EMPLOYMENT RELATIONS IN INDIA

Ravi Varma R
 AGENDA

India Physical
India Political
Economy
Education
Collective Bargaining
Evolution of ER in India
Key recommendations of NLC
Challenges
Conclusion
HRM in India
Questions
 INDIA PHYSICAL

Republic of India
Independence August 15th, 1947
Republic January 26th, 1950
Capital New Delhi
Total land area Seventh largest by geographical area (1,269,210 sq mi)
Second most populous 1.17 billion
Official language of the union is Hindi. English is considered as subsidiary
official language
28 states and 7 union territories
Two linguistic families Indo-Aryan (spoken by 74%) and Dravidian (spoken
by 24%)
Major religions Hinduism, Islam, Christianity, Sikhism, Buddhism, Jainism,
Jews, Baha'is and others
Diverse terrain with mountains in the north, desert in the west, plateau in the
center, dense forest in the east and coasts in the south
 INDIA POLITICAL

President Pratibha Devisingh Patil Prime Minister Dr. Manmohan Singh

-12th person and first woman to hold the - 17th Prime minister
post

Bicameral Parliament
- Rajya Sabha (upper house)
- Lok Sabha (Lower house)
National political parties Indian National Congress, Bharatiya Janata Party,
Nationalist Congress Party, Bahujan Samaj Party, Communist Party of India
and Marxist Communist Party
 ECONOMY

GDP 7.3% (2008)

GDP (official exchange rate) - $1.237 trillion (2008)

Sectors
Agriculture - Agriculture provides the principal means of livelihood for over
60% of India's population. Despite a steady decline in its share of the GDP,
it remains the largest economic sector in the country

Industry and Services - Industry accounts for 27.6% of the GDP and employ
17% of the total workforce. However, about one-third of the industrial labor
force is engaged in simple household manufacturing only
-Textile manufacturing is the second largest source for employment after
agriculture and accounts for 26% of manufacturing output
- India is fifteenth in services output. It provides employment to 23% of
workforce
 ECONOMY

Industry and Services

- Business services are amongst the fastest growing sectors contributing to
one third of the total output of services in 2000
- Organized retail such supermarkets accounts for just 4% of the market as
of 2008. Regulations prevent most foreign investment in retailing
Banking and Finance -The Indian finance sector is classified into organized
and unorganized sectors. Organized sector includes public, private and
foreign owned commercial and co-operative banks. The unorganized sector
includes family or individual owned banks like money lenders and
NBFCs.The unorganized sector and micro-credit are preferred in rural areas
over the conventional banks
Natural resources major natural resources include coal (3rd largest
reserve), iron ore, manganese, mica, bauxite, titanium ore, chromite, natural
gas, limestone, oil and thorium (worlds largest)
 EDUCATION

Primary Education is up to the age of fourteen. District Primary Education

Program was launched by the central government in 1994 with the aim to
universalize primary education
Secondary Education is between the age of 14 -18 and prepares students
for higher education. Emphasis on vocational training is a feature of
secondary education
Tertiary Education is when a student enters the university system for higher
education. As of 2009, India has 20 central universities, 215 state
universities, 100 deemed universities, 5 institutions established and
functioning under the state act and 13 institutes of national importance.
University Grants Commission is the body that enforces standards across
various universities and advice government on matters related to higher
education.
Technical Education happens at engineering colleges or universities. All
India Council for Technical Education is the apex body for the development
and regulation of higher technical education. Indian Institute of Technology
are amongst the top 100 best technical universities. Indian School of
Business and Indian Institute of Management are amongst the best
business schools in the world.
XLRI and TISS Our peers in India!
 COLLECTIVE BARGAINING

Three levels
- private sector bargaining is at enterprise level involving unions that may or
may not be affiliated to political parties
- centralized union federations affiliated to political parties bargain with state
at industry and / or national level
- employees of state and central governments have their own unions
affiliated to political parties and they bargain at national and / or state level
Wage is negotiated during the bargaining process
There is no legislation that allows for a representative union
During the second phase of evolution of ER employers and employees
came up with an innovative method of making contract document by making
it a legally binding document. They negotiated a contract that was
agreeable for all and made it a legal document by asking for conciliation.
Terms of agreement are then signed in the presence of conciliation officer
thereby making the contract legally binding. This practice was started after
an amendment to IDA in 1965 which made agreements arrived at through
conciliation and adjudication legally valid
 EVOLUTION OF ER IN INDIA

Evolution of Employment Relations in India can be traced in 4 phases

corresponding to the respective five year plans

PHASE I Public Sector Unionism

Corresponds to the first three five year plans (1951-56,1956-61,1961-66)
State led industrialization with import substitution strategy
Public sector employment lead to public sector unionism
Jump in the number of registered trade unions from 4623 (1951-52) to
11,614 (1961-62)
All India Trade Union Congress (AITUC) dominated the union scene since
pre independence
Formation of Indian National Trade Union Congress (INTUC) which was an
arm of the ruling congress government. Union leaders were more loyal to
congress party than to the workers belonging to the union.
 EVOLUTION OF ER IN INDIA

PHASE I
Relationship between state and INTUC tied neatly with the provisions of
Industrial Disputes Act (IDA) 1947 and Indian Trade Union Act of 1926
Determination of wages and working conditions by state and were not linked
to labor productivity
Objective of ER was to maintain industrial peace thus promote responsible
unionism resulting in lower number of strikes during phase I.
End of phase I resulted in splits in labor movement.
- Socialists broke away from congress to form Hind Mazdoor Sabha (HMS)
- radicals broke away from CPI to form CPI (M) and formed Center of Indian
Trade Unions (CITU)
Giri Approach promote genuine collective bargaining, Code of Discipline
and inter-union Code of Conduct
 ER LEGISLATIONS

Indian Trade Union Act of 1926: This act allowed any seven workers to
register their trade union. But it did not make any provision for union
recognition
Industrial Disputes Act (IDA) of 1947: An Act to make provision for the
investigation and settlement of industrial disputes, and for certain other
purposes. This act is considered to be the most important legislation
between workers and employers. This act did not make provision for the
representative union in a single bargaining unit. Since employers were
under no obligation to bargain there were no built-in incentives for either
party to engage in collective bargaining
Amendment to IDA (1976): Gave rise to employment inflexibility. Firms
employing more than 300 employees had to get government permission
before they could lay off workers
Amendment to IDA (1982): Firm employing more than 100 workers (reduced
from earlier number of 300) will have to get permission from state to layoff
or retrench workers
 EVOLUTION OF ER IN INDIA

PHASE II Formation of new unions

Corresponds with the annual plans for the years from 1967-69 and the
fourth and fifth five year plan (1969-74 and 1974-1979)
Industrial stagnation increase in inflation, deceleration in public
investment, unequal terms of trade between agriculture and industry,
inefficiencies of state regulation in public sector and changes in the
structure of demand resulting from income inequalities in addition to oil price
shocks of 1973 and 78
This lead to unemployment and fall in labor productivity from 4.9% to 1.4%
(comparison between 1959/60 1965/66 with 1965/66 to 1979/80)
Increase in strikes and lockouts and flight of capital from one region to other
parts of the country (eg: West Bengal)
Formation of more radical and political unions lead by lawyers and students
who were well versed about the IR system.
 EVOLUTION OF ER IN INDIA

PHASE II
Emergency Period (1975-77) suspension of right to strike, freeze in wage
increases
Two interventions of this period were:
- attempt to form a National Apex Body comprising 11 employer
representatives and 12 trade union federations to promote bipartite
approach to IR
- amendment to IDA: permission from state to layoff workers
There were fractures developing within the labor movement in terms of
unions moving their focus form right to interest
 EVOLUTION OF ER IN INDIA

PHASE III Shift from import substitution to export promotion strategy

Corresponds to sixth and seventh five year plans (1980-85 and 1985-90)
and two annual plans (1990-92)
First part: economy suffered due from internal and external shocks resulting
in balance of payments crisis and subsequent loan from IMF
Internal shocks unrest in the northeast of the country, worst droughts since
independence and rising inflation
External shock increasing oil import bill, recession of 1980/81
Second part: economic liberalization thereby changing course from the
import substitution strategy to export promotion and domestic competition
Macroeconomic changes lead to changes in trade unionism, labor markets
and structure of industrial relations
Rise of independent unions: Mumbai textile strike of 1982
 MUMBAI TEXTILE STRIKE

Year of occurrence: 1982

It was the longest strike in post independence labor history
It started as wage and bonus issue in few mills but soon developed into
industry wide strike
The real reason was the frustration of rank and file with the 1947 Bombay
Industrial Relations Act which imposed upon them an industry-wide
bargaining structure with an unrepresentative union (affiliated to INTUC) as
sole bargaining agent of workers
Workers approached Datta Samant to lead the struggle
Textile strike ended in a disaster with many mills shutting down for ever,
workers returning home, employers restructuring their mills in advanced
textile sector
This also lead to loss of credibility for government installed unions for ever
The major change it brought to trade unionism was the rise of independent
union movement
 EVOLUTION OF ER IN INDIA
PHASE III
Inter-city variations in ER
- In Mumbai, union leaders disclaimed political allegiance. Reason could be
because Mumbai has a very high concentration of MNCs and private firms
and thus very business oriented
- Kolkata was highly political conscious
- Bangalore having high concentration of public sector unions due to the
presence of large number of public sector units
labor market flexibility: Subcontracting and outsourcing work to unorganized
sectors
Wages were high in profitable sectors while it was not so in unorganized
sectors
Number of changes proposed to remedy the limitations of IDA and Trade
Union Act which would have reduced fragmentation and multiplicity of
unions, clearly define bargaining agent by providing for the secret ballot
provision, promote internal leadership, set up state level industrial relations
tribunals, force employers to set up all encompassing bargaining councils in
order to facilitate internal grievance settlementetc. The bill was rejected
due to controversy over the definition of industry
 EVOLUTION OF ER IN INDIA

PHASE IV Deregulation
Corresponds to eighth and ninth five year plans (1992-97 and 1997-2002)
During this period economy had opened up and grew at 5.3% during the
first five year period of reforms, 1992-96
World Bank-IMF stabilization and structural adjustment program
devaluation of rupee twice, reduction in import quotas, lowering of tariffs,
ended state monopoly on exports and imports
Initial structural adjustment saw growth in unemployment in manufacturing
sector but second structural adjustment saw an increase in employment
which grew by 2.3% (1992/93 and 1994/95)
Decline in union membership: union membership as a percentage of non-
agricultural labor dropped from 6.6% in 1985 to 5.5% in 1995. Union
membership as a percentage of formal sector workers too came down from
26.5% to 22.8%
 EVOLUTION OF ER IN INDIA

PHASE IV
Predicted growth in casual workers and self-employed due to unlikely
employment opportunities in public and private sectors
Closure of unviable public sector plants
Introduction of golden handshake and VRS
Centralized wage bargaining process was frozen, by the government, for
the first few years after 1992
It opened negotiation process. But tried to decentralize it by announcing that
wage increase will have to be absorbed by the specific enterprise as any
increase in wage cannot be put into final product price under new scenario
Setting up of National Labor Commission in the October of 1999
No labor reforms have been carried out till date due to political instability at
the central level and lack of consensus
 KEY RECOMMENDATIONS OF NLC

Engagement of temporary labor even in core production/service activity to

meet seasonal demand. Offloading perennial non-core services could be
continued

Prior permission not required in respect of lay-off and retrenchment in an

establishment of any employment size. Prior permission not required in
case of a unit employing less than 300, for closure of establishment

Flexibility in overtime provisions to meet market demand. Present ceilings

could be doubled
(Labor Reforms in Southern Region States - Issues and
Concerns, CII policy primer, no 3, April 2004)
 CHALLENGES

Increased differentiation within labor markets due to high product market

differentiation and application of technology that is diverse within the same
industry

Decentralization of collective bargaining as a result of wide demographic

spread of firms and also due to the rise of mutually exclusive market
segments within the same industry

Formation of proposed Industrial Relations Commission (IRC) which is

independent from state intervention and made responsible for conciliation
and adjudication of industrial disputes. It is also envisioned to have rights to
recognize trade unions as bargaining agents
 CONCLUSION

evolution of industrial relations institutions in India has

been incremental and adaptive. Change has been driven
more by the endogenous force of party politics,
government policy, class segmentation, demography and
geography, rather than simply by the exogenous forces
of globalization or by the functional requirements of a
particular industrialisation strategy
(The evolution of Indian industrial relations: A comparative perspective,
Debashish Bhattacharjee ,2000)
 HRM IN INDIA

Aligned with HR practices in the developed world

Recruitment: Outsourced to firms specialized in recruitment
Training: In most of the organizations training delivery is outsourced and
internal trainers are mostly used in case the training imparted is relevant to
organizations technology
Compensation and Benefits: Based on benchmarking exercises or from
surveys conducted by firms specializing in compensation
Payroll administration is outsourced
HR personnel are getting oriented more towards supporting businesses
There is stress on Leadership development trainings to develop second and
third tier leaders
Finishing schools for graduate engineers