HRM/0052

Industrial Relations in Tamil Nadu: Tarnishing the Investor-friendly

Image?

Tamil Nadus main attraction is its investor-friendly policies. It also has very amicable
labour relations.[1]
H.S. Lheem, Former MD, Hyundai Motor India Limited (HMIL)
If violence is seen as a tool to be used against management, it can be copied in other
factories also.[2]
Mahendra Ramdas, President, Indian Chamber of Commerce and Industries (ICCI),
Tamil Nadu
The year 2009 did not go well for the state government of Tamil Nadu as well as for the
management of two major Indian companies and two MNCs in the state. Tamil Nadu, one of
the promising southern states of India, has been marred by a sudden outburst of labour
activities. The state, which was the fastest growing economy in the south had what every
other state of India wanted; an investor-friendly image. With healthier labour relations and
increased infrastructure developmental activities by the government, Tamil Nadu had grown
from the also-ran to the most sought after state to set up new manufacturing facilities by most
of the MNCs that entered India. Auto companies and telecommunication giants liked the
state alike for the state governments aggressive policies directed towards industrial
development. The state has always honoured commitments made to investors, and deals
with them in a transparent manner, leading to high levels of confidence. Consistent
performance in arranging necessary clearances has played a critical role in maintaining this
level of investor confidence,[3] said M. Karunanidhi, Chief Minster of Tamil Nadu,
explaining the industrial growth of the state.
TAMIL NADU: WHERE PLANTS GREW
Tamil Nadus industrial growth was phenomenal and was not much related to the political
activities in the state. Tamil Nadu carefully avoided vested political interests in the
developmental processes. The state took initiatives in developing and protecting the
infrastructure which are two prerequisites for large investments, especially for the foreign
companies. Many of the projects have been set up to develop the infrastructure by the
government itself, with private partnerships in some cases. An investor making substantial
financial commitments in green field ventures evaluates two important and implementing
features an enabling government and a business/commerce culture. Tamil Nadu, for a long
time had been scoring high on both. The other criteria are location, education and training,
availability of skilled workforce, working knowledge of English, a good communication
structure, road and rail network, accessibility to air and seaports and a quality of life that
offers the basics in international schooling, recreation and entertainment. Tamil Nadu has no
dearth of these amenities. Thus the consultation and partnership with the industry was
established by the government. The advantages of investing in Tamil Nadu were many
(Exhibit I) and investors are never late to act on an opportunity.
Exhibit I
Advantages of Tamil Nadu as an Investment Destination
Fastest growing State Economy in India
One of the top three recipients of Foreign Direct Investment (FDI)
Matured manufacturing sector
Fast emerging as the IT happening destination
Stable political climate
Pro-active and investor friendly Government with transparent decision-making approach
Peaceful living conditions and low crime rate
Peoples adaptability to change
Most urbanised state
RanksNo.1 in availability of skilled manpower in India
Most sought after destination by MNCs
Excels in terms of Human Resource, Infrastructure and Labour Relations
Low cost of Man power
Lower cost of living when compared to other locations
Largest tour-out of Engineers Technicians (130,000 from a network of 252 Engineering
Colleges & 210 Polytechnics)
Well qualified, skilled, disciplined, productivity oriented and English speaking work-force.
Source: Advantage of Tamil Nadu, http://www.tidco.com/advantamil.html
With the said advantages, the industrial and mainly manufacturing facilities in the state grew
over years. Tamil Nadus capital, Chennai and the surrounding suburban areas are crowded
by units set up by Indian and multinational companies (Exhibit II).Apart from Chennai, some
of the other Industrial hubs in Tamil Nadu are Coimbatore, Cuddalore, Dharmapuri and
Tirupur.
Exhibit II
Industrial Development in Chennai (Tamil Nadu)
Sector Some Major Companies Present in Chennai
IT Infosys, TCS, Wipro, Cognizant Technology Solutions,
Satyam, HCL, IBM, Accenture, Sun Microsystems, HP,
Polaris, Verizon
Electronics Hardware
manufacturing
Dell, Nokia, Motorola, Cisco, Samsung, Siemens, Flextronics,
Foxconn
Auto and auto
ancillaries
Hyundai, Ford, Mitsubishi, BMW, TVS, Wheels India Ltd,
Ashok Leyland, Caterpillar, Royal Enfield, TICycles, TAFE,
Dunlop, MRF, Mahindra & Mahindra, Apollo Tyres
Petrochemical Chennai Petro Chemicals Limited (CPCL), Manali Petro
Chemicals Limited, Madras Refineries Limited (MRL), Petro
Araldite
Banking Major Indian and Multinational Banks
Source: Tamil Nadu- Industrial Profile,
http://www.thaibicindia.org.in/study/tamil_nadu/Industrial_profile.pdf, pages 1011
But all these developments would not have happened without the state governments efforts
and the investors perceived benefits. The state offered many benefits (Refer to Exhibit I for
advantages of Tamil Nadu).On its part, the Tamil Nadu government offered several
incentives for companies setting up manufacturing facilities in the state (Exhibit III). The
development of Special Economic Zones (SEZ) and manufacturing townships were aimed at
removing the stumbling blocks for prospective investors. However, two issues
transportation (especially the roads and highways) and power plague the state government.
The state had invested INR 2,000 crore for development of highways to improve rural and
industrial connectivity. Though it is finding it tough to catch up with superior road
infrastructure, Tamil Nadu intends to reach the target soon. Another trouble is the power
crisis in the state. Power has become quite expensive in the state but with increased
investment in the sector and development of new projects, Tamil Nadu intends to have
surplus power in the years to come. Tamil Nadus investors were amply supported by its
logistical advantage, with the availability of three major sea ports (Chennai, Tuticorn and
Ennore), two intermediate ports (Cuddalore and Nagapatinam) and 13 minor ports.[4] The
state also has one international airport and six domestic airports.
Exhibit III
Incentives for Investors in Tamil Nadu
Structured package for Investments exceeding US $70 million to be made in a max.
of 3 years
Concessions in Land cost
Stamp duty concession on Land
Exemption from Electricity tax for certain period
Soft loans towards Sales Tax
Input tax set-off/rebate
Power from multiple feeder lines from independent sources
Capital subsidy of aboutRs.15million+Rs.2.5million for Effluent Treatment Plant
subsidy.
Mega project subsidy for projects exceeding Rs.500million
Effluent treatment Plant subsidy
50% Stamp duty concession
Electricity duty exemption
Input tax exemption for purchases made by 100% EOUs from DTA
Incentives for Special Economic Zones (SEZ).
Source: Tamil Nadu- Industrial Profile,
http://www.thaibicindia.org.in/study/tamil_nadu/Industrial_profile.pdf, pages 5354
Spearheading the investment climate friendly environment are a few focused government
establishments. The prime mover is Tamil Nadu Industrial Development Corporation
(TIDCO). Formed in 1965 by the state government, TIDCO facilitates large-scale
investments in industrial and infrastructure projects. The supporting bodies of TIDCO are
also formed by the government, aimed at attracting investments in the industrial sector
(Exhibit IV).While setting up a company can take years in some states of India, in Tamil
Nadu it takes 41 days. Companies march down to this southern state with relief. The states
single window clearing system appears quite impressive to the companies.
Exhibit IV
Bureaucratic Bodies for Industrial Development in Tamil Nadu
Establishment
Year of
Establishment
Major Functions and Objectives
Guidance
Bureau
1992 Attract industrial projects and promote investments in Tamil Nadu
Provide comprehensive information to investors regarding federal and state
government policies
Single Window Documentation Centre
Troubleshooting during the implementation stage
Educating investors about the advantages of investing in Tamil Nadu
Undertake research and feed back government regarding investment flows
Export guidance.
State Industries
Promotion
Corporation of
Tamil Nadu
(SIPCOT)
1971 Setting up industrial complexes to function as growth centre and industrial Park
Providing financial assistance to large and medium scale sectors
Monitoring of Letter of Intent and providing Escort services to medium and large
scale industries.
Electronics
Corporation of
Tamil Nadu
(ELCOT)
1977 Building a Brand image of Tamil Nadu as a modern state, an attractive location
for people and businesses
Elevating Tamil Nadu as the destination of choice for IT Investors across the
world, by promoting IT specific SEZs
Being the preferred vendor of choice for procurement of IT products and
services
Being the preferred consultant for application software development for e-
governance
Being the preferred agency for execution of IT infrastructure and e-governance
Providing hand holding support to the Government and in its IT initiatives.
Tamil Nadu
Industrial
1949 Fostering Industrial developments in the state through providing financial
assistance
Investment
Corporation
(TIIC)
Term Loan
Term Loan and Working Capital Assistance under the Single Window Scheme
Lease Financing for Machinery/Equipments
Hire Purchase Financing for Machinery/Equipments
Merchant Banking & Other Financial Services
Soft Loan.
Tamil Nadu
Small Industries
Development
Corporation
(TANSIDCO)
1970 Setting up of Industrial Complexes to function as growth centre and Industrial
parks
Providing financial assistance to medium and large scale sectors
Channelising incentives for Industries from State Government
Monitoring of Letter of Intent and providing Escort services to medium and large
scale industries.
Compiled by the author
Potential investors are generally attended by a group of secretaries from the departments of
taxes, IT, finance, energy and water supply, along with a group of officials from State
Industries Promotion Council of Tamil Nadu (SIPCOT), Industrial Guidance and Export
Promotion Bureau. At one meeting the investor gets a clear idea of all that needs to be
resolved. The same panel also does a review meeting every month. All this makes things a lot
easier for the investor,[5] says Shaktikanta Das, secretary, Tamil Nadu Industries. A number
of steps are taken by the state government to strengthen the strategies to attract more
investments (Exhibit V). Every State now is in the running race. I would define the race as
the race to get the future first and secure the prize of coveted industrial projects and FDI, and
every State can now seek FDI. Therefore, every State is vying with each other to formulate
attractive investor-friendly policies. With the incentives offered by the States being more or
less similar, it is the strategic edge in human resource, speed, transparency, proactive
bureaucracy, quality of the work-force and most importantly, the availability of
infrastructures, especially quality and quantity of power, that make the difference and tilt the
balance in favour of a particular State[6], said Murasoli Maran, Union Cabinet Minister for
Industry during 19992002.
Exhibit V
Strategies for Facilitating Investments

Source: Tamil Nadu- Industrial Profile,
http://www.thaibicindia.org.in/study/tamil_nadu/Industrial_profile.pdf
Apart from these benefits, Tamil Nadus labour front portrayed a different picture from its
history of militant labour unionism. The workforce was educated enough, eager to learn and
was hard working. Whether it was the textile manufacturing of Tirupur or the auto
manufacturers and IT companies in Chennai, all the investors were impressed by the
discipline and dedication of their workforce. Though unions were present there was a peace
surrounding the entire industrial sector of Tamil Nadu. Indias most urbanised state, with
43.86%of its 65million population living in urban areas, it has over 75% literacy rate. The
number of qualified workforce is ever increasing in the state. The number of engineering
graduates in the state counts to 329,271.[7] It helped the state in attracting manufacturing
companies. With automobile firms queuing up in the state, its capital city, Chennai was even
proclaimed as the Detroit of South Asia. The states GDP per capita has already touched
INR 39,315.[8]
The efforts of the state were well-reflected on national survey which was conducted to find
the most competitive states of India. Not for nothing had Tamil Nadu become the second
most competitive state in the country (Exhibit VI (a)), performing better than the all its
southern counterparts. Even in the parameters that determined the ranking for
competitiveness, Tamil Nadu has done extremely well (Exhibit VI (b)). Tamil Nadu is not far
behind in factors like ease of starting a business, availability of qualified workforce and road
and rail network too (Exhibit VI (c)).
Exhibit VI (a)
Indias Most Competitive States

# Delhi and Goa are not included in the ranking as they were union territories recently converted into
states; GDP and population figures as of Dec 2007 unless otherwise mentioned;
*figures for year ended Dec 2006;
**figures for year ended Dec 2005
Source: Indias Most Competitive States,
http://www.businessworld.in/Pdf/Most%20Competitive%20States.pdf, February 13
th
2009
Exhibit VI (b)
Parameters Used for Ranking and Tamil Nadus Rank in Each Parameter


Source: Ranking by parameters,
http://www.businessworld.in/Pdf/Rankings%20By%20Parameters.pdf, February 13
th
2009
Exhibit VI (c)
Status of States

Ease of Doing Business
(No. of days to start business)

Source: The States Quo, http://www.businessworld.in/Pdf/The%20States%20Quo.pdf,
February 12
th
2009
If all this sounds like a fairy tale, Tamil Nadus government and its people deserve all the
credit. However, who would take the blame for sour year of 2009 while one high ranking
executive was killed by agitated workforce, the state lost many man-hours due to either
frequent strikes or lockouts. If it took many years to develop an investor-friendly image, it
just needed a few nasty and bizarre incidents to mar the very same image, forcing the
companies to either scale down their operations or look for safer havens.
FRAGILE INDUSTRIAL RELATIONS: LOSING THE INVESTOR-FRIENDLY
IMAGE?
The first labour union in India, Madras Labour Union was formed in Tamil Nadus capital in
1918. The capital city Chennai (then Madras) has become an industrial hub over years and
remained an epicentre of labour activities. Though there had been disturbances in the
relations, the intensity was never as alarming as the recent developments in Tamil Nadu
labour front (Exhibit VII).
Exhibit VII
Labour Disputes in Tamil Nadu

Compiled by the author from Varadarajan Nitya, None at Work, Business Today, November 1
st
2009
PRICOL TRAGEDY: MORE THAN A PRICKLING LABOUR DISPUTE?
Pricol, one of the oldest industrial establishments in Coimbatore, known as Manchester of
South India, has branches across the world. Pricol was started by Vijay Mohan (Mohan) in
1970s and it manufactured one simple product; speedometers for mopeds. Over the years,
Pricol grew to become a major exporter of products ranging from fuel gauges to clocks to
cigarette lighters to around 40 countries across the world. It also has prestigious customers
like Toyota Motor Corporation and General Motors. For 25 years, the company followed
very worker-friendly policies. Pricol had one common cafeteria for all its employees instead
of separate ones for executives and workers. It paid the same wages to men and women
workers and did not hire contract workers. In 2000, afraid of building a costly permanent
workforce, Pricol started hiring contract workers, who were comparatively cheaper. By 2007,
Pricols sales nearly tripled from that in 2000, and reached INR 4.8 billion. The companys
growth was huge, but our wages were still low, said C. Murali Manoharan (Manoharan), a
16-year Pricol veteran and a former union leader.[9] Though the workers demanded bigger
pay increases, the management was not ready for it. The workers approached AITUCs head
in Chennai, Kumaraswami, in early 2007. Though he was not a worker at Pricol, promising to
resolve the issue, he organised a strike. But the management remained strong on its stand.
The striking contract workers were replaced by other contract workers and the permanent
workers joined after 100 days of strike, in June 2007. In July 2007, Mohan said there would
be no raise in the wages as the work stoppages reduced the production levels and hence the
sales. The workers reacted in a strange way, tying up the contract workers who were hired
during the strike. Pricol entered a troubled phase, with its annual growth of 15%20%
plummeting and losses increasing.[10] Since 2007, the company had been in the need of a
solution for the growing labour problem that was taking a toll on its growth. In 2008, though
the Indian automobile market boomed, Pricols sales did not go up, making the net profit fall
to half of that in 2007.[11] In August 2008, the executives touring the factory were beaten up
by a group of workers and many were hospitalised.[12] Though the management accused the
union, the union denied it. As a union leader, Manoharan was upset over the disruptions and
believed a solution would be impossible under Kumaraswamis methods. When Manoharan
started secretly meeting the company executives to find a solution to the problem, he was
threatened by other workers. He was physically attacked and his hand was broken. The
company paid him, though his damaged hand did not allow him to work.
The firms vice president (HR), Roy George (Roy), an IIM alumnus was trying hard to bring
the operations back on track. Hired by the company in March 2009, he had been trying to
bond with the workers, especially with those who were against the wage freeze. The
protesting workers played cards or slept during working hours to support the work slow
down protest.[13] Roy kept an open-door policy and was ready to hear out the grievances of
the workers. His attempt was to ease the tension among co-workers.
The long-standing rift at the company took an ugly turn in September 2009, when a group of
workers started disturbing other workers by not allowing them to work. On 19th September,
the company suspended 42 workers on disciplinary grounds, for disrupting the work at the
plant. By November 2009, one-third of the total workers at its three plants were contract
workers. But, the capacity utilisation at Pricols Kaniamuthur unit slipped by 10%.[14]
On September 21st 2009, Roy was beaten up by the suspended workers and was hospitalized
with brain injuries. Soundarya Rammurthy, another HR executive at the company says she
saw two workers with iron rods and burning eyes heading into Roys office and heard
shattering glasses and screams later.[15] On September 22nd 2009, he succumbed to his
injuries. The video cameras at the HR buildings entrance and at the HR executives office
were disabled intentionally.[16] While the company accuses the unrecognised union of
workers, the unions are accusing the company for their vindictive actions against workers.
They say the unrest has long been brewing and it is known to the labour department of the
state.[17] The Communist Party of India (Marxist- Leninist) Liberation, whom the union
accused of the violence in the Pricol incident, said that the company is a violator of labour
laws (Exhibit VIII).
Exhibit VIII
Pricols Labour Law Violations The Unions View
Vindictive transfers
Refusal to engage in collective bargaining in good faith with the majority union
Illegal partial lockouts
Break-in-service orders
Stoppages of increments
Termination of more than 1000 employees
Illegal deduction of wages and incentives running into crores of rupees; promises by the
management to pay all these withheld dues if the workers leave the unions
Employment of apprentices and contract labour contrary to certified standing orders and
the Contract Labour (Abolition and Regulation)Act, 1970
Most recently, dismissal of 44 workers without any domestic enquiry.
Source: Pricol Tragedy: Witch Hunt Must Stop, Justice Must prevail,
http://www.cpiml.org/liberation/year_2009/nov_09/special_feature.html, November 9
th
2009
While the recognition of the union has long been a problem, it is not clear why the company
or the government or even the unions did not try to find a solution. The CMD of Pricol,
Mohan is pessimistic about a better end of all the pain the company has been going through
observing that, the only way to resolve it smoothly is to recognize this leader and the
militant tactics. That will spell the death knell not only for Pricol but for so many other
industries in Coimbatore.[18] However, history says that the employees have proved
majority in 2007 and the company had not been taking steps to recognise the union. The
management had partially locked out one plant in respect with 64 employees who
participated in agitation in early March 2007 and lifted it only after the intervention of state
government.[19] With a fresh stint of labour unrest, the company is worried about the future.
Vanitha Mohan, executive director of Pricol said that the customers are losing confidence on
the company because of the labour issues it faces. Some Original Equipment (OE)[20]
customers also warned the company that if the company engages with a communist union,
they (the customers) wont have confidence that the labour relationship would be good in
long term.[21] The company is thinking of shifting the entire Coimbatore operations to Pune
or Manesar, where the company has a spare capacity. Some of the large players in the auto
industry also want it to shift.[22]
Mohan has already enlisted outside mediators and has agreed to remove the wage freeze. But
things are yet to be decided. With both opposing sides busy blaming each other and justifying
their own actions than finding an amicable way to end the crisis at the company and the
government probing the murder of the vice president, the issue at Pricol do not seem to wind
its way through a lasting solution. Fortunately, Pricols output has bounced back to the good-
times level. But there is still a tension around the factorys plants. I dont say everything is
hunky-dory. There is an artificial calm,[23] says Mohan.
Another company tasting the unfriendliness of workers is Hyundai, the South Korean
automobile (car) manufacturer. While some doubt Hyundais success in Indian automobile
market, the company doubts the state governments credentials.
HYUNDAI INDIA: THE TAMIL NADU CHAPTER
HMILs former MD, H.S. Lheem (Lheem) would have wondered whether to take back his
words, Tamil Nadus main attraction is its investor-friendly policies. It also has very
amicable labour relations.[24] The amicable labour relations at the company took a
diversion when around 800workers of the HMIL Irungattukottai factory started a strike on
April 20th 2009 demanding recognition of the labour union. The strike was called illegal and
the company accused that it was politically motivated.
A company official said that there were hardly 150200HMILworkers among the striking
workers.[25] Indias second-largest carmaker and worlds auto major was witnessing an
unsought consequence of its Indian entry. However, the company was against allowing any
unions inside the company and was particularly apprehensive about the involvement of
outsiders in company related activities.
A. Sounderrajan, president of Centre for Indian Trade Unions (CITU) Tamil Nadu unit, tells
that The HMIL management had not recognised the union, a registered body formed in 2007
and the only union there, and had dismissed 65 people, suspended 34 and transferred some
others for enrolling as members of the union.[26] Another issue was that of the contract
labourers. The factory has a total workforce of about 6,000, of whom only 1,556 are
permanent and earn anything between INR 8,000 and INR 22,000 a month. The rest,
numbering about 4,500, are temporary and are in the categories of casual workers,
apprentices, trainees and contract labour. Their monthly wages range from INR 3,000 to INR
4,500.[27]
In the first week of May 2009, the workers entered a fasting strike and were taken into
custody by the state police. Later, both the sides discussed the issue under the mediation of
the labour commissioner and decided that a trade union which is mutually acceptable to the
management and the workers would be established. The work in the factory was resumed
after the rift which took 18 days to resolve.
But, for HMIL, problems seemed to be never ending, as it signed the ninth wage settlement
agreement with HMIL Workers Committee (WC), a labour union recognised by the HMIL
management. The unrecognised union, Hyundai Motor Employees Union (HMEU) alleged
that the labour department had asked the management to enter into an agreement only with it,
whereas the company went ahead and signed the agreement on July 24th 2009 without their
knowledge.[28] We are happy with the wages and have been provided all basic welfare
measures. What we need is the company should allow us to form the union for our overall
welfare activities in the future and should re-enter wage settlement afresh,[29] said HMEU
spokes person. We are happy with the wage increase, our only issue is, we do not want to
sign under the Workers Committee banner,[30] said Sounderrajan. The new wage settlement
included a pay increase of 21%24% over a period of 3 years and a pool of INR 40 lakh (up
from INR 30 lakh) for housing interest subsidy and new incentives linked to attendance,
productivity and quality of work.[31] However, HMEU demanded that the company enter a
wage agreement afresh. The development of the fresh strife between the union and the
company again gave way to protest in the form of strike. With 200250 of HMILs 1,650
workers absent to the work, the daily production dropped by 40%.[32]
But the Korean carmaker was adamant enough to deny the demands. We never ever allow
unions to be formed. The existing workers committees (WC) have been given full bargaining
power and are formed under the labour laws The labour laws in India are very complicated
and any union formation would spoil the good industrial climate at Hyundai,[33] told
Lheem. Either they have been instigated by outsiders or they have aligned with somebody
who tries to exploit the treasure hunt of the company for their personal benefits,[34] he
said about the HMEU, reminding the fact that HMIL is the leading paymaster in the Indian
automobile sector. Lheem also expressed hope that the Issues would be sorted out soon. The
company, instead of recognising the union, initiated discussion with striking workers and
involved the state Labour Department in solving the issue.
It would be right to think that the adamancy of the company paid off. On July 28th, after the
intervention of Tamil Nadu Chief Minister and Deputy Chief Minister, the strike ended on
amicable terms. However, the company pointed out that there would be no going back on the
decision of not recognising the CITU based HMEU. The company lost 6 days because of the
strike. Though HMIL had been swift in solving the problems, it seems that troubles are not
ending for the auto major. On November 19th 2009, the company management received a
faxed communication from the unrecognised union stating that they resort to direct actions
from December 5th2009.[35] The company stated that such a development would deteriorate
Tamil Nadus industrial peace and harmony. The company also said that the strike threat by
the unrecognised union is a breach of the agreement signed in July.[36]
But not everyone is as swift as HMIL. MRF lost more than 100 days on a rift between the
management and workers over recognition of a union, started in May 2009.
MRF: TIRING LABOUR PROBLEMS AT TAMIL NADU
MRFs strife with workers over productivity standards in its Thiruvottiyur[37] plant had
earlier ended in lockouts in December 2007. The problem started with the companys refusal
to pay the cash reward to its 1,470 employees as the plant did not meet its productivity
standards. These lockouts were lifted only in February 2008, after the state governments
intervention. The lockout was lifted on February 5th 2008 and the problem was temporarily
resolved. Later, on May 5th 2009, MRF signed a wage agreement with the MRF
Arakkonam[38] Workers Welfare Union (AWWU), its recognised union following high court
order. But, another union, MRF United Workers Union (UWU) accused the company of
underpaying the employees and lacking transparency. The average salary at Arakkonam unit
was around INR 7,000 while MRFs own employees at Tiruvottriyur unit were paid basic and
DA and the wages were more than double.[39] Moreover, the number of contract workers
was more than double the permanent workers at the Arakkonam factory.
UWU wanted the company to recognise the union, which was formed in 2003 and is said to
have the majority. The UWU has approached the management many times to make it the sole
bargainer of the workers by recognising it. However, the management was least bothered
about finding the majority union and recognising it. The UWU also accused the company of
taking anti-union actions against its members. They said that the union members were
unjustly removed from work and there were many disciplinary proceedings on false grounds.
From May 9th 2009 onwards the UWU went on a strike, demanding reinstatement of 250
workers (most of them dismissed for unionisation), recognition of the union and discussion of
the salary revision with the union.[40] The strike was supported by the workers at MRF
Puducherry, who followed suit by engaging in strike. On May 17th 2009 MRF management
announced a lockout. The union moved the High Court (HC) seeking a solution for the
troubles. On May 19th 2009, the HC directed the two unions UWU and AWWU and the
MRF management to maintain the status quo, subject to the management taking a decision on
a recent wage settlement agreement.[41] The lockout was lifted on May 28th 2009. However,
the workers did not return to work and remained stern on their demands.
UWU soon filed a petition in Supreme Court (SC) stating that the HC should have given an
injunction along with status quo. The union also wanted the court to direct MRF and labour
department to implement International Labour Organisations (ILO) directions about
recognition of the majority union.[42] On June 8th 2009, the bench at SC refused to intervene
in view of the petition coming up for hearing in the HC on June 9th 2009.[43] The counsel
said in the court that there were no laws regarding the recognition of trade unions in Tamil
Nadu. On this, the bench expressed the need for considering amendments to the Trade Union
Act and observed that It is high time the Government considered amending the Trade Union
Act.[44]
The strike brought dire effects to the company. Troubled by the labour issue at MRF, Honda
Motorcycles and Scooters Industries (HMSI), a major customer of the company turned to
Falcon Tyres, MRFs competitor. Many of the MRF dealers were also affected by the strike.
The union too had to take the beating as many of its members were arrested during the
protests including hunger strikes.
The strike continued through July and August, reducing the production at MRF considerably.
MRF blamed the strike at Arakkonam on militant unionism. The management of MRF
sincerely believes the misled workmen, the general public and the Government agencies
should not be influenced by vilification campaigns, being relentlessly carried by the splinter
group and their leaders.[45] The company also said the strike had cost it more than INR
1,000 crore.[46]
On September 9th 2009, the HC directed the State Labour Commissioner to verify which
union has got majority. The court also asked the MRF management to approve whichever
union proves the claim. Eventually, the union won as the management had to recognise it.
After an ordeal of 125 days, neither the company would get its lost business, nor would it be
easy to gain back the workers trust. Who is at a loss, the company or the employees?
NOKIA: KNOCKED OUT BY LABOUR DISPUTE AT TAMIL NADU?
Nokia, Finland-based mobile phone handset maker was more than happy when they entered a
deal with the investor-friendly state in one of its largest markets, India. It must be with great
expectations that the company made its largest manufacturing facility across the world in
Sriperumbudur, a suburb of Chennai. Nokia started its operations in Tamil Nadu in 2006,
recruiting a large number of natives. There were no issues that threatened the work then.
However, after Nokia decided to sign a new agreement with the workers, problems started to
rise from nowhere. The issue was insufficient wage revision, which Nokia proposed on
August 11th 2009. The management offered a rise of INR 800 for those who have worked for
1 year, INR 950 for the ones who had completed 2 years and INR 1,200 for those who had
worked for 3 years for the company. But the union found this unappealing. They demanded a
uniform increase of INR 1,500 for everyone and the management refused to accept the
demand. We have open communication channels with employees and are engaged with
them through elected employee representatives. We are committed to our people and abide by
all rules and regulations and remain the best in class employer,[47] said a Nokia
representative.
The strife reached its peak as around 8,000 employees of Nokia entered a sit-in strike. The
production of 300,000 handsets were affected by the strike. However, the strike lasted only
10 hours as it was suspended since the employees decided to meet the labour commissioner
to seek advice. Though it took time, the issue was solved amicably as the company agreed to
sign a new salary agreement with around 5,000 of its employees getting an increase of INR
1,5003,300.[48] The agreement was signed with Nokia Workers Progressive Union,
affiliated to Labour Progressive Federation (LPF), the states ruling partys labour wing. The
agreement was signed before the Deputy Commissioner of Labour on October 21st 2009. The
canteen allowance was increased to INR 1,000 from INR 850 per month and a nightshift
allowance of INR 20 was also included in the agreement.
Whether Nokia did the right thing is another question and the answer would come only with
the future. However, the strike would have definitely evoked apprehensions in the company
about the labour relations in the state. Nokia has to ensure the smooth working of its largest
manufacturing facility in the world. The issue was, therefore, effectively managed by the
company without leading into another disaster in the already disrupted labour front of Tamil
Nadu.
Of all the four companies that suffered from labour unrest, two are major multinational
companies and have heavy investments in Tami Nadu.MRF and Pricol, the domestic
companies which suffered from the recent labour disputes, are long-standing in the states
industrial history and have made significant impact in the industrial development in the state.
On the other hand Hyundai and Nokia are major international companies in their respective
fields. They entered India and settled down in Tamil Nadu only because of the advantages
that the state provides to industrial establishments. The labour troubles in India are something
that the employers often fail to deal with, irrespective of their origin foreign or domestic.
However, the labour-related issues in these and other companies clearly points at a larger
question: What are the roles and responsibilities of employees and employers in maintaining
a harmonious and healthy relation in a highly competitive world? Should the relations be
governed by laws or loyalties?
LABOUR UNREST AND LOSING BUSINESS: THE FUTURE ISSUES
The fact that the labour issues happen in a country where there are more than enough labour
acts to protect the interests of the workers might act as an eye-opener for those who take sides
and blame each other. Tamil Nadus Labour Acts (Annexure I) look good enough to protect
workers in any industrial sector. But it is to be noted that even with many labour laws to
protect the working class interests, Tamil Nadu had its own share of labour problems in the
past. The state had witnessed enough disputes and had lost enough man-days that would
startle anyone (Exhibit IX).
Of course, many give US Financial Crisis (2008) a thumbs down for the sudden labour unrest
in Tamil Nadu in 2009 as the workers feared job losses and faced increased price levels.
Companies were forced to reduce the work force. However, unions are against this action and
this has resulted in severe labour issues in many factories. While the labour force is
complaining that they were not sharing the prosperity of the past, the companies say that left-
leaning political parties are making use of the discontent workers by forming unions and
making exorbitant demands. What both the workers and the managements want is an
overhaul of the age old labour laws that have became a hindrance to the manufacturing
sectors growth. Strikes at Indias manufacturing and service companies rose 48% in 2008
from the year before, points out Indias Ministry of Labour.[49] Indian scenario of labour and
the industrial relations have been changing since the economy started moving from the CRP
Controlled, Regulated, Protected to the LPG Liberal, Privatised, Global state.[50] The
shift brought immense challenges to the industrial sector of the country.
Exhibit IX
Industrial Disputes in Tamil Nadu
Year Strikes and Lockouts Man-days Lost (in million)
1998 228 3.15
1999 182 2.63
2000 149 2.59
2001 125 1.66
2002 99 1.85
2003 107 1.57
2004 74 0.64
2005 71 1.10
2006 57 0.70
2007 66 1.07
2008 86 0.73
Compiled by the author
India, which is being touted as the next global powerhouse will have to prove that it can deal
with slowdowns and booms alike. The increasing labour disputes serve the purpose of a
strong reminder, of what the country needs to do. We cant be a capitalist country that has
socialist labor laws,[51] says Jayant Davar, president of the Automotive Component
Manufacturers Association. Indias manufacturing sector, after growing at an average annual
rate of 7% for the past 16 years, marked only a 2.4% increase in the year ending in March
2009 (Exhibit X).With this, manufacturers had to make more reductions, which further
spurred the working class unionised actions (Exhibit XI) and further decreased the growth.
Foreign companies, who were banking up on the cheap and qualified labour force of India,
have started worrying about their decision. With the labour front of the country taking an
ugly turn to unfriendliness and lowered productivity, many foreign companies might think
twice before investing in India.
Exhibit X
Slowdown in Manufacturing Sector in India

Source: Wonacott Peter, Deadly Labor Wars Hinder Indias Rise,
http://online.wsj.com/article/SB125858061728954325.html,November 24
th
2009
Exhibit XI
2009: A Year of Unrest
Month Dispute
April, July

Workers strike twice at a unit of South Koreas Hyundai Motors,
seeking higher wages, reinstatement of suspended workers
May 2

At Nestles plant in northern India, workers strike to protest the firing
of contract workers. After 17 days, Nestle reinstates suspended
workers
May 4

Workers at a plant of Indian automaker Mahindra & Mahindra stop
work following suspension of the Union President. Sides reach wage
deal after two weeks
May 9

Workers at Indian tire maker MRFs factory in Southern India stop
work, seeking Higher wages and union recognition. Strike lasts five
months
July 18 Workers at Bosch chassis systems India, an Indian operation of
Germanys Bosch group , strike for more than two months
August 14 Employees at Nokias plant in Southern India stage a 10-hour strike
until the company agrees to discuss their higher wage demands
September 21 A senior executive at Indian auto-parts manufacturer Pricol in
southern India is beaten up after trying to mediate labour disputes.
He dies a day later.
October 18 Worker at a plant of Indian parts maker Rico Auto Industries dies
during six-week labour strike that disrupted production for Ford and
GM in U.S.
October 29 Labour unrest hampers production at Honda Motors major plant in
northern India. Three months of go-slow production comes to an end
after wage settlement is reached.
Source: Wonacott Peter, Deadly Labor Wars Hinder Indias Rise,
http://online.wsj.com/article/SB125858061728954325.html,November 24
th
2009
For the countrys growth, growth of small industries is as important as that of large
industries. In India, small industries are a suffering lot because of the cumbersome labour
laws. With a large number of inspections and numerous forms to fill, smaller companies often
find it difficult to cope with the labour legislations. Simply doing away with the labour laws
would be dangerous as they are necessary to protect the workers interests. However, when it
comes to the regulations and industrial relations, it would be good if the labour laws are
simplified. simplifying labour laws will be very good for the small-scale industry. It is not
the big guys, but the small ones who constitute over 95% growth in employment,[52] says
Arun Maira (Maira), member of special task force on micro, small- and medium-enterprises
set up by Prime Minister of India. Indian states have woke up to the realities of industrial
growth and economic development. In the modern competitive days, Chief Ministers often
act like CEOs in luring investments and developing the state. Only sensitive leadership
would help in bringing in positive changes, opines Maira.[53]
Out of the nine disputes in the manufacturing sector of the country till November 2009, four
were in Tamil Nadu. Through effective coordination between the three partners (Exhibit XII)
of industry, Tamil Nadu grew fast. But with the upswing of labour unrest, the labour relations
are taking a shift from peaceful and strong to turbulent and fragile phase.
Exhibit XII
Industrial Relations: The Role of the Three Partners

Prepared by the author
But surprisingly certain states have proved the theory of militant unionism wrong. There is
considerable reduction in the number of labour disputes in many states, according to the
official data (Exhibit XIII). Though there might be variances due to different reporting
standards, there is a visible fall in the number of disputes. Any adverse effect of the global
slowdown on Indias industrial relations climate is not discernible,[54] emphasised labour
and employment advisor Ashok Sahu.
Inmost of the cases, the labour disputes were caused by issues relating to the recognition of
unions and wage increases. The right to form unions should be given to the labourers, says
Maira.[55] Cooperation of management and labourers is the only way to smoothen things in
companies. Wage disparity in same companys different plants can lead to troubles, like the
case of MRF in Tamil Nadu.
Two other developments should also be taken into consideration while devising an
appropriate and encouraging wage structure. With more microfinance institutions
concentrating in the rural areas and rural area-based entrepreneurship flourishing in the recent
times, keeping the workers happy would be an important step in the success of industrial
establishments in the urbanised areas. Another issue is that the government initiated National
Rural Employment Guarantee Act (NREGA) might have kept many of the unskilled
labourers unknown about the opportunities in cities.
However, the recognition of unions remains an unsolved problem. Indian Trade Union Act,
1926, says nothing about the recognition of the trade unions by the employers. In 1947, an
amending Act was passed which provided for compulsory recognition of the representative
Unions by the employers and listed certain practices on the part of recognised Unions.[56]
However, the amendments still remain in the papers. There is no mention about how many
unions are to be recognised also.
In Tamil Nadu, the labour disputes have brought nothing but bad luck to the investors and
have tarnished the investor-friendly image of the state. Hyundai has decided to shift its i20
production for the export market from India to Europe, considering the labour environment.
This rings a warning bell as the company is doing it despite the fact that it would cost much
more than what it would take in India. Pricol is planning to move from the district where its
roots are firmly bound, following the strained industrial relations and the tragic incident that
happened in the company.
On the positive side, on November 16th 2009, an MoU was signed between Michelins
representative, Prashant Prabhu, and the Tamil Nadu Industries Secretary, M.F. Farooqui. In
July 2009, the government cleared an FDI proposal for infusion of around INR11,000 crore,
over a 10-year period for the company to set up a green field facility in Tamil Nadu. The 16
billion French tyre maker Michelin has operators in 69 production centres in 19 countries and
employs 120,000 people. Michelin is an OE supplier of tyres to many of Hondas cars in
India, besides Mercedes. In buses, it is an OE supplier to Volvo. For the tyre plant, Michelin
has been allotted 290 acres in the SIPCOT industrial estate, Gummidipoondi, 40 km north of
Chennai.
Surprisingly, Nokia Siemens Network (NSN) has announced on November 28th 2009 that it
would manufacture 3G products (Mainly node Bs) from its Oragadam facility (near Chennai)
by the second quarter of 2010. NSN has two kinds of operations in India the manufacturing
operations in Chennai (at Oragadam) and the network maintenance service operations
provided out of Chennai and Noida. Chennai is one of NSNs four manufacturing centres in
the world for 2G equipment and will be one of the three, for 3G equipment. Chennai factory
will become NSNs main manufacturing location by 2011,[57] Urs Pennanen, head of India
Region, NSN, said.
Moreover, with prospective investors worried about the labour relations in the state, the state
is faced with more troubles. French auto major Peugeot, who is keen on entering India had
been scanning the two southern states of Tamil Nadu and Andhra Pradesh. The company has
finally zeroed in on the latter, avoiding the former. Tamil Nadu is worried if more investors
would try to avoid it. If the labour issues in the state are not solved urgently, the investor-
friendly state would be looking straight into a bleak future and stagnant growth.
Why do companies which are known to take good care of employees often fall pray to labour
disputes? Are foreign companies more prone to strained labour relations because of the
extravagant demands from the labour force? Why do labour disputes increase in a state like
Tamil Nadu where the government has been highly successful in attracting investors? Are
labour laws in the state good enough to maintain a strain free industrial environment or do
they need immediate reform? Are the disputes stray cases as the state government says?[58]
Is the problem related to the recognition of labour unions? Are militant labour unions on an
inopportune comeback? The questions from the experts and the concerned find no ending.
The only thing everyone is sure is that the devastated investors of the fastest growing
southern state of India might send a strong message to their counterparts about investing in
the state. Bringing back the image of an investor-friendly state would be a tougher task for
Tamil Nadu.
Annexure I
Labour Acts in Tamil Nadu
Central Acts
1. The Beedi and Cigar Workers (Conditions of Employment) Act, 1966 and Rules
1968
2. The Cine-workers and Cinema Theatre Workers (Regulation of Employment) Act,
1981 and Rules 1984
3. The Contract Labour (Regulation and Abolition) Act, 1970 and Rules 1975
4. Motor Transport Workers Act, 1961 and Rules 1965
5. Plantation Labour Act 1951 and Rules 1955
6. Sales Promotion Employees (Conditions of Service) Act, 1976
7. The Working Journalists and other Newspaper Employees (Conditions of Service
and Miscellaneous Provisions) Act, 1955
8. The Child Labour (Prohibition and Regulation) Act, 1986
9. The Maternity Benefits Act, 1961
10. The Minimum Wages Act, 1948
11. The Workmens Compensation Act, 1923
12. The Trade Unions Act, 1926
13. The Payment of Bonus Act, 1965
14. The Payment of Gratuity Act, 1972
15. The Industrial Employment (Standing Order) Act, 1946
State Acts
1. The Tamil Nadu Shops and Establishment Act, 1947 and Rules
2. The Tamil Nadu Catering Establishments Act, 1958 & Rules
3. The Tamil Nadu Handloom Workers (Conditions of Employment and
Miscellaneous Provisions)Act, 1981
4. The Tamil Nadu Manual Workers (Regulation of Employment and Conditions of
Work) Act, 1982 and Rules
5. The Tamil Nadu Industrial Establishments (National and Festival Holidays)Act,
1958 and Rules
6. The Tamil Nadu Labour Welfare Fund Act, 1972
7. Tamil Nadu Manual Workers (Regulation of Employment and Conditions of Work)
Act, 1982
Source: Tamil Nadu: labour department, http://www.tn.gov.in/citizen/lab1-e.htm



[1] Srivastava Shuchi, Where Plants Grow,
http://www.outlookindia.com/article.aspx?235085, July 17th 2007
[2] Kazmin Amy, Executives Killed by Workers in India,
http://www.ft.com/cms/s/0/e7a6d90c-a86c-11de-9242- 00144feabdc0.html , September
23rd 2009
[3] Where Plants Grow, op.cit.
[4] Manual for information, http://www.tn.gov.in/rti/proactive/highways/handbook-
TNMB.pdf
[5] Jayaram Anup, The Making of Indias Shenzen,
http://www.businessworld.in/index.php/The-Making-of-Indias-Shenzhen.html
[6] Ramachandran Vijaya and Jeffery Goebel, Foreign Direct Investment in Tamil Nadu:
Review and Comparison Across Host Sites,
http://www.cid.harvard.edu/archive/india/pdfs/fdi_tamilnadu_revised.pdf, January 2002,
page 18
[7] Krishna Vishal, Southern Success,
http://www.businessworld.in/index.php/Economy/Southern-Success.html, February 13th
2009
[8] Ibid.
[9] Wonacott Peter, Deadly Labor Wars Hinder Indias Rise,
http://online.wsj.com/article/SB125858061728954325.html, November 24th 2009
[10] Labour Strife may force Pricol to shift plants out of Coimbatore,
http://www.thehindubusinessline.com/2009/07/04/ stories/2009070450871500.htm, July
4th 2009
[11] Deadly Labor Wars Hinder Indias Rise, op.cit.
[12] Ibid.
[13] Ibid.
[14] Allirajan M., Workers kill company VP in Coimbatore,
http://economictimes.indiatimes.com/articleshow/5045244.cms, September 23rd 2009
[15] Deadly Labor Wars Hinder Indias Rise, op.cit.
[16] Ibid.
[17] Pricol Tragedy: Witch Hunt Must Stop, Justice Must prevail,
http://www.cpiml.org/liberation/year_2009/nov_09/ special_feature.html , November 9th
2009
[18] Need Government intervention in Labour unrest, says Pricol CMD,
http://www.moneycontrol.com/news/cnbc-tv18- comments/need-govt-interventionlabour-
unrest-says-pricols-cmd_416624.html, September 24th 2009
[19] Narayanan R.Y., Pricol lifts partial lock-out,
http://www.blonnet.com/2007/04/12/stories/2007041205710200.htm, April 12th 2009
[20] Parts of a vehicle that are not made by the vehicle manufacturer but purchased from
another manufacturer and then assembled
[21] Labour Strife may force Pricol to shift plants out of Coimbatore, op.cit.
[22] Ibid.
[23] Deadly Labor Wars Hinder Indias Rise, op.cit.
[24] Where Plants Grow, op.cit.
[25] Narasimhan T.E., 800 arrested for strike at Hyundai,
http://business.rediff.com/report/2009/may/07/eight-hundred-arrestedfor- strike-at-
hyundai.htm, May 7th 2009
[26] Ibid.
[27] Viswanathan S., Advantage Union,
http://www.hinduonnet.com/fline/fl2611/stories/20090605261109700.htm, May 23rd 2009
[28] Narasimhan T.E., Hyundai Union Threatens Strike, http://www.business-
standard.com/india/news/hyundai-union-threatensstrike/ 364796/, July 24th 2009
[29] Ibid.
[30] Hyundai strike over after TN govt intervenes, http://www.business-
standard.com/india/news/hyundai-strike-over-after-tngovt- intervenes/365241/, July 29th
2009
[31] Hyundai Mototr Signs MoU with workforce,
http://www.kmpl.com/auto_news/newsindetail.asp?id=n114660, July 24th 2009
[32] New wage deal fails to stem labour unrest at Hyundai,
http://www.financialexpress.com/news/new-wage-deal-fails-to-stemlabour- unrest-at-
hyundai/493703/, July 25th 2009
[33] Hyundai adamant, says no to union, http://www.financialexpress.com/news/hyundai-
adamant-says-no-to-union/494118/0, July 26th 2009
[34] Ibid.
[35] Hyundai workers threaten strike again,
http://www.financialexpress.com/news/Hyundai-workers-threaten-strike-again/ 545783/,
November 25th 2009
[36] Hyundai Workers again threaten strike,
http://www.hinduonnet.com/businessline/blnus/02241967.htm, November 24th 2009
[37] A small town near Chennai
[38] A small town in Vellore district of Tamil Nadu
[39] Narasimhan T.E., MRF workers move SC; strike enters 32nd day,
http://www.business-standard.com/india/news/mrf-workersmove- sc-strike-enters-32nd-
day/19/42/63505/on, June 2nd 2009
[40] Strike hits MRF Plants in TN, Puducheri,
http://business.rediff.com/report/2009/may/11/strike-hits-mrf-plants.htm, May 11th 2009
[41] MRF lifts Lockout at TN Factory, http://www.business-
standard.com/india/news/mrf-lifts-lockout-at-tn-factory/359414, May 28th 2009
[42] MRF workers move SC; strike enters 32nd day, op.cit.
[43] SC rejects MRF workers unions plea on wage settlement, http://www.business-
standard.com/india/news/sc-rejects-mrfworkers- unions-pleawage-
settlement/19/42/64075/on, June 8th 2009
[44] Ibid.
[45] MRF blames militant group for unrest at Arakkonam Plant,
http://economictimes.indiatimes.com/News/News-By-Industry/ Auto/Tyres/MRF-blames-
militant-group-for-unrest-at-Arakkonam-plant/articleshow/4769652.cms, June 12th 2009
[46] MRF says ongoing strike has cost Rs 1000 Cr, http://www.business-
standard.com/india/news/mrf-says-ongoing-strike-hascost- rs-1000-cr/369142/, September
5th 2009
[47] Nokias Chennai Employees halt strike; to approach labour department ,
http://www.domain-b.com/companies/companies_n/
Nokia/20090817_chennai_workers.html, August 17th 2009
[48] Balasubramanian.V. and Ranganathan Chandra, Nokia strikes wage pact with labour
union, http:// economictimes.indiatimes.com/news/news-by-industry/telecom/Nokia-
strikes-wage-pact-with-labour-union/articleshow/ 5143684.cms, October 21st 2009
[49] Deadly Labor Wars Hinder Indias Rise, op.cit.
[50] Rath Devashish and Misra Snigdharani, Future of Industrial Relations and Industrial
Relations in Future: The Indian Scenario,
http://www.vikalpa.com/pdf/articles/1996/1996_oct_dec_47_54.pdf, OctoberDecember
1996
[51] Deadly Labor Wars Hinder Indias Rise, op.cit.
[52] Dhoot Vikas, Labour law reforms vital for smaller cos,
http://www.financialexpress.com/news/labour-law-reforms-vitalfor- smaller-cos/544882/,
November 23rd 2009
[53] Labour law reforms vital for smaller cos, op.cit.
[54] Dhoot Vikas, Fall in labour disputes comes with new equations,
http://www.financialexpress.com/news/Fall-in-labourdisputes- comes-with-new-
equations/549697/, December 4th 2009
[55] Labour law reforms vital for smaller cos, op.cit.
[56] The Trade Unions Act, 1926, http://nrcw.nic.in/shared/sublinkimages/79.htm
[57] Ramesh M., Nokia Siemens to make 3G products from Chennai, Business Line,
November 28th 2009, page 4
[58] Varadarajan Nitya, None at Work, Business Today, November 1st 2009