India’s labour laws were intended to be friendly to employees, but they have ended up being anti-employment, says T. Damu, vice president of the Indian Hotels Company, who adds that a holistic approach based on ‘welfare economics’ is required to pave the road to reform

Labour reform in India, in the context of globalisation, is much desired, but also feared and misinterpreted. The issue has been a touchy one ever since the liberalisation era began under the Narasimha Rao government in the early 1990s. This is because of the enormity and uniqueness of the subject, and also due to the initial approach the government and industry adopted to address it.

In the hurry to reform and keep up with the globalisation trend set in motion by the General Agreement on Tariffs and Trade (now replaced by the World Trade Organisation), the immediate focus was on the retrenchment of ‘surplus workers’ and the closure of ‘sick’ public and private sector units. The knee-jerk reaction from the workforce and trade unions was to resist this move. Massive rallies were organised in protest, and the government was called a puppet in the hands of the developed countries.

This trend continues today, as seen in the response of the labour unions to recent government policies which follow the cut-the-flab, closing-shop philosophy without realising the significance of socio-economic factors in such an important exercise. So, whenever there is a talk about labour reforms, there is suspicion in the minds of the working class, a majority of which belongs to the socially and economically backward communities of India.

Labour reform is a very sensitive subject in the Indian context, given the ground realities of poverty, illiteracy, diseases, deprivation, exploitation, low per-capita income, etc. This means that whatever is taken up in the name of labour reforms, be it in the sphere of employment, welfare or human resources, needs careful handling. This should have started not as part of the second-generation reforms, but when initial economic reforms were undertaken. However, better late than never.

The Tatas were the pioneers in introducing a number of ‘firsts’ in the field of labour welfare. The group felt that unless a worker’s welfare needs were met, there would be no profits for industry and no progress for the nation. Well ahead of any Indian legislation on this front, several benefits — the eight-hour working day, free medical aid, provident fund, gratuity, leave with pay, maternity leave, accident compensation, etc — were incorporated by the Tatas into their workplace culture.

Reform positive
I mention these facts to emphasise the positive side of labour reforms that focus on social welfare, which is primarily the responsibility of industry. The Tatas are now considering labour reforms very carefully, with a view to ease the social burden of their employees and at the same time preserve the equilibrium of job security.

Indian industry is going through a crucial phase of restructuring as competition increases. Countries such as China, where labour is cheap and labour disputes comparatively fewer, are entering our markets. With high productivity and mass production, China is a good example for Indian labour to emulate in terms of costs and productivity.

Given the Indian track record of getting financial help from outside for development, the trade and economic policies of the government come under closer scrutiny from world bodies such as the International Monetary Fund, the Asian Development Bank and the WTO. Thus, it becomes inevitable for reforms of many kinds: economic and fiscal, market, law, and labour.

Dr Charles W. Baird, the director of the Smith Centre for Private Enterprise Studies at California State University, said recently: "India will have to opt for labour reforms and brave the pangs of change in the short-term in the interest of long-term economic sustainability." It is estimated that about 16 per cent of employees in the organised sector are actually redundant. How are we going to deal with this problem?

It is worth noting that labour reforms in India are discussed mostly in the context of organised labour, and this constitutes merely 8 per cent of the country’s total labour force. Are we concerned about only this sector? How about the majority of India’s workforce, which is in the unorganised sector?

Two-fold benefits
We must have proper labour reforms in both organised and unorganised sectors. There will be more industries coming up in our country, and it naturally follows that there will be more employment opportunities generated. Many multinational companies view India, sans its archaic and anachronistic labour laws, and to some extent its militant labour force, as an ideal place for economic activity. If prompt and correct measures are taken up with honesty and transparency, then both industry and the labour community will benefit.

Labour reform is not just about facilitating the closure of a sick industrial unit or about laying off employees. The core issues of labour reforms centre on a few major points: wage policy, employment security, labour redundancy, industrial relations, labour market information and human resources development. These issues can be solved by liberalising existing labour legislation, enacting a flexible exit policy, ‘rightsizing’, reforming trade unions, by continuously retraining and updating workforce skills, worker participation in management, and by good and clean corporate governance.

One of the major issues of labour reform in India has to do with repealing certain laws. Various countries, including Britain, New Zealand and the United States, have liberalised their labour legislation, but India remains hesitant about amending laws that are detrimental to economic growth. It is unfortunate that while labour laws in India were designed to be employee-friendly, they have ended up becoming anti-employment.

Government, industry, trade unions, industry associations, economists, sociologists, constitutional experts, intellectuals, institutes of management and social sciences, and the media, all of these should be involved in the labour reform process. A holistic and multi-disciplinary approach is required to solve the problems relating to labour reforms.

Unfortunately, the concerned parties in this issue are playing the blame game. Industry feels that the government is not doing enough, and the trade unions argue that the government is dancing to industry’s tune. The government, which is, sadly, a conglomeration of opportunistic political parties, ought to take bold and visionary decisions, but it is more concerned with vote banks and extending its grip on power.

Cooperation required
All three parties — government, industry and trade unions — are equally responsible when it comes to putting effective labour reforms in place. Let’s consider Tata Tea. This company has been undertaking a lot of welfare measures for its employees and their children, measures that are beyond the scope of any legal requirement. These activities are costing Tata Tea a lot, and at a time when the tea industry is passing through a serious crisis.

So the Tata Tea management requested its unions to cooperate with the company to increase productivity. This would have helped both the company and its workers, but the union leaders were not agreeable to the idea. Because of their adamant nature the company and its employees suffered. This sort of irrational and destructive approach is detrimental to India’s industry and economy. This kind of old-order trade unionism has to go.

Some suggestions to ease the path to labour reform.

• Two of the major impediments in bringing about desired labour reforms are the anti-labour stand in the management mindset, and labour prejudices. These must be researched and corrective action taken to smoothen the road to reform.
• Good and clean corporate governance is a vital necessity if labour reform is to happen.
• More and better attention has to be paid to human resource development.
• Industrial bodies have to take up worker education. The worker education models adopted by the Productivity Council of India, etc need a thorough revamping.
• There is tremendous labour potential in the rural sector. This has to be tapped by industry, with a renewed focus on unorganised labour.
• The media has been covering labour reforms and related issues for long. A media-relations strategy should be worked out to highlight issues relating to the subject.

While India is labour intensive, it also boasts top-notch intellectual capital. The country’s human talent and rich economic capital investment potential make it highly suited for industrial development. What is required is objectivity in understanding the problems at hand, strong political will, changes in the country’s legal system and labour market flexibility.

Neither an indifferent management approach nor trade union militancy is going to lead to labour reform. A positive and careful approach is required to bring about painless labour reform in this country, and the mainstay has to be ‘welfare economics’.

This is an edited version of the paper presented by Mr Damu at a seminar held in Kochi on May 21, 2002, under the aegis of the Associated Chambers of Commerce and Industry of India, New Delhi, in association with the Indian Chamber of Commerce and Industry and the National Institute of Personnel Management. The theme for the seminar was: ‘Labour reforms and the social safety net in the context of globalisation’

Uploaded in June 2002