“LA BO UR REF OR MS- NEED A ND

IMPLI CATI ONS ”

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

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
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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.
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,
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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
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

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• “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.
• “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.
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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
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:

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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.

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.
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• 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.

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
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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
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?
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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?
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.

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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
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
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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
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
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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
workers are suffering and not extending co-operation to the industry/business.There
15
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.
HONDA CASE

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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
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.
17
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.
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.
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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

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

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 • 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.
• 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

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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.

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

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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.
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

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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.
• 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.

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 * 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.

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
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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.

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.

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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
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,

30
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.

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

33
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.

Bibliography:
• 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
Update, Issue No.46, January to March 2004.
• 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

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• 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
• To Legalize Exploitation, Frontline, Vol.20, Aug., 2003
• BBC News South Asia website
• Ministry of Labour website
• P.Arya, Labour Management Relation

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