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Provisions in Indian Constitution related to Labour welfare:
Article 14 commands the State to treat any person equally before the law.
Article (19) (1) (c) grants citizens the right to form associations or unions.
Article 21 promises the protection of life and personal liberty.
Article 23 prohibits forced labour.
Article 24 prohibits the employment of children below the age of fourteen years.
Article 39
a) That there is equal pay for equal work for both men and women.
b) That the health and strength of workers, men and women, and the tender age of
children are not forced by economic necessity to enter avocations, unsuited to their age
or strength
Article 41 provides that within the limits of its economic capacity the State shall secure
for the Right to work and education.
Article 42 instructs State to make provisions for securing just and humane conditions
of work and for maternity relief.
Article 43 orders the State to secure a living wage, decent condition of work and social
and cultural opportunities to all workers through legislation or economic organization.
And
Article 43A provides for the participation of workers in the Management of Industries
through legislation.
Some more fundamental rights of labors are:
 The right to have safety equipment.

 Right to clean and healthy environment.
 The right to get maternity allowances and relief.
 The right to raise obligations on unnecessary deductions underpayment of wages
act.
 Right to incentives from employers in case of accidents and loss.
Some of the important labour enactments took place in post-independence era

were
 Factories Act – 1948

 Industrial Disputes Act – 1947

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 Employees State Insurance Act – 1948
 Employees Provident Fund Act – 1952
 Model Standing Orders Act – 1946
 Payment of Minimum Wages Act - 1948 30
 Payment of Bonus Act – 1965
 Payment of Gratuity Act – 1972
 Equal Remuneration Act – 1976
 Maternity Benefits Act 1961
Questions asked in UPSC EPFO ENFORCEMENT OFFICER EXAM 2017
Answer: (b)
Article 43A provides for the participation of workers in the Management of Industries
through legislation.

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Answer: (d)
Article 23 prohibits forced labour.
Answer: (a)
ESI Act 1948 details will be covered in the course.
Various Theories of Labour Welfare:

1. The Policing Theory of Labour Welfare:
The policing theory is based on assumption that Human Being is so much selfish and
always tries for own benefits whether on the cost of others welfare. Any of the
employers will not work for the welfare of employees until he is forced to do so. This
theory is based on the contention that a minimum standard of welfare is necessary for
workers.
The assumption on which the theory is based is the without compulsion, supervision
and fear of punishment, no employer will provide even the barest minimum of welfare
facilities for workers this theory is based on the assumption that man is selfish and self-
centered, and always tries to achieve his own ends, even at the cost of the welfare of
others. This is based on the contention that a minimum standard of welfare is necessary
for labourers. Here the assumption is that without policing, that is, without compulsion,
employers do not provide even the minimum facilities for workers.
According to this theory, owners and managers of industrial undertakings get many
opportunities for exploitation of labour. Hence, the state has to intervene to provide
minimum standard of welfare to the working class.

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2. The Religious Theory of Labour Welfare:
This is based on the concept that man is essentially “a religious animal.” Even today,
many acts of man are related to religious sentiments and beliefs. These religious feelings
sometimes prompt an employer to take up welfare activities in the expectation of future
emancipation either in this life or after it. The theory views were an essentially religious.
Religious feelings are what sometimes prompt employers to take up welfare activities in
the belief of benefits either in his life or in support after life.
Any good work is considered an investment, because both the benefactor and the
beneficiary are benefited by the good work done by the benefactor. This theory does not
take into consideration that the workers are not beneficiaries but rightful claimants to a
part of the gains derived by their labour.
3. The Philanthropic Theory of Labour Welfare:
Philanthropy is the inclination to do or practice of doing well to ones fellow men. Man is
basically self- centered and acts of these kinds stem from personal motivation, when
some employers take compassion on their fellowmen, they may undertake labor welfare
measures for their workers.
This theory is based on man’s love for mankind. Philanthropy means “Loving mankind.”
Man is believed to have an instinctive urge by which he strives to remove the suffering of
others and promote their well-being. In fact, the labour welfare movement began in the
early years of the industrial revolution with the support of philanthropists.
4. The Paternalistic or Trusteeship Theory of Labour Welfare:

In this theory it is held that the industrialists or employers hold the total industrial
estate, properties and profits accruing form them in trust for the workmen, for him, and
for society. It assumes that the workmen are like minors and are not able to look after
their own interests that they are ignorant because of lack of education. Employers
therefore have the moral responsibility to look after the interests of their wards, who are
the workers.
In other words, the employer should hold the industrial assets for himself, for the benefit
of his workers, and also for society. The main emphasis of this theory is that employers
should provide funds on an ongoing basis for the well-being of their employees.
5. The Placating Theory of Labour Welfare:

As labour groups are becoming better organized and are becoming demanding and
militant, being more conscious of their rights and privileges that even before, their
demand for higher wages and better standards increases. The placing theory advocates
timely and periodical acts of labour welfare to appease the workers.
This theory is based on the fact that the labour groups are becoming demanding and
militant and are more conscious of their rights and privileges than ever before. Their

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demand for higher wages and better standards of living cannot be ignored. According to
this theory, timely and periodical acts of labour welfare can appease the workers. They
are some kind of pacifiers which come with a friendly gesture.
6. The Public Relations Theory of Labour Welfare:

This theory provides the basis for an atmosphere of goodwill between labour and
management, and also between management and the public, labour welfare programmes
under this theory, work as a sort of an advertisement and help an organization to project
its good image and build up and promote good and healthy public relations.
The labour welfare movements may be utilized to improve relations between
management and labour. An advertisement or an exhibition of a labour welfare
programme may help the management projects a good image of the company.
7. The Functional Theory of Labour Welfare:

The concept behind this theory is that a happy and healthy person is a better, more
productive worker. Here, welfare is used as a means to secure, preserve and develop the
efficiency and productivity of labour. The approach to any solutions, especially as that as
between the workers and the management should be dialogue and an understanding of
one another’s viewpoint. Once agreement has been reached, compliance by both parties
can be assured to a very great extent. This also called the efficiency theory.
This theory is a reflection of contemporary support for labour welfare. It can work well if
both the parties have an identical aim in view; that is, higher production through better
welfare. This will encourage labour’s participation in welfare programmes.
Answer: (b)

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The policing theory is based on assumption that Human Being is so much selfish and
always tries for own benefits whether on the cost of others welfare. Any of the
employers will not work for the welfare of employees until he is forced to do so. This
theory is based on the contention that a minimum standard of welfare is necessary for
workers.
Classification of Trade Unions: Another basis on which labour agreements are sometimes
distinguished is on basis of the type of agreement involved, based on the degree to which
membership in the union is a condition of employment. These are:
a. Closed Shop: Where management and union agree that the union would have sole
responsibility and authority for the recruitment of workers, it is called a Closed Shop agreement.
The worker joins the union to become an employee of the shop. The Taft-Hartley Act of 1947
bans closed shop agreements in the USA, although they still exist in the construction and
printing trades. Sometimes, the closed shop is also called the ‘Hiring Hall.’
b. Union Shop: Where there is an agreement that all new recruits must join the union within a
fixed period after employment it is called a union shop. In the USA where some states are
declared to be ‘right-to-work’.
c. Preferential Shop: When a Union member is given preference in filling a vacancy, such an
agreement is called Preferential Shop.
d. Maintenance Shop: In this type of arrangement no compulsory membership in the union

before or after recruitment exists. However, if the employee chooses to become a member after
recruitment, his membership remains compulsory right throughout his tenure of employment
with that particular employer. This is called a maintenance of membership shop or maintenance
shop.
e. Agency Shop: In terms of the agreement between management and the union a non union
member has to pay the union a sum equivalent to a member’s subscription in order to continue
employment with the employer. This is called an agency shop.
f. Open Shop: Membership in a union is in no way compulsory or obligatory either before or

after recruitment. In such organisations, sometimes there is no union at all. This is least
desirable form for unions. This is referred to as an open shop.

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Answer: (c)
Open Shop: Membership in a union is in no way compulsory or obligatory either before or after
recruitment. In such organisations, sometimes there is no union at all. This is least desirable
form for unions. This is referred to as an open shop.
Industrial Relations The Term ―Industrial Relations‖ commonly denotes ―employee –

employee relations‖, in both organized and unorganized sectors of the economy.
Industrial Relations (also known as labour – management relations or labour relations)
will be treated here as the study of employee – employer relationship and the outcome of
such relationship.
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.
The term ‘industrial relations’ has been variously defined. J.T. Dunlop defines
industrial relations as “the complex interrelations among managers, workers and
agencies of the governments”.
According to Dale Yoder “industrial relations is the process of management dealing

with one or more unions with a view to negotiate and subsequently administer
collective bargaining agreement or labour contract”.
Industrial Relation is a relation between employer and employees, employees and
employees and employees and trade unions. – (Industrial dispute Act 1947).
Accordingly to the ILO “industrial relations deal with either relationships
between the state and the employers and the workers’ organizations or the relations
between the occupational organizations themselves”. The ILO uses the expression
to denote such matters as freedom of association and the protection of the right to
organize, the application of the principles of the right to organize the right to the
collective bargaining, collective agreements, conciliations and arbitration and
machinery for corporation between the authorities and the occupational
organization at the various levels of the economy”.

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The HR Employee Relations Manager directs the organization's employee relations
function. They develop employee relations policies and ensure consistent application of
company policies and procedures. In addition, they are responsible for employee dispute
resolution procedures, performing internal audits, and taking appropriate action to
correct any employee relations issues.
Features of Industrial Relations:

 Industrial Relation do not emerge in vacuum they are born of employment
relationship in an industrial setting. Without the existence of the two parties, i.e.,
labour and management, this relationship cannot exist.
 It provides the environment for industrial relations.
 Industrial Relation are characterized by both conflict and co-operations.
 The focus of Industrial Relations in on the study of the attitudes, relationships,
practices and procedure developed by the contending parties to resolve or at least
minimize conflicts
Objectives of industrial relations system are:
1. To safeguard the interest of labour and management by securing the highest level
of mutual understanding and good-will among all those sections in the industry
which participate in the process of production.
2. To avoid industrial conflict or strife and develop harmonious relations, which are
an essential factor in the productivity of workers and the industrial progress of a
country.
3. To raise productivity to a higher level in an era of full employment by lessening the
tendency to high turnover and frequency absenteeism.
4. To establish and promote the growth of an industrial democracy based on labour
partnership in the sharing of profits and of managerial decisions, so that ban
individuals personality may grow its full stature for the benefit of the industry and
of the country as well.
5. To eliminate or minimize the number of strikes, lockouts and gheraos by providing
reasonable wages, improved living and working conditions, said fringe benefits.
6. To improve the economic conditions of workers in the existing state of industrial
managements and political government.
7. Socialization of industries by making the state itself a major employer
8. Vesting of a proprietary interest of the workers in the industries in which they are
employed.
Scope of industrial relations

 Protecting the interest of the employees
 Providing reasonable wages to employees
 Providing safe and hygienic working conditions
 Providing social security measures
 Maintaining strong Trade Unions
 Collective bargaining
The main aspects of Industrial Relations are:-

 Labour Relations, i.e. relations between union and management
 Employer-employees relations, i.e. relations between management and employees
 Group relations, i.e. relations between various groups of workmen
 Community or Public relations, i.e. relations between industry and society.

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 Promotions and development of healthy labor-managements relations.
 Maintenance of industrial peace and avoidance of industrial strife
 Development of true industrial Democracy
Importance of industrial relation:
 Uninterrupted Production
 To ensure continuity of production.
 Continuous employment for all from manager to workers
 The resources are fully utilized, resulting in the maximum possible
production.
 There is uninterrupted flow of income for all.
 Reduction in Industrial Disputes: Good industrial relation reduces the industrial

disputes. Disputes are reflections of the failure of basic human urges or
motivations to secure adequate satisfaction or expression which are fully cured by
good industrial relations.
 High morale: Good industrial relations improve the morale of the employees.
Employees work with great zeal with the feeling in mind that the interest of
employer and employees is one and the same, i.e. to increase production.
 Mental Revolution: The main object of industrial relation is a complete mental

revolution of workers and employees. The industrial peace lies ultimately in a
transformed outlook on the part of both. It is the business of leadership in the
ranks of workers, employees and Government to work out a new relationship in
consonance with a spirit of true democracy.
 New Programmes: New programmes for workers development are introduced in

an atmosphere of peace such as training facilities, labour welfare facilities etc. It
increases the efficiency of workers resulting in higher and better production at
lower costs.
 Reduced Wastage: Good industrial relations are maintained on the basis of

cooperation and recognition of each other. It will help increase production.
Wastages of man, material and machines are reduced to the minimum and thus
national interest is protected.
Causes & Effects of Poor Industrial Relations:
The following are main causes of poor industrial relations:
 Mental inertia on the part of management and labour;
 An intolerant attitude of contempt of contempt towards the workers on the part of

management.
 Inadequate fixation of wage or wage structure;
 Unhealthy working conditions;

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 Indiscipline;
 Lack of human relations skill on the part of supervisors and other managers;
 Desire on the part of the workers for higher bonus or DA and the corresponding
desire of the employers to give as little as possible;
 Inappropriate introduction of automation without providing the right climate;
 Unduly heavy workloads;
 Inadequate welfare facilities;
 Dispute on sharing the gains of productivity;
 Unfair labour practices, like victimization and undue dismissal;
 Retrenchment, dismissals and lock-outs on the part of management and strikes

on the part of the workers;
 Inter-union rivalries; and
 General economic and political environment, such as rising prices, strikes by

others, and general indiscipline having their effect on the employees’ attitudes.
Effects of poor industrial relations can be expressed as under:
 Effect on Workers:
(i) Loss of wages,

(ii) Physical injury or death on account of violence during labour unrest,
(iii) Excesses by employers,
(iv) Economic losses,
(v) Bitterness in relations,
(vi) Adverse affect on career.
 Effect on Employers / Industrialists:
(i) Less production,

(ii) Less Profit,
(iii) Bad affect on organisation,
(iv) Bad effect on human relations,
(v) Damage to machines and equipment,
(vi) Adverse effect on development of companies,
(vii) Burden of fixed expenses.
 Effect on Government:
(i) Loss of revenue (less recovery of income tax. sales tax, etc.)
(ii) Lack of order in society,
(iii) Blame by different parties.
 Effect on Consumers:

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(i) Rise in prices,
(ii) Scarcity of goods,
(iii) Bad affect on quality of goods.
 Other Effects:
(i) Adverse affect on International Trade (Fall in exports and rise in imports),
(ii) Hindrance in Economic Development of the country,
(iii) Uncertainty in economy.
Functional Requirements of a Successful industrial Relations Programme: The

basic requirements on which a successful industrial relations programme is based are:-
1. Top Management Support
2. Sound Personnel Policies
3. Adequate Practices should be developed by professionals
4. Detailed Supervisory Training
5. Follow-up of Results.
Theoretical perspectives: Industrial relations scholars have described three major

theoretical perspectives or frameworks, that contrast in their understanding and
analysis of workplace relations. The three views are generally known as unitarism,
pluralist and radical. Each offers a particular perception of workplace relations and will
therefore interpret such events as workplace conflict, the role of unions and job
regulation differently. The radical perspective is sometimes referred to as the "conflict
model", although this is somewhat ambiguous, as pluralism also tends to see conflict as
inherent in workplaces. Radical theories are strongly identified with Marxist theories.
 Unitarist perspective
The unitary approach is based on the notion that all the members of the
organization Viz. Managers, workers, and other staff have a common set of
objectives, purposes and interests and, therefore, work in unison towards the
accomplishment of shared goals. Here, the conflict is seen as a temporary
divergence which is caused due to the poor management or the negligence on the
part of the employees to understand and mix with the organizational culture.
The unitary approach is based on the assumption that the overall profitability of
the firm could be increased if everyone in the organization has the common
interest/purpose and works unanimously towards its completion thereby
establishing the harmonious relations. Here the strikes are considered as
destructive
 Pluralist perspective:
The pluralistic approach is just the opposite of unitary approach which is based
on the assumption that an organization is an alliance of powerful and divergent
sub-groups (management and trade unions), having different competing interests
are mediated by the management. The management and the trade unions
(association of workers) are the powerful sub-groups that may not agree with
certain terms and conditions prevailing in the organization and to resolve those
management tries to mediate the interest of both the groups.
During mediation, if the management pays less attention to the needs of the
workers then they form unions in order to protect their interest and influence the
management decision. The unions so formed helps in balancing the power
between the management and employees. Thus, it is based on the notion that the

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conflict between the management and the employees is inevitable and is viewed as
instrumental in the innovation and growth.
 Radical or critical perspective:
The Marxist approach is based on the basic assumption that the conflict is
regarded as the product of a capitalist society. This means that conflict arises not
just because of the rift between the employee and the employer, but also because
of the division in the society between those who owns the means of production
(capitalists) and the ones who have only labor to offer. The ultimate objective of the
capitalists is to increase the productivity by paying possible minimum wages to
the workers due to which the latter feels exploited.
To overcome such situation workers form unions so as to safeguard their
interests. These trade unions are considered as a weapon to bring about a
revolutionary social change that focuses on improving the overall position of the
workers in the capitalist system and not to overthrow. Unlike the pluralist
approach, the Marxist believes that the state intervention via legislation and
industrial tribunals work in the interest of the management and do not ensure a
balance between the competing groups.
Answer: (a)
The pluralistic perspective:
During mediation, if the management pays less attention to the needs of the workers
then they form unions in order to protect their interest and influence the management
decision. The unions so formed helps in balancing the power between the management
and employees.
Important Approaches to Industrial Relations:

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Prof. John T. Dunlop – Systems Approach in “Industrial Relations Systems” 1958:

Dunlop defines an industrial relations system in the following way – An industrial
relations system at any one time in its development is regarded as comprised of certain
actors, certain contexts, an ideology, which binds the industrial relations system
together, and a body of rules created to govern the actors at the workplace and work
community. There are three sets of independent variables – the ‘actors’, the ‘contexts’
and the ‘ideology’ of the system.
The actors are –

(a) hierarchy of managers and their representatives in supervision,
(b) a hierarchy of workers (non-managerial) and any spokesmen, and
(c) specialised governmental agencies (and specialised private agencies created by the
first two actors) concerned with workers, enterprises, and their relationships. The
contexts are the environment in which the actors are interacting with each other at
various levels and the ideology is their philosophy of industrial relations.
The rules in the system are classified into two categories:

 Substantive rules
 Procedural rules
The substantive rules determine the conditions under which people are employed. Such
rules are normally derived from the implied terms and conditions of employment,
legislations, agreements, practices and managerial policies and directives.
The procedural rules govern how substantive rules are to be made and understood.
Ultimately, the introduction of new rules and regulations and revisions of the existing
rules for improving the industrial relations are the major outputs of the industrial
relations system. These may be substantive rules as well as procedural rules." The
context in the system approach refers to the environment of the system which is
normally determined by the technological nature of the organization, the financial and
other constraints that restrict the actors of industrial relations, and the nature of power
sharing in the macro environment, namely, the society.
Flanders – the Oxford Approach:

According to this approach, the industrial relations system is a study of institutions of
job regulations and the stress is on the substantive and procedural rules as in Dunlop’s
model.

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Flanders, the exponent of this approach, considers every business enterprise a social
system of production and distribution, which has a structured pattern of relationships.
The “institution of job regulation” is categorised by him as internal and external – the
former being an internal part of the industrial relations system such as code of work
rules, wage structure, internal procedure of joint consultation, and grievance procedure.
He views trade unions as an external organisation and excludes collective agreements

from the sphere of internal regulation. According to him, collective bargaining is central
to the industrial relations system.
The “Oxford Approach” can be expressed in the form of an equation – r = f (b) or r = f (c)
where, r = the rules governing industrial relations
b = collective bargaining
c = conflict resolved through collective bargaining.
The “Oxford Approach” can be criticised on the ground that it is too narrow to provide a
comprehensive framework for analysing industrial relations problems.
It over emphasises the significance of the political process of collective bargaining in and
gives insufficient weight to the role of the deeper influences in the determination of rules.
Institutional and power factors are viewed as of paramount importance, while variables
such as technology, market, status of the parties, and ideology, are not given any
prominence.
Margerison – the Industrial Sociology Approach:

G. Margerison, an industrial sociologist, holds the view that the core of industrial
relations is the nature and development of the conflict itself.
According to this school of thought, there are two major conceptual levels of industrial
relations.
One is the intra plant level where situational factors, such as job content, work task
and technology, and interaction factors produce three types of conflict – distributive,
structural, and human relations. These conflicts are being resolved through collective
bargaining, structural analysis of the socio-technical systems and man-management
analysis respectively.
The second level is outside the firm and, in the main, concerns with the conflict not
resolved at the intra-organisational level. However, this approach rejects the special
emphasis given to rule determination by the “Systems and Oxford models”. In its place,

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it suggests a method of inquiry, which attempts to develop sociological models of
conflicts.
Henry Sanders – the Action Theory Approach:
Like the systems model, the action theory approach takes the collective regulation of
industrial labour as its focal point. The actors operate within a framework, which can at
best be described as a coalition relationship.
The actors, it is claimed, agree in principle to cooperate in the resolution of the conflict,
their cooperation taking the form of bargaining. Thus, the action theory analysis of
industrial relations focuses primarily on bargaining as a mechanism for the resolution of
conflicts.
Max Weber – the Social Action Approach:

The social action approach of Weber has laid considerable importance to the question of
control in the context of increasing rationalisation and bureaucratization.
Closely related to Weber’s concern related to control in organisations was his concern
with “power of control and dispersal”. Thus, a trade union in the Weber’s scheme of
things has both economic purposes as well as the goal of involvement in political and
power struggles.
Some of the major orientations in the Weberian approach have been to analyse the
impact of techno-economic and politico-organisational changes on trade union structure
and processes, to analyse the subjective interpretation of workers’ approaches to trade
unionism and finally to analyse the power of various components of the industrial
relations environment – government, employers, trade unions and political parties.
Thus, the Weberian approach gives the theoretical and operational importance to
“control” as well as to the power struggle to control work organisations – a power
struggle in which all the actors in the industrial relations drama are caught up.
lton Mayo with Roethlisberger, Whitehead, W. F. Whyte and Homans – the Human
Relations Approach:
In the words of Keith Davies, human relations are “the integration of people into a work
situation that motivates them to work together productively, cooperatively and with
economic, psychological and social satisfactions.”
According to him, the goals of human relations are –

(a) to get people to produce,
(b) to cooperate through mutuality of interest, and

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(c) to gain satisfaction from their relationships.
The human relations school founded by Elton Mayo and later propagated by
Roethlisberger, Whitehead, W. F. Whyte and Homans offers a coherent view of the nature
of industrial conflict and harmony.
The human relations approach highlights certain policies and techniques to improve
employee morale, efficiency and job satisfaction. It encourages the small work group to
exercise considerable control over its environment and in the process helps to remove a
major irritant in labour-management relations. But there was reaction against the
excessive claims of this school of thought in the sixties.
M K Gandhi – The Gandhian Approach:
Gandhiji can be called one of the greatest labour leaders of modern India. His approach
to labour problems was completely new and refreshingly human. He held definite views
regarding fixation and regulation of wages, organisation and functions of trade unions,
necessity and desirability of collective bargaining, use and abuse of strikes, labour
indiscipline, and workers participation in management, conditions of work and living,
and duties of workers.
The Ahmedabad Textile Labour Association, a unique and successful experiment in

Gandhian trade unionism, implemented many of his ideas.
Gandhiji laid down certain conditions for a successful strike. These are –
(a) the cause of the strike must be just and there should be no strike without a
grievance;
(b) there should be no violence; and
(c) non-strikers or “blacklegs” should never be molested.
He was not against strikes but pleaded that they should be the last weapon in the
armoury of industrial workers and hence, should not be resorted to unless all peaceful
and constitutional methods of negotiations, conciliation and arbitration are exhausted.
His concept of trusteeship is a significant contribution in the sphere of industrial
relations.
According to him, employers should not regard themselves as sole owners of mills and
factories of which they may be the legal owners. They should regard themselves only as
trustees, or co-owners. He also appealed to the workers to behave as trustees, not to
regard the mill and machinery as belonging to the exploiting agents but to regard them
as their own, protect them and put to the best use they can.

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In short, the theory of trusteeship is based on the view that all forms of property and
human accomplishments are gifts of nature and as such, they belong not to any one
individual but to society. Thus, the trusteeship system is totally different from other
contemporary labour relations systems. It aimed at achieving economic equality and the
material advancement of the “have-nots” in a capitalist society by non-violent means.
Gandhiji realised that relations between labour and management can either be a
powerful stimulus to economic and social progress or an important factor in economic
and social stagnation. According to him, industrial peace was an essential condition not
only for the growth and development of the industry itself, but also in a great measure,
for the improvement in the conditions of work and wages.
At the same time, he not only endorsed the workers’ right to adopt the method of
collective bargaining but also actively supported it. He advocated voluntary arbitration
and mutual settlement of disputes.
He also pleaded for perfect understanding between capital and labour, mutual respect,
recognition of equality, and strong labour organisation as the essential factors for happy
and constructive industrial relations. For him, means and ends are equally important.
Human Resource Management Approach: The term, human resource management

(HRM) has become increasingly used in the literature of personnel/industrial relations.
The term has been applied to a diverse range of management strategies and, indeed,
sometimes used simply as a more modern, and therefore more acceptable, term for
personnel or industrial relations management.
Some of the components of human resource management are –

(a) human resource organisation;
(b) human resource planning;
(c) human resource systems;
(d) human resource development;
(e) human resource relationships;
(f) human resource utilisation;
(g) human resource accounting; and
(h) human resource audit.
This approach emphasises individualism and the direct relationship between

management and its employees. Therefore, it questions the collective regulation basis of
traditional industrial relations.

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Psychological approach: The problems of IR have their origin in the perceptions of the
management, unions and the workers.
The conflicts between labour and management occur because every group negatively
perceives the behaviour of the other i.e. even the honest intention of the other party so
looked at with suspicion.
The problem is further aggravated by various factors like the income, level of education,
communication, values, beliefs, customs, goals of persons and groups, prestige, power,
status, recognition, security etc are host factors both economic and non-economic which
influence perceptions unions and management towards each other. Industrial peace is a
result mainly of proper attitudes and perception of the two parties.
Sociological approach: Industry is a social world in miniature. The management goals,

workers’ attitudes, perception of change in industry, are all, in turn, decided by broad
social factors like the culture of the institutions, customs, structural changes, status-
symbols, rationality, acceptance or resistance to change, tolerance etc. Industry is, thus
inseparable from the society in which it functions.
Through the main function of an industry is economic, its social consequences are also
important such as urbanization, social mobility, housing and transport problem in
industrial areas, disintegration of family structure, stress and strain, etc.
As industries develop, a new industrial-cum-social pattern emerges, which provides

general new relationships, institutions and behavioural pattern and new techniques of
handling human resources. These do influence the development of industrial relations.
Theories of Industrial Relations:

 Systems Theory The formation key inputs of this theory given by Dunlop. It has
pluralist frame of reference. This theory focuses on a general theory of industrial
relations. This theory serves the reference to industrial relations as that of Explicit
Theory which is industrial relations sub-system of wider society with four
elements as actors which includes employers, employees, their representatives,
government agencies; environmental contexts such as technology, market,
budgets, distribution of power; procedural and substantive rules governing the
actors ; and binding ideology, common beliefs encouraging actors to compromise.
 Labour Process Theory The formation key inputs of this theory given by
Braverman. It has Marxist frame of reference. This theory focuses on labor’s
relationship with industrial processes. This theory serves the reference to
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industrial relations as of Implicit Theory where improved technology and scientific
management techniques are de-skilling work, fragmenting tasks, centralizing
knowledge in management, diminishing workers control of pace and conduct of
work. The implications of this theory results in as labor is increasingly alienated
and exploited, leading to resistance by organized and unorganized industrial
conflict.
 Strategic Choice Theory The key inputs of this theory are given by Kochan, Katz
and McKersie. It has pluralist frame of reference. This theory focuses on a general
theory of industrial relations. This theory serves the reference to industrial
relations as of Explicit Theory which emphasizes the strategic choice of actors in
deciding industrial relations outcomes, as influenced by declining union
membership, breakdown of collective bargaining frameworks, retreating
government intervention, proactive human resource management techniques, and
spread of organizational authority for industrial relations.
 Scientific Management Theory The key inputs are given by Taylor. It has
unitarist frame of reference. This theory focuses on use and control of labor. It
serves the reference to industrial relations as of Implicit Theory where system of
management maximizing output by greatest technical efficiency of work methods,
achieved by, unchallenged management powers to allocate work tasks, managers
relationship with employees is rational and objective, managers treat workers
impersonally and collectively, work tasks reduced to basic s for low-skilled, low-
paid employees in assembly line production, employees are chosen to suits the
tasks to be performed, employees given training in best work methods, and
employees motivated by incentive payment schemes.
 Regulation Theory The key inputs provided by Stigler and Friedland It has
pluralist frame of reference. This theory focuses on state intervention in industrial
relations. It serves there reference to industrial relations as of Explicit Theory
which correlates with capture theory and bargaining theory.
 Labour Market Theory The key proponent to this theory is Friedman. It has
unitarist frame of reference. This theory focuses on the settlement of wages,
employment and the allocation of work. It serves the reference to industrial
relations as of Explicit Theory where people are rational economic maximizes;
perfectly competitive labor and product markets yield most efficient economic
outcomes.

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SOCIAL SECURITY: Social security may provide for the welfare of persons who become
incapable of working by reason of old age, sickness and invalidity and or unable to earn
anything for their livelihood
It is necessary to analyze various definition of social security in order to appreciate the

nature and concept of social security.
Definition by Sir William Beveridge

In 1942, Sir William Beveridge headed a committee that reviewed the national schemes
of social insurance in Great Britain during the post war period. In his report he defines
social security as follows: “The security of an income to take place of the earnings when
they are interrupted by unemployment by sickness or accident to provide for retirement
through age, to provide against the loss of support by the death of another person and
meet exceptional expenditure, such as those connected with birth, death and marriage.
The Beveridge report argued that there were ‘five giants’ that were stalking the land and
that should be tackled. They are want, disease, ignorance, squalor and idleness.
Definitions by ILO
A systematic attempt was made by ILO in defining social security. ILO defines
social security as follows: “The security that society furnishes, through appropriate
organisation, against certain risks, to which its members are exposed. These risks are
essentially contingencies against which the individuals of small means cannot effectively
provide by his, own ability or foresight alone or even in private combination with
fellows”.
These risks are being sickness, maternity, invalidity, old age and death. It is the
characteristics of these contingencies that they imperil the ability of the working man to
support himself and his dependents in health and decency.
Answer: (a)

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THE MATERNITY BENEFIT ACT, 1961

ORIGIN AND DEVELOPMENT
The Convention of "Protection of Motherhood" adopted in 1919 was the earliest
among the ILO Conventions. Upon this the Government of India consulted the provincial
Governments and employers etc. and submitted a report to the International Labour
conference held in 1921.
However, the provincial Governments continued to persuade the employers to take

unilateral decision for the adoption of the ILO Conventions. In the meanwhile, A private
member Mr. N.M. Joshi (Mr. N. M. Joshi was a Trade Union Leader and general
secretary to the All India Trade Union Congress. He Was instrumental in getting the
Trade Unions Act, 1926 passed.), who had attended as worker’s delegate the
International Labour Conference at which the Maternity Protection Convention was
adopted, introduced a Maternity Bill in the Central Legislature. The Bill seeks to make
statutory provisions for maternity benefit for women employed in factories and mines,
and paying them cash benefits during confinement. The Bill could not be passed
because of lack of public support, impossibility of supervising the scheme, low
availability of women doctors and because of migratory character of women workers
There was also a feeling that the passing of the legislation would harm the employment
prospects of women.
Bombay Maternity Benefit Act, 1929: This was the first maternity benefit
legislation in India. Despite the negative attitude of the Central Government, the state
Governments considered the feasibility of maternity benefit legislations.
1. Every woman worker who has worked for nine months in a factory is entitled to
maternity benefit on the production of a medical certificate.
2. Leave for 4 weeks for allowed.
3. Remuneration was given during the leave of the employee.
4.
Another milestone in the field of maternity benefit was reached with the appointment of
the Royal Commission on Labour in 1929. The Commission was chaired by John Henry
Whitley. The commission submitted its report in 1931. The Commission, interalia,
recommended that maternity benefit legislation on the lines of Bombay Maternity Benefit
Act, 1929 should be enacted in other provinces. The commission also recommended that
the maternity benefit should be non-contributory and in line with the recommendations
a number of provinces passed their own maternity benefit legislations. Madras and
Ajmer passed this legislation in 1934, Delhi in 1937, U.P. in 1938, Bengal and Sind in
1939, Hyderabad in 1942, Punjab in 1943, Assam in 1944 and Bihar in 1945. In Bihar
the Maternity Benefit Act, was re-enacted in 1947 with certain changes.
The first central enactment in the sphere was the Mines Maternity
Benefit Act, 1941. This Act was of a very limited application as it was applicable only in
mines. The Report by the Bhore Committee (Report of the Health Survey and
Development Committee (1946). pointed out to the inadequate availability of crèche

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facilities in several industries and poor implementation of Maternity Benefit provisions
by various Union Provinces of pre independent India.
By far the most important development that took place was that a
new Central legislation on maternity benefit, the Maternity Benefit Act, 1961 was
enacted. The Maternity Benefit Act, 1961 was enacted keeping in view all the pre-
constitution legislations and the revised ILO Maternity Protection Convention, 1952.
International labor law (ILO) and Maternity benefits act

It was during the first International Labour Conference (ILC) in 1919 that the first
Convention on Maternity protection (Convention No. 3) was adopted. This Convention
was followed by two other conventions: Convention No. 103 in 1952 and Convention
No.183 in 2000.
1. Convention No. 3
1) No woman should be permitted to work in any industrial or commercial
undertaking for a period of six weeks after in any confinement, and that
she should be entitled to leave work during the six weeks before her
confinement, on production of a suitable medical certificate.
2) During any such period of absence the employee was to be paid benefits
sufficient for the full and healthy maintenance of herself and her child
2. Convention No. 103

The ILO Maternity Protection Convention, 1919 was revised in 1952. According to
the revised convention every woman irrespective of age, nationality and status in
public or private, industrial or commercial undertaking was required to be absent
for a period of six weeks after the child birth and allowed to be absent for a period
of six weeks prior to child birth. For such absence she was to be paid full benefits
sufficient for the full and healthy maintenance of herself and her child.
3. Convention No. 183
Convention No. 183 is divided into a number of different aspects of Maternity protection
mentioned below: Scope; Health protection; Maternity leave; Leave in case of illness or
complications; Cash and medical benefits; Employment protection and non-
discrimination; and Breast feeding mothers.
Articles related to Maternity benefits act in ILO
Article 1 It is applies to women employed in industrial undertaking, on-industrial,

agriculture occupations and women working at home.
Article 2 The term “women” means any female person, respective of age, nationality,
race of creed, whether married or unmarried, and the term “child” means any child
whether born of marriage or not.

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Article 3 A women to whom this Convention applies shall, on the production of a
medical certificate stating the presumed date of her confinement, be entitled to a period
of maternity leave. The period of maternity leave shall be at least twelve weeks, and shall
include a period compulsory leave after confinement.
Article 4 While absent from work on maternity leave in accordance with the pro-visions
of Article 3,
Article 5 If a woman is nursing her child she shall be entitled to interrupt her work for
this purpose at a time or times to be prescribed by national laws or regulations.
Interruptions of work for the purpose of nursing are to be counted as working hours and
remunerated accordingly
Article 6 While a woman is absent from work on maternity leave in accordance with the
provisions of Article 3 of this Convention, it shall not be lawful for her employer to give
her notice of dismissal during such absence.
Indian Economy
Sample on Next Page

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Chapter 1
Measurement of growth: National Income and per capita income
1.1 Introduction:
Economics is the study of how societies use scarce resources to produce valuable goods
and services and distribute them among different individuals. Certain European and
North American countries are very rich (per person income is high which leads to higher
living standard) while countries in Africa and Latin America are poor. Have you ever
thought of the basic reason behind it? Even if the African countries are very rich in
mineral resources like coal, iron ore, other metals, they are quite poor while if you see
Japan, it has very less natural resources but it has high per capita income. The basic
reason behind this difference in the standard of living of these countries is that the
government and the people in these developed/rich countries have efficiently exploited
the limited resources of land, labour and capital for the betterment and development of
its people.
Economics is divided into two major subfields, Microeconomics and Macroeconomics.
Microeconomics is the study of decisions that people and businesses (individual

economic agents) make regarding the allocation of resources and prices of goods and
services. For example, the study of what mix of products an individual purchases with a
given amount of money is part of microeconomic study. Microeconomics would look at
how a particular company whether small or big can maximize its production and
capacity so that it can lower prices and better compete with its competitors in its
industry.
Macroeconomics, on the other hand, is the study of the national economy as a whole.
Macroeconomics examines a wide variety of areas such as how total investment and
consumption in the economy are determined, how central banks manage money and
interest rates, what causes international financial crises, how an increase/ decrease in
net exports would affect a nation's capital account and why some nations grow rapidly
while others stagnate. The study of variables at the country level such as Gross
Domestic Product (GDP) and how it is affected by the changes in the unemployment rate,
interest rate and price levels is part of the macroeconomic study.
The UPSC syllabus is about macro economy, which is concerned with the overall
performance of the economy.
1.2 Economic organization (the three problems)

Every human society - whether it is an advanced industrial nation, a centrally planned
economy, or an isolated tribal nation - must confront and resolve three fundamental
economic problems. Every society must have a way of determining what commodities are
to be produced, how these goods are made, and for whom they are produced. Indeed,
these three fundamental questions of economic organization - what, how, and for

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whom - are as crucial today as they were at the dawn of human civilization. Let's look
more closely at them:
What commodities are to be produced and in what quantity? A society must determine
how much of each of the many possible goods and services it will make and when they
will be produced. Will we produce pizzas or shirts today? A few high quality shirts or
many cheap shirts? Will we use scarce resources to produce many consumption goods
(like pizzas)? Or will we produce fewer consumption goods and more capital goods (like
pizza making machines), which will boost production and consumption tomorrow?
How are the goods to be produced? A society must determine who will do the
production, with what resources, and what production techniques they will use. Who
does the farming and who teaches? Is electricity generated from oil, from coal, or from
the sun? Will factories be run by people or robots?
For whom are the goods to be produced? Who gets to eat the fruit of economic activity?
Is the distribution of income and wealth fair and equitable? How is the national product
divided among different households? Are many people poor and a few rich? Does high
income go to teachers or athletes or autoworkers or capitalists? Will society provide
minimal consumption to the poor, or must people work if they are to eat?
1.3 Economic Systems (Market, Command and Mixed)

What are the different ways in which a society can answer the questions of what, how,
and for whom? Different societies are organized through alternative economic systems,
and economics studies the various mechanisms that a society can use to allocate its
scarce resources.
We generally distinguish two fundamentally different ways of organizing an economy. At

one extreme, government makes most economic decisions, with those on top of the
hierarchy giving economic commands to those further down the ladder. At the other
extreme, decisions are made in markets, where individuals or enterprises voluntarily
agree to exchange goods and services, usually through payments of money. Let's briefly
examine each of these two forms of economic organization.
In the United States, and increasingly around the world, most economic questions are
settled by the market mechanism. Hence there economic systems are called market
economies. A market economy is one in which individuals and private firms make the
major decisions about production and consumption. A system of prices, of markets, of
profits and losses, of incentives and rewards determines what, how and for whom. Firms
produce the commodities that yield the highest profits (the what) by the techniques of
production that are least costly (the how). Consumption is determined by individuals'
decisions about how to spend the wages and property incomes generated by their labour
and property ownership (the for whom). The extreme case of a market economy, in
which the government keeps its hands off economic decisions, is called a laissez-faire
economy.

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By contrast, a command economy is one in which the government makes all important
decisions about production and distribution. In a command economy, such as one
which operated in the Soviet Union during most of the twentieth century, the
government owns most of the means of production (land and capital); it also owns and
directs the operations of enterprises in most industries: it is the employer of most of the
workers and tells them how to do their jobs; and it decides how the output of the society
is to be divided among different people. In short, in a command economy, the
government answers the major economic questions of what, how and for whom, through
its ownership of resources and its powers to enforce decisions.
No contemporary society falls completely into either of these polar categories. Rather, all
societies are mixed economies, with elements of market and command both. Today
most of the decisions in the developed and developing economies are made in the market
place. But the government also plays an important role in overseeing the functioning of
the market; governments pass laws that regulate economic life, produce goods,
educational and police services. Most societies today operate as mixed economies.
Command/Socialist Economy Market/Capitalist Economy

Mixed Economy
1.4 Four Sectors of the Economy:

From the economic point of view, a mixed economy is divided into four sectors.
1. Private Sector:
All the enterprises owned by the private individuals or group of individuals belong to
the private sector. The private sector consists of companies/firms/enterprises in
India which are not owned by the government.
2. Government Sector:
This sector includes public administration, police, defence, framing of laws and
enforcing them. Apart from imposing taxes and spending money on various
infrastructure and healthcare services and education etc., government also
undertakes production activity through its companies like Coal India Ltd. (CIL),
National Thermal Power Corporation (NTPC) etc. So all the companies owned by the
Central or State Governments i.e. Public Sector Undertakings (PSUs) also belong to
the government sector.
3. Household Sector:
A household is a single individual who takes decisions relating to her own
consumption, or a group of individuals for whom decisions relating to consumption
are jointly determined. So if a single individual is living alone then he will be
considered as one household. And if a person is living with his wife and two children
then all the four will constitute one household as the decisions relating to
consumption of food and other items are decided jointly. Similarly, if 100 students
are living in a hostel then their consumption decisions are taken jointly and hence all

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100 students will constitute one household. We should always remember that
households consists of people. These people work in firms as workers and earn
wages. They are the ones who work in the government departments and earn salaries
and they are the owners of firms and earn profits. So all the human beings
(population) belong to household sector.
Suppose a person named "John" works in "Coal India Ltd. (CIL)" which is a
government company then John belongs to the household sector and the company
CIL belongs to the government sector.
Coal India Ltd. (CIL)

f John John works in CIL
Household Sector Government Sector
Reliance Industries Ltd. (RIL) is owned by Mukesh Ambani but Mukesh Ambani belongs to the
household sector and "RIL" (which is a passive object and on whose name all the business is being
carried out) belongs to the private sector.
Reliance Industries
Mukes
Mukesh Ambani owns RIL Ltd. (RIL)
h
Household Sector Private Sector
4. External Sector:
This sector consists of the exports and imports of goods and services flowing into the
country or out of the country. It also includes the financial flows from and into the
domestic country.
Lets understand in detail the private sector first.
1.5 Private Sector

All the firms or enterprises owned by private individuals or entrepreneurs belong to
private the sector and their basic function is production of output i.e. goods and
services. To produce output, any enterprise will require certain inputs. An enterprise
may require one input or it may require hundreds of inputs to produce the desired
output. All the inputs that an enterprise may require are broadly divided into four
categories i.e. entrepreneur, capital, natural resources and labour.
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Entrepreneur
Profit
(Output)
Capital Enterpris Goods & Services
Interest
Rent Wage Intermediate Final

Natural Resources (Rolled Steel)
(Land & Raw Material)
Labour
Consumption Capital
(Tractor)
Durable Non-Durable Services

(Life > 3 Yrs) (Life < 3 Yrs) (Education)
(TV, Car) (Clothes, burger)
Figure: The four factors/inputs of production combining together to produce output and
the classification of output (goods and services) into consumption and capital goods.
The four inputs that an enterprise requires to produce output (goods and services) are
called the four "factors of production" or the "inputs of production". These four factors of
production are the following (as shown in the figure):
1. Entrepreneur: The person who takes the risk and starts a new business. This person
puts in initial money in the enterprise and in return expects "Profit". The
entrepreneur is a human being and he belongs to the household sector.
2. Capital: In today's world, capital can be physical, financial or intellectual. But from
an economic point of view, only the physical capital goods are considered as capital.
So capital includes the building, machinery, equipments etc. The return for the
capital is called "Interest".
3. Natural Resources: Natural resources include land and raw materials which are
naturally available and are not produced through manmade processes. The return for
the natural resources is called "Rent".
4. Labour: It is the human labour which may be physical or mental i.e. it can be
unskilled, semi-skilled or skilled. When a human being provides his labour to the
enterprise, in return he/she expects wages. The labour (who is providing the labour
services) is a human being and belongs to the household sector.

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1.6 Types of Goods:
Intermediate goods
These are semi-finished goods which have been produced by a process but cannot be
used as it is and need to go through further production process to be converted into a
final good. For example steel sheets. The steel sheets cannot be used as it is and needs
to be transformed into final products like automobiles, appliances etc.
Final goods
These goods do not undergo any further transformation in the production process. Final
goods can be of two types consumption goods and capital goods.
1. Consumption Goods: Goods which are consumed by the ultimate consumers or

meet the immediate need of the consumer are called consumption goods. They can be
of three categories.
(i) Durable Consumption Goods: Consumption goods which do not get exhausted
immediately but last over a period of time are called consumer durables. Life of
consumer durables is generally more than 3 years. For examples home appliances,
consumer electronics, furniture etc.
(ii) Non-Durable Consumption Goods: Consumption goods which get consumed

immediately and whose life is generally less than 3 years. For example cosmetics,
food, fuel, paper, clothing etc.
(iii)Services: Services are intangibles and are a kind of consumption goods only, as, it
is consumed immediately. For example education, banking, telecom, healthcare
etc.
2. Capital Goods:
A particular good will be capital in nature only if it possess the following three
characteristics:
(i) It is a produced durable output of a man made process
(ii) It again acts as an input for further production process
(iii)While acting as an input, it does not get transformed or consumed
For example Tractor. Tractor must have been produced in a factory so it is a

produced durable output. Tractor again acts as an input in the production of
agricultural products like wheat and rice. And while acting as an input it does not
get transformed and remains as it is. (wear and tear of tractor happens over a long
period of time but we cannot say that the tractor is getting transformed or consumed)
In strict sense the economists consider only the physical capital as the capital but in
today's world intangible capital is increasingly becoming important. So capital can be
divided into three categories.

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(i) Physical Capital (capital goods)
(ii) Financial Capital (money)
(iii)Intellectual Capital (patents, copyrights etc.)
Consumption and Capital goods: A particular good can be consumption as well

as capital good. For example washing machine. When a person is using washing
machine at his home for washing of his own clothes then it will act as a
consumption good. But, if the same washing machine is purchased by a
businessman for providing laundry services then it is acting as a capital good.
Because in the later case washing machine is being used to produce washed
clothes for the market and not for own consumption. So whether a good is
consumption or capital, also depends on the purpose for which it is being used. If
a good is being used to produce some other goods/services to be sold in the
market then it will be a capital good. For example, when we purchase a car for
our home then it is a consumption good but when "Ola Cabs" purchase a car to
provide transportation services for the market then the car becomes a capital
good.
Intermediate and Final good: A particular good can be final as well as

intermediate. For example "tea leaves". When a person is purchasing the "tea
leaves" for his home consumption purpose then the "tea leaves" will be a final
good. But when a tea seller is purchasing the "tea leaves" to prepare "tea" and sell
it in the market then "tea leaves" is intermediate good and the "tea" is the final
good. The distinguishing characteristic whether a good is final or intermediate is
"the last transaction in the market". In case of tea seller, the last transaction in
the market is of tea, so "tea" is final good. But in case of the person purchasing
tea leaves for home purpose, "tea leaves" is the last transacted good in the market,
so "tea leaves" will be final good.
1.7 Investment:
That part of the final output which comprises of physical capital goods is called gross
investment. So, investment in a country is not measured as money put in a business or
any economic activity but it is basically that portion of the final output (GDP) which
consists of capital goods.
Consider the following diagram:
Consumption goods worth Rs. 700
Factory
(worth Rs. 1 lacs)
Capital goods worth Rs. 300

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Suppose there is only one factory (capital good) in a country, which is worth Rs. one
lakhs and is producing consumption goods worth Rs. 700 and capital goods worth Rs.
300 in a particular year (say 2015-16) in an economy.
This means that the GDP will be Rs. 1000 (which is the total production of both
consumption and capital goods) and the gross investment in the economy will be Rs. 300
or (Rs 300/Rs1000) 30%, as investment is measured as the percentage of output which
consists of capital goods.
In the above example, if the country imports capital goods worth Rs. 100 in the
year 2015-16 then the gross investment will be Rs. 300 + Rs. 100 i.e. Rs. 400 and
investment percent will be Rs. 400/ Rs. 1000 = 40%. This is because Rs. 100 worth
of capital goods is getting added in the economy. But if we also export capital goods
worth Rs 40 then the gross investment will be Rs. 300 + (Rs. 100 - Rs. 40) i.e. Rs.
360 and investment percent will be 36%. Investment in the economy is also called
Gross Fixed Capital Formation which mainly refers to the value of new machinery
and equipment plus the value of new construction activity undertaken during the
year. Investment also includes net acquisition of valuables like precious articles,
gems and stones, silver, gold, platinum and gold and silver ornaments.
Now when the factory runs for a year then wear and tear happens in the factory which is
called depreciation. Depreciation is also defined as consumption of physical capital. In
the above example Rupees one lakh worth of capital goods produce Rs. 700 consumption
goods and Rs. 300 capital goods, but during this production process suppose there is
wear and tear of Rs. 50 in the factory. This implies that to produce Rs. 700 of
consumption goods and Rs. 300 of capital goods there is a loss of Rs. 50 of capital goods
in the economy i.e. net production of capital goods (investment) in the economy is Rs.
300 minus Rs. 50.
Net Investment = Gross Investment - Depreciation

= Rs. 300 - Rs. 50
= Rs. 250
The following chart represents gross investment (as a percent of GDP) of India in the last
few years.
2011- 2012- 2013- 2014- 2015- 2016- 2017- *2018-
12 13 14 15 16 17 18 19
34.30% 33.40% 31.30% 30.10% 28.50% 28.50% 28.50% 28.80%
(In 2007-08, investment was at peak of 38% of GDP and after that it started declining
due to global financial crisis and domestic factors).

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1.8 Circular Flow:
For simplicity, let us assume that as of now there is no government and external sector
and only the private sector and the household sector are present in the economy.
Case I
Assume that the household sector is not saving anything and hence all the goods and
services produced by the private sector will be consumed by the household sector.
Expenditure Rs. 100
Goods & Services

C (Burger)
D
Burger Enterprises Household

(MP = Rs.100) 1. Profit
B 2. Wages Factor Payment Rs. 100 Cash
3. Rent
A 4. Interest
Factor Services
Suppose the enterprise produces the burgers as it is demanded by the people in the
household sector. To produce the burger the enterprise will require certain inputs like
entrepreneur (the owner of the enterprise), the capital (the machine to produce burger),
the natural resources (land & water and other intermediate goods wheat, salt etc.) and
labourers. The entrepreneur and the labourer belong to the household sector. Suppose
the capital and the natural resources are also being provided by some individuals who
belong to the household sector. So all these four factor services (entrepreneur, capital,
natural resources and labour) are being provided by the individuals belonging to the
household sector and which has been represented in the above figure by arrow A.
By using these inputs, suppose the enterprise produces a burger which it wants to sell
in the market for Rs. 100 (Market Price = Rs. 100). Since the burger is sold in the market
for Rs. 100, the whole amount of Rs. 100 generated from sale of the burger will be
distributed among the people who are providing the four factor services i.e.
entrepreneurship, labour, capital and natural resources. Since the burger is being
produced with the contribution of these four factors (inputs), the Rs. 100 generated by
selling it in the market will ultimately be distributed (by arrow B) among these four
service providers as profit (say Rs. 40), wages (Rs. 10) , rent (Rs. 20) and interest (Rs. 30)

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and will go to the household sector. Hence, interest, rent, wages and profit must add up
to the value of the product produced i.e. Rs. 100.
The household sector will now spend this Rs. 100 (by arrow C) to purchase the burger
worth Rs. 100 produced by the enterprise and the enterprise will return (by arrow D) the
burger of Rs. 100 to the household sector. The amount of money representing the
aggregate (total) value of goods and services is moving in a circular way and hence it
represents the circular flow of income in the economy.
The two arrows on the top (C & D) represent the goods and services market - the arrow C
represents the flow of payments for the goods and services, the arrow D represents the
flow of goods and services to the household sector. The two arrows on the bottom (A & B)
of the diagram similarly represent the factors of production market. The arrow A going
from the households to the firms symbolises the services market that the households are
providing to the enterprises and the enterprises are using these services for
manufacturing the output. The arrow B going from the enterprises to the household
sector represents the payments made by the firms to the households for the services
provided by the household sector.
The value of the burger i.e. Rs. 100 is called the Gross Domestic Product (GDP) of
the country for that year. Since the amount of money representing the aggregate
value of goods and services, is moving in circular way, if we want to estimate the
aggregate value of goods and services (GDP) produced during a year, we can
measure the annual value of flows at any of the lines indicated in the diagram. For
example, if we measure the GDP by the aggregate value of spending that the firms
receive for the final goods and services which they produce (by line C) then this
method is called the expenditure method. If we measure the flow at D by
measuring the aggregate value of final goods and services produced by all the
firms, then it is called product method (value added). If we measure the total factor
payments at B then it is called the income method. Thus we can measure the
aggregate output (GDP) in three ways.
In the above case, the households were producing the burger and purchasing the same
burger from the enterprise and consuming it. They were spending all their income
earned during the production process on the purchase of goods and services. They were
not saving at all. In such a situation, the production in the economy will remain
stagnant.
Now, suppose the households want to increase their consumption of burgers. But this
will be possible only when the private sector i.e. the enterprises produce more burgers.
And the burger production can be increased only when there are more burger machines
(capital goods) in the economy. Hence, the private sector must produce burger machines
first in order to produce more burgers in future.
Let us see how this is possible.

Crack Grade B 36
Case II
The household sector has now decided to spend only Rs. 70 for its consumption
purpose and save Rs. 30 out of the Rs. 100 earned.
The household sector will be providing the same factor services (their value of work done
is same i.e. Rs. 100) and the enterprise will be producing goods in total worth Rs. 100
only but now the enterprise will produce burger worth Rs. 70 (because now the
household sector wants to consume burgers worth Rs. 70 only) and other goods worth
Rs. 30. By arrow B the enterprise will return Rs. 100 as factor payments to the
household sector. The household sector will spend Rs. 70 through arrow C and the
enterprise will return the burger worth Rs. 70 to the household sector through arrow D.
This burger will be consumed by the household sector.
Banks
Rs. 30 Expenditure Rs. 70 Rs. 30 (Savings)
Goods & Services

C (Burger, Rs. 70)
D
Burger (Rs. 70) Enterprises Household

1. Profit
Capital good (Rs. 30) B 2. Wages Factor Payment Rs. 100 Cash
3. Rent
4. Interest
A
Factor Services
Now there is Rs. 30 savings left with the household sector (which they may deposit in a
financial institution like banks) and there is Rs. 30 (capital goods) lying with the
enterprises. The other enterprises present in the private sector will borrow Rs. 30 (which
the household sector has saved in banks) from banks and will purchase the Rs. 30
capital goods from the enterprises. The Rs. 30 goods produced by the enterprises will be
capital good in nature and not a consumption good as it has been produced for the
private sector (and not the household sector). This Rs. 30 of capital goods (which may be
burger machines) will help in increasing the production of burgers in future years.
So, if the household sector will save Rs. 30, then the same value of capital goods will be
produced in the economy. If the household sector buys only Rs. 60 consumption
goods and saves Rs. 40 then the enterprises will produce Rs. 60 consumption
goods for the household sector and the rest Rs. 40 goods they will produce for the
private sector which will be capital goods. This implies that, savings is equal to the
Crack Grade B 37
production of capital goods in the economy (when there is no government and external
sector). So if an economy wants to produce more capital goods then it will have to save
more also. Greater the saving in the economy, greater will be the production of capital
goods. As we know, that portion of the final output which comprises of capital goods is
also called investment, hence savings will be equal to investment and higher the savings,
higher will be the investment.
This shows that if an economy wants to produce more goods and services in future years
then it must produce capital goods (i.e. investment) first, which in turn implies that the
economy should save more. Higher the savings, higher will be the capital goods
produced in the economy which will propel the economy on a higher growth path.
When India got independence, our economy was producing 95% consumption goods and
5% capital goods i.e. savings was only 5%. At that time we wanted to increase the output
of the economy to serve millions of starving population and hence we started saving
more. More savings led to an increase in production of capital goods in the economy
which further increased the production of goods and services. In 2015-16, India's
savings was around 30% of the GDP which means India was producing around 70%
consumption goods and 30% capital good i.e. investment. China has consistently been
able to produce more than 40% capital goods of the total output (GDP) of their economy
which has propelled China into the fastest growing economies of the world.
Categories of an ECONOMY: The economic activities are broadly classified into three
broad categories, which are known as the three sectors of the economy:
1. Primary Sector: This sector includes all those economic activities where there is
the direct use of natural resources as agriculture, forestry, fishing, fuels, metals,
minerals, etc. Broadly, such economies term their agricultural sector as the
primary sector. This is the case in India.
2. Secondary Sector: This sector is rightly called the manufacturing sector, which
uses the produce of the primary sector as its raw materials. Since manufacturing
is done by the industries, this sector is also called the industrial sector—examples
are production of bread and biscuits, cakes, automobiles, textiles, etc.
3. Tertiary Sector: This sector includes all economic activities where different
‘services’ are produced such as education, banking, insurance, transportation,
tourism, etc. This sector is also known as the services sector.
TYPES OF ECONOMIES: Depending upon the shares of the particular sectors in the
total production of an economy and the ratio of the dependent population on them for
their livelihood, economies are categorized as:
1. Agrarian Economy: An economy is called agrarian if its share of the primary

sector is 50 per cent or more in the total output (the GDP) of the economy. At the
time of Independence, India was such an economy. But now it shows the symptom
of a service economy with the primary sector’s contribution falling to almost 19.8
per cent of its total produce, while almost 50 per cent of the population depends
on the primary sector for their livelihood. Thus, in monetary terms India is no

Crack Grade B 38
more an agrarian economy; however the dependency ratio makes it so—India
being the first such example in the economic history of the world.
2. Industrial Economy: If the secondary sector contributes 50 per cent or more to

the total produce value of an economy, it is an industrial economy. Higher the
contribution, higher is the level of industrialization. The western economies which
went for early industrialization earning faster income and developing early are
known as developed economies. Most of these economies have crossed this phase
once the process of industrialization saturated. Secondary sector contributes
approx. 29.2 %(2017-18) in India’GDP.
3. Service Economy: An economy where 50 per cent or more of the produced value
comes from the tertiary sector is known as the service economy. First lot of such
economies in the world were the early industrialized economies. The tertiary sector
provides livelihood to the largest number of people in such economies. Tertiary
sector contributes approx. 53.49 % (2017-18) in India’GDP.
1.9 Gross Domestic Product (GDP):

The total final value of goods and services produced within the domestic boundary of a
country in a specified time period (generally a financial year) is called Gross Domestic
Product. GDP can be calculated by three methods:
1. The Product or Value Added Method

In this method we calculate the aggregate annual value of goods and services
produced and to arrive at this we add up the value of all goods and services produced
by all the firms in an economy. Let us take an example:
Suppose there are only two kinds of producers in the economy. One is the farmer who
produces wheat and the other is the baker who produces bread. Assume that the
farmer who produces wheat do not require any input other than the physical labour.
Suppose the farmer produces Rs. 100 worth of wheat, out of which he consumes Rs.
50 of wheat and sells Rs. 50 of wheat to the baker. And suppose the baker do not
require any input other than the Rs. 50 wheat which he purchases from the farmer.
The baker uses this Rs. 50 of wheat completely and produces bread worth Rs. 200.
Farmer Rs. 50 + Rs. 50 (consumed) = Rs. 100 wheat produced
Baker Purchase + Value Addition = Rs. 200 bread produced
The farmer has produced Rs. 100 of wheat for which it did not need assistance of any
inputs. Therefore the entire Rs. 100 is rightfully the contribution or the value
addition of the farmer. But the Rs 200 bread produced by the baker is not entirely his
own contribution because to produce this bread the baker has purchased wheat from
the farmer worth Rs. 50. So the value added by the baker will be equal to the value of
production of the firm (baker) - value of intermediate goods used by the firm.

Crack Grade B 39
Since, there are only two firms in the economy, one is baker and the other is farmer,
to calculate the GDP we will add value addition by both these firms.
GDP = Value addition by Baker + Value addition by Farmer

= (Rs. 200 - Rs. 50) + (Rs. 100)
= Rs. 150 + Rs. 100
= Rs. 250
Value addition by the farmer is Rs. 100. Value addition does not depend on whether
the farmer is selling the wheat in the market or consuming himself. Value addition is
basically "the value/price that somebody's work will fetch in the market" and it
includes profit also.
By the standard definition, GDP should be equal to the final value of all goods and
services produced in the economy. So we can cross check the above example.
GDP = Final value of all goods produced

= Final value of wheat + Final value of bread
= Rs. 50 + Rs. 200
= Rs. 250 (which is same as above calculated from value added method)
Out of the Rs. 100 wheat produced by the farmer, only Rs 50 consumed by the
farmer is final good. The wheat that the farmer sold to the baker worth Rs. 50 is an
intermediate good and not final good.
2. Expenditure Method
An alternative way to calculate GDP is by looking at the expenditure side of all the
sectors. Whatever goods and services are produced in the economy are ultimately
purchased by the four sectors of the economy i.e. household sector, government
sector, private sector and external sector. So if we add the expenditures done by these
four sectors on the purchase of final goods and services produced by the firms within
the domestic boundary then it shall be equal to the GDP of the country.
The household sector spends only on the consumption goods (denoted by C')
The private sector spends only on capital goods (investment) barring some exceptions
when firms buys consumables to treat their guest or for their employees (denoted by
I')
The government sector purchase both capital and consumption goods (denoted by G')
The external sector also purchases both consumption and capital goods from our
economy which is basically called the exports from India (denoted by X).
GDP = C' + I' + G' + X

= C - Cm + I - Im + G - Gm + X
= C + I + G + X - (Cm + Im + Gm)
= C + I + G + X - M
GDP = C + I + G + X - M

Crack Grade B 40
C', I' and G' are all expenditure on domestically produced final goods as we are
trying to calculate GDP. And C, I and G are expenditure by the three sectors on
domestic and imported both final goods.
 Since C' is expenditure of household sector on domestically produced

consumption goods which can also be calculated as expenditure on domestic and
imported both consumption goods (C) - expenditure on imported consumption
goods (Cm) i.e. C - Cm.
 Similarly I - Im will represent the expenditure by private sector on domestically
produced capital goods i.e. investment expenditure; and
 G - Gm will represent the expenditure by government sector on domestically
produced consumption and capital goods.
 And Cm + Im + Gm represents the total imports by the country combining the
household, private and government sector.
When, the government and the external sector are present in the economy, then the
savings and investment may vary but an increase in savings generally leads to an
increase in the investments and the circular flow will always hold true.
Whatever income households receive, either they spend it for consumption or save
it (S) or pay taxes (T).So, GDP = C + S + T
C+I+G+X-M=C+S+T
I+G+X-M=S+T
(I - S) + (G-T) = M -X
If there is no govt. and no external sector then, G = T = M = X = 0

Hence, I=S
3. Income Method
It has already been stated in the beginning that the sum of the final goods produced
in the economy must be equal to the income received by all the four factors of
production i.e. wages, rents, interests and profits. This follows from the simple idea
that the revenues earned by all the firms put together must be distributed to those
who has contributed in the production process which are basically the four factors of
production entrepreneurship, labour, capital and natural resources.
GDP = Profit earned by all the firms + Interest received by all the capital deployed +
Rent received for the natural resources + Wages earned by all the labourers
GDP = Profit + Interest + Rent + Wages

Crack Grade B 41
1.10 GDP Calculation methodology by CSO
CSO calculates GDP by Value Added Method and Expenditure Method both. Under
Value Added Method, it calculates the value addition done by various economic activities
viz:
 Agriculture, Forestry and Fishing
 Mining and Quarrying
 Manufacturing
 Electricity, Gas, water supply and other utility services
 Construction
 Trade, Hotels and transport, and communication and services related to
broadcasting
 Financial, Insurance, real estate and professional services
 Public administration and defence and other services
Under Expenditure Method, it adds up the various components of expenditure viz:

 Private Final Consumption Expenditure (it is basically household expenditure)
 Government Final Consumption Expenditure
 Gross Fixed Capital Formation
 Net of Exports and Imports
(In certain cases where we are not able to measure estimates at constant prices, then the
CPI and WPI index is used as deflators).
Though GDP measured from either side should be equal, since reliable data is not
available for private consumption expenditure, there is always a difference in the two
ways of measuring GDP. The difference is usually put as “discrepancies” in the
expenditure approach of measuring GDP.
1.11 Macroeconomic variables

Gross Domestic Product (GDP) measures the aggregate/total production of final goods
and services taking place within the domestic (geographical boundary) economy of the
country during a year. But it may be possible that the foreign nationals working within
India have contributed in that GDP production.
So, now we are interested in measuring the output/earnings made by Indian residents
only whether in India or abroad which is termed as Gross National Product (GNP). GNP
is that income or product which accrues to the economic agents who are residents of
the country. (i.e. income earned by the Non Resident Indians (NRIs) will not be part of
India's GNP).
To calculate GNP, we add the factor income of Indians from abroad in GDP and subtract
the contribution of foreigners in India's GDP.
Gross National Product (GNP) = GDP + Factor income earned by the domestic factors of
production employed in the rest of the world - Factor

Crack Grade B 42
income earned by the factors of production of the rest
of
the world employed in the domestic economy
GNP = GDP + Net factor income from abroad (NFIA)
Factor income is basically the income earned by the four factors of production i.e. profit,
rent, interest and wages but it does not include the transfer incomes/payments. Hence
GNP is the sum of GDP and factor income and it does not include transfer payments
from the rest of the world (for example remittances).
National Disposable Income = National Income + Transfer payments
The figure below presents a diagrammatic representation of the relations between the
various macroeconomic variables.
NFIA Depreciation
Depreciation Indirect Taxes

- Subsidy
Indirect Taxes
- Subsidy
GDP GNP NNPMP NNPFC

NDPMP
NDPFC (Gross (National
National Income or Net
Income) National
Income)
Gross Domestic Product (GDP) + NFIA = Gross National Product (GNP)
Gross Domestic Product (GDP) - Depreciation = Net Domestic Product (NDP)
Gross National Product (GNP) - Depreciation = Net National Product (NNP)
"Gross National Product (GNP) is also called Gross National Income and Net National
Product (NNP) is also called Net National Income or just National Income."
Let us try to understand the Factor Cost and Market Prices
Suppose few people produced a burger and they wanted to sell it in the market at Rs.
100 i.e. they want Rs. 100 for their effort in the production of burger. This means that
the total factor cost of the burger which is equal to profit plus interest plus rent plus
wages shall be equal to Rs. 100. So in this case GDP at Factor Cost will be equal to Rs.
100.

Crack Grade B 43
But when they went to the market to sell the burger, government imposed an indirect
tax of Rs. 10 on the burger. So now they will have to sell the burger in the market at a
price of Rs. 110, so that they can fetch Rs. 110 from the market out of which they will
keep Rs. 100 for themselves (factor cost) and Rs. 10 will be given to the government as
tax.
So, Market Price = Factor Cost + Indirect Tax

= Rs. 100 + Rs. 10
= Rs. 110
Similarly if government gives subsidies, Market Price = Factor Cost - Subsidies
Hence, Market Price = Factor Cost + (Indirect Taxes- Subsidies)
In India now (since January 2015 onwards) we calculate GDP at Market Prices rather
than at Factor Cost. The way we are calculating GDP at MP and FC, similarly NDP can
also be calculated at MP and FC and GNP and NNP can also be measured at MP and FC.
1.12 Nominal and Real GDP:
Nominal GDP or GDP at current/market Price: Nominal GDP is the market value of
goods and services produced in an economy, unadjusted for inflation (It is the GDP
measured at current prices/market price).
Real GDP or GDP at Constant Price: However, if we consider the price of base year as
constant and compute the GDP growth rate of the current year using that constant
price, the value so arrived at will give a true picture of the actual growth rate in GDP.
This measure is called the Real GDP or the GDP at constant price.
Real GDP growth measures growth in quantity only and nominal GDP measures growth
in value (which includes quantity and price both).
Now, suppose an economy produces wheat and rice. The quantities produced and the
market price is given in the table.
2011-12 2012-13 2013-14 2014-15
Wheat 10kg X Rs. 11kg X Rs. 12kg X Rs. 12.5kg X Rs. 12/kg
10/kg 10.5/kg 11/kg
Rice 8kg X Rs. 9kg X Rs. 12.5/kg 10kg X Rs. 10.5kg X Rs. 13.5/kg
12/kg 13/kg
Nominal 10X10 + 8X12 11X10.5 + 9X12.5 12X11 + 10X13 12.5X12+ 10.5X13.5 =

GDP = Rs. 196 = Rs. 228 = Rs. 262 Rs. 291.75

Crack Grade B 44
To calculate Real GDP, we take the price of any year as constant and declare it as a base
year. So suppose we declare 2011-12 as base year then we will take price of wheat as Rs.
10/kg and price of rice as Rs. 12/kg as constant in all the subsequent years to calculate the
real GDP in the following years.
Real 10X10 + 8X12 11X10 + 9X12 = 12X10 + 10X12 12.5X10 + 10.5X12 = Rs.
GDP = Rs. 196 Rs. 218 = Rs. 240 251
Since January 2015, Central Statistical Office (CSO) under the Ministry of Statistics
and Programme Implementation (MoSPI) has changed the base year for calculation of
GDP to 2011-12. The changes were made based on the recommendations of the
Advisory Committee on National Accounts Statistics (ACNAS) headed by Prof K
Sundaram. In accordance with the recommendation of the National Statistical
Commission the base year of all economic indices has to be revised at every five years.
So if we want to calculate India's Real GDP for 2014-15 we will have to take the
quantities produced in 2014-15 and the prices of 2011-12 (base year). And if we want to
calculate the Nominal GDP of 2014-15 then we will have to take the quantities produced
in 2014-15 and the market prices of the same year i.e. 2014-15.
Before 2015, CSO was not using market prices to calculate GDP, rather it was using
Factor Cost i.e. Market Price excluding indirect taxes and subsidies. Now, as per the
global best practices and the IMF's World Economic Outlook projections based on GDP
at market prices, India has changed its methodology of GDP calculation at market
prices.
In India, economic growth is measured by real GDP i.e. GDP at constant Prices.
Consider the above table once again.
2011-12 2012-13 2013-14 2014-15
Nominal GDP Rs.196 Rs.228 Rs.262 Rs.291.75
Change in
Nominal GDP 16.3% 14.9% 11.4%
Real GDP Rs.196 Rs.218 Rs.240 Rs.251
Change in
Real GDP 11.2% 10.1% 4.6%
So, economic growth from 2011-12 to 2012-13 will be measured by change in Real GDP
(and not nominal GDP) which is 11.2 %

Crack Grade B 45
In the above example, Real GDP is steadily/consistently increasing from 2011-12 to
2014-15 but "change in real GDP" is decreasing from 11.2% to 4.6%. (And same is true
for nominal GDP also). Above is a case of economic growth as real GDP is increasing.
To calculate GDP at market prices, first we calculate GDP at factor cost/basic prices and
then we separately add the governments total indirect taxes including both GST and non
GST revenue of Central and State governments.
Let us take an example:
Suppose there is a farmer who sold wheat in Rs. 100 which then was purchased by ITC
which converted wheat into flour (Aashirwaad atta) and sold it in Rs. 500 to a
restaurant. The restaurant converted flour into chapati and sold the chapati in Rs. 1000
to a customer in the restaurant. The customer in total paid Rs. 1100 (i.e. Rs. 1000 plus
10% tax)
If we have to calculate GDP at market price, first we will calculate GDP at factor
cost/basic prices and then add separately the taxes.
GDPMP = GVA factor cost/basic prices + Indirect taxes – Subsidies
GVA by farmer (agriculture sector) = Rs. 100

GVA by ITC (Industrial sector) = Rs. 500 – Rs. 100 = Rs. 400
GVA by Restaurant (Service sector) =Rs. 1000 – Rs. 500 = Rs. 500
GVA factor cost/basic prices = Rs. 100 + Rs. 400 + Rs. 500 = Rs. 1000
Indirect taxes – subsidy = Rs. 100
GDPMP = Rs. 1100
There is a slight difference between GVA basic prices and GVA factor cost.
GVA basic prices = GVA factor cost + Production Taxes - Production subsidies
GDPMP = GVA basic prices + product taxes - Product subsidies
Land revenue is a kind of production tax and railway subsidies are a kind of
production subsidies. Production taxes and production subsidies are independent of
the volume of actual production.
But it does not matter much whether you take GVA basic prices or GVA factor cost, and
broadly they can be considered same.
The following chart represents Real GDP growth rate of India in the last few years.
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

6.20% 4.50% 6.60% 7.20% 8.20% 7.10% 6.70%

Crack Grade B 46
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Article 21 promises the protection of life and personal liberty.

Article 23 prohibits forced labour.

Some more fundamental rights of labors are:

 The right to have safety equipment.

Some of the important labour enactments took place in post-independence era

 Factories Act – 1948

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Article 23 prohibits forced labour.

ESI Act 1948 details will be covered in the course.

Various Theories of Labour Welfare:

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4. The Paternalistic or Trusteeship Theory of Labour Welfare:

5. The Placating Theory of Labour Welfare:

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6. The Public Relations Theory of Labour Welfare:

7. The Functional Theory of Labour Welfare:

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d. Maintenance Shop: In this type of arrangement no compulsory membership in the union

f. Open Shop: Membership in a union is in no way compulsory or obligatory either before or

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Industrial Relations The Term ―Industrial Relations‖ commonly denotes ―employee –

According to Dale Yoder “industrial relations is the process of management dealing

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Features of Industrial Relations:

Objectives of industrial relations system are:

Scope of industrial relations

The main aspects of Industrial Relations are:-

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Importance of industrial relation:

 Reduction in Industrial Disputes: Good industrial relation reduces the industrial

 Mental Revolution: The main object of industrial relation is a complete mental

 New Programmes: New programmes for workers development are introduced in

 Reduced Wastage: Good industrial relations are maintained on the basis of

Causes & Effects of Poor Industrial Relations:

The following are main causes of poor industrial relations:

 Mental inertia on the part of management and labour;

 An intolerant attitude of contempt of contempt towards the workers on the part of

 Inadequate fixation of wage or wage structure;

 Unhealthy working conditions;

 Inappropriate introduction of automation without providing the right climate;

 Unduly heavy workloads;

 Inadequate welfare facilities;

 Dispute on sharing the gains of productivity;

 Unfair labour practices, like victimization and undue dismissal;

 Retrenchment, dismissals and lock-outs on the part of management and strikes

 Inter-union rivalries; and

 General economic and political environment, such as rising prices, strikes by

Effects of poor industrial relations can be expressed as under:

(i) Loss of wages,

 Effect on Employers / Industrialists:

(i) Less production,

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Functional Requirements of a Successful industrial Relations Programme: The

Theoretical perspectives: Industrial relations scholars have described three major

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