resorting to lay-off, retrenchment or closure. Employers and

some political leaders have been arguing for a change in this provision.

Employers want that the limit for the application of Chapter VB should be raised to

1000. NDA government, during its tenure had expressed its willingness through

various statements to amend ID Act to free employers from the restrictions on them

in the chapter. It was proposed to give an additional retrenchment compensation of

45 days wages for every completed year of service. But trade unions are very much

opposed to it, as almost every unit would come under this limit, giving employer's

unrestrained right to close their units.

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POSITIONS AND INTERESTS OF DIFFERENT STAKEHOLDERS ON THIS

LEGISLATION

Trade Unions:  They oppose the increase of limit specified in Chapter VB from 100.

Behind this stance they want to safeguard some interest:

* Unions' influence at the workplace will decrease by this amendment

* Their bargaining power will be reduced

* Loss of job will be a major threat to workers

* It may affect Worker's economic welfare

* It will boos Union's identity as savior of worker's right

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Employers: They support the idea of increasing the limit specified in Chapter VB up

to 1000. They expect following favorable effects from this change.

It will provide the flexibility at work.

It will help in cutting cost

They will gain global competence

They will have favorable exit policy

There will be less legal battles

They will have better management control

Political parties:  There is lack of consensus among different key personnel among

political parties regarding this amendment. They face following threats and

advantage by bringing the changes in law.

They might lose the political support of worker

They will get financial support from employers to meet election expenses.

Government:  Every government talks about bringing the requisite change in the

law. It is necessary to bring change in our archaic Labour law if government wants to

attract huge amount of Foreign Direct Investment. But they don't have the enough

political will to take such concrete step, as it can adversely affect their chances in

election. So they also talks about revival of sick units to protect employment. But

such a step will only ensure the locking of huge fund in unproductive work, which

could have used in more wealth creation and employment generation.

SUGGESTIONS FOR IMPROVEMENT IN LEGISATION

As seen from the above list of interests, the ruling political parties carry a dilemma as

to how to balance their interests regarding political support of the workers, financial

support of the employers and attracting foreign investments. Clearly the interest of

the trade unions and the employers are conflicting on the issues of managerial

control at the workplace. The freedom to retrench people would construe to

significantly higher managerial control of employers at the workplace. Unions are

unlikely to agree to such scenario.

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One way to maintain the balance of control at the workplace between the

employers and the trade unions would be to develop well specified

procedures to retrench employees. Such procedures do not provide flexibility

to the employers to retrench arbitrarily. Hence, it could protect the balance

significantly.

Some mechanism could be developed whereby, the company retrenching the

employees should take an undertaking that whenever it needs to diversify or

need more manpower, it shall give preference to the workers it is retrenching

at present.

Companies could also opt for unconventional problem solutions:

* Cutting working hours of workers to avoid possible retrenchments,

transfer or redeployment of labour from excessive labour to labour

deficient units.

* Labour can be given three to six weeks break and encouraged to go  

in for skill enhancement. It will lead to a two way gain: personal growth

for the employee and employer can put to use worker's enhanced

skills.

There are a number of companies for e.g. Volkswagen, who have successfully used

these methods to steer themselves out of the economically tough situations without

opting for conventional means like freezing recruitments, going in for retrenchment or

lay off etc. Amendments under Industrial Relations Bill of 1982 should be

implemented as it contains many provisions that would attend to the current

concerns like setting up of a time-bound grievance redressal, fixing a time limit for

the adjudication of individual and collective disputes.

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Contract Labour (Regulations and Abolition) Act, 1970

For some time past there has been growing agitation for the abolition of employment

of contract labour, as it was realized that the execution of work on contract through a

contractor, who as an employer of the employed labour, was primarily to deprive of

its due wages and various privileges of labour laws. It was also realized that certain

work by their very nature can conveniently be executed by contractors through

contract labour, or by labour on contract basis. In this regard, the matter of abolition

and regulation of contract labour, caught attention of law makers. According to the

Section 10 of the Act " Notwithstanding anything contained in this Act, the

appropriate Government may, after consultation with the Central Board or, as the

case may be, a State Board prohibit, by notification in the official Gazette,

employment of contract Labour in any process, operation or other work in any

establishment ".

On the current status, union leaders are of the opinion that a reference to labour

reforms in the current context of economic liberalization can only mean a freedom to

the employers to resort to a policy of 'hire and fire' as opposed to some what

sheltered environment that the labour enjoys with the stringent norms on

retrenchment, lay-offs and closure of industrial establishments under the present

regulatory framework.

The law may forbid retrenchment or closure, but in practice employers simply stop

paying salaries or running mills. Owners prevented from downsizing see no point in

putting any more money or effort into a revamp. Instead they strip the assets of their

ailing companies. Industrial sickness has been growing and many workers in the sick

industries have employment security only in the theory. Employers search for escape

routes has led to greater use of casual and contract workers. The growing

actualisation of labour is reflected through employer's preference to outsource

drivers, gardeners, canteen staff etc.

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POSITIONS AND INTERESTS OF DIFFERENT STAKEHOLDERS ON THIS

LEGISLATION

Trade Unions:  According to the Trade Union Section 10 should not be amended to

the disadvantage of contract workers. It will ensure following favors for workers.

Ensure due wages to workers.

Job security

Get benefits of labour laws.

Employers:  Employers want amendment in Section 10 to facilitate of activities

without any restrictions. It will help them in

Reducing costs.

Getting more flexibility at work place

Power and control at work place.

Saving from legal battles.

More flexibility leads to better outputs and a more competitive working

environment.

Political parties: There is lack of consensus among different key personnel in

political parties. They have to make balance between the two diametrically opposite

interests,

Political support of workers

Financial support of employers to meet election expenses.

Government: It varies with the political party in power; NDA government seemed

more inclined to allow outsourcing and engaging workers on contract. It is the

responsibility of government to bring requisite amendment in this act so that more

money can flow in India in form of Foreign Direct investment.

POSSIBLE ALTERNATIVE SUGGESTIONS

Though there are significant conflicts in the interests of the trade unions and

employers, the contact workers are quite freely changed by employers owing to high

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vulnerability of those workers. The high job insecurity and unemployment in the

country virtually forces the contract workers to insure compliance to employers. It

enhances the control of the employers at the workplace. Hence, the trade unions are

keen to develop strict norms of employing least number of contract labour and higher

number of regular employees. In such scenario, it is a challenge to both the

employers and trade unions to reach to a common ground to get solution to the

present situation.

SOCIAL SECURITY NET

There is an urgent need to revisit our labour policies and other labour related issues,

if India as a country has to remain competitive and in fact has to assume its

legitimate share in global economy, give the country's size and resources. But one of

the major constraints in making our labour laws flexible has been absence of an

adequate and broad based safety net for the country's workforce.

India has two main social security schemes for workers in operation since 1950s in

the organized sector. These are Employees Provident Fund Scheme and Employees

State Insurance Scheme. The former provides social security like provident funds,

pension on superannuation etc. to about four crore employees while the later caters

to the medical care needs of specific group of workers particularly in the unorganized

sector.

Despite being among the largest social security schemes in the world, the two main

schemes mentioned above cater to not more than 8 to 9 per cent of the country's

total work force. Secondly, these schemes don't have built-in mechanisms to

neutralize/compensate for the adverse fall out of globalization like closures,

retrenchments etc.

The closure of industrial Units and bankruptcies are normal feature in the developed

economies all over the world. The workers of such unit do not feel adverse impact as

they are covered by well-established social security system.

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Cover during Unemployment

The advocate of the 'hire and fire' also wants to bring about a fundamental change in

the nature or perception of employment. They want employment to be on the basis

of contracts for stipulated periods- a total departure from the current system in vogue

in most kind of employments.

Most of the developed countries where the majority of jobs are contacts have

elaborate and effective system of social security. Even in China, to quote an

instance, there are stringent laws on social security system that takes care of

worker's income and requirements at least for two or three years of transition or

unemployment. In India we don't have such provisions. There is a need of

Unemployment Insurance. Let every worker in the organized worker pay Rs.10 per

month into an unemployment insurance fund, and let every employer make a

matching contribution. Rs.10 is a small sum but if 28 million workers contribute Rs.10

each, that means 28 crores per month. With matching contributions from employers,

the sum rises to Rs.56 crores per month. Even allowing for the some defaults, that is

sufficiently large and sustainable to take care of retrenchment compensation.

Unemployment insurance can provide retrenched workers with 100 per cent of basic

wages for six months, failing to 75 per cent, 50 per cent and 25 per cent in the next

three six-month periods that will support workers for up to two years while find fresh

jobs.

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Implication for Labour Reforms in a holistic approach:

There is a strong clarion call from India’s strongest and influential quarters – the CII

on the need to update the labour laws in vogue. One of the chief reasons given for

he need for labour reforms is that many of the labour laws are quite irrelevant and do

not reflect the requirements of the day. It must be admitted that there is much

substance in this argument. The Industrial Disputes Act, the Trade Unions Act,

among many others was authored in a time period when concepts like liberalization,

globalization or privatization were not even fully understood, let alone practiced. A

casual glance at the years in which these legislations came into existence, makes

one wonder why there has been a complete neglect in updating these important

legislations. True, there have been some attempts to bolster up the weaker sections

of these legislations by various amendments from time to time. But, that cannot be

construed as good enough. Before going on to the issue of Labour reforms, one has

to take stock of the recent developments in the industrial world. The developments

are truly stupendous and mind boggling. Technology, business models, the size of

business, the complexities of a global market, governmental requirements, the

society as a stake holder are all challenges the modern industry has to contend with.

Therefore, there is much justification on the part of the industry leaders asking for

“legitimate space” to operate. All systems that need to be developed and put in place

have got be done without any further delay. Definitely, labour reforms are one issue

that needs urgent attention. As we discuss this issue, comes in the news that in 2050

India will overtake Developed Nations. 2050 is not really that far off and the question

is - are we prepared for this quantum leap? It is now sufficiently established that

there is a legitimate need for all round reforms – especially in the area of labour

reforms. But, one has to proceed with caution in understanding what impact these

labour reforms are expected to have. There is an unfortunate tendency to copy

anything western, especially American when it comes to labour management. In

business schools, young managers are briefed about the ‘bold’ move of AT&T in

terminating the services of employees by the thousands, on one single day. What is

conveniently forgotten is that ‘May Day’ and the accompanying legitimacy for worker

rights came from these countries. It is also unfortunately forgotten that these

countries have more stringent labour laws than many socialist countries – case in

point, the minimum wages that are in vogue, the social security systems in place,

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etc. The more glaring mistake is in not understanding the differences in socio

economic conditions that prevail in India and the other ‘model countries’. If today, the

developed countries have given their industry leaders so much space, it is after

having ensured that the social fabric is strong enough to support the vagaries,

uncertainties and imponderables of development. By no stretch of imagination can

we term India ready for these sweeping changes. Every step forward will have to

factor in the unique conditions that prevail in this vastly diverse and complex country.

There is no need to go into the micro details of the labour reforms. What, however, is

required is a detailed discussion on the impact of the intended labour reforms and

then decide on what reforms are appropriate for our economy. The Honourable

Prime Minister has listed the priorities of the industry, very rightly, by asking the

industrial community to put the labour force first. To quote him “First, have a

healthy respect for your workers and invest in their welfare”. He has called for a

consensus amongst the key stake holders – the industry, the labour force and the

monitoring agencies. That statement probably, is the preamble for the entire issue of

labour reforms. Agreed, we need reforms. But every reform should make the playing

field more even for all the players. Lame and unsustainable arguments of profits,

economics or sustainability cannot justify fleecing the labour force. There are enough

case studies to prove the death of organizations is more due to poor management

rather than labour unrest. The only litmus test needed to accept the merit of the

intended reforms is - does it compromise on the welfare of employees? The resultant

answer would determine the need for such reforms.

There is already a great share of controversies that need to be resolved before

deciding on adding a few more to the inglorious list. Take for example; the ILO

recognizes the right of employees to organize themselves and to even strike work.

But our learned judiciary has a different opinion on these fundamental issues. When

these burning issues are yet to be resolved can we afford to add fuel to this fire by

rushing into reforms which have not been well debated. The purpose of raising this

issue is to highlight the fragility of the situation at ground level.

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RECOMMANDATIONS:

1. Change in mind set: that is the immediate requirement of the day. Of course, the

first initiative has to come from the industry. Talking to HR managers across the

country, one is amazed at the rigid picture that they have etched in their minds about

the role of trade unions and unionists. True, there is a lot of sense and truth in their

argument. But that is the challenge! Doing away with trade unions is not the answer,

because that would go against natural justice. Even if one can imagine, a situation

where there are no trade unions and no protective legislations, can we let the fate of

an entire labour force hang on the fickle thread of hope that the industry would treat

its employees fairly? What is the guarantee that this system of implicit and explicit

faith would not be mismanaged by the industry? Enron, Union Carbide, etc are

names and images that cannot be conjured away easily. What is sauce for the goose

is necessarily sauce for the gander. The change in mindset has to come in terms of

extending the trust radius to include employees in the main stream activities of the

organization and simultaneously, engaging in serious confidence building measures

like promoting transparency, equity and a sense of fair play.

2. Educating the workforce: Having acknowledged the workforce as equal

partners, it is imperative that they be educated on the emerging requirements of

coexistence. A quick look at the emerging software and IT industry reveals the low

level of unionization present there. The education did not take place inside a class

room; rather it is seen in the tangible benefits enjoyed by the knowledge worker.

However, different methods need to be adopted for different industries and

workforces.

3. Float the idea: The idea of reforms can mean different things to different people.

The industry, simply for the reason it initiated this debate, will have to clarify what it

expects from these reforms. It has to necessarily spell out the positive and negative

outcomes that the workforce can expect from these intended reforms. That would be

a starting point. More forums for honest discussions and policy clarifications should

be arranged. The government, the workers representatives and the industry should

be fairly represented at these forums. The idea of changes and reforms should be

gradually introduced to ensure there is enough time to read the situation and to

respond.

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4. Invest in the future: the journey is going to be long and hard. Labour Reforms is

not an easy task. The first ‘go ahead’ has to come from the labour force itself.

Convincing them of the need for reforms is the first step. Gaining their confidence

and acceptance comes gradually and in small increments (considering the less than

conducive relationship prevailing). Initial failures should not derail the process. Much

needs to be invested in terms of goodwill gestures, tangible benefits, safety

networks, etc before any significant improvements can be expected. Until then,

patience and perseverance should be the guiding principles. To conclude, every

reform envisioned should aim at inclusive growth. That is the need of the hour for a

resurgent and resilient Indian economy. We have enough examples to learn from

around the world on how such inclusive growth can be ensured (the Scandinavian

countries) or denied (any of the Asian Tigers who failed miserably). Let us take up

the right models.

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CONCLUSION

It must be recognized that labour market reforms are not going to be easy in a

situation where employment opportunities have been shrinking. Also there is a larger

question of providing social security to the workers employed in the organized

sector. The vast unorganized labour force, which constitutes over 90 per cent of the

total, is denied fair wages and even modest levels of social security. Hence, labour

market flexibility must be accompanied by some kind of insurance and social security

to the vast unorganized labour force in the country. Government should make all

possible efforts to dispel the fears of trade unions by enlarging the scope and

coverage of the social security net.

Hence no solution can be reached if the stakeholders continue to take extreme

positions. There has to me a meeting ground to address everyone's interests, to the

extent possible. The immediate challenge in bringing about the desired labour

reforms is to resolve the anti-labour stand in the employer's mindset, and labour

prejudices. They have to realize that employer and employee are not separate

entities but two faces of the same coin. They equally need each other and the

relationship between the two can only be harmonious if they work towards defending

each other's interest rather than contesting the same. Hence employers should pay

more attention to human resource development and capacity building of their

employees. Industrial bodies have to take up workers education. Workers on the

other hand realize the importance of 'no work no wages come'.

There should be a general consensus on the labour reform ideology among the

major political parties. Political leaders should look beyond their narrow interests and

develop consensus for the larger benefits of the Indian economy. It demands to bring

in a balanced view whereby concerns of all the stakeholders, especially the trade

unions and the employers are addressed. This may further be strengthened through

a wider debate involving academicians, legal experts, policy makers and public at

large. All the stakeholders should arrive at some consensus so that there is

something for everyone. such consensus is developed; it may be coupled with good

and clean corporate governance.

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Abdul Aziz, Labour Problems of a Developing Economy

D.N. Vohra, Law Relating to Strikes and Lockouts

Babu Mathew, A Brief Note on Labour Legislation in India. Asian Labour

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Labour Reforms are here, Saturday, March 10, 2001 Chandigarh

Workers' Participation in Management, Paradigm, July – Dec.04

Wages of downsizing, Business Standards, 2nd August, 2005

Identity Crisis, Academy of Management

Honda unrest: Industry calls for flexibility in labour laws, The Hindu, July 26,

2005

Gurgaon unrest II hits Honda cousin, The Telegraph, April 11, 2005

Labour Reforms, Oct., 2003

Supriya Roy Chowdhary, Globalization and Labour, Economic & Political

Weekly, January, 2004

T.K.Rajalaxmi, Conflicting Class Interests, Frontline, Vol.19, Oct., 2002

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Ministry of Labour website

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