Professional Documents
Culture Documents
Kuriakose Mamkoottam1
Abstract
This article argues that the ‘Make-in-India’ and the proposed labour reforms are unlikely to succeed
given the unequal structure of the Indian labour market, with the large majority of the Indian labour
force remaining in the unorganized sector and unprotected by the labour laws. It is further argued that
the introduction of some of the proposed labour reforms are likely to create further imbalance in the
bargaining power in favour of management, which may not help to develop a balanced labour market,
and may further increase the social and economic inequality.
Key Words
Labour reforms, labour flexibility, unorganized sector, inequality
Introduction
Much has changed in India in recent times, including the Indian labour market and Indian industrial
relations. For reasons good or bad, the trajectory of Indian industry and industrial relations has been
closely linked to the political developments in the country. During a major period of Independent India,
industrial enterprises were established, owned and managed by the state-controlled public sector, and a
good part of Indian industry was dominated by manufacturing. The balance of payments crisis brought
on by several factors including the collapse of the Soviet Union, the Gulf War and the fiscal indiscipline
made the Indian government liberalize the Indian economy through a series of policy measures starting
from 1991. During the past 24 years, Indian industry, the Indian labour market and the Indian industrial
relations scenario have all witnessed many changes. The information technology (IT) revolution, which
1
Currently Professor Emeritus of Business, Public Policy & Social Entrepreneurship, and Executive Chairperson, AUD Centre for
Incubation, Innovation & Entrepreneurship, Ambedkar University, New Delhi.
Corresponding author:
Kuriakose Mamkoottam, Currently Professor Emeritus of Business, Public Policy & Social Entrepreneurship, and Executive
Chairperson, AUD Centre for Incubation, Innovation & Entrepreneurship, Ambedkar University, New Delhi, India.
E-mail: kuria@aud.ac.in
60 Management and Labour Studies 42(1)
led to increased global demand for IT-enabled services, coupled with the availability of relatively cheaper
educated manpower in India, made India the backroom for the Western world. The sluggish manufacturing
sector was quickly overtaken by the IT and the services sector.
Perhaps learning from the success stories of East Asian economies including China, India has been
trying to revive the manufacturing sector in recent years. The past several governments have attempted
to usher in various labour reforms to that effect. Meaningful labour reforms have to take cognizance of
the unequal structure of the Indian labour market, with an increasing proportion of the labour force
joining the informal sector. The informal sector remains unprotected and unorganized as it has not
attracted much attention of the trade unions. An important question that may be asked here is: ‘will the
“Make-in-India” campaign and the ensuing labour reforms, while achieving labour market flexibility
and industrial/economic development, also reduce the growing inequality in the labour market and
ameliorate the vulnerability of the large segment of the Indian labour force?’
of manufacturing output, and about 40 per cent of exports. In recent years, we have witnessed many
more innovative entrepreneurial initiatives in the space of MSMEs.
While many argue that factors such as inadequate infrastructure, utilities, restrictive labour laws and
practices create serious barriers to the growth of manufacturing, some others argue that manufacturing
policy needs substantive transformation to take advantage of existing resources. Pankaj Chandra (2015)
addresses three debates in Indian manufacturing, namely, volume versus variety, manual versus capital
intensive and low-tech versus hi-tech production, which have created a misalignment between capabilities
and strategies. He presents a framework for transforming the manufacturing policy by focusing on a new
set of enabling factors that will align strategies and help build long-term dynamic capabilities which are
essential for the growth of manufacturing in India. Chandra argues that
if we see India as farmers of science & technology, then we can see a pathway leading to small and large firms
linked together in developing new products and processes that solve mankind’s problems in areas of health care,
housing, transport and even in electronics, space and defence. It is only then that we will remove the constraints
and not optimize around them. (Chandra, 2015)
time, it may not be easy for the government to obtain the consent and cooperation of the unions. Moreover,
it may not be politically wise to enforce labour reforms without consultations with the trade unions.
More importantly, it will be difficult to implement any change introduced without the broad approval of
all the stakeholders, including labour and the trade unions. Anticipating the apprehensions of the unions,
the current NDA government had constituted a high-level committee to arrive at a consensus among all
stakeholders on the proposed reforms. The high-powered committee could not achieve much and the
unions continued to strongly oppose some of the proposed amendments. The unions are particularly
opposed to changes that may make retrenchment and layoffs of labour and closure of units easier under
the proposed New Industrial Relations Code. In fact, as many as 11 trade unions, including the Bharatiya
Janata Party (BJP)-backed Bharatiya Mazdoor Sangh (BMS), observed a nationwide strike on 2
September 2015 against the proposed labour reforms. The unions highlighted a charter of demands with
12 points, seeking withdrawal of the proposed changes in the labour laws and stopping the disinvestment
and privatization of public sector undertakings (PSUs). The unions are also said to have demanded an
increase in the bonus ceiling as well as widening the coverage of health insurance and provident fund, to
include construction workers in schemes such as Anganwadis.
Emphasizing that ‘ease of doing business’ is the first and foremost requirement to ensure the success
of the ‘Make-in-India’ campaign, the prime minister recently announced several new measures to end
what is known as the ‘Inspector Raj’ by curbing the discretion of the labour inspectors and by proposing
that companies have a single window compliance process on labour-related issues. The moot question
remains ‘is the rigid legislative framework the only impediment to increasing labour flexibility?’ Papola
and Pais (2007) have argued that labour regulation may not be the dominant factor that has caused
inflexibility in the labour market. They refer to the increased labour flexibility that has taken place
gradually since the 1980s, with no significant changes in labour regulations, as a case in point. Labour
flexibility is also a reflection of the industrial relations that prevail, while industrial relations are likely
to be affected by the degree of labour flexibility.
Industrial Relations
By definition, industrial relations are dynamic in nature, as any relations would be. Several decades ago,
John Dunlop (1958) explained industrial relations through a systems perspective. In dealing with the
problem of industrial relations in general, Dunlop indicated the possibility of differentiating among
different relationships based on peculiar socio-economic conditions of the society concerned. According
to him, the term ‘industrial relations’ should not be construed to denote union–management relations
operating within the spectrum of industrial peace or conflict. On the contrary, it should be taken as one
concerned with the larger subject of industrial relations as a whole, in which there are interactions among
other groups as well as the linkages established with the economic and social systems prevailing in a
society. Thus, the full range of complex interactions among the various groups such as workers and
managers, workers’ trade unions and employers and their organizations, together with this interaction
linked with the social system as a whole and more particularly with the economic system, is referred to
as the industrial relations system. The character and quality of this complex set of relations will be
influenced by the approaches and strategies adopted by important institutions such as the employer, trade
union, government and the larger society and economy including the labour market. As in the case of all
other relations, industrial relations can be sustained only within an environment of a minimum degree of
order, and that is the task of the institutions that make up the context of industrial relations (Flanders,
64 Management and Labour Studies 42(1)
1970). Cordial relations are an important precondition for productive interactions, and harmony is based
on proactive rather than reactive strategies on the part of individuals and institutions that are engaged
with each other. All such relations are based on rules and norms many of which are non-negotiable. It is
in this context that the process and ownership of rule-making and regulation become important.
Industrial relations in India have gone through several phases ranging from different degrees of
harmony to different levels of conflict. Industrial relations differ from other kind of relations in the sense
that the partner institutions and individuals often may not have the choice to terminate the relation for
want of alternate choices. In that sense, expecting a very high level of labour flexibility may not be
realistic within a given environment. Indian industrial relations have been built on a rather complex set
of engagements among the employer, the government and the trade unions within the larger context of
politics, employment, economic condition, technology and the labour/product/service market. In more
ways than one, the major players, including the government, employer and trade unions, have often
adopted strategies which are more reactive than proactive to deal with the challenges of the changing
scenario of the larger context. As is well known, the state in Independent India continued to play a direct
and dominant role to regulate industrial relations by legislative process often restricting the freedom of
the other players, namely, the employer and the trade unions. Third-party intervention, which minimizes
the role of bilateral negotiation and bargaining, has been the norm.
What is often not clear is the reason for the government to have taken or not taken certain policy steps
which would directly impinge on the character and complexion of industrial relations. At times, political
expediency rather than economic and social rationality seems to have prompted policy formulation with
serious consequences. Debashis Bhattacherjee (2001) argues that for a large and complex country like
India, where economy, polity and history are inextricably linked, the evolution of industrial relations has
been incremental and adaptive. The dominant and extraordinary role of the state may be appreciated,
given the complexity and unusual character of the labour market.
contrary, the service sector, which generates only 28 per cent of employment, contributes 50 per cent of
the GDP. At the same time, industry has a share of 25 per cent of employment and contributes only 32
per cent to the GDP. Within the category of industry, the contribution of manufacturing would be much
lower in terms of both employment and contribution to GDP. This low share of manufacturing in
employment and GDP is much lower than that of most other (East Asian and Southeast Asian) countries.
The engagement of an overwhelmingly large percentage of workers, as much as 92 per cent, in the
informal sector, distorts the Indian labour market. A vast majority of the workers engaged in the informal
sector earn very low wages with limited or no social protection. This may be true also for a substantial
proportion of workers in the organized sector as well.
In fact, given the young age structure of the Indian population, India’s labour force is expected to
surpass that of China by 2030. However, the so-called demographic dividend that was expected to accrue
to India may elude her unless this young population is provided with education and occupational skills.
The National Skill Development Corporation, which was initially created by the last UPA government,
has been revived by the current NDA government to address the problem.
Over half the workers are self-employed, largely with a poor asset base, and around 30 per cent are
casual labourers seeking employment on a daily basis. As mentioned earlier, less than 8 per cent of the
labour force has regular, full-time employment with social protection (Institute of Human Development
(IHD), 2014). All this could partially explain the large number of people still living below the poverty
line, with a per capita monthly income less than `816 for rural India and `1,000 for urban India.
According to the latest NSS (2011–2012) data, 25.7 per cent (216.5 million) of the rural population and
52.8 per cent (269.3 million) of the urban population of India live in poverty, perhaps the largest habitat
of the world’s poor, paradoxically coexisting with a large number of millionaires at the same time.
Different reports and surveys indicate that employment in the formal (organized) sector has been
reducing while it has increased in the informal and unorganized sector. The informal sector is not only
unregulated but also unprotected. Availability of employment for the millions of job seekers in the
organized sector with reasonably good wages may therefore remain a distant dream.
Subcontracting of manufacturing jobs, often leading to home-based self-employment, and the rise in
the share of the tertiary sector, both of which accounts for a large percentage of low-income jobs in the
non-agricultural sector, continues to make the labour market extremely vulnerable. This is more so as the
self-employed and the contractual employees are deprived of benefits relating to health, leave and
retirement, even in the organized sector. In fact, a large component of the salary of the contract labour is
expropriated by the new intermediary class of contractors which has been created in recent years. The
intervention of the intermediary in the space of contract employment tends to deprive the labour of their
due share. At the same time, casualization of employment is aggravated by the high rate of unemployment
among the rural and urban youth. The proportion of educated among the unemployed is reported to be as
high as 60 per cent among males and 70 per cent for females, which led to the popular coinage of the
term jobless growth in the 1990s.
In the process of modernization and infusion of innovative technologies, major changes have also
taken place in the workplace, work organization and the skill sets of the manpower. Replacing old
technologies and machineries with new is also often accompanied by replacement of work processes and
manpower. Obsolescence of technology also leads to obsolescence of human resources. While the
microprocessor-based modern technology makes manpower redundant, it also creates demands for new
skill sets. Therefore, a large share of new jobs which are being generated are at the two ends of the
spectrum; the low-skilled and low-paid jobs in the construction and the services sector at one end, and
the executive and high-paid jobs in the IT, Information Technology-enabled Services (ITES) and the
66 Management and Labour Studies 42(1)
newly emerging retailing and e-commerce sectors at the other end. There is a rising middle class, who
are better educated and skilled earning relatively higher levels of income. Information technology,
automobiles, pharmaceuticals, media, telecom and financial services are among the sectors of the
economy which have been absorbing the new middle class. At the same time, low-productivity
employment in the agricultural, industrial and services sectors continue to dominate the Indian labour
market (IHD, 2014). Given the very fragmented nature of the labour market, a large proportion of the
labour market which belongs to the unorganized informal sector continues to remain outside the purview
of the formal industrial relations framework. Any labour reforms therefore tend to have limited impact
on the larger labour market, as trade unions, which are a major player and bargaining partner, rarely, if
ever, extend their wings to the unorganized sector either.
Trade Unions
The distinct character of Indian industrial relations may be attributed to the origin and development of
the trade union movement in India. The Trade Unions Act 1926 provided legal protection for the Indian
labour union movement, largely mobilized as part of the country’s struggle for independence. Indian
trade unions have been closely associated and assisted in terms of leadership and finances by political
parties. In return, political leaders have often hijacked trade unions for political interests, even at the cost
of the interests of unions and their members. Many strikes and labour protests may have been motivated
to promote the interests of political parties rather than that of the work force. As a result, unions have
often resorted to political patronage of those parties in power. When they did not receive such goodwill,
they used to adopt confrontationist strategies exploiting especially the support of political parties in the
opposition, often generating an adversarial climate of industrial relations. What has resulted is multi-
unionism and trade union rivalry, resulting in fragmented and weak trade unions in India.
While the number of unions has grown substantially after independence, the same cannot be said
about the density and bargaining strength of trade unions in India. The proliferation of trade unions,
which reflect the proliferation of political parties, has been a distinguishing feature of the trade union
history in India during the post-independence period. Union membership is concentrated in the organized
sector. It is estimated that only a small percentage of the Indian labour force belong to any union or while
a very large majority of Indian workers do not belong to any trade union. Many workers in the private
sector, in particular, are not covered by any collective bargaining agreements. The growth of the informal
sector, along with the decline of manufacturing, has eroded the strength of trade unions. Much of the
support for trade union has traditionally come from the manufacturing sector and that too from employees
of the public sector organizations. Trade union density has declined globally during the past two decades,
and India is perhaps no exception. Introduction of new technologies, along with modernization of plant
and machinery and the growth of the services sector, has also created a new workplace and a new worker
in Indian industry. Employment of unskilled and semi-skilled manpower has reduced in the formal
sector, especially in the public sector. The new worker of the formal sector, and especially that of the
private sector, is more educated, better skilled and better paid; they are not as much dependent on the
support of trade unions and much less inclined to respond to the agenda set by national trade union
centres. The modern management practices which are based on the philosophy of human resource
development have also weakened the trade unions, thereby changing the complexion of industrial
relations.
Mamkoottam 67
Conclusion
The industrial relations climate has changed during the past two decades, especially since the
announcement of the economic policies in 1991. Attitudes and strategies of the union and the management
towards each other, as well as the worker–union relations, seem to have undergone a change. Workers
find less relevance in their unions being driven by an agenda set by political parties or national union
centres. Increasingly, it is the enterprise-based rather than industry or national level unions which appear
to appeal to workers. The new generation of younger workers and their unions prefer to concentrate on
specific issues and problems reflecting their immediate context affecting their work, working conditions
and benefits. At the same time, the larger national centres of trade unions, which are closely linked, if not
affiliated, to political parties are also facing a dilemma—whether to abide by the dictum of the party and
focus on issues at a national level or to respond to the demands of the workers which are confined to
boundaries of enterprises. The participation of BMS, which has its political allegiance to the BJP, in the
recent national strike organized on 2 September 2015 is an indication of the changing trend.
It is not clear if labour reforms alone can make the ‘Make-in-India’ campaign succeed! We may also
like to examine and debate the likely consequences of introducing some of the proposed labour reforms
in creating an imbalance in the bargaining power of management and the workers. It is also important to
ensure that while protecting the interests of investors and employers and thereby strengthening their
hands, the basic rights of the workers are not compromised, if not neglected, which could further weaken
the workers and their bargaining power. It is equally important to ensure that while introducing and
enlarging labour flexibility, the existing inequality in the labour market is not allowed to grow further.
Perhaps the employer has to share much more responsibility for developing manpower by constantly
upgrading their skills and preparing them to embrace technological and organizational changes, while
the government focuses more on developing a balanced labour market, to reduce social and economic
inequality. Fortunately, the intellectual debate on inequality has spilled over to the public space, or else
Thomas Piketty’s book on Capital in the Twenty-first Century would not have become a best seller
(Engel & Martin, 2015).
References
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Chandra, P. (2015). Pivoting Indian manufacturing policy differently (unpublished).
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Flanders, A. (1970). Management and unions. London: Faber.
IHD. (2014). Institute of Human Development, New Delhi.
Mamkoottam, K. (2004). Labour and change. New Delhi: SAGE Publications.
Papola, T.S., & Pais, J. (2007). Debate on labour market reforms in India: A case of misplaced focus. Indian Journal
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