CHAPTER-3

VOLUNTARY RETIREMENT SCHEME

AND VR TAKERS

IN DSP AND MAMC

CHAPTER-3

VOLUNTARY RETIREMENT SCHEME AND

VR TAKERS IN DSP AND MAMC

3.1 Introduction

The early retirement scheme of public sector employees in India was introduced

during 1980-81. In DSP the scheme was first implemented in 1985 but in an

unsystematic way. Though from its inception, DSP was facing the problem of

overmanning and underproduction, the management was not interested to introduce

any major job-cut due to the governmental policy of employment generation in the

public sector. The scheme was initially introduced in the steel plant only to shed-off

the dead-woods of the industry and continued such endeavours till 1998 when a clear-

cut policy was implemented by the management in this regard. In the year 1998 and

1999 a large section of employees had accepted voluntary retirement from DSP.

In the MAMC the situation was slightly different. To the MAMC management

particularly, the necessity of reengineering was not felt as the industry was declared

the 'best exporting public sector unit' by the . Government of India for nine

consecutive years from 1980. Moreover the MAMC did not bother to look after its

losses. The company being a basic industry to produce instruments for mining was

thought to be very essential in augmenting the cause of India's industrialization. The

company did not earn profit even during the years of its best export performance as it

had failed to utilize its maximum capacity during this period. Only when the

Government asked the PSUs to restructure themselves according to the logic of the

New Economic Policy, MAMC was forced to think about its excess manpower. The

early retirement scheme, therefore, was implemented in the MAMC from early 1990s

45

only. It was highly unfortunate that in spite of its record export earning during 1980s

the enterprise had to change its strategy of production due to changes in

Government's policy. For this reason the enterprise had to bear the burden of huge

loss and was forced to downsize its workforce. However, the immediate cause behind

the introduction of early retirement scheme in both DSP and MAMC was the changes

in Government's policy from 1980s and subsequent compulsion introduced by market

liberalization. Let me now discuss in details the factors that led to the introduction of

early retirement scheme in both the public sector units. My analysis would also point

out the relative differences in the scope and nature of the scheme in these industries.

3.2 Voluntary Retirement Scheme in DSP

The plan to set up Durgapur Steel Plant along with other steel plants of the

country was drawn by the end of first five-year plan (1951-56). During the second

five-year plan (1956-61), a major task in industry was the building of three steel

plants in the public sector namely, Rourkela Steel Plant, Bhilai Steel Plant and

Durgapur Steel Plant.1 With steel being one of the scarce but important components

of India's industrialization, the Government correctly decided to stress on such

development of heavy industry to improve country's economic standing. The

selection of Durgapur as a place for the establishment of a steel plant was governed

by certain factors. The most important one was the presence of adequate

infrastructural facilities like high quality coal, iron-ore, dolomite etc, water and

electricity from Damodar Valley Corporation, better communication network and

above all huge barren agricultural land and jungle. Also the availability of cheap and

skilled workers provided some impetus to such growth. The efforts of the then Chief

Minister of West Bengal, Dr Bidhan Chandra Roy who wanted to establish Durgapur

as an industrial town of the state should also be mentioned here.

46

Works on Durgapur Steel Plant Project began from January 1954 and the unit

started producing liquid iron from December 1959 onwards. The plant began

producing steel from April 1960, and with subsequent establishment of several other

subsidiary units, the plant was able to produce record quantity of quality steel during

1964-65 and 1965-66. This period is thus called the 'golden age' of DSP. The plant,

however, failed to maintain such a lead and went on adding losses to its credit

subsequently. In order to solve this problem, the management decided to increase the

production up to 16 lakh tons steel per annum from 1968-69. But the situation

remains unchanged and the management and trade unions blamed each other for this

from their own point of view. Actually from the very inception, DSP had failed to

produce optimum production due to some technical defects and other factors. Even

the British engineers who had initially supervised the construction of the plant could

not actualize its full target of production when the factory started producing steel. In

order to overlook such limitations the management put the blame on militant trade

unionism and lack of skilled workers instead of searching for the actual ones. Trade

unions on the contrary, stressed on factors like corruption, wrong polices of the '----------Government and worldwide depression as the main reasons for such losses.

In this situation, the management of DSP proposed a modernization package to

the Government of India in order to revive the industry. The Government agreed to

the proposal and sanctioned Rs 2667.56 crore for this purpose in 1989. The major --objectives of this modernization project were to (a) attain a higher level of production,

(b) improve productivity and quality, (c) improve yield, (d) conserve energy, (e)

reduce the pollution in environment etc. The project, however, could not be

completed on time and the DSP had to bear the burden of escalated costs of ~

mechanization. In this situation, DSP, like other industries, was forced to take certain

47

steps so as to survive in a competitive situation. These steps included minimization of

production cost, maximization of total production, improvement of quality as per

international standard and the like.

But the performance of DSP even after modernization was not satisfactory and the

amount of total loss increased day by day instead of profit. As a result, the

management further decided to reduce the production cost through downsizing the

workforce. Actually DSP, like other PSUs of the country, was suffering from the

problem of overmanning which plagued the industry. For example, the DSP was

designed to operate with a workforce of 7,500, but in reality it had a workforce of

15,000 by 1970s. The application of modem technology in DSP after modernization

highlighted the need for 'lean and thin' workforce. In this situation, the management

implemented VRS to shed-off surplus workforce. The scheme first came into

operation in 1985 but in an unplanned and sporadic fashion. But from 1998 onwards

the scheme was implemented vigorously with a distinct motive. As a result, a sizeable

number of employees could be asked by the management to accept pre-mature

retirement. The following table shows the total number of executive and non-

executive employees who accepted VRS since 1998 along with the reduced strength

of manpower in the plant:

Table: 3.1 Total Number Of Employees Accepting VRS In DSP

VR Takers Job Losses Due to Year Executive Non-Executive Total Total Manpower Normal Retirement and

After Job Loss Other Reasons 1998 121 1133 1254 24,390 248 1999 294 2890 3184 21,039 167

2000 00 00 00 20,633 406

2001 53 357 410 19,641 582

2002 60 405 465 17,928 1248 2003 18 184 202 16,746 980

48

Initially DSP's trade umons protested against the scheme, but with growing

urgency to make the unit competitive and market-oriented in the face of

Government's anti-labour policies, VRS became an accepted strategy to get rid of

immanent problems. When the scheme was first introduced, the aged, sick or

physically incapable workers came forward to utilize the golden opportunity.

Subsequently, some officers and highly skilled workers also joined their rank as they

were hopeful of promising post-retirement engagement even after receiving a heftY

sum. The DSP, as a consequence, then faced the problem of shortage of skilled and

qualified employees under different categories. The company then had to spend

additional amount towards training of unskilled workers and promote them to

required position. Due to such unplanned and unexpected early retirement of highly

skilled and qualified employees, the management had to revise its policy to ensure

that only those whose services may be dispensed without detriment to the company,

may be asked to go on retirement. As there was no recruitment against vacancies

arising due to VRS, it was important for the DSP management to see that the

organization is not denude of talent. Hence, under the revised scheme that was

introduced in the year 2000, the management has begun exercising its prerogative in

selecting VR applications.

3.3 VR Compensation Paid in DSP

Under the VR scheme an employee is entitled to an exgratia payment of 45 days'

salary for every completed year of service besides normal retirement benefits as

against 15 days' salary to the employee in case of loss of job as per the Industrial

Disputes Act. In DSP like other public sector units in India, the workers who joined

the company after 1971 were entitled to family pension. This scheme was revised in

the year 1995 and renamed as Employee Pension Scheme. The workers who took

49

voluntary retirement before 2000 had faced some troubles to regularize the monthly

pension due to managerial and other problems. But within a few years it became

regularized. In fact it did not relieve the workers much from the problem of post VR

tension and strain as the amount of family pension was meager. VR compensation of

PSU's employees throughout the country was paid following certain fixed principles.

In DSP, like other industries of the country, the amount of total VR compensation

varied from employee to employee depending on the time-span of their service career,

post and scale of pay and other related matters. Here, total VR compensation includes

the compensation due to loss of job plus other retirement benefits. I have identified

three major categories of VR takers namely executive, skilled and unskilled workers

in DSP and tried to search out the differences of VR compensation paid among them.

Thus, the executives, classified into ten categories from EO to E92 on the basis of

scale and position in the hierarchical authority structure, were paid between 6.5 lakh

to 12 lakh as total VR compensation. In contrast, the total VR compensation of skilled

workers (S4 to SIO category)3 varied between Rs 3 lakh to 5.5 lakh. Finally, the

unskilled workers (S 1 to S3 category) had received between a sum of Rs 2.5 lakh to 4

lakh as total VR compensation. Additionally, all the three categories of workers were

entitled to the monthly family pension though its amount varied from person to

person. The total amount of family pension ranging from Rs 1,000/- to Rs 1,900/-, Rs

800/- to Rs 1,400/- and Rs 450/- to Rs 750/- for the executives, skilled and unskilled

workers respectively were provided. It also depended on the pay scales and the span

of service-life of the concerned worker. The total amount of compensation paid in

this respect, however, increased many fold due to the introduction of New Pay Scales

in Steel Plants from mid 2001. On an average, the VR takers under different

categories mentioned above then received a 40 per cent hike in their total

compensation. Irrespective of differences in compensation paid to the VR takers, the

50

scheme, unlike normal retirement one, had absolved them from usual delay and

harassment in receiving retirement benefits.

3.4 Voluntary Retirement Scheme in MAMC

Mining and Allied Machinery Corporation, one of the premier public sector units

in the country was established on 16th November 1963 during the prime ministership

of Jawaharlal Nehru. It had started production on 11th January 1965 with the technical

and financial assistance of the then Soviet Russia. Initially, MAMC produced

instruments related to coalmining, and its target was to produce instruments capable

of procuring 10 lakh tons of underground coal annually. But it could not reach the

target due to various reasons and could utilize only 15 per cent of its total capacity.

One of the important reasons for such under-production was the lack of adequate

order of those costly instruments from the private coal- mine owners. Additionally,

the industry had to fulfil the governmental commitment of employment generation

including other social liabilities. Hence, 'earning profit' was a distant dream for

MAMC management.

The situation started changing from 1974, after nationalization of the coal-mining

sector and changing nature and strategy of production of MAMC. The company then

could produce sufficiently and improve its financial condition as work order of its

instruments from the Government undertaking coalmining sector started pouring in.

similarly, the management's decision regarding the production of various types of

instruments for thermal power plant, steel plant, port etc. had provided extra oxygen

to its revival. From 1980 onwards MAMC could export instruments of worth Rs 106

crore to different countries and secure the best 'export award' for nine consecutive

years.

51

After the introduction of New Economic Policy, MAMC also required

modernization of its total plant in order to survive in a competitive environment. But

the Government was totally silent on this and rather favoured downsizing the work-

force through VRS. Moreover, the Government went ahead to import instruments

produced by the MAMC itself. The following table shows the increasing trend of

import of machinery parts and instruments since 1990.

Table 3.2 Increasing Trend Of Import In MAMC

Year 1990-91 1995-96 1996-97 1997-98 Import (Rs in 372 917 1409 1244 crore)

Source: MAMC Management

As a result, MAMC became a sick industrial unit and the Government had decided to

refer it to the Board of Industrial and Financial Reconstruction (BIFR) in February

1992. The BIFR then appointed Riazee Company, a Mumbai based consultant firm

for overall survey and to search out the limitations of this industrial unit. The Riazee

Company submitted a revival project to the BIFR which stated that the company

could be survived with 2200 employees and just Rs 142 crore because of its adequate

infrastructure and skilled workers. The Government, however, did not show any

interest in its revival and remained silent over a long period. By the end of 1998, the

Government ultimately decided to close down the unit through forceful retirement of

all its employees. In response to this decision, the leaders of CITU affiliated MAMC

union had lodged a case in Calcutta High Court.4 As the court passed a stay order in

favour of the union, the unit could not be closed down till late 200 I. The MAMC

management, however, became successful to force a large number of workers and

52

employees to go on VSS in between 1999 and 2001. The unit was ultimately closed

down on 3rd January 2002 after the stay order was vacated.

Like other PSUs of the country, MAMC also suffered from the problem of

overmanning. In the early 1990s it was operated with 7500 employees of which 35

per cent were executives. As a consequence, MAMC had failed to maintain profit due

to huge wage bill. From 1990 the management was cautious about the problem and

tried to overcome this through downsizing the workforce. In MAMC, YRS was first

implemented in 1991 after the introduction of NEP. Initially some officers and

physically incapable workers came forward to accept the scheme and such endeavour

continued till the mid of 1998. During this period only a small number of workers had

retired from MAMC, as the scheme was totally voluntary. The senior executives

showed their interest much towards the scheme as they enough scope for further

employment. But the situation had changed rapidly in the late 1998 when the

Government decided to close down the unit. In December 1998 the management

introduced a separate early-retirement scheme, called Voluntary Separation Scheme

(VSS), which was designed for sick and unviable units. Under this scheme an

employee was entitled to an exgratia payment equivalent to 45 days emoluments

(Basic + DA) for each completed year of service or the monthly emolument at the

time of retirement multiplied by the balance months of service left before the normal

date of retirement, whichever is less. All those who have completed not less than 30

years of service would be eligible for a maximum of 60 months salary as

compensation. Similarly, another VR package which is called 'Gujarat model of

YRS' was introduced in 2000 in parallel with VSS. The new scheme became

attractive and comparatively better to the younger employees. The compensation

consists of salary of 35 days for every completed year of service and 25 days for the

53

balance of service left until superannuation. As the MAMC management was

interested in closing down the unit following governmental directives, the employees

were repeatedly asked to accept early retirement through either the VSS or the Gujarat

model of VRS, whichever is acceptable to the concerned employee. The following

table shows the number of VR takers since 1999.

Table 3.3 Total Number Of VR Takers In MAMC

Year 1999 2000 2002 Total (Up to 31st

January) No. ofVR 2000 501 1460 3961

Takers

Source: MAMC Management

3.5 VR Compensation Paid in MAMC

In MAMC also, I have divided the total respondents into three categories, namely,

executive, skilled and unskilled workers. The total VR compensation of executive

category employees had varied from Rs 6 Iakh to Rs 14 Iakh depending on the total

completed years of service and other factors. As compared to other PSUs, the

differences of total VR compensation between skilled and unskilled workers were

found to be negligible in MAMC and it varied from Rs 2 lakh to 6 lakh only. The total

amount of compensation paid would have been nearly 40 per cent more, had the

MAMC employees enjoyed pay-revision due for long before the retirement. It was

only in 2001, when the Government finally announced the closure of the industry, the

amount of total VR compensation got increased due to I 00 per cent additional

exgratia paid to the remaining workers. In MAMC also, there was a provision of

family pension, but in reality, the scheme did not help the workers much as the

company was declared 'closed'. The workers and the trade union leaders of MAMC

demanded the regularization of the scheme on the monthly basis, but due to some

54

managerial problem the scheme could not be implemented in proper fashion. In this

regard, the government had asked the management to submit their claim on monthly

basis, if they want to regularize the scheme which was not a possibility after the

closure of the unit. Under such circumstances, the workers were forced to give their

option for one-time payment of pension. The amount of family pension got varied

among different categories of workers as stated below:

Category of Workers Amount Of One Time Family Pension

Executive Rs 40,000 to Rs 60,000

Skilled Rs 25,000 to Rs 45,000

Unskilled Rs 15,000 to Rs 32,000

A comparison of the VR compensation paid to the workers of both DSP and

MAMC along with other retirement benefits would make it appear that the two

organizations paid differently to their employees. The average compensation of

employees did not provide the real picture because there is wider variation in the

compensation sum both within and between the organizations. The extent of

variations is clear from the table given below

Table 3.4 Comparison Of Total VR Compensation OfDSP And MAMC

Organization DSP MAMC Category of Before Pay Revision After Pay Revision Before Pay Revision After Pay Revision Employees (Up to 2000) (In 2001) (Up to 2000) (In 2001)

Rsin Lakh Rs in Lakh Rsin Lakh Rs in Lakh

Executive 6.5 to 12 8to 16.5 6 to 14 8 to 12 *

Skilled 3 to 5.5 4 to 8 3.6 to 6 4.7 to 7

Unskilled 2.5 to 4 3.3 to 5.2 2 to 4 3.5 to 6

*The figure is comparatively less due to VR of young executives Source: DSP and MAMC Management

55

The amount of compensation paid to various categories of workers in both

MAMC and DSP differs significantly. In MAMC, workers retiring after 2001 had

been paid higher amount of compensation as the Government had then declared 100

per cent additional exgratia to existing employees. On the other hand in DSP, the

compensation paid to the executives had increased nearly 40 per cent due to their long

awaited pay revision after 1999. Even after the payment of additional exgratia,

however, the total compensation paid to a majority of MAMC workers remained

significantly less due to short tenure of service. As VSS was compulsorily introduced

in MAMC, the younger workers received less compensation as compared to those

who had served for maximum number of years. By contrast, in DSP the VR takers

hailed mostly from the advanced age group contributing to maximum amount of final

compensation. Table 3.4 also shows that there is wider variation in the payment of VR

compensation to different categories of workers and such differences have diverse

impact on the post retirement life ofVR takers.

3.6 Socio-Economic Profile of VR Takers in DSP and MAMC

Let me discuss here, in brief, the socio-economic profile of VR takers in the two

industries that I have studied. This infonnation would help me to analyze the impact

of early retirement better as differences in age, sex, and level of education or caste

have profound impact on the pot-retirement life of VR takers.

3.6.1 Age Structure

The age composition of VR takers in DSP and MAMC differs significantly. In

DSP, the VR takers generally belong to advanced age group which is explained by

two sets of logic. First, the old and sick workers called 'dead-wood' wanted to get rid

of busy work schedule after modernization and avail of the significant amount of one

time payment facility. Thus, 32 per cent of my respondents have said that they

56

accepted early retirement because of the reason stated above. Second, the

management also wanted the same group to retire as they were occasional 'law-

breakers' and were not physically and mentally effective enough to bear the burden of

'fast and heavy work' after technological modernization. Apart from the aged, as table

3.5 shows, there were some young executive and skilled workers who retired early

due to better employment option outside.

Table 3.5 Age of Workers At The Time OfVR In DSP And MAMC

DSP MAMC

Age GrouQ Category of Workers Category of Workers Grand

Total Total Total Executive Skilled Unskilled Executive Skilled Unskilled

30-40 00 01 00 01 03 02 01 06 07

41-45 01 00 01 02 05 07 06 18 20

46-50 02 03 01 06 08 10 09 27 33

51-55 20 19 20 59 11 09 I4 34 93

56-60 10 11 II 32 05 03 07 I5 47

Total 33 34 33 IOO 32 3I 37 100 200

In MAMC, which was a sick unit for a long time and closed down in January ,....

2002, the age composition is significantly different. When the Government decided to ---refer MAMC to BIFR, the management started motivating workers to accept VR

under different pretext. The management wanted to utilize the VR fund in such a way

that the organization would get an immediate relief in terms of substantive cut in

monthly wage bill. But the situation had changed rapidly, when the Government

decided to close down the unit. As a result, a large number of workers and employees

belonging to different age groups were then forced to accept VR as the last resort.

Even for the younger and middle-aged workers, the writing on the wall was very clear

57

in favour of an early retirement. Thus, Table 3.5 shows that more than half of the total

VR takers from MAMC belong to the age group of 50 and less.

3.6.2 Sex Composition

In general the PSUs are dominated by male workers and it is true in case of DSP

and MAMC. In my sample of VR takers from both the industries, the percentage of

male workers is 93 (Table 3.6). Only 7 per cent of VR takers are female of which a

significant number has managed service after the death of their husbands. In India,

there exists gender discrimination in the organized sector employment. Lack of

technically skilled female workers is one of the manifestations of such discrimination.

The organized sector is generally based on capital-intensive technology that requires a

set of trained workers with formal education. My data, however, indicate that

operation of the YRS in both DSP and MAMC did not enhance such discrimination in

a significant way.

Table 3.6

Sex Specific Distribution Of VR Takers

Sex DSP MAMC Total

Male 95 91 186

Female 05 09 14

Total 100 100 200

3.6.3 Educational Qualification

A cursory look at the educational qualification of VR takers reveals that there are

significant differences in the level of education among different categories of workers.

The DSP and MAMC had established in such a condition that required a set of trained

workers to operate the sophisticated machines. My data (Table 3.7) indicate that a

high percentage (36.5%) of workers joined the organization with technical and

professional qualifications. Again a reasonably high percentage of workers who did

58

Table 3.7

Educational Qualification Specific Distribution Of VR Takers

DSP MAMC

Category GRAND Of TOTAL workers EDUCATIONAL QUALIFICATION EDUCATIONAL QUALIFICATION

Illiterate Just Up Secon- HS UG PG Technical Profe- Total Illiterate Just Up Secon- HS UG PG Technical Profe- Total Literate to dary ssional Literate to dary ssional

VIII VIII

Executive - - - - 02 09 05 12 05 33 - - - - 01 08 04 14 05 32 65

Skilled - - 01 03 02 07 02 17 02 34 - - 03 02 01 06 02 13 04 31 65

Unskilled 04 05 07 09 05 02 01 - - 33 07 07 06 08 04 04 - 01 - 37 70

TOTAL 04 05 08 12 09 18 08 29 07 100 07 07 09 08 06 18 06 28 09 100 200

59

not have pre-acquired skill, earned technical knowledge during their tenure in the

respective organizations. Among the workers, the section with technical education .

could manage promotional avenue within the organization. As a consequence the

percentage of skilled workers in different public sector units in Durgapur had been

found to be very high. It is evident from a study conducted in Durgapur industrial belt

that the percentage of skilled, semi-skilled and unskilled workers in different public

and private sector organizations had been 76.59, 14.17 and 9.24 respectively.5 Table

3 .9 also shows that the general level of education of VR takers is quite high as 83 and

77 percent of such persons in MAMC and DSP, respectively, have attained

educational qualification beyond the secondary level.

3.6.4 Caste Composition

Among the VR takers in both DSP and MAMC 73 percent belong to general

caste. This is due to the fact that employment in the organized sector in Durgapur

industrial area has largely favoured the general category candidates. These industries

did not follow the governmental strategy while appointing workers and employees.

Hence, persons belong to SC, ST and OBC categories did not get any preference in

those employment. Table 3.8, therefore, shows that 73 per cent of my total

respondents belong to general category and only 27 per cent belong to different

reserved categories.

Table 3.8 Caste-Specific Distribution Of VR Takers

CASTE General SC ST OBC

Organization Total

DSP 75 IO 03 12 100

MAMC 71 11 04 14 100

Total 146 21 07 26 200

60

It appears that factors like low level of general and technical education of

backward class people along with other reasons like absence of requisite network

necessary for such employment, managerial apathy towards reservation might also

have played some role In determining the pattern of PSU employment in India.

3.6.5 Religious Group

The respondents in both industries are mostly Hindu. Thus, Table 3.9 shows that

more than 88 per cent of my respondents are Hindu. This is due to the fact that

employment in both DSP and MAMC in particular and organized sector in Durgapur

in general have largely favoured the Hindu upper caste candidates. The upper caste

Hindus have gained prominence in public sector employment due to the factors

mentioned earlier.

Table 3.9

Religion-Specific Distribution Of VR Takers

RELIGION Organization Hindu Muslim Christian Jain Sikh Total

DSP 92 07 01 00 00 100

MAMC 85 08 04 01 02 100

Total 177 15 05 01 02 200

We now move on to discuss the social costs of VRS in DSP and MAMC

respectively in the next two chapters.

6I

Notes and References

I. Dutt and Sundaram (200I). Indian Economy. Sultan Chand Publishers, New

Delhi.

2. In DSP, the employees under executive category are classified into I 0 classes

from EO to E9 on the basis of pay scale and nature of job. The initial pay scale

of this category starts from Rs 8,600 - I4,600 and ends at Rs 23,750- 28,550.

3. In DSP, the workers are classified into IO categories, such as, SI, S2, .... SIO.

Unskilled workers consist of SI, S2 and S3 categories and skilled workers

consist of S4 to SI 0 categories.

4. Regarding voluntary retirement trade unions and other organizations lodged a

series of court cases. In I 985, when the Management decided to wind up the

company, the leaders of CITU-affiliated MAMC union lodged a case in the

Calcutta High Court. In I 998, MAMC Bachao Committee again lodged a case

in the Calcutta High Court for the proper implementation of Section 25(0)

under the Industrial Disputes Act. In 200I, another organization consisting of

retired employees of MAMC also lodged a case demanding undertaking of the

MAMC township by the Government of West Bengal.

5. R. Khasnobis and S. Banerjee (1996). "Political Economy of Voluntary

Retirement - Study of Rationalized Workers in Durgapur." Economic and

Political Weekly, December 28: L. 64-72.