Unions accuse companies of preferring underpaid contract labour on the shopfloor. The result: growing industrial unrest.
Major Strikes In India
- Jun ’09: Hyundai Motors, Chennai Strike over re-instating 67 dismissed workers.
- May ’10: Nestlé India, Pantnagar Strike over removal of some probationers for unsatisfactory performance.
- Jul ’10: Nokia India, Chennai Strike demanding hike in pay.
- Nov ’10: Allied Nippon, Ghaziabad AGM beaten to death at Ghaziabad over dismissal and pay issues.
- Sep ’08: Graziano Trasmissioni, Greater Noida Workers lynch CEO over dismissal of some workers.
- May ’09: Mahindra & Mahindra, Nashik 15-day strike by workers over suspension of their union president.
- Sep ’09: Pricol, Coimbatore HR manager attacked and killed following dismissal of 35 workers.
- Aug ’11: Maruti Suzuki, Manesar Strike over signing ‘good conduct bond’ by workers.
- Sep ’11: Bosch, Bangalore Strike over outsourcing manufacture of some products.
- Sep ’11: Voltas, Mumbai Strike against company’s recruitment policy and wages.
Note: The workers have restarted their strike on October 7, this time to protest non-implementation of terms agreed to earlier.
When Rajender Singh’s mother died last year, he could not attend her funeral. It wasn’t that he was somewhere far away—Singh (name changed on request) was at work at Maruti Suzuki’s Manesar plant, just 10-odd km from Gurgaon, where his mother stayed. But he had already clocked in three hours at work and leaving the shift midway would have meant a loss of Rs 2,000, a big sum for a family that had gone into debt to pay for the mother’s hospitalisation. This Rs 2,000 is not Singh’s daily wage. Of the Rs 18,000 monthly salary he gets as a permanent employee at Maruti, only Rs 9,000 is assured money. The rest is production performance reward (PPR), from which Rs 2,000 is deducted anytime he takes off (except Sundays) during the month—casual leaves exist on paper, but are seldom granted. Not really a reward, then—more like shackles.
And it’s not about just leave. “For almost 10 months last year, we were asked to work overtime to meet production targets. The moment we would finish 1 hour and 50 minutes of work, the siren would go off, indicating that the shift was over. Since we could never complete two hours at work, we were paid overtime allowance of only one hour,” says another shopfloor worker on condition of anonymity.
Among the terms negotiated in end-September to end the 33-day strike at Maruti’s Manesar plant was 16 days off every year for workers. Far less than the 46 days that white-collar workers at the plant are entitled to, but it’s a start. (It’s a different matter that the strike restarted on October 7, when the management apparently went back on its word on some issues.)
|Industrial unrest is on the rise in India. This year alone, there have been strikes and protests at Maruti Suzuki, Coal India, Bosch India, Air India, Comstar, Ceat Tyres, textile factories in Punjab and Volvo Buses.|
It’s not Maruti alone. Industrial unrest is on the rise in India (see graphic). Just this year, there have been strikes and protests at Coal India, Bosch India, Air India, Comstar, Ceat Tyres, textile factories in Punjab and Volvo Buses. The demands of the striking workers are almost interchangeable: better pay, higher bonuses, better working conditions, less forced overtime, regular time off and proper healthcare facilities. Doesn’t seem too much to ask, does it? But apparently, in Indian industry, it is.
To hear the trade unions tell it, the Indian growth story of the last decade has been riding on the backs of poor, exploited factory workers. According to Asia Floor Wage campaign, the minimum living wage in India is roughly Rs 7,967, but that’s almost twice the actual minimum wage, “showing that the minimum wage is far from a minimum living wage”. Factory workers believe that’s still too little and a more reasonable living wage would be between Rs 9,000 and Rs 15,000. But even as low wages are eroding the purchasing power of industrial workers, labour law enforcing agencies and collective bargaining seem to have been weakened. “To woo investors, the Central and state governments have given a free hand to industrialists,” says Dipankar Mukherjee, Secretary, Centre of Indian Trade Unions (Citu), and a former MP. Before investing in a state, he says, industries put up two conditions—tax exemptions and no trade unions.
|"Induction of contract labour without statutory benefits will only lead to increase in labour unrest." —Gurudas Dasgupta, MP and General Secretary of Aituc
||"The truth is that workers’ salaries have not kept pace with the growth of the company’s revenues." —Dipankar Mukherjee, Secretary, Citu
|"It is important to treat workers with respect. You have to consider them as partners in the business." —Venugopal Dhoot, Chairman, Videocon Group
||"The union has the support of 75% of the staff. With their cooperation, we have been working harmoniously." —R Sethuraman, Senior VP, Finance and Corporate Affairs, Hyundai India
|"The gap between blue-collar regular workers and contract workers is a very sensitive issue." —TV Mohandas Pai, Chairman, Manipal Universal Learning
||"India’s growth is relative to its industrial growth, which is dependent upon employer-employee relations." —Ashok Reddy, Managing Director, TeamLease
|Many labour laws were drafted a long time ago and have not been changed to reflect current needs. —Mahendra Jain, Director, E&Y India
||"Going on strike is not the agenda of any trade union—protection and benefit of workers is." —D Raja, CPI General Secretary
Contract vs Permanent Workers
In any case, trade unions would benefit only the permanent staff—and that’s an increasingly rare commodity on shopfloors. Existing laws make it difficult to fire permanent workers, besides which they have to be paid higher wages, given health and provident fund benefits and provided with formal leave structures. Hiring and firing contract workers is far easier. For the contract workers, though, it’s a double whammy—not only do they get paid far less with no job security, they’re usually recruited through employment agents who charge a hefty commission. “The gap between blue collar regular workers and contract workers is a very sensitive issue and a big challenge for India’s manufacturing sector,” says TV Mohandas Pai, Chairman of Manipal Universal Learning and former HR director at Infosys Technologies.
“Induction of contract labour without statutory benefits will only lead to increase in labour unrest and burst into militant action and protest,” warns Gurudas Dasgupta, MP and General Secretary of All India Trade Union Congress (Aituc).
The Other Half
Still, the practice is widespread, and about half the workforce across the auto industry, especially, is contract labour. Maruti’s Manesar plant employs around 2,500 people of whom close to half are contract workers who get paid substantially less than regular workers. Of Honda Motorcycle and Scooter India’s total workforce of over 6,000, just about 20% are permanent employees—and they get paid multiple times what contract employees doing the same work get. Global cellphone major Nokia employs 6,182 permanent workers at its plant while over 2,200 employees are on contract, says a report from Finnwatch, a research firm that monitors Finnish companies in developing countries. Worse still, Nokia does not have any policy to confirm contract workers as permanent workers, who are relatively higher paid at Rs 11,000 per month. Nokia pays Rs 4,400 per month to its contract workers while manufacturing major Flextronics pays Rs 4,130–5,500 per month, says the report. (Maruti Suzuki and Nokia did not respond to email queries.)
Similarly, Voltas, which faces labour disputes every few years, has a whopping 8,000 temporary workers and only 600 permanent workers. While contract workers are paid around Rs 7,000 per month, even permanent trainees earn upward of Rs 14,000 a month. According to All India Voltas Employees Federation General Secretary Ravi Nambiar, the company has been recruiting only temporary workers for 15 years now. “These contract workers work for a few months, are removed and then re-hired after a gap to ensure that they do not work long enough in one go to become eligible for permanent employment,” declares Nambiar. Union members have been on hunger strike since October 7, demanding that contract workers be made permanent. Those claims aren’t right, says Voltas in its defence. The 8,000 contract workers are posted in different countries across West Asia for specific projects. “They are paid as per pay scales prevailing in those countries,” says Voltas GM (Corporate Communication) BN Garudachar.
According to data from the Ministry of Labour & Employment’s Labour Bureau, wages per man day for all workers (permanent and contract) increased from Rs 149 per man day in 2000-01 to Rs 206 in 2007-08 (the latest year for which data is available), a cumulative growth of just 38% in seven years. During this period, the Ministry estimates, the cost of living for industrial workers increased by around 50%—that means just to maintain living standards, industrial wages should have increased to at least Rs 225 a day. “While profits of corporates have been increasing, wages have gone down in real terms, worsening the condition of workers,” says Aituc’s Dasgupta. The data also shows that companies’ contribution to provident fund has gone down from 10.75% in FY01 to 8.85% in FY10, showing reduced savings for workers; even welfare expenses reduced from 7.25% to 6.81% during the period.
|Trade unions benefit only the permanent staff—and that’s an increasingly rare commodity on shop floors.|
At Maruti, an apprentice’s salary remained fixed at Rs 4,200 February 2007. It was revised to Rs 6,200 in October 2011 after the latest round of unrest. Voltas’ Nambiar claims the company is yet to implement a five-year-old wage settlement. “So workers in 2011 are still drawing the same salaries of 2006,” he adds. The Voltas management, however, refutes that claim. “The company implemented the five-year wage agreement, which terminated in March 2010, and the wages of workmen has increased by a CAGR of 12% over the same period. Subsequently, we have been in talks with the Union to arrive at a new agreement,” says Garudachar.
Wages and salaries as a percentage of turnover has been going down steadily across India Inc. Part of that is because of increased mechanisation but surely that’s been more than offset by rapid increases in production capacity and output. Take the Maruti example again. The Manesar facility was inaugurated in February 2007 with an installed capacity of 100,000 units annually, which has rapidly increased to 550,000 units at present. Combined with the Gurgaon units, Maruti has a capacity of 1.25 million cars every year. Compare this with its wage and salary bill. Maruti’s employee cost was just 1.91% of its net sales in FY11 compared to 3.21% in FY02. During this period, sales have increased by five times to Rs 37,500 crore from Rs 7,500 crore while employee cost moved up from Rs 227 crore to just Rs 694 crore, implying that workers aren’t participating in the company’s prosperity. Directors’ compensation, however, jumped from Rs 1.65 crore to Rs 8.8 crore over the same period, keeping pace with the growth of the company (see graphic).
Similarly, in Hero Motocorp, employee cost is 2.7% of net sales in FY11 compared to 3.8% in FY02. The company’s sales moved up from Rs 4,542 crore in FY02 to Rs 19,711 crore in FY11 while employee cost increased only from Rs 168 crore to Rs 515 crore. On the other hand, director’s remuneration jumped from Rs 30 lakh to Rs 104 core. “This reduction in salary and wage bill cannot be only due to improved technology. The truth is that workers salaries have not kept pace with the growth of the company’s revenues,” says Citu’s Mukherjee.
Since wages are low, workers are increasingly turning to loans to meet big-ticket expenses and concede that their employers do go out of their way to facilitate loans. But after years of being oppressed by the management, it’s difficult to shake off the distrust. “The company becomes the guarantor and worker becomes a bonded labourer. These workers are then unable to leave the company, which exploits them even more,” claims a technician at the Maruti plant.
While contract labourers are denied by law the right to become members of trade unions, even permanent employees find it difficult to establish unions (which is a Constitutional right) in companies. Applications to state labour officers remain pending for years before being scrapped on one count or the other. “Workers who are seen trying to form a union are immediately dismissed from service,” Citu’s Mukherjee says.
Hyundai Motors refused to recognise a trade union (Hyundai Motors India Employees Union) at its Chennai factory when it was formed in 2007. It dismissed 65 workers, suspended over 30, cut the pay for more than 800 workers—and transferred the union office bearers to other plants. It finally recognised the non-affiliated United Union of Hyundai Employees (UUHE) only in May this year. Similarly, the Wonjin Autoparts Union struggled for recognition at the Chennai plant of the Korean auto component maker and a similar struggle at Italian auto company Graziano Trasmissioni’s Noida factory in 2008 ended violently with the death of the CEO.
|The adverse impact of industrial strife, especially in the auto industry, is already being felt, say companies.|
Voltas has taken an innovative way to neutralise the union. Apart from hiring contract workers, it has appointed 3,000 workers as management staff. “Of this, nearly 60% perform the jobs of workers but are paid higher, management staff salaries. They are, naturally, not part of the union,” says Nambiar.
Not allowing a union is bad for both the company and the worker. CPI General Secretary D Raja believes most companies fail to recognise the legitimate functions of a trade union. “Companies need to be willing to discuss issues with trade unions. Going on strike is not the agenda of any trade union—protection and benefit of workers is.” Bangalore-based senior corporate lawyer SN Murthy agrees, adding that “refusal to recognise trade unions has resulted in a large number of avoidable agitations and loss of production.” Maruti, for instance, refused to negotiate with the Maruti Suzuki Employees Association, given its association with the Communist Aituc, which has, doubtless, further aggravated the unrest at the factory.
Ashok Taneja, MD & CEO of Delhi-based auto component maker Shriram Pistons & Rings, agrees that throttling the union is no solution. “Industrial unrest is ultimately a management problem and not only a workers’ issue. Management should think of creative ways to handle labour issues and crises,” he adds. Companies that realise Taneja’s point of view have taken steps to check labour unrest and given due recognition to unions. Hyundai is a case in point. After a sit-in strike in June 2010 that resulted in two days or Rs 130-crore worth loss of production, it conceded to the workers’ demand for dissolving the works committee, which has no legal standing, in favour of a union. “This union enjoys the support of 75% of the employees. With their cooperation, we have been working harmoniously and managing all issues,” says R Sethuraman, Senior VP, Finance and Corporate Affairs, Hyundai India.
Indeed, most companies say they are willing to recognise trade unions as long as they don’t have political affiliations. Arvind Kapur, president of Auto Components Manufacturing Association (Acma), believes it is high time unions are de-politicised. “Unions should not be the platform for people’s political ambitions as it adversely impacts business,” he says.
Politics In Business
Industry is wary of political will for labour reforms, given the large electoral constituency the labour force occupies. “The biggest problem is that Parliament is silent on the issue of labour reform,” says lawyer Murthy. It doesn’t help that, often, there is a disconnect between the Centre and state on labour issues. “Many labour laws were made long ago and have not changed based on current needs,” says Mahendra Jain, Director E&Y India. What this has resulted in is increasing stalemate between the management and the workers in recent times.
“India’s economic growth is relative to its industrial growth, which, in turn, is dependent upon the relation between the employer and the employee,” says Ashok Reddy, MD of TeamLease. However, he says the existing labour laws that regulate this relationship are stuck in time and need to be changed. “They slow down growth and job creation,” he says. He says industry has been seeking changes in three issues: a proper social security mechanism, reforms in the Industrial Dispute Act, 1947 and the Contract Labour (Regulation & Abolition) Act, 1970.
One of the industry’s demands has been a ‘flexible hiring policy’ (read: hire and fire). But that requires support in the form of unemployment insurance or a social security system, which is sadly lacking in India. Raja says though states like Haryana provide unemployment insurance in a limited way (for graduates, for instance), at the national level the government is not committed to the idea. An unemployment allowance scheme under the Rajiv Gandhi Shramik Kalyan Yojana started in ’05 provides cover for six months if retrenched, factory closes or invalidity. But the employee should have subscribed to the scheme and to the Employees’ State Insurance Corporation for a minimum of five years prior to the job loss. Not many workers would be in that category. “Given this scenario, how can we accept the idea of ‘hire and fire’?” Raja asks.
Shriram Pistons’ Taneja says given the cyclical nature of some industries, companies need reasonable flexibility in hiring contract labour. “We don’t favour a hire and fire policy, but labour laws should allow companies to adjust workforce according to their needs,” he adds. That’s certainly not the case now under the Industrial Disputes Act, 1947. The killer clause is in Chapter 5B, which makes it mandatory for any industry employing more than 100 workers to seek permission from the government before lay-off, retrenchment and closure. Industry wants it to be mandatory only for companies employing more than 1,000 workers, or at least 500 workers. Trade unions fear that such an amendment could lead to widespread job cuts. Also, large companies may find it convenient to outsource work to smaller companies, which may lay-off workers at will. Another change sought is Section 9A of the 1947 Act, which says that any employer who plans any change in the conditions of service of a worker to give a notice of 21 days. Industry wants it to be reduced to one or two days.
The Way Out?
Even if labour unrest is really on the wane in India, the current levels are still too high for comfort. The adverse impact of industrial strife, especially in the auto industry, is already being felt, say companies. “In a conference call last week, many CEOs and investors expressed their concerns about industrial relations in India. They said they’d prefer China or Thailand over India for expansion,” says Acma’s Kapur.
So, what needs to be done? “Wages and benefits are just part of the package. It is important to treat workers with dignity and respect. You have to consider them as partners in the business,” says Videocon group Chairman Venugopal Dhoot, who spends some days every month on the shopfloor. (When Outlook Business spoke with him, he was having lunch with workers at his Salt Lake factory in Kolkata.)
Taneja suggests revising minimum wages upwards. “We also need a thoroughly new approach to allow some flexibility in hiring besides a good wage structure, which gives equal benefits to all workers. And companies should invest in training and improving or upgrading skill sets of its workers,” he says.
Some reform in the labour laws is urgently required. TeamLease’s Reddy suggests that the laws should focus on creation of employment and not just on protecting current employment in the organised sector. He also seeks modifications in the Apprentices Act of 1961, which controls training of apprentices in the industry, so that more people can earn while they learn.
It would also help if a safety net could be built into the system, says Manipal Universal Learning’s Pai. He suggests introducing “labour employment insurance” for workers who lose their jobs. The contribution towards this fund could be from the employer who could contribute, say, 5% of the employee’s salary. If the employee is laid off, the insurance would ensure he gets paid at least two-third of his previous salary every month for a particular period, say, one year, or until he gets another job. The government need not be involved in implementing this fund, which could be handed over to the Life Insurance Corporation of India. “Any unemployment scheme should provide some semblance of social security to the labour force. It’s vital to remove people’s fear of losing jobs,” says Pai.
Another much-needed change is in the compensation to retrenched workers. Under the Industrial Disputes Act, 1947, a laid-off worker is paid 15 days’ salary for every completed year of service. That’s too low, especially for older workers who will have families to support and financial commitments to meet. Murthy suggests an alternative formula of grading compensation based on the years of completed service: up to three years, 30 days of salary per year; 45 days’ salary for workers with between three and six years’ tenure; 60 days’ salary for those who have worked for over six years; and so on.
“The Contract Labour Act of 1970 should be abolished,” Murthy adds. A distinction should be made between core and non-core activities and contract labour banned for the former. “The large scale deployment of contract labour results in the working class losing its hard-won security of service,” he says.
Until government and companies wake up to address these challenges, strikes and lockouts will continue. Henry Ford said, “There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible.” That sounds like a win-win proposition to end workforce and corporate blues.