Labour law reforms

The curse of cheap labour

Print edition : November 14, 2014

Activists of the All India Central Council of Trade Unions burning an effigy representing the Maruti management at a protest in New Delhi against the sacking of 500 employees of the company's plant at Manesar in Gurgaon, Haryana, in 2012. Photo: Shiv Kumar Pushpakar

At BEL's manufacturing facility for electronic voting machines in Bangalore. Once a premier manufacturer of electronics in the country, the company outsources work to more than 15,000 outside agencies. This is a means not only of reducing the overall wage bill but also of obtaining greater bargaining clout with the workers remaining on its rolls. Photo: V. SREENIVASA MURTHY

At an event showcasing projects for IT students organised by the CII in Chennai. Industry's refrain that the education system does not offer it "readymade" talent that is "employable" camouflages its intent of having a reserve army that could keep wage costs in check. Photo: N. Sridharan

A society that systematically shortchanges its workforce will have to pay dearly.

The chief purpose of labour “reforms” is to make labour cheap. Is that the road to salvation?

There is supreme irony in the invocation of the slogan shramev jayate—literally meaning the triumph of labour—to justify the Narendra Modi government’s assault on labour in the name of labour “reforms”. In reality, the combination of economic and social processes provoked by the state’s wilful acquiescence to the demands of the elites of all hues in the past three decades has already wrecked any semblance of a possibility of the dignity, let alone any hope of triumph, of labour.

The dramatic transformation of the terms of employment since the onset of liberalisation has not only rendered labour vulnerable but also explains the decline of the trade unions’ ability to engage in collective bargaining. The fundamental effect of these processes has been to reduce labour’s share in output, reflected in the decline in its share in the value addition it has helped create. “Make labour ever cheaper,” seems to be the guiding principle of those chanting the mantra of labour reforms. Is there salvation for a society that is hurtling on this road to perfidy?

The race to the bottom has been characterised by a few defining features. First, even the legal framework that is supposed to provide a modicum of protection to workers is fraying. For instance, the state’s unwillingness to use the provisions of the Industrial Disputes Act or the Contract Labour (Regulation and Abolition) Act to even the keel in favour of labour even during serious episodes of labour unrest has been a recurrent feature of the state’s conduct in this period. The role of the courts—those dealing specifically with labour and those of the higher judiciary—has also been a noteworthy feature of the process that has emboldened the severity of the assault on labour. The call for greater labour market “flexibility” and the dismantling of stifling “controls” on employers thus appears hollow. One only has to recall the role of governments in the State and at the Centre during the brutal assault on workers at Suzuki’s plant in Manesar, Haryana, in 2011-12 to illustrate this.

“Inspector Raj” myth

An aspect of the looking-the-other way attitude of the state is illustrated well in a recent study by K.R. Shyam Sundar ( Economic & Political Weekly, October 18, 2014) that found a precipitous decline in the rate at which labour inspectors inspected work establishments for compliance with labour legislation. The study found that the proportion of registered establishments “inspected” in the country declined from 63 per cent in 1986 to 18 per cent in 2008. So much for the oft-raised complaint by industry that it has suffered under the iron grip of the “Inspector Raj”.

In any case, the gathering pace of outsourcing and casualisation has put a large section of the labour force outside the purview of legislation governing labour. Over time, this has engulfed not only manufacturing activity but also spheres such as banking (not just private banks as is commonly assumed, but a range of activities in public sector banks) and other white collar jobs. This process has also invaded the public sector and the Railways, one of the biggest employers in the country. In banks, even in public sector banks, for instance, entire ranges of activities, such as cash management, for example, are now outsourced to private contractors.

The manufacturing sector, which is in the focus of the Modi government’s “Make in India” invitation to foreign capital, illustrates what is at stake for Indian labour. But first some data to put this in perspective. In 2009-10, according to data (cited in Economic & Political Weekly, June 28, 2014) from the Annual Survey of Industries, in factories employing more than 5,000 workers almost half the workers were employed through contractors and not directly by the establishments. Further, National Sample Survey data show that in 2011-12 about one-fourth of all workers in establishments employing between 100 and 5,000 workers were on contract. More than 80 per cent of all workers employed in the organised manufacturing sector had no written contracts or had contracts that were valid for less than a year.

The process of casualisation and contractualisation of the Indian labour force employed in the “organised” manufacturing sector, which is traditionally associated with regulated wages and provisions relating to safety, paid leave, maternity benefits, workplace safety, retirement provisions and other non-wage benefits, has broken down. Even if the non-wage aspects of the deteriorating terms of employment are ignored, workers have lost significantly. The study cited above shows that the share of wages in gross value-added in the organised manufacturing sector has declined significantly during the past decade. This statistic summarises the fact that workers’ wages are increasingly lagging the improvement in productivity they have given to their employers.


Outsourcing work away from the main production base and use of contractual forms of wage employment are the primary means by which employers whittle down the wage bill in organised manufacturing, says Prasanna Kumar, a general secretary of the Centre of Indian Trade Unions (CITU). As the president of a union at Bosch’s plant in Bangalore, he has been engaged in a month-long dispute with the company over how its workers ought to be compensated for productivity yields they deliver. “The absence of a standardised measure of labour productivity is a means of shortchanging workers,” he says.

In public sector undertakings such as Bharat Electronics Ltd (BEL), the surge in the outsourcing of work is also a means of obtaining greater bargaining clout with workers still remaining on its own rolls. About 20 years ago, BEL had a unionised workforce of more than 13,000; today that number is less than 2,000. Once a premier manufacturer of electronics in the country, especially for the defence sector, the company now outsources work to more than 15,000 outside agencies (vendors in business parlance). A BEL employee told Frontline: “Outsourcing has reached a point where there are now subcontracting systems present within BEL’s own premises. If this trend continues, BEL will no longer be a manufacturing entity.”

It would be a mistake to associate “cheap” labour with unsophisticated work or with just achieving lower labour costs at any cost, says Prasanna Kumar. “There are limits to what outsourcing can achieve,” he says. “Labour flexibility is the primary means that companies use to ensure that wage increases lag productivity advances.”

Drawing on his long experience of handling unions in manufacturing units in Karnataka, Prasanna Kumar notes that while outsourcing work is primarily used as a means of hiving off “non-core” work such as in the security service, canteen and housekeeping, flexibility in the manner in which companies engage with their workers has become far more critical. For example, in the automobile industry, where quality and delivery schedules are far more important metrics of performance than simply the overall wage bill, flexible forms of labour deployment is the primary means by which companies achieve their objective of maximising productivity. For instance, at Bosch’s Audugodi plant in Bangalore, on-job trainees, who perform the same tasks as other workers, can be deployed across shop floors depending on the seasonal flow of business, says Prasanna Kumar. “And, when business ebbs, they may be the first to lose their jobs,” he adds.

Typically, these workers enjoy “less secure” terms of employment, working in fixed-tenure employment, which was made possible by the Standing Orders issued a few years ago. This allows companies more freedom to deploy or even evict workers without attracting the provisions under Chapter V-B of the Industrial Disputes Act. The use of such “need-based” employment is a way of ensuring that productivity increases stay ahead of wage costs, implying greater profitability. Says Prasanna Kumar: “This ensures that wage costs stay in control, but far more important is the sword that hangs over workers’ heads even though they deliver greater productivity.”

Wage costs

Keeping wage costs in check in some absolute sense is not the main objective of those clamouring for labour reforms. Instead, the demand is aimed at ensuring that labour relations are kept so flexible as to ensure that one side in the game is allowed to corner a disproportionate share of the benefits that accrue from improved yields. Even when industry captains, such as those in the information technology business, have focussed on the education system, it has been through the narrow prism of ensuring the build-up of a reserve army of labour that would keep their wage costs in check. Their constant refrain that the education system does not offer them “readymade” talent that is “employable” camouflages their real intent of having a large reserve army that could keep wage costs in check.

From an overall economic perspective, the dramatic changes in the way labour engages with employers can only prove disastrous. After all, a society that systematically shortchanges its workforce will have to pay dearly. This is best illustrated by the demand that the National Rural Employment Guarantee Scheme, which has demonstrably resulted not only in higher incomes but also in improved bargaining capacity of rural workers, be curtailed or even scrapped. Lost in the din is the simple economic logic that such increases in income offer some hope for a more stable and viable path towards growth and development.

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