IMPACT OF LIBERALIZATION,

PRIVATIZATION AND
GLOBALISATION ON INDIAN
LABOUR MARKET AND POLICIES

Based on Report of the Second

National Labour Commission-2002
Terms of reference of the Second National Labour Commission-2002

• To study the scenario that has emerged after globalisation and the impact
that it has witnessed, and the impact that is likely to be experienced in the
field of industry, the “labour market”, employment, eligibility for
employment, changing demands on skills for continued employment,
industrial vocations and laws relating to employment and individual
vocations.

• Frame responses that are necessary to improve the competitiveness of our

industry and economic activities, to ensure a regime of harmonious
industrial relations, to ensure increasing opportunities of employment and
ensure at least a minimum level of protection and welfare for workers in all
sectors of the economy
Era of liberalisation and globalisation
• After 1980, an era of liberalisation started, and the trend was gradually to
dilute the strict licensing system and allow more freedom to the
entrepreneurs.

• Our industries were suddenly required to face international competition. It

is no wonder that many of these industries allowed their foreign
collaborators to take over, sold their interests or preferred to close down.
Those who remained in the field are trying to downsize and reduce their
operations. For the existing ones, it is becoming increasingly difficult not
only to face competition in the world, but also competition at home with
the products of multinationals, either produced in the country or imported
from abroad.
 Critic: Mr. Joseph Stiglitz has described the
present globalisation

“Needy nations are subject to (1) privatisation (2) free flow of capital
(3) market-based price (4) free trade before extending financial loans
by the World Bank. The U.S economy is fast collapsing; the entire
world economic order is heading towards total bankruptcy; the world
needs a complete review of economic order in terms of continental
cooperation while preserving sovereignty of state nations.”
Causes for adopting the economic reforms in 1991

• GOI Introduced the New Economic Policy in 1991 by GOI as a result of

its economy underwent an unprecedented liquidity crisis. The
Collapse of Soviet Union and East European Countries
Gulf War
Fall of India’s Credit Rating in the International Market
There was an outflow of the deposits of Non-resident Indians from Indian
banks. India was on the verge of default on external payment liabilities.
Borrow from the IMF and other foreign financial agencies under the standby
arrangements.
 Features of Economic Reforms

• Government opened major sectors of the economy which were so far

reserved for the public sector to the private sector
• Foreign investment was invited in all these sectors. The ceiling on foreign
equity investment in corporate bodies at 40% was removed, foreign equity
investment up to 51% to 75%, and in some cases, even 100% foreign equity
investment was allowed.
• All restrictions on the entry of the private sector into the field of
infrastructure and strategic industries were removed.
• Import restrictions were reduced. All quantity restrictions on imports have
been removed.
• Subsidies were cut, tax rates reduced
• Free pricing of shares, and more powers are given to the SEBI.
 Impact of Reforms
Decline of Manufacturing Sector
• The industrial sector has been very badly affected during the last few
years and the slow down and loss of production and employment in
this sector has, in turn, led to lower demand for consumer goods
which has resulted in a general levelling down of all productive
activities. The implementation of the new economic policy has hit this
sector hardest.

• The share of agriculture in GDP has seen stiff decline.

• The share of industry in the GDP has moved up marginally.
• The service sector has gained at the expense of both industry and agriculture.
 Boom in Service Sector

The service sector has gained at the expense of both industry and
agriculture

Higher growth in services income may be an indication of a prosperous

modern economy, but the problem is whether the growth in earnings
from trade, hotels and restaurants or, for that matter, from financing,
insurance, real estate and public administration would be sustained
unless income from industry and agriculture grows proportionately to
support their prosperity.
Acquisitions of Indian companies

• An increasing number of Indian corporates unable to withstand the

fiercely competitive environment, have found an easy and lucrative
way out by selling their assets to MNCs. Ten years since the reforms
had set in, we see the sell out to the MNCs as the fastest and most
significant “globalisation” of the Indian business houses.”
• Foreign investment came in consumer goods, Indian companies did
not had the financial strength to undertake aggressive marketing As a
result, many Indian companies had to pull down their shutters or
were taken over.
 Contd..
• Since the Government of India permitted 51% shareholding by foreign
companies, many FERA companies increased their shareholding from
40% to 51% or 74% through preferential allotment of shares.
• Apart from increasing the percentage of their shareholding, some
foreign companies acquired Indian companies by buying controlling
interests. The general policy of the foreign companies appeared to be to
eliminate their local Indian partners as soon as they cease to contribute
either financially or managerially.
• Another method of takeover that foreign companies are employing is to
convert their joint ventures in India with a local Indian partner into
Wholly Owned Subsidiaries (WOS).
• Also the post-reform period has seen a flurry of activities on the
mergers and acquisitions front.
Impact on Labour and Labour Policies

• A comparison with pre-reform period, the number of man-days lost has

declined n the post-reform period.
• Breaking these figures down, we find that more man-days have been lost in
lockouts than in strikes.
• Conditions of employment have been uncertain, workers do not seem to
be willing to go on strike or resort to action.
• Employers seem to have acquired more confidence and are resorting to
lockouts more often. Permissions for closure or retrenchment are more
easily granted.
• A large number of workers have lost their jobs as a result of VRS,
retrenchment and closures both in the organised and the unorganised
sector.
• Many VRS involved an element of indirect compulsion, pressure tactics,
innovative forms of mental harassment, compelling employees to resign by
seeking to terminate.
Impact on Trade Unions
• Trade unions do not normally give a call for strike because they are
afraid that a strike may lead to the closure of the unit.
• Service sector workers feel they have become outsiders and are
becoming increasingly disinterested in trade union activities.
• Instead of demanding higher wages, allowances or facilities, trade
unions now demand job security and some are even willing to accept
wage cuts or wage freezes in return for job protection.
• Recovery proceedings against employers who could not pay heavy
dues of workers are not being pursued seriously by the industrial
relations machinery,
• The labour adjudication machinery is more willing to entertain the
concerns of industry.
Impact on Collective bargaining
• Globalisation is affecting collective bargaining. Earlier in the public
sector, the emphasis was on greater parity across sectors and
reducing the gap between the lowest and the highest paid
employees. Now the gap is widening.
• There is also a trend towards decentralisation of collective bargaining
in key sectors, which tends to reduce the power of unions, but makes
pay more aligned to enterprise performance.
• Incidence of industrial conflict seems to be on the decline. Most long
drawn strikes in the private sector do not seem to have borne results
from the workers’ point of view.
Growing Concerns
• Participation in and the benefits of globalisation have so far been
limited to a small segment of the educated and skilled population and
some private sector entrepreneurs. However, the poverty level seems
to have come down though income disparities have widened.
• Thus, jobs are being created only in very narrow fields such as
information, communication, and in certain informal sectors using
low technology. Other areas of economic activities, like traditional
manufacturing, agricultural and non-farm activities are not
experiencing any increase in jobs. Globalisation led growth cannot be
described as a job led growth.
Responses Framed by the Commission

• A strong argument- Indian labour laws act as a repellent to

foreign investment (Kausik Basu)
• Commission response- It is a overstatement to say that
labour, or labour laws are the only cause of our
unsatisfactory economic development.
• Need- Imperative need to evolve a new work culture in our
country.
Another Argument- ‘hire and fire’

• Commission response: An indiscriminate change of this affects not merely

the vast number of citizens who are in employment and who are seeking
employment. If transforming the basis of all employment is a social
necessity because it has become an economic necessity for industrial or
commercial enterprises, then, it is equally necessary to create social
acceptability for the change.
• The transition can be socially bearable, only if it does not lead to large-
scale uncertainty, deprivation, loss of incomes and penury for those who
lose employment
• Need- There are weighty considerations that should temper the demand
for an immediate switchover to the contract system and to unrestricted
rights of ‘hire and fire.’
 Necessary reforms- a new perspective
• The evolution of a socially accepted consensus on the new perception of
jobs.
• Evolution of a system of constant upgradation of employability through
training in a wide spectrum of multiple skills
• Setting up of a system of social security that includes unemployment
insurance and provisions for medical facilities
• Introduction of a mandatory system of two contracts that each employer
signs with the employees one, an individual contract with each worker,
and two, a collective contract with the workers’ union in the undertaking.
 Contd..
• Promote bilateralism in resolution of industrial disputes, based on
mutual interests and universally accepted fundamental rights and
norms.
• While workers have the right to strike, and employers have the right to
lock out, the rights must be exercised after exploring and exhausting all
other means including the means of mutual consultation and
negotiations.
• Increased transparency is the need for a new work culture.