Labor Law Reforms in India

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About the Guest - Editor 1994, in the Indian business daily Busi-
ness Standard (1995–2001) and in In-
dian Express and Financial Express.
During 1984-1991, he was co-editor of
the Journal of Applied Econometrics. A
selection of his academic papers was
published in two volumes as The Se-
lected Essays of Meghnad Desai in
1995. Lord Deasai published Rethink-
ing Islamism: Ideology of the New Ter-
ror (2006), The Route to All Evil: The
Political Economy of Ezra Pound
Lord Meghnad Desai is an Indian- (2007), a novel Dead on Time, (2009)
born, naturalized British economist and and The Rediscovery of India (2009).
Labor politician. He has been awarded the Besides the book on Marx’s Revenge:
Padma Bhushan, the third highest civilian The Resurgence of Capitalism and the
award in the Republic of India, in 2008 Death of Statist (2002) he also pub-
lished a biography of Indian film star Dilip
He secured a master’s degree from Kumar titled Nehru’s Hero: Dilip
University of Mumbai, after which he won Kumar in the life of India (Roli, 2004).
a scholarship to University of Pennsylva-
nia in1960. He completed his PhD at Penn- He was Chairman British Labor
sylvania in 1963. Party during 1986- 1992 and was made
a life peer as Baron Desai, of St Clem-
He worked as Associate Specialist in ent Danes in the City of Westminster,
the Department of Agricultural Econom- in April 1991.
ics, University of California, Berkeley,
California. He then became a lecturer at In 2003, he retired as Director of the
the London School of Economics in 1965. Centre for the Study of Global Gover-
At LSE, he taught econometrics, macro- nance, which he founded in 1992 at the
economics, Marxian economics and de- London School of Economics (LSE),
velopment economics over the years. where he is now Professor Emeritus. He
was Chairman of the Trustee’s Board for
He wrote his first book Marxian Eco- Training for Life, Chairman of the Man-
nomic Theory in 1973 followed by Applied agement Board of City Roads and on the
Econometrics in 1976 and Marxian Eco- Board of Tribune magazine. Lord Desai
nomics in 1979. He wrote Testing was also a founding member of the De-
Monetarism, a critique of monetarism, in velopment Studies Institute (DESTIN) at
1981.Desai has written extensively pub- the LSE in 1990. Lord Desai is Chair-
lishing over 200 articles in academic jour- man of the Official Monetary and Finan-
nals and had a regular column in the Brit- cial Institutions Forum (OMFIF) Advi-
ish radical weekly Tribune during 1985– sory Board,
A Review of Economic & Social Development
VOLUME 50 NUMBER 1 JULY 2014
Contents
Articles
Reforming Labor Laws Meghnad Desai 1
Labor Law Reform in India: Insights from

Tangled Legacy of Sidney & Beatrice Webb Bruce E. Kaufman 2
Rethinking Labor Law Reforms Arun Maira 24
Transition to Labor Law Reform: State-Level

Initiatives &Informal Sector Labor Relations Hemal Shah 33
Labor Market Flexibility & Trajectories of Anil Verma &

Development: Lessons from Brazil, India & China Ana Virginia Moreira Gomes 51
Quo Vadis, Industrial Relations

Disputes Resolution…? Jerome Joseph 75
Reforming the Industrial Dispute &

Trade Union Acts Tushar Poddar 89
Labour Law Reform in India J.S. Sodhi 100
Indian Industrial Relations Law: Case for Reform Debi S. Saini 118
Legal Reforms for the Self-Employed: Martha Alter Chen, Roopa Madhav
Three Urban Cases & Kamala Sankaran 133
Turnover Intentions among Indian Gloryson R B Chalil &

Software Professionals L Prasad 151
VOLUME 50 NUMBER 1 JULY 2014
Powerful Leadership &Excellence in

Public Enterprises V N Srivastava 165
Strategy & Structural Dimensions – A Bindu Gupta &

Comparative Study of Four Industries Ajay Singh 180
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Guest-Editor’s Foreword
Reforming Labor Laws
Meghnad Desai
India has for several decades now nual inspections and enforcement of
got itself into a situation of denial and regulations which add to the transactions
delay in the matter of reforming the la- costs of doing business in the manufac-
bor laws. The laws were passed some turing sector.
before independence and some after on
the mistaken analogy of a developed in- India’s Asian neighbors, Bangladesh,
dustrialized country with a majority of its Malaysia, Indonesia, to say nothing of
workforce in large factories. Socialist China or South Korea, have overcome
thought, reformist as well as revolution- these problems and managed to develop
ary, had the industrial worker at its cen- a thriving manufacturing sector. In India,
tre. The capitalist system was supposed the manufacturing sector remains stagnant
to be sustained by exploitation of the at around 16 % and has relatively small
worker-the proletariat – and hence regu- size units which are engaged in medium
lation of the employer-worker relation- and high tech industries. Many Indian
ship took prime place in reform legisla- manufacturers employ contract labor
tion. which has few rights and can be sacked
on expiration of contract. This is healthy
India has a slim minority employed neither for the workers nor for employer-
in the organized sector, barely 5 % of its employee relationships. Our Asian neigh-
total work force. Yet the rights of this bors have large factories with hundreds
tiny minority are guarded by a phalanx of employees manufacturing low tech
of laws and regulations which has had products which have a large export mar-
the effect of retarding manufacturing ket. India lags behind in this area.
growth in India. The principal legislations
concern the ability to hire workers on Our journal has explored the topic of
non-permanent contracts, and, as that is Informal Labor Markets in a special is-
difficult, the even more difficult task of sue previously. This special issue tackles
terminating their employment on any the urgent question of reform of labor
grounds whatsoever. Firms find it diffi- laws. I welcome this initiative and con-
cult to liquidate themselves as that may gratulate all the contributors and Profes-
cause unemployment of their workers. sor Sodhi and the editor for their excel-
To this may be added over a hundred an- lent effort.
The Indian Journal of Industrial Relations, Vol. 50, No. 1, July 2014 1
By Invitation
Labor Law Reform in India: Insights from Tangled

Legacy of Sidney & Beatrice Webb
Bruce E. Kaufman
Sidney and Beatrice Webb, co- Introduction
founders of the industrial relations
field and early pioneers of Fabian So- India posted an impressive
cialism significantly influenced growth record after economic lib-
Jawaharlal Nehru and India’s post- eralization in 1991. A slow-down
Independence model of economic de- during the world financial crisis of
velopment. Part of this model was a 2008-2010 was expected but so too
protectionist regime of labor law which was a rebound once the crisis
has now come under increasing criti- passed. The crisis is now four
cism as a structural impediment to years over but the growth recov-
growth. This article reviews the ideas ery for India is disappointingly ane-
of the Webbs and uses them as a prism mic. A number of analysts inside
for evaluating the case for labor law and outside the country conclude
reform and the direction it should take. growth is obstructed by structural
The article advances a three-prong problems. Illustratively, IMF Re-
conclusion: the Webbs’ program for port (2014:19) concludes, “There
labor market regulation remains sound is consensus that structural re-
in principle but the specifics in India forms are going to be the lynchpin
need substantial adjustment; the most of an eventual rebound in growth”.
important way to generate higher em- Five key areas of structural reform
ployment growth is not from labor mar- are listed: (1) power and natural
ket deregulation but continued liber- resources, (2) agriculture, (3)
alization of product markets and en- health and education, (4) invest-
couragement of entrepreneurship; and ment climate, and (5) labor regu-
the most critical pro-growth reform is lation.
more efficient and honest institutional-
regulatory governance. The IMF report is tactful and
frames these structural problems,
Bruce E. Kaufman is Professor, Department of Economics, not as government failures of the
Georgia State University, Atlanta GA USA Department of
Employment Relations & Human Resources, Griffith
past, but as agenda items for swift
University, Brisbane QLD AU. E-mail:bkaufman@gsu.edu legislative action going forward.
2 The Indian Journal of Industrial Relations, Vol. 50, No. 1, July 2014
Labor Law Reform in India
Other analysts, however, are far more as cited above, a number of analysts also
critical and say these problems have been believe that the policies and practices
allowed to fester and worsen because, historically associated with the industrial
rather than take liberalization the next relations field, particularly as it came
step forward, Indian governments of the from Britain and Fabian Socialist writers
last decade have reverted to “the old such as the Webbs, are part of the source
recipe of social spending and industry of the labor regulation muddle.
mandates… and granting massive new
entitlements” associated with “Nehru’s Trade unions have two faces — a
turn to Fabian Socialism” in India’s post- positive voice face and a negative
Independence era (Dalmia, 2014: 1-2). monopoly face.
In a similar vein, the press in India is
starting to wonder if the economic miracle
is returning to the more anemic ‘Hindu This article tries to sort through parts
rate of growth’ which Das (2006:2) ex- of the Webbs’ writings with enduring
plains, “had nothing to do with Hinduism value as guides for industrial relations and
and everything to do with the Fabian so- labor law reform and parts of which have
cialist policies of Prime Minister been shown incorrect or harmful by his-
Jawaharlal Nehru”. A well-known torical experience. Analogous to the idea
America labor law professor, having re- of Freeman &Medoff (1984) that trade
cently returned from a trip to India, also unions have two faces — a positive voice
puts the finger of blame for India’s growth face and a negative monopoly face, it is
problems on failure to jettison the “hope- argued that the theory of the Webbs also
less forms of Fabian Socialism that has two faces, a positive industrial rela-
Jawaharlal Nehru, India’s first prime min- tions face and a negative Fabian Social-
ister, brought into public life between ism face. The paper briefly identifies and
1950 and 1990" (Epstein , 2014: 2). delineates these two faces and then ap-
plies them to working-out useful prin-
The failed policies associated with ciples for Indian labor law reform. Since
Nehru and Fabian Socialism provide a much of the existing IR and labor law
natural segue into the implications for literature in India is descriptive and em-
labor law reform of the seminal writings pirical, introducing a stronger conceptual
of Sidney and Beatrice Webb, two of the element may be helpful for both the en-
founders of not only Fabian Socialism but deavors.
also the field of industrial relations
(Cole,1943; Harrison, 2000; Kaufman, American & British Influences
2004).Many observers believe that Indian
labor law is increasingly out of date, com- Industrial relations started in the late
plex and burdensome and poses a struc- 19th and early 20 th centuries as an Anglo-
tural impediment to sustained economic American project among reform-minded
growth (VenkataRatnam, 2004; Hill, academics broadly linked to a social-in-
2009; Saini, 2009; Krueger, 2013). But, stitutional approach to economics, albeit
Bruce E. Kaufman
with a clear link to Germany and that 2003). They also founded the London
country’s tradition of historical econom- School of Economics (LSE) in 1895.
ics and active social policy (Kaufman, Their seminal contributions, however,
2004). Industrial relations was a response were not to launch the IR field itself –
to the growing labor problem and atten- labor studies was not part of the early
dant class-conflict in late 19 th century LSE curriculum and IR as a constituted
industrializing countries and was posi- field of study did not emerge in Britain
tioned as a middle-way solution between until the late 1940s – but to initiate the
laissez-faire orthodox economics and study of organized labor as a legitimate
revolutionary Marxist-radical economics. topic of scholarly inquiry in England. The
These Western ideas on a middle way Webbs’ most famous books are History
solution to the labor problem became a of Trade Unionism (1894) and Indus-
uniquely Indian third-way approach when trial Democracy (1897). They also wrote
integrated with the Gandhian philosophy on other labor topics, such as the poor
of industrial harmony and self-govern- laws and labor conditions of women, but
ment (Bose, 1956). labor law and personnel management
were peripheral to their research agenda
The concept of industrial relations and remained so in the British IR field
and its formalization as a field of teach- until the 1980s.
ing and research in universities appeared
first in the United States in the late 1910s The subject of industrial relations in
under the leadership of Richard Ely and Britain started out, therefore, more union-
John Commons, institutional economists centric than in the USA and also substan-
at the University of Wisconsin. The in- tially to the left in the political spectrum
dustrial relations term in early American (Hyman, 1989; Ackers & Wilkinson,
usage was a short-hand for ‘relations 2003; Kaufman, 2014). The Webbs, and
between employers and employees in in- their intellectual successor G.D.H. Cole,
dustry and, hence, at its beginning indus- were proponents of democratic socialism
trial relations was conceived broadly as and, from experiences such as World War
the study of the employment relationship I and the Great Depression, became in-
and the labor problems which grow out creasingly outspoken critics of capitalism.
of it. Illustrative of this broad focus, IR The democratic socialist and leftist La-
textbooks often used ‘labor problems’ in bor Party leaning of British industrial re-
the title (e.g., Labor Problems in Ameri- lations continued after World War II, al-
can Industry, Daughtery, 1933) and fea- beit moderated by the Cold War chill of
tured chapters on personnel manage- anti-communism, and found expression in
ment, trade unions, labor law, social in- the Atlee government’s Fabian-inspired
surance, and national labor policy. program of nationalization of key indus-
tries, industrial democracy through wide-
In Britain, Sidney and Beatrice Webb spread industry-level collective bargain-
are widely regarded as IR founders ing, steeply graduated income and estate
(Hyman, 1989; Ackers & Wilkinson, taxes, and extensive welfare state social
programs (Hinton, 1983). This economic

growth model, attractive in theory and India has much the opposite with
appealing to anti-capitalist sentiments a highly complex, bureaucratic,
widespread at the time, proved debilitat- and protective regime of labor law.
ing in practice and by the 1970s Britain
declined to the unenviable status of ‘poor
man of Europe.’ tive regime of labor law (Debroy &
Kaushek, 2005; Venkatta Ratnam &
As an organized area of teaching and Verma, 2010). One has to conclude there-
research, the early field of industrial re- fore, that while the American model may
lations in India has in some visible ways have to some perceptible degree influ-
more affinity to the American model than enced the formation of industrial relations
the British. For example, the organizing in India as an academic field of study, its
concept of labor problems for the study influence on the regime of IR institutions
of industrial relations was widespread in and labor laws actually put in place in
America but not Britain and in India the India pales next to the influence of Great
term found frequent use (e.g., Agarwala, Britain (Kennedy, 1965). Not surprisingly,
1947; Mehrotra, 1965). Also, Indian writ- therefore, one of the imports from Brit-
ers followed the American model and ain – most visibly and influentially brought
included within industrial relations the full back by India’s first Prime Minister —
range of topics related to labor problems was the democratic socialist economic
and the employment relationship, albeit development model espoused by intellec-
with more emphasis on collective than tuals and political leaders associated with
individual relations (Seth, 1966). Giri’s the Fabian Society, British Labor Party,
textbook is illustrative since it includes and other left-leaning groups (Narayan,
separate chapters for personnel manage- 1964; Nanda, 1996).
ment, labor law, social insurance, trade
unions, and national labor policy. Also il- Nehru spoke often and eloquently on
lustrative are early issues of Indian his desire to steer India toward a demo-
Journal of Industrial Relations which cratic form of economic planning and
contain articles on all areas of the em- market socialism which was positioned
ployment relationship, including labor law between American-style capitalism and
and management. By way of contrast, Soviet style communism (Akbar, 1990).
the range of topics in early issues of the The exemplars of the period, from which
British Journal of Industrial Relations he gained inspiration on his extensive
is noticeably narrower. foreign travels throughout Europe in the
1910s-1940s, were countries such as
America has one of the least regu- Britain, France and Sweden which moved
lated labor markets among advanced in- toward nationalization of core industries,
dustrial countries and yet India has, by five year economic plans with state di-
most accounts, much the opposite with a rected investment, national labor move-
highly complex, bureaucratic, and protec- ments, social welfare states, state
Bruce E. Kaufman
bureaucratic regulation of business, steep more general exposition of the industrial

income, wealth, and estate taxes, and an relations theory of labor law is provided
end-goal of ‘euthanasia of capitalism.’ in Kaufman (2012a).
American ambassador to India in the
early 1960s, John Kenneth Galbraith, re- The Webbs, like Commons and other
called that, “Nehru loved to reminisce IR founders, were attracted to the study
about the world of R.H. Tawney, the of labor as a way to discover methods to
Webbs and of Trinity College and Cam- raise the condition of the working people,
bridge” (Nanda, 1996: 478). Unfortu- reduce class conflict, and make the work
nately, India also followed in Britain’s world more efficient, equitable, and
post-World War II footsteps and went democratic. They gained insight from
down the socialist path to ‘poor man of Marx but rejected his theory of class
East Asia’ by the late 1980s (Das, 2001; struggle and proletarian revolution. The
Drèze & Sen, 2013). Webbs saw that the labor problem writ
large, and individual labor problems writ
Two Faces of the Webbs plural, come from structural features of
the capitalist employment relationship
The Webbs are co-founders of two which can be contained and de-
different intellectual streams of thought. radicalized by institutional reform but
The first stream is a field of labor stud- never eliminated.
ies known as industrial relations with roots
in historical-institutional economics and Central to their diagnosis are three
sociology and the second is a collectiv- interacting factors in a private property,
ist-oriented doctrine of evolutionary competitive market, laissez-faire system.
democratic socialism known as Fabian The first is that human labor is treated
Socialism. Although the Webbs intend as a commodity to be traded on a buy-
both parts to seamlessly fit together, they low/sell-high basis, putting workers in a
nonetheless have an identifiably separate de-humanized, insecure, and distrustful
presence in their work and the latter is position which, in turn, undercuts produc-
considerably more radical and transfor- tive efficiency, abuses human rights, and
mative than the former. A brief synopsis breeds conflict. The second is that the
follows, labeled as their industrial rela- capitalist employment relationship con-
tions face and Fabian socialism face, tains an inherent inequality of bargaining
respectively. power between employers and workers
in both external and internal labor mar-
Industrial Relations Face: A de- kets with consequent low wages, long
tailed review and exposition of the hours, harsh conditions, sizable income
Webbs’ theory of industrial relations is inequality, and arbitrary treatment, aris-
provided in Kaufman (2004; 2013) and ing from widespread surplus labor, invol-
Kaufman & Barry (2014). Provided here untary unemployment, market and orga-
is only a brief summary as it pertains to nizational failures, and employers’ unre-
consideration of labor law reform. A stricted private property rights. The third
is that in early capitalism the mass of An economic system is socially effi-

workers are typically given little-to-no cient when it best satisfies consumers’
voice, representation, and due process wants but subject to covering all social
rights inside firms, thus making the work- costs of production. For labor, social cost
place an industrial autocracy — some- includes minimum sustainable living ex-
times benevolent but often despotic — pense for a worker and family, ability to
while in the polity at large capitalists and acquire and maintain the human and so-
the rich dominate the government and set cial capital required for production, and
the rules of the game to keep labor po- provision of workplace conditions and
litically and economically subordinated treatment which cover socially recog-
and exploited. nized human and political rights. Non-la-
bor social costs include infrastructure,
The Webbs point to many onerous and environmental sustainability, and quality
inequitable outcomes that arise from of life dis-amenities. These costs must
these defects in the capitalist employment be covered and incorporated into prod-
relationship. Topping their list, however, uct prices or private cost of production
are two. The first is persistent and wide- is less than social cost, leading to a nega-
spread unemployment which puts the tive externality-type market failure.
employer in a despotic ‘take it or leave
it’ position and forces workers to accept The Webbs put-forth a two-prong
shameful conditions and callous exploi- labor policy program to promote social
tation – outcomes orthodox economic efficiency. The first prong is to improve
theory either denies as a matter of logic wages, conditions, and treatment for
or claims flexible wages automatically workers in the lower part of the indus-
eliminate. The second is glaring social trial pyramid. Doing so also keeps wages
injustice when rich, powerful, and socially and labor conditions growing in line with
privileged elites use the government to productivity growth, thus maintaining
rig the game so they can siphon large macroeconomic demand/supply balance
surplus income (economic rents) pro- and social justice (Hobson, 1923; Com-
duced by a mass of common laborers mons, 1934). American writers call this
working all year round in life-shortening part of the IR strategy ‘raising the plane
sweatshop conditions. of competition.’ To accomplish this goal,
the Webbs propose establishment of a
Having diagnosed the cause of labor common rule that extends across the
problems in capitalism, the Webbs offer a national labor market and requires all
variety of solutions. They recognize the employers to provide a minimum stan-
place to start an evaluation of labor policy dard of terms and conditions of work.
is specification of the social objectives
which policy is intended to achieve. They
Since social cost rises over time,
follow orthodox economics and make ef-
so should the level of the minimum
ficiency the first priority but argue for an
standard.
enlarged conception of social efficiency.
Bruce E. Kaufman
This minimum is called the Social Pro- Also challenging is the contradictory
tection Floor by the International Labor role of trade unions in this process. On
Organization (ILO).Since social cost one hand, without a strong labor move-
rises over time, so should the level of the ment workers suffer from an inequality
minimum standard. of bargaining power in labor markets and
the government is inevitably dominated
Many employers and neoclassical by business interests who block or greatly
economists oppose protective labor laws, weaken protection for workers through
or resist strengthening them, because labor law and social insurance. On the
they increase the price of labor, move other hand, a strong labor movement in-
firms up their labor demand curves, and evitably leads to many counter-inefficien-
reduce jobs (Wachter, 2012). However, cies which frequently grow worse over
what they fail to appreciate is that this time. In the labor market, the initial ef-
loss of jobs promotes social efficiency by fect of unions is ‘monopsony-reducing’
bringing private cost closer to social cost, as they level the playing field and pro-
thus ending an implicit social subsidy for mote social justice; however, over time
consumers and firms – particularly the they become ‘monopoly-creating’ as their
affluent elite who do most of the con- continual push for ‘more,’ coupled with
sumption (Kaufman, 2009). The parallel only patchwork organization across in-
situation is loss of jobs when government dustries, gradually leads to inflated
decides to curb industrial pollution, say wages, productivity-sapping work prac-
by putting an emissions’ tax on firms. tices, and a privileged labor aristocracy
(Kaufman, 2012b). Likewise, in the po-
The social cost common rule can be litical process unions have a tendency to
established through one or a combination shift from a broad-based voice of the
of methods, all of which the Webbs pro- working class to a narrow sectional in-
moted and were later made staple subjects terest group largely concerned with pro-
in labor problems textbooks. A common tecting their institutional power and
rule, for example, can be established by member’s vested perquisites.
industry-wide collective bargaining, protec-
tive labor laws such as minimum wages The first prong of the Webb’s labor
and maximum hours, social insurance such strategy is to push up on the lower end
as unemployment compensation and old of the industrial pyramid by using collec-
age pensions, or public sector funded jobs tive bargaining, legal enactment, and so-
programs. Setting the common rule is chal- cial insurance to establish and then
lenging because social cost of labor varies gradually raise the plane of competition.
by family size, urban vs. rural location, The second prong is to push down on the
stage of economic development, and other top end of the pyramid through egalitar-
such factors; nonetheless, many countries, ian social policies and progressive income,
including India, specify an official poverty wealth, and inheritance taxes. The Webbs
line based on such contingencies so the task agree that people who make large
is not insuperable. contributions to production through
successful entrepreneurship, manage- for being born into a socially advantage

ment, and technical skills deserve higher family with the money, social connec-
wages and income. In this respect the tion, caste, and skin color to first get into
Webbs accept the marginal productivity elite private schools and universities and
theory doctrine. However, it is also their then high-end professions and corpora-
view that much of the income received tions.
by top-end groups in society takes the
form of an economic rent, called surplus The nature of an economic rent is that
value by Marx and unearned income by it can be taxed away without reducing
J. S. Mill. supply or distorting incentives. Since rent
is an unearned income, and because it
also provides the affluent and powerful
Much of the income received by
with large sums of money to twist the
top-end groups in society takes
political process to preserve and
the form of an economic rent.
strengthen their privileged position, the
Webbs were strongly in favor of enact-
An economic rent is created when ing steeply progressive income, wealth,
a resource owner receives a return and inheritance taxes. They were also
higher than minimum supply price, such strongly in favor of social policies that
as in the case of a monopoly rent when break down artificial barriers to compe-
a firm with market power charges a tition and social mobility, such as con-
price higher than cost of production. tained in preferential laws, institutional
From the Webb’s perspective, and as rules, and social norms favoring men over
also expounded by their Fabian col- women, upper class over lower class, and
league Hobson (1923), a significant por- light-skinned over dark-skinned. Equally
tion of profit, interest, land rent, and favored were policies that opened the
high-end salaries – factor returns mostly door to equal opportunity, such as quality
accruing to socially privileged people in universal public education and health
the top end of the income and wealth care and civil service rules for govern-
distributions – are a rent payment made ment employment.
possible by various natural and contrived
scarcities and barriers to competition. Fabian Socialism Face
Large CEO salaries, for example, are
partly a payment for valuable leadership Part of theWebbs’ claim to founders’
and business acumen but, also, a rent status is that they were among the first
payment made possible by family con- writers to articulate these principles in
nections, political patronage, or cronyism such a thorough and penetrating way. If
with the board of directors. Similarly, the this part of the Webbs’ thought is all that
high salaries of doctors, professors, and had influenced Nehru, the post-Indepen-
government officials are partly a return dence history of India would be consid-
on human capital investment and hard erably different. However, the influence
work but, for many, also a rent payment of the Webbs, Hobson, Tawney, Besant,
Bruce E. Kaufman
and other Fabianson Nehru and India was a few idlers rich…[and] will inevitably
not primarily through the case they de- go the way of feudalism which it super-
veloped for industrial relations but, seded” (Shaw, 1889: 81-82). Part of the
rather, the case they built for transition reason the Webbs founded the LSE was
of the national economy from free mar- to train administrators and managers to
ket capitalism to democratic socialism and staff the future socialist state planning
industrial planning (Narayan, 1964; apparatus.
Akbar, 1990; Das, 2001).
Many socialists are frustratingly
Surveying the history of 19th century vague about the transformation from
England, Sidney Webb in his chapter in capitalism to socialism and the institu-
the Fabian Essays in Socialism (Shaw, tional structure and performance of a
1889: 46-47) tells readers of the “hope- socialist economy. The Webbs are ex-
less failure of an almost complete indus- ceptions and devote an entire book, A
trial individualism…[with] unrestrained Constitution for the Socialist Com-
private property… [and] subjection to a monwealth of Great Britain (1920), to
political oligarchy”. Like Marx, Webb this purpose. With the wage-earning
thought the transition to socialism is in- class exercising democratic control of
evitable and, indeed, states, “the eco- the government, a process of national-
nomic history of the century is an alization of industry is initiated, starting
most continuous record of the progress with core or ‘commanding heights’ sec-
of Socialism” (ibid.). But unlike Marx, tors (e.g., steel, banking, transport, com-
Webb sees no need for class struggle munication) with gradual but not com-
and revolution. He and Beatrice were plete extension to other sectors. Plan-
convinced that the wage-earning class ning boards are created for each indus-
was coming to realize the superiority of try to make strategic investment, pro-
planned socialism over anarchic capital- duction, and pricing decisions and exer-
ism. They also thought, with the gradual cise supervisory oversight of publically-
democratization of the national govern- appointed management. Private property
ment driven by popular pressure and for individuals is protected but private
extension of suffrage, political control ownership of industry is gradually ex-
of the state was shifting from the oli- tinguished through a mix of confiscation,
garchy of capital and land owners who fair market value compensation, and
dominated Parliament and most ben- steep profits tax. The end result is the
efited from laissez-faire capitalism to the “transformation of profit-making enter-
mass of wage-earners who most ben- prise into public service” (Ibid: 334) with
efit from socialism. He concludes his greater efficiency achieved by replac-
chapter, therefore, with this forecast: ing capitalist monopoly, waste, and
“private ownership of the instruments of boom-bust cycles with public price regu-
production is irreconcilable with the com- lation, scientific enterprise administra-
mon weal…[It] keeps the many work- tion, and coordinated planning of produc-
ers permanently poor… in order to make tion and investment.
Implications for Labor Law Reform through a two-pronged strategy which

rolled-back union power and collective
bargaining and substituted expansion of
Nehru and the National Congress
minimum employment standards through
Party gradually implemented a
specific labor law additions. The UK, for
democratic socialist planned
example, adopted a national minimum
economy model for India which in
wage and various European Union direc-
broad outline matched the Fabian
tives on work hours and workplace in-
prescription.
formation-sharing while the USA
adopted guaranteed family and medical
Nehru and the National Congress leave for women workers and discrimi-
Party gradually implemented a democratic nation protection for handicapped work-
socialist planned economy model for In- ers. Although neo-liberalism is typically
dia which in broad outline matched the associated with deregulation, it is particu-
Fabian prescription and post-war gover- larly evident in the case of Britain (less
nance regimes in Britain, France, and other so the USA) that breadth of labor mar-
European countries, albeit with numerous ket regulation actually increased, partly
Indian adaptations for its status as an to fill the void left by receding collective
Asian developing nation and non-aligned bargaining and partly to protect the vul-
country in the Cold War. The initial growth nerable from a market-induced race to
results were encouraging but then faltered the bottom by setting-up a strengthened
in the 1970s and 1980s amidst rising cri- floor of minimum employment standards
ses with inflation, balance of payments à la the Webbs (Mitchell, Gahan, Stewart,
deficits, and mounting labor strikes Cooney, & Marshall, 2010).
(Bhattacherjee, 2001; Nankervis, Cooke,
Chatterjee & Warner, 2013: Ch.4). Now, what about India? To an outside
observer, it appears that India has only par-
Many other countries experienced tially accomplished product and financial
similar problems. In reaction, British vot- market liberalization and barely touched
ers in 1979 and American voters in 1980 labor market liberalization. However, in the
decided to shift toward neo-liberalism by case of labor law the kind of reform that is
electing Thatcher and Reagan. Although needed is only partly liberalization — i.e.,
the score card for both leaders is mixed, loosening regulatory/legal constraints to
two trends are clear. The first is the spur job-creation by reducing labor cost and
growth rate of both economies staged a promoting employment flexibility – and
considerable rebound until punctured by more in the direction of regulatory mod-
the world financial crisis of 2008-2010, ernization and improved governance. This
fueled in part by liberalization of product dimension of the subject is postponed, how-
and financial markets and expansion of ever, to later in the paper. The strategic
small-medium entrepreneurial-driven point of entry into the labor law reform
firms. The second is that both countries debate is, perhaps paradoxically, not in la-
also reshaped their labor law regimes bor markets but product markets.
Bruce E. Kaufman
India needs to generate roughly phone at one store with a credit card and
twelve million new jobs each year to keep- relatively transparent and easy-to-com-
up with labor force growth. Further, plete contract, he had to travel around
these jobs need to offer better wages and the choked streets of Mumbai to seven
conditions to satisfy the rising quality of different stores to get photographs, pur-
life expectations of the Indian people. chase the phone, purchase the SIM card,
One can reasonably argue about the de- on several occasions fill-out lengthy pa-
gree of blame to be laid at the door of perwork, and always pay with cash. In
European socialist doctrines and their the short-run, this round-about process
importation by Nehru and the Congress creates jobs for the taxi driver, shop keep-
Party but, regarding the general argument ers, and government officials but in the
that India still suffers from excessive long-run it keeps India trapped in a low
government intervention and costly eco- productivity third-world type economy
nomic regulation, the evidence seems with anemic job growth as other Asian
clear-cut. Indeed, this theme runs like a countries gain competitiveness, move
gold thread through books and policy re- upstream into higher paying manufac-
ports on the growth prospects for the turing, and increase export share at the
Indian economy (e.g., Drèze & Sen, expense of Indian companies (Drèze &
2013; Hope, Kochar, Noll & Srinivasan, Sen, 2013).
2013; World Economic Forum, 2014).
More comprehensive and authorita-
tive evidence on sources of growth in
Much of India remains mired in
GDP and employment is provided in sev-
poverty and archaic business prac-
eral policy reports, such as the World
tices.
Economic Forum’s Global Competitive-
ness Report 2013-2014 and World
India, as oft-observed, is a land of Bank’s Doing Business 2014. Both re-
sharp contrasts and contradictions ports paint a depressing picture of India’s
(Nilekani, 2009). On one hand, liberal- economy hobbled by institutional con-
ization has spawned a rapidly growing IT straints and mal-governance. In terms of
sector and expanding number of world- global competitiveness (World Economic
competitive companies. On the other Forum, 2014: Table 3), India ranks 60 out
hand, much of India remains mired in of 148 countries and is behind numerous
poverty and archaic business practices. other developing East Asian countries,
Although only an anecdotal account, including Singapore (2), Taiwan (12),
mentioned earlier was law professor Ri- Malaysia (24), China (29), Thailand (37),
chard Epstein’s discussion of his first visit Indonesia (38), and Philippines (59). In
to India in early 2014 and in it he pro- terms of ease of doing business (World
vides in microcosm the extent to which Bank 2014, Table 1.1), India ranks 134
liberalization still remains a considerably out of 190. The anomaly of this poor per-
incomplete project (Epstein, 2014). formance on competitiveness and busi-
Rather than being able to buy a mobile ness creation is that when Indian people
emigrate to better governed and more The report identifies twelve ‘pillars of
market-friendly countries they achieve competitiveness’ and ranks the most im-
impressive success in entrepreneurship, portant for each development stage. The
occupational attainment, and family in- report places India in the low Factor
come. Driven stage. At this stage, the report iden-
tifies four pillars as critical: Institutions,
Job creation is only another name for Infrastructure, Macroeconomic Environ-
what economists call labor demand and ment, and Health and Education. If ranked
economic theory teaches that the strength only on these four competitiveness pillars,
of labor demand is a direct function of India falls from an overall position of 60
the strength of product demand. Thus, to 96. In other words, on the critical ‘must
adopt measures that increase Indian com- do’ ingredients for growth India is actu-
panies’ product demand and their labor ally in a considerably worse position than
demand is certain to follow, albeit mod- suggested by its overall competitiveness
erated by productivity growth. The mes- ranking.
sage of this insight for the labor law re-
form debate in India is: put strategic Labor Market Efficiency is also one
emphasis where it counts the most, which of the twelve pillars in the competitiveness
is not in labor markets per se but on im- ranking. However, it is rated as a critical
pediments to growth in product markets. success ingredient only when countries get
to the intermediate Efficiency Driven stage
– which India has not reached. Further,
Put strategic emphasis where it
with respect to labor market efficiency, and
counts the most, which is not in
five other pillars considered critical for
labor markets per se but on im-
countries at the intermediate stage, India’s
pediments to growth in product
ranking actually rises from 60 to 42.
markets.
Hence, the evidence is fully consistent with
the conclusion earlier reached by Venkata
Two pieces of evidence support this Ratman (2011): excessive and overly rigid
proposition. First, the Global Competi- labor regulation is a problem for India but
tiveness Report divides countries into five not the problem.
stages of economic development, start-
ing at the low end with Factor Driven, in Additional insight on why labor mar-
the middle with Efficiency Driven, and ket over-regulation is not the strategic
at the top with Innovation Driven. The factor with respect to India’s growth and
report also notes that the key drivers of job creation conundrum comes from read-
growth differ across stages of developing the report’s discussion of the first of
ment; for example the best way for a the twelve pillars, Institutions. It states
Factor Driven country such as Cambo- (World Economic Forum, 2014: 4-5),
dia to improve competitiveness is not
necessarily the best way for an Innova- “The institutional environment is de-
tion-Driven country such as Germany. termined by the legal and administrative
Bruce E. Kaufman
framework within which individuals, ers at over 45,000 enterprises in 106 de-
firms and government interact to gener- veloping countries to the question: “Which
ate wealth…[However,] the role of in- of the following elements [15 items in a
stitutions goes beyond the legal frame- list] of the business environment, if any,
work. Government attitudes toward mar- currently represents the biggest obstacle
kets and freedoms and the efficiency of faced by this establishment?” Respon-
its operations are also very important: dents listed the following items as the top
excessive bureaucracy and red tape, seven: Access to finance, Access to elec-
overregulation, corruption, dishonesty in tricity, Informality, Tax rate, Political in-
dealing with public contracts, lack of stability, Inadequate educated workforce,
transparency and trustworthiness, inabil- and Corruption. Labor regulation was #14
ity to provide appropriate services for the on the list and was cited by only 3 per-
business sector, and political dependence cent of respondents.
of the judicial system impose significant
economic costs to business and slow the What is the connection between this
process of economic development”. discussion and the Webbs? One can plau-
sibly argue it reveals the fatal contradic-
This quotation highlights fundamen- tion in their theory of political economy.
tal constraints on job creation in India The Webbs correctly identify in their in-
because they obstruct the long-run pro- dustrial relations face that surplus labor
ductivity and competitiveness of the and unemployment are the most serious
nation’s employers (more below). A de- causes of poverty, substandard labor con-
bate on labor law reform, therefore, must ditions, and unequal bargaining power.
be broadly framed to include these types However, they also propose in their
of obstacles in product markets. Short- Fabian Socialism face a growth model
ening the purchase process for a mobile which creates these conditions by stifling
phone from seven transactions to one is entrepreneurship and capital investment.
a concrete example. In fairness, when the Webbs formed
their opinions on capitalism vs. socialism
The second piece of evidence comes the record of capitalism had a number of
from the report IFC Jobs Study by the serious blotches, including periods of
International Finance Corporation (2014), deep economic crisis and mass unemploy-
a subsidiary of the World Bank. The re- ment. Their conversion to socialism was
port develops a conceptual framework for thus partly born of skepticism that capi-
thinking about the factors that stimulate talism could ever produce reasonably
and impede job growth. The framework sustained and balanced growth. The most
begins with the labor market and the recent world financial crisis suggests
forces shaping labor demand and labor their concerns are not to be cavalierly
supply. However, the report also con- dismissed. Nonetheless, the record of the
cludes that a labor market focus by itself last sixty years – with the considerable
is greatly incomplete. Illustratively, the help of economist J.M. Keynes and gov-
report analyzes responses from manag- ernment demand management – suggests
the Webbs picked the wrong horse in the notes that proponents of neo-liberal free
growth and prosperity race. Their policy market economics, such as Professor
program of slowly restricting and nar- Epstein, disagree with industrial relations
rowing the economic space for market proponents on this critical point. Epstein
forces and entrepreneurial action ap- (2012:203) advances a close-to-zero po-
pears, therefore, ill-advised and harmful sition, stating, “Why not try competition
to the interests of the working class across the board – which would lead to
which, paradoxically, they sought to pro- repeal of virtually every labor law that
mote. Unfortunately, on achieving inde- regulates wages and terms of employ-
pendence India also bet on the socialist ment, except perhaps with respect to
horse and seven decades later the perni- health and safety?”
cious effects in stifled product market
performance are still reverberating into The IR answer to his ‘why not?’ ques-
lackluster labor market performance. tion comes from the Webbs, Commons,
Gandhi, and other proponents of a human
Regulation & Performance of Labor conception of labor (Kaufman 2010,
Markets. 2012a). That is, when labor is treated as
a commodity in unprotected external and
The message of the previous section internal labor markets the results are likely
is that all of India’s labor laws and regu- to be closer to the predictions of Karl
lations can be shredded and the positive Marx than Milton Friedman. Reasons are
effect on economic growth is likely sec- because productivity sinks (from low mo-
ond-order. But, at least in industrial rela- rale, trust and cooperation), firms skimp
tions, this scenario is not countenanced on investments in human capital and hu-
even if it were politically feasible. The man resource management, costs esca-
reason is that industrial relations has from late from high turnover, conflict, and shirk-
its beginning days maintained that capi- ing, and workers look to militant unions
talism functions best when labor law and and socialism for protection. Note may be
social insurance are used to stabilize, made here that in this regard the IR argu-
balance, professionalize, and humanize ment for labor law is paradigmatically dif-
labor markets and workplaces (Budd, ferent from the standard neoclassical
2004; Kaufman, 2004). model. In the latter, a competitive labor
market is the ideal and labor law is sanc-
Diagrammatically, IR theory predicts tioned only in the case of irremediable
the relationship between labor market market failures; in the former, a competi-
regulation and economic performance is tive labor market is far from ideal as a
an inverted U (regulation on the horizon- basis for a high-performance employment
tal axis from 0% to 100% and GDP/job relationship and labor law is required to
growth on the vertical axis) so that opti- create order and stability (Kaufman, 2010;
mal labor law is not zero but an interior 2012a). Thus, from an IR perspective,
point somewhere in the moderate middle Fabian Socialism does not provide the
(recalling IR = the ‘middle way’). One optimal amount of labor regulation (to the
Bruce E. Kaufman
right of the inverted U) but neither does labor law provision which critics cite as
free market neo-liberalism (to the left of the impediment to growth (Das, 2006;
the inverted U). Datta & Sil, 2007; Krueger, 2013) – the
ban in the Industrial Disputes Act (1947)
on terminating workers and closing es-
Little doubt exists that India
tablishments – has been revised over the
needs a substantial overhaul of its
years but by lowering the employment
labor law regime.
threshold so it covers not only large firms
but numerous small-to-medium sized
Little doubt exists that India needs a firms (firms with more than 100 employ-
substantial overhaul of its labor law re- ees). Even people committed to fully pro-
gime. The basic framework was created tecting workers’ rights can see that this
in the late 1940s-early 1950s, but with rule – coupled with equally restrictive
substantial roots in British colonial stat- business insolvency rules — imposes
utes going back to the 1920s. Maintain- potentially severe financial risks and pen-
ing industrial peace was then the central alties on firms in a market system with
goal, partly a reflection of British impe- fluctuating sales due to product life
rial interests but also the Gandhian em- cycles, business cycles, and seasonal
phasis on social harmony (Kennedy, customer orders. Further, this rule under-
1965; Sundar, 2010). Not even the most mines competitiveness and economic
presciently designed labor law system, development by incenting investors and
however, can remain a good fit in the entrepreneurs to keep firm size below the
2010s when designed more than a half- 100 person floor, thus sacrificing econo-
century earlier for a largely rural, handi- mies of scale and modern production
craft, and informal economy. Of course, technology and exacerbating industrial
Indian labor law has not been completely dualism and a stunted manufacturing sec-
static over the decades and economic lib- tor (Debroy,2005; Kruger, 2013; Kumar,
eralization and globalization of product 2014). Companies also evade the rule by
markets have increased the pressure for hiring more contract workers and clos-
change. Also, labor law reform has been ing down facilities through the subterfuge
the subject of numerous commissions, of a labor dispute lock-out.
reports, political speeches, and propos-
als to Parliament (Venkata Ratnam, 2004; Looking at the Indian labor law re-
Shah, 2013). To the frustration of actors gime through the lens of the Webbs’ in-
in all parts of the IR system, however, dustrial relations face, two structural
direct government action has been ex- problems look most important to reform.
ceedingly slow, particularly at the national Recall, as context, the Webbs seek to
level. promote social efficiency and justice by
using legal enactment and trade unions
Where change in labor regulation has to push-up on the lower end of the in-
occurred, the movement is sometimes in dustrial pyramid and push-down on the
the wrong direction. For example, the top end. The first structural reform, there-
hatma Gandhi National Rural Employ-

The main corpus of Indian labor law ment Guarantee Act (MGNREGA) – a
applies to only about 7 percent of law passed in 2005 which guarantees 100
the labor force, limited mostly to days of wage employment to rural house-
people in the organized sector. holds if adult members volunteer for un-
skilled manual labor on community
fore, is of the ‘push-up’ nature, achieved projects. Also illustrative are various in-
by extending the basic protections of la- come supplement devices, such as for
bor law to a much larger part of the widows, disabled, and retired people, un-
workforce. This task is difficult because der the National Social Assistance Pro-
60 percent of the Indian workforce is still gram (1995), although it so far provides
in the agricultural sector and another benefits to only 21 million people
large share are wage workers or self- (Subrahmanya, 2013).
employed in the informal sector (Hill,
2009; Venkatta Ratnam & Verma, 2010). The first-prong of labor law reform
But, in another reflection of extreme eco- is to broaden the base of coverage.
nomic dualism, the main corpus of Indian
labor law applies to only about 7 percent
of the labor force, limited mostly to The Webbs also counsel using le-
people in the organized sector (Shah, gal enactment to push-down on the top
2013). In the Indian context, ‘organized of the industrial pyramid on the argu-
sector’ includes all public sector organi- ment that a significant part of the high
zations and private sector non-agricul- earnings of the affluent elite is eco-
tural enterprises with 10 or more employ- nomic rent siphoned from society
ees. through monopoly market barriers, gov-
ernment-created privileges, and closed
The Webbs advocate that a common family and social networks. Part of the
rule be established across all labor mar- success of the Indian economy over the
kets – including the market for day la- last two decades is that it has created
borers, contract workers, and self-em- a new middle class, numbering approxi-
ployed – which provides minimum mately 50 million or 5 percent of the
wages, conditions, and treatment conso- p o p u l a t i o n . H o w e v e r, i t h a s a l s o
nant with social costs and human rights. spawned a tiny elite of super-rich
Nine out of ten people in the Indian whose share of the country’s wealth
workforce do not have this minimum has skyrocketed from 1.8 percent to 26
guarantee and several hundred million percent (Peeples, 2014). Some of the
live in abject poverty (Hill, 2009). Hence, super-high income is a much deserved
the first-prong of labor law reform is to return to entrepreneurship and capital
broaden the base of coverage. An ex- investment; however, another portion is
ample in this spirit, defects in implemen- from gaming the system. As part of lib-
tation and administration notwithstanding eralization, India also substantially re-
(Shankar & Gaiha, 2013), is the Ma- duced the progressivity of income tax
Bruce E. Kaufman
rates and eliminated an estate tax. La- Effective Implementation & Good
bor law (broadly defined), therefore, Governance
needs to counter this trend toward rent-
seeking and inequality. One avenue is Liberalization in the early 1990s
social initiatives to open-up access to opened-up the opportunities and incentives
high income parts of the job distribu- needed to fuel a growth surge but, as noted
tion, such as greater educational oppor- in the introduction, the surge may have
tunities for society’s poor and disad- faded. Observers can pick-out a variety
vantaged and greater legal enforcement of structural reforms, including labor re-
of hiring, promotion and pay on the ba- form, which will help put stronger wind
sis of merit rather than connection and into India’s economic sails. None of these
caste (Bhandari, 2014). The other av- reforms are likely to make much differ-
enue is to impose higher effective tax ence, however, if not well implemented,
rates on family income through base- administered, and governed. Here seems
broadening and better enforcement to emerge the critical weak spot in India’s
while shutting-off egregious sources of future and thus the key point for strategic
rent-skimming, such as the too-often attack (Nilekani, 2009; Debroy, Bhandari,
corrupt process of awarding public con- 2013; World Economic Forum, 2014) Das
tracts. (2006:1) remarks about India’s growth
surge, “what is most remarkable is that
Finally, although nearly all commen- rather than rising with the help of the state,
tators say touching trade union law is India is in many ways rising despite the
politically impossible, a Webbian perspec- state”. He adds, “Although Indians blame
tive suggests that here too significant ideology (and sometimes democracy) for
reform is needed. Currently trade unions their failings, the truth is that a mundane
represent perhaps as few as 3 percent inability to implement policy – reflecting a
of the workforce (Sundar, 2010), mostly bias for thought against action – may have
in the small organized sector and often been even more damaging” (ibid: 2). The
in public sector employments, and exact same diagnosis is made by Nandan
a considerable efficiency cost through Nilekani (2009:457), founder of one of
restrictive employment practices, politi- India’s IT success stories, Infosys Tech-
cal infighting, and adversarial relations. nologies Ltd. “Implementation, sadly, has
Labor law reform should take politics and long been India’s weak spot”.
conflict out of union recognition and col-
lective bargaining by institutionalizing rec-
Indian workforce is the most highly
ognition and bargaining procedures
protected in East Asia.
(Venkatta Ratnam, 2004); the same pro-
cedures would help shift trade unions
from an entrenched protector of a nar- India currently has more than 45 na-
row-based labor aristocracy to a broader- tional-level labor laws and five times that
based but less adversarial and politicized many at the state level (Debroy &
workers’ representative. Kaushek, 2005), making the Indian
workforce the most highly protected in and the annual funds diverted through
East Asia (Basu, Fields & Debgupta, corruption are one-third larger than total
2000). The reality, however, is starkly government expenditure on health care
different. Due to substantial dualism, (“Corruption – An Epidemic of Epic Scale
about 10 percent of the workforce en- in India,” Huffington Post India, May 5,
joys too much labor protection while the 2014).
other 90 percent enjoys too little. How-
ever, many Indians feel cynical and frus- The point to be emphasized, therefore,
trated about the government’s ability to is that enacting new labor laws and modi-
redress this imbalance (Debroy & fying existing ones is only part of the la-
Bhandari, 2013; Transparency Interna- bor law reform battle. Attention must also
tional, 2014), albeit with a bounce in hope be given to the unglamorous but critical
that the new Modi government can do aspect of implementation. This insight is
better. hardly new. American IR founder John
Commons noted (Commons &Andrews,
Implementation and governance are 1936: 448), “More important than the
separate but related dimensions of insti- hasty enactment of additional laws is the
tutional performance. Implementation oc- adoption of methods of administration that
curs after a labor law is passed; for ex- will enforce them. It is easy for politicians
ample, firms need to make sure they are or reformers or trade union officials to
paying at least a minimum wage and gov- boast of new laws which they have se-
ernment must monitor and enforce com- cured for labor, and it is just as easy to
pliance. Governance is faithfully and effi- overlook details or appropriations or com-
ciently executing the law and keeping it petent officials.” Translated into the in-
free of corruption. By some accounts, verse U- shaped diagram of optimal labor
India currently has the worst-performing regulation (earlier cited), this consideration
bureaucracy in East Asia and the nation makes the theory more complicated be-
ranks 94 on perceived corruption (Politi- cause it is not only an issue of too much
cal & Economic Risk Consultancy Ltd, or too little regulation but, perhaps more
2013; Transparency International, 2014). importantly, better regulation.
This nation-state problem is reflected in
lax labor law implementation and corrupt The Webbs were quite mindful of the
governance. For example, labor inspec- importance of efficient and honest labor
tors are bribed, firms keep double sets of regulation and, indeed, as earlier noted
accounting and payroll records, union of- they founded the LSE in part to train high-
ficers take kick-backs, and government class managers and administrators for the
program administrators embezzle funds. new socialist planned economy. The
It is estimated that only 15 percent of the Webbs were optimistic for they thought
government’s anti-poverty funds reached England possessed one of the finest gov-
the poor in the mid-2000s (“Corruption in ernment bureaucracies in the world (Webb
India, Cause of Instability & Inequalities,” &Webb, 1920: 319). As it later proved, the
poverties.org/corruption-in-india, 2014) Webbs were too optimistic on the possi-
Bruce E. Kaufman
bilities of socialist administration and here is a similar institutional challenge for In-
is another fatal flaw in their political dia and of which labor reform is a part.
economy. Commons (1921) judged the
Webbs woefully naïve about the possibili- Conclusion
ties of administering a socialist state and
concluded such a system was an impossi- The Webbs’ writings present a mixed
bility in the USA because the American picture with respect to Indian economic
people are “administratively incompetent” development and industrial relations poli-
(Commons, 1934: 846). cies. The industrial relations part contin-
ues to provide sound principles, such as a
When the Webbs visited India in 1911, national minimum set at the social cost of
they were impressed with the quality of labor. The Fabian Socialism part of their
governance exhibited by Indians recruited writings, however, has proved a recipe for
into the Indian Civil Service, although on sclerotic growth. This paper tried to un-
the voyage home Sidney Webb was tangle these diverse threads and work-out
moved to say, “Three months’ acquain- the implications for restructuring Indian
tance has greatly increased our estimate labor law. Partly this exercise is useful
of the Indians, and greatly lessened our because it stimulates thinking about the
admiration for, and our trust in, this Gov- industrial relations field and, in particular,
ernment of officials” (Jayal, 1987: 209). to what extent it has general principles and
In rendering this negative verdict, how- concepts useful for framing the reform
ever, Webb noted that “we have found the debate and guiding it to a consensus pro-
British officials more inaccurate and more gram. Also, the debate on labor reform in
disingenuous than the Indians” (ibid: 119). India seems to follow along a fairly well-
Braibanti (1963) claims the Indian gov- worn groove of analysis so perhaps bring-
ernment administration was among the ing a different perspective to the matter à
dozen best performers in the 1950s; other la the Webbs is useful for stirring new
observers, however, questioned at the time thinking and dialogue.
whether Nehru’s idealism and faith in
people were matched by the administra-
India is long over-due for substan-
tive capacity of the Indian state and indi-
tial modernization and rationaliza-
cate that corruption was growing around
tion of its labor law regime.
him (the Gorwala report of 1951, cited in
Akbar, 1990). These fears turned out to
be justified and India has traveled a six India is long over-due for substantial
decade path toward less efficient and hon- modernization and rationalization of its
est administration. The USA featured ram- labor law regime; a large cross-section
pant corruption and mal-administration in of Indian people recognize this impera-
government in the 19th century and one tive; many books, papers and reports with
of the keys to its successful development detailed recommendations have been
in the 20th century was reforming a dis- written on the subject; and yet frustrat-
eased system from within. Here, it seems, ingly little happens. Possibly the Webbs
and the Fabian tradition make a contri- Spengler (Eds.), Administration and Eco-
bution of a different kind for people who nomic Development in India London, Cam-
bridge University Press
want change but are discouraged. The
Fabian founders chose to name the or- Budd, J. (2004), Employment with a Human Face,
ganization after Roman emperor Fabius Ithaca: Cornell University Press.
Maximus, renowned for his patience be- Cole, G. (1943), Fabian Socialism, London: Cass
fore launching an attack on the enemy. & Co.
Even if the socialism part of the Fabian Commons, J. (1921), “The Webbs’ Constitution
legacy is not helpful for the Indian IR field for a Socialist Commonwealth in Great Brit-
and labor law reform project, certainly ain,” American Economic Review, 11: 82-90
helpful in a messy democracy is the pa- Commons, John (1934), Institutional Econom-
tience and perseverance part. ics: Its Place in Political Economy. New
York: McGraw-Hill.
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By Invitationsas
Rethinking Labor Law Reforms
Arun Maira
Introduction
“If you don’t know where you are

going, you will end up somewhere else”,
warned Casey Stengel, a famous base-
Indian labor laws must be im-
ball player. India needs to create more
proved. The improvements re-
jobs. For that, it needs to build a com-
quired must emerge from a dia-
petitive manufacturing sector. The drum-
logue between representatives of
beat of (mostly right-wing, free market)
employees and employers. The
economists and employers asserting that
failure to make any significant
India must change its labor laws to per-
improvements in the laws so far,
mit easier firing of workers is misdirect-
in spite of demands for over ing the country from its goals.
twenty years from both employ-
ers and unions, suggests that the Do we want a sustainably strong
processes used so far to try to manufacturing sector, or do we merely
change the laws have not been want to change our labor laws? We must
able to produce the required out- stay focused on our goals of a competi-
come. The paper also outlines tive manufacturing sector and more jobs
the India Backbone Implementa- and not get distracted by a rather shal-
tion Network, a Planning Com- low presumption that easier firing of
mission initiative, conceived workers will lead to growth of competi-
along with the 12 th Five Year tive manufacturing enterprises. Let us
Plan by the Steering Group for understand the relationship between
Manufacturing. these two objectives: one supposedly the
means to the other.
At the outset, it must be admitted that

change in Indian labor laws is overdue.
Many are very old and must be up-dated
to suit present conditions. There are too
Arun Maira is Ex-Member, Planning Commission. many laws and regulations, sometimes
E-Mail: arun.maira@nic.in contradicting each other. And the laws
are not implemented properly, perhaps tion and exports too), political and bu-
because many cannot be implemented in reaucratic capacities (which are con-
practice, or because the government strained too) should be applied to address
machinery to implement them is inad- this number one constraint on the pro-
equate. Not only are employers demand- ductivity and growth of manufacturing
ing improvements in labor laws, unions enterprises, and not be distracted towards
are too. We will return to the questions lower order constraints such as the os-
of what the thrust of changes should be tensible difficulties in firing workers.
and how to bring them about. First, let us
examine what is required to grow India’s The second, almost equally large im-
manufacturing sector to create more pediment for the productivity and com-
employment. petitiveness of manufacturing enterprises
in India is inadequate physical infrastruc-
Constraints on Growth ture for transportation and power sup-
ply. Indian IT enterprises are not handi-
Labor laws are not the principal con- capped by these shortcomings and so
straint, or even amongst the top three or many have grown to be world-class com-
four constraints on the growth of India’s petitors. However, manufacturing enter-
manufacturing sector. Many surveys in prises have to convert stuff and move
the past few years, conducted by sev- stuff, and this requires energy and physi-
eral industry associations, consulting or- cal transportation. They are severely
ganizations, and government commis- handicapped by the poor infrastructure:
sions have revealed this. The principal it adds to costs and delays and reduces
constraint, for both large and small en- their international competitiveness.
terprises, is the quality of the business
regulatory environment. India ranks to- The third constraint is the availabil-
wards the bottom of the World Bank’s ity of skilled manpower. Since the
rankings of countries for ease of doing country’s objective is to employ more
business and its position has been slip- people in manufacturing, and since skilled
ping. Implementation of business regula- persons can also improve the productiv-
tions is more corrupt, confused, and tardy ity and competitiveness of enterprises
in India than in other countries. This de- they work in, this constraint must be re-
ters investments from abroad and from lieved very vigorously. A national skills
Indian investors too. It especially saps the mission has been launched with impres-
productivity of small enterprises where sive targets. It needs much more partici-
the owner has to personally respond to pation of employers for development of
the regulators when he is also the man- requisite skills: more about this later.
ager of the business to which he must
give more attention. Since small enter- Large enterprises and MSMEs have
prises are the largest creators of employ- different constraints. In fact, one of the
ment in the manufacturing sector (and greatest constraints on the growth of
account for a large share of its produc- small enterprises in India is the availabil-
Arun Maira
ity and cost of credit, whereas large en- restrained their competitiveness and
terprises do not have a problem obtain- growth.
ing loans from banks and at lower rates
than MSMEs (though the cost may be Some economists have pointed out
higher than in other countries). The dis- that India’s manufacturing sector has a
tinction between the needs of large en- ‘missing middle’. There are too many
terprises and SMEs must be always re- MSMEs, and some large companies, and
membered while devising strategies to too few in the middle. They point to a
grow India’s manufacturing sector. Too barrier that MSMEs do not wish to cross
much of attention of policy-makers is to become bigger. According to some of
given to the views of large enterprises, these economists, the barrier is the oner-
who get the attention of policy-makers ous restrictions on firing people once the
through powerful business associations enterprises become larger. However, as
and directly too, rather than the perspec- suggested here, this may not be as much
tives of SMEs. of a restriction as it is made out to be.
Other factors impede growth even more.
Some economists have pointed out
that India’s manufacturing sector Such an architecture has been
has a ‘missing middle’. mooted by the NMCC and MSME
ministry. This would give incen-
tives to MSMEs for a fixed num-
MSMEs and larger enterprises have
ber of years.
different issues with labor laws. Many
MSMEs are in the informal sector. Many
of those in the formal sector fall below The MSMEs themselves point out
the threshold limits of industrial relations’ that the architecture of incentives to
laws. They do not need more freedom to MSMEs induces them to stay small. In-
legally hire and fire: their contracts with centives are given to enterprises below
employees are informal and flexible. It a threshold size. Therefore, when they
is the large enterprises who say they are cross that threshold, they lose the sup-
impeded by laws that make it difficult for port. So they would rather multiply num-
them, legally, to fire their employees. bers of small units, each of them getting
They have got around the restrictions by the incentives, than grow a large one and
employing large numbers of contract lose them. An alternative architecture of
workers, always at lower costs than per- schemes to assist MSMEs is required if
manent employees. Therefore, in prac- the objective is to help them grow stron-
tice, the labor laws have not come in the ger and larger. Such an architecture has
way of their hiring more people. So, if been mooted by the NMCC and MSME
these enterprises have not grown and ministry. This would give incentives to
have not hired even more people, the MSMEs for a fixed number of years,
constraint has not been the labor laws. during which they must make all efforts
Other constraints, mentioned before, have to improve their productivity and grow,
because they will lose the incentives The Planning Commission asked Bain
thereafter. This will motivate small en- and Company to do an independent, ob-
terprises to learn and improve faster and jective evaluation of the co-relation of
cross into the zone of the presently ‘miss- competitiveness of Indian manufacturing
ing middle’. enterprises and their industrial relations’
practices. Bain connected the economic
The strategy to grow Indian manu- performance (growth, profits) amongst
facturing enterprises must be to improve Indian enterprises in several manufactur-
their competitiveness, rather than to pro- ing sectors with their orientation towards
vide them with protection against larger employees. The study confirmed that
and stronger competitors. To improve enterprises in which employees were
their competitiveness, enterprises must treated as ‘appreciating assets’ produced
be faster learning than others. The only better economic results over the long run
resource in a manufacturing enterprise than their competitors who took a more
that has the ability to learn and improve short-term, ‘cost’ oriented view of em-
its capability and productivity are its employees.
ployees. The capability of all other re-
sources—machines, buildings, materi-
Enterprises in which employees
als—depreciates with time, inevitably.
were treated as ‘appreciating as-
Far-sighted employers understand that
sets’ produced better economic
employees are the only ‘appreciating as-
results over the long run than
sets’ of a manufacturing enterprise. Mo-
their competitors.
tivated and enabled employees can
also improve the capability of the
enterprise’s manufacturing processes Economists who wish India well
and the productivity of its machines. would want manufacturers in India to
employ more people and pay them bet-
People, Skills, Jobs ter too. More employment and more earn-
ings will give a boost to economic growth.
India has the world’s largest pool of However, this win-win solution is not
young persons seeking jobs. Human be- being realized because owners of enter-
ings are a trainable resource. Manufac- prises are facing problems with employ-
turing enterprises in India, wanting to ees. Employees do not have the requi-
compete with enterprises in other coun- site skills, they say. When employees are
tries should design their manufacturing dissatisfied they can create industrial re-
systems to use more human beings and lations problems. Therefore the general
less capital. A manufacturing enterprise response of employers, with a few no-
in India that has the ability to improve table exceptions, is either, use machines
employee skills can count on a continu- instead of people if they can afford them
ing supply of trainable people, and thus (the cost of capital is high in India, and
have a sustainable competitive advantage SMEs cannot raise it easily) or, hire more
over enterprises elsewhere. temporary/contract workers, who do not
Arun Maira
yet have the ability to organize themselves These systems include material flows,
(though they are beginning to), and are information flows, processes for quality,
easier to fire legally. productivity improvement, and very im-
portantly, the human side of the enter-
Such tactical manoeuvres are dia- prise.
metrically opposed to the strategy to
make India a globally competitive manu-
Manufacturing management must
facturing hub. There is little incentive to
become an attractive vocation for
train temporary/contract workers, so skill
India’s best engineers.
development is constrained when India
is crying for more skill development.
Moreover, contract workers are paid India’s massive vocational skills pro-
much less than others, leading to indus- gram must address the need for better
trial relations disputes. Thus employers’ manufacturing managers too. ‘Manufac-
relationships with people in their enter- turing management’ must become an at-
prises are becoming fraught. With this tractive vocation for India’s best engi-
trend, manufacturing may be in a down- neers, whereas they have been gravitat-
ward spiral, at a time when, for improve- ing to the IT industry, building its inter-
ment in competitiveness of Indian manu- national competiveness, at the cost of
facturing enterprises, people (and more India’s manufacturing sector. Churning
of them) must be at the heart of enter- out more skilled workers can be a socio-
prises’ strategies. economic fix that will back-fire if these
skilled workers do not find jobs. To cre-
To build a globally competitive manu- ate jobs, the competitiveness of Indian
facturing sector, India must expand the manufacturing enterprises must be rap-
scope of its vocational skills program. idly improved. To improve the enter-
More technically skilled workers are re- prises’ competitiveness, better manufac-
quired of course. Even more than that turing managers with skills to nurture
perhaps, employers in the garments and human assets and manage complex sys-
other labor-intensive sectors say they tems will be required in much larger num-
need good supervisors who can manage bers than what India is generating at
work and people well. Productivity im- present.
provements and skill development hap-
pen on the shop floor and good supervi- It is not surprising that countries such
sors are critical for these. as Germany, Japan, and Sweden, which
have maintained (and even increased) the
Above all, the country needs very competitiveness of their manufacturing
good systems’ and people managers who sectors, even as wages increased and
will improve competitiveness of manu- their currencies became stronger, have
facturing enterprises by managing the a long term orientation towards human
interplay of the many systems that inter- assets. In these countries, there is much
act to create faster learning enterprises. greater commitment to the continuity of
employees in service. To them, ‘flexibil- will be damaged if Government forces

ity’ in employment is the ability of em- any changes in labor laws that are not
ployees, supported by employers to learn founded on an understanding between
new capabilities, rather than the flexibil- unions and employers about what
ity of employers to quickly dispense with changes are required to ensure fairness
employees’ services. to employees and enable faster learning
and improvement of competitiveness in
For India to reach its goal, of creat- enterprises. It is not politically feasible
ing 100 million additional jobs in manu- for Government to change the laws with-
facturing, which it must, owners and out the support of both unions and em-
managers of manufacturing enterprises ployers. The lesson from France is in-
in India must treat human beings as their structive. The productivity and growth of
core asset and not a problem to be France’s manufacturing enterprises have
avoided. been hampered by rigid labor laws. Last
year, the French government changed the
What about Labor Laws? laws without too much contention. The
minister-in-charge explained that the
We return now to the question of la- Government was able to make the
bor law reform. Labor laws must be ex- changes because the unions and employ-
amined by keeping in mind the goal we ers, following the German example of
want to achieve. Which is to grow India’s cooperation, came to an agreement about
manufacturing sector and employment in the changes required which they put to
it. Whatever reforms are to be made in the Government to implement.
the labor laws must be assessed with this
goal in mind and must support the strat- The World Bank’s annual World De-
egy required to reach it. velopment Report, 2013 focused on ‘Jobs’.
The need to create good quality jobs has
become a major challenge for policy-mak-
Relations between employers and
ers in many countries, including developed
employees must become co-opera-
ones where youth unemployment is over
tive, not confrontational.
25%. The Report points towards ap-
proaches that policy-makers should adopt
The strategy has to be to build rapid to create jobs. It says:”A careful review
learning enterprises with employees at of labor policies in developing countries
their heart. Relations between employ- yields a mixed picture. Most studies find
ers and employees must become co-op- that impacts are modest—certainly more
erative, not confrontational. Together, modest than the intensity of the debate
enlightened employers and responsible would suggest. Across firm sizes and coun-
unions must establish processes that will try levels of development, labor policies and
build trust within enterprises. Together, regulations are not among the top three con-
they can determine what changes in la- straints that formal private enterprises
bor laws are required. Industrial relations face.”
Arun Maira
“There is no consensus on what the changes will emerge from the stake-
content of labor policies should be. Views holder engagements that will address the
are polarized, reflecting differences in composite of processes, orientations, and
fundamental beliefs. To some, labor mar- regulations. The changes required in laws
ket regulations and collective bargaining cannot and must not be debated in isola-
are sources of inefficiency that reduce tion of these grounded, multi-stakeholder
output and employment, while protecting engagements. Reforms in processes are
insiders at the expense of everyone critical; not merely reforms in laws.
else…..To others, these policies provide
necessary protection to workers against Improving Trust & Co-operation
the power of employers and the vagar-
ies of the market.” Indian labor laws must be improved,
as mentioned before. However, the im-
The Report says, “The challenge is provements required must emerge from
to set labor policies on a plateau—a a dialogue between representatives of
range where regulations and institutions employees and employers. We must find
can at least partially address labor mar- our own ‘plateau’. The failure to make
ket imperfections without reducing effi- any significant improvements in the laws
ciency.” so far, in spite of demands for over
twenty years, from both employers and
The ‘plateau’ is a coherent combi- unions, that something should be done
nation of regulations, processes, and ori- suggests that the processes used so far
entations amongst the stakeholders— to try to change the laws have not been
employers, workers and their represen- able to produce the outcome required.
tatives, and regulators. The plateau (or
the edge) between too rigid regulations
The tripartite Government-led pro-
and too little regulation, and between scle-
cess (the Indian Labor Confer-
rotic institutions and no legitimate insti-
ence) has not been able to over-
tutions, has to be found in each country,
come the trust deficit between
within each region, and even within en-
unions and employers.
terprises. Within the same country and
the same national labor laws, some re-
gions and some enterprises have more The India Backbone Implementation
harmonious human relations and thereby Network (a Planning Commission sup-
more competitive enterprises. ported initiative, about which more will
be said later) has examined several pro-
The discovery of the plateau requires cesses that have been applied so far. The
deliberations amongst the stakeholders at examination revealed that the tripartite
regional, state, and enterprise levels. Government-led process (the Indian La-
Changes in labor laws may be necessary, bor Conference) has not been able to
and in India some changes are required. overcome the trust deficit between unions
However, the discovery of what these and employers. Agreements supposedly
reached at its meetings are not followed sustainably strong manufacturing sectors
through. On the other hand, bi-lateral by cooperation amongst stakeholders.
processes, such as those facilitated by The India Backbone Implementation
the ILO, do enable better dialogue. But Network (IbIn) was created to promote
they are not able to convert discussions the use of such approaches in India to
into enforceable decisions because Gov- accelerate the growth of employment in
ernment seems a reluctant participant in India’s manufacturing sector.
them.
IbIn has brought national unions and
The India Backbone Implementation employers’ federations together to con-
Network was conceived along with the sider some fundamental questions for co-
12th Five Year Plan by the Steering Group operation:
for Manufacturing. The Group had
agreed, at the outset, that a plan to cre- • Do ‘we’ seriously want to improve
ate 100 million additional jobs in the manu- industrial relations?
facturing sector, by improving the com-
• What is required to be done by us
petitiveness of enterprises and acceler-
‘together’ to enable improvement of
ating the growth of the sector (which has
industrial relations?
been languishing at below 16% of GDP)
will not be sufficient. The root causes for • Are we willing to try a better method
the country’s failure to implement its pre- to achieve our objective?
vious plans to grow manufacturing must
be analyzed and addressed too. The root Several meetings have been held
causes for slow implementation, it was amongst the stakeholders. There is
found, were (1) unresolved contentions agreement that both unions and employ-
amongst stakeholders on a variety of is- ers want better industrial relations, and
sues (land requirements, environment for this the trust deficit between them
clearances, industrial relations, etc) and must be reduced. This will require a
(2) confusion in implementation of solu- greater willingness to listen to each other
tions even when there was agreement. and co-create solutions. Both sides have
For these reasons, infrastructure is not agreed that they must follow a system-
being built fast enough, projects are stuck, atic ‘IbIn’ process which will move along
skills are not being developed adequately, two tracks:
etc.
1. Resolve issues that have not been
The Planning Commission set about resolved so far, systematically, with
finding ways to convert contention into a better process (For the record here:
collaboration, confusion into coordination, the principal, urgent issue in large en-
and thereby convert intentions into imple- terprises is contract labor, and for
mentation. Processes and techniques for MSMEs it is social security. The right
this were searched for in countries that of employees to form unions is the
have good track records for building other important issue.)
Arun Maira
2. Pay explicit attention to the quality laws to improve competitiveness of

of the process of dialogue, and manufacturing enterprises, grow the
strengthen it to increase trust and manufacturing sector, and increase
create a stronger platform for the employment
stakeholders’ dialogue for solutions
An understanding of what changes
The second objective, the building of should be made in the labor laws will be
a strong platform for purposeful dialogue, an outcome of a process of cooperation
is essential to achieve the first objective. between unions and employers’ federa-
A strong platform will produce several tion. Attempts to force a change in labor
benefits: laws to enable easier firing of employ-
ees, which is being demanded by some
• The root causes of poor productivity employers and some economists, will
and competitiveness of manufactur- decrease trust which is insufficient
ing enterprises will be analyzed, and amongst employees and employers,
can then be addressed when there is need to increase trust.
• Better practices for addressing these
A stronger platform for dialogue is
root causes and improving industrial
required. Using this platform the stake-
relations will be discerned and dis-
holders in India can discover the ‘pla-
seminated
teau’—the combination of practices, pro-
• There will be agreement on what cesses, and laws—that the World Bank
changes are required in the content report on Jobs has analyzed as the policy
and in the implementation of labor solution for accelerating growth of em-
ployment in manufacturing in all coun-
tries.
By Invitationsas
Transition to Labor Law Reform: State-Level

Initiatives &Informal Sector Labor Relations
Hemal Shah
The 1991 economic reforms in Restrictive, Archaic, Convoluted
India quadrupled growth, but Labor Laws
kept good quality jobs stagnant.
About 93 percent of the For India to transition to a modern
workforce is employed in the in- economy – from agriculture to industry,
formal sector, holding back informal to formal sector, and shift to ur-
India’s growth potential. If India banization – she must realize her true
is to realize its full growth po- growth potential by focusing on the cre-
tential, reforming the heavily ation of good quality jobs and infrastruc-
regulated labor market is indis- ture. One of the key enablers is the mod-
pensable. However, resistance ernization of the labor market, which is
from vested interests in an inflex- regulated by extremely restrictive laws.
ible market and lack of political This forces businesses to remain small,
capital in New Delhi has con- and in turn operate in the informal sec-
tributed to more than six decades tor. About 450 million informal employ-
of impasse. This paper accounts ees who make up 93 percent of the total
for interests of all stakeholders workforce stand to benefit from reforms
in addressing this issue. The pa- to labor laws and improve business pro-
per identifies best practices that ductivity.
individual states have under-
taken to simplify labor laws to Informal or unorganized sector work-
ease doing business and address ers, by definition, are those employed in
the lack of skilled labor. It also enterprises that use power and employ
identifies smaller reforms to ex- fewer than 10 people or do not use power
tend security coverage to infor- and employ fewer than 20 people (Debroy
mal workers. & Bhandari, 2008). Common occupations
include small farmers, fishermen, beedi
Hemal Shah is a researcher for India and South packers/bonded laborers, migrant work-
Asia at the American Enterprise Institute, ers, contract and casual laborers (Plan-
Washington DC. She is also a scholar
with the Takshashila Institution, Bangalore.
ning Commission, 2001). Informal work-
Email: hemalshah7@gmail.com ers are often characterized as low-skilled,
Hemal Shah
poorly paid and seldom covered by so- Adverse Effects

cial security provisions. This paper uses
the terms ‘informal’ and ‘unorganized’ Stringent labor regulations affect in-
interchangeably. dustrial development, thereby economic
growth and jobs. Firms are disincen-
tivized from expanding and harnessing
Indian labor legislation is convo-
the economies of scale and forced to re-
luted, archaic and restrictive in
main informal. The World Bank’s (2013a)
nature.
World Development Report focusing on
labor issues directly links larger, formal
Indian labor legislation is convoluted, sector firms to a range of positive fac-
archaic, and restrictive in nature. About tors. Surveying businesses in 102 coun-
50 Central laws overlap with 150 State tries, the report found that larger firms
regulations. The clauses of the Industrial (with more than 100 workers) are likely
Disputes Act (IDA) of 1947, one of the to be more productive.
major regulations, were conceived under
the British Raj. In 1976, the introduction For instance, value added per worker
of Chapter V-B to IDA decreed that in India’s informal manufacturing sector
firms employing 300+ people should seek is on average about one-tenth that in the
government permission to effect lay-offs, formal manufacturing sector (Sharma,
retrenchments and closures. This was 2009). The World Bank report also found
further restricted to firms with 100+ that larger, formal sector firms innovate
workers in 1982, making hiring or firing more, and compete in export markets,
new workers extremely difficult even if especially in the presence of foreign com-
they are inefficient (Sharma, 2006). The petitors. They are also likely to pay higher
Trade Unions Act is as old as 1926 and wages and control for worker character-
Workmen’s Compensation Act from istics like age or education through a wage
1923. premium. However, India misses out on
capitalizing on such economies of scale.
The 1970 Contract Labor Act allows For example, about 84 percent of manu-
firms to employ contract workers for facturing firms in India are micro and
tasks of permanent nature but the arbi- small firms, employing less than 49
trariness of the law allows the govern- people. A miniscule 6 percent of (“me-
ment to ban contract use if similar es- dium size”) firms employ between 50 and
tablishments use regular workers for that 199 people. Only 11 percent employ over
same task (Bhagwati & Panagariya, 200 people (“large size”); in China large
2013). The 1948 Factories Act limits the sized firms account for 52 percent
maximum hours of work per week to 48, (Hasan & Jandoc, 2012).
requires paid holiday for each 20 days of
work, bans the employment of women for On the other hand, economic growth
more than nine hours a day, among other in India has not brought about sufficient
things (Bhagwati & Panagariya, 2013). jobs. For instance, overall employment,
Transition to Labor Law Reform
which experienced a steady annual mal sector companies is also on an up-

growth of around 2 percent from 1961- ward trajectory (Papola & Sahu, 2012).
90 (when average growth was about 3.5 In fact, India has been the main driver of
percent) declined sharply to 1.5 percent increase in informal employment in all of
during 1990-91. Employment further de- South Asia (Iyer & Vijay, 2013). The
clined to around 1 percent during 1993- immediate reasons for a burgeoning in-
00, when growth rose to an average of 6 formal economy are increased taxes and
percent (World Bank, 2013b). This situ- social security contribution burdens, in-
ation improved in 2000-2005 when tensity of regulations, and low quality of
India’s GDP growth rate averaged at 7 public sector services (Schneider, 2002).
percent, and employment went up by 1.6
percent (World Bank, 2013b). But as a Urgent Need
u-turn, in 2005-2010 when growth aver-
aged higher at 8 percentand employment
India is amongst the most difficult
dropped by 5.4 percent (World Bank,
places to do business.
2013b).
Even if employment increased slowly India is amongst the most difficult

over the years, the rate of good jobs cre- places to do business. The World Bank’s
ation was going the opposite direction. Doing Business index shows India fall-
While the formal sector grew slowly at ing down three places to 134th this year,
1.2 percent annually in 1983-94, this rate the worst performing country in South
fell to 0.53 percent in 1994-2000 (Sharma, Asia after Bhutan and Afghanistan.
2006). Overall, employment in India in- Starting a business and enforcing con-
creased by 92.7 million during 2000-2005 tracts are amongst the major problems
but a mere 2.2 million during 2005-2010 (World Bank, 2014). The World Eco-
(Mahambare & Nadkarni, 2011).Even nomic Forum’s 2014 Global Competitive-
then, the quality of jobs added to the ness Index ranks restrictive labor regu-
economy was dismal. The small increase lations as among the top problems for
in aggregate employment of 2.2 million businesses to operate in India. Address-
during the high economic growth, but low ing this could help India make the transi-
job growth period of 2005-2010 was due tion from a factor-driven economy to an
to a massive increase in informal or ca- efficiency- and innovation- driven
sual jobs. economy (Schwab, 2013).
Fallon & Lucas (1991) argued that Growth of India’s manufacturing sec-
employment in formal manufacturing tor record is also waning. In the 1970s,
firms would have been 17.5 percent the share of manufacturing to GDP was
higher in the absence of job security regu- around 12 percent. After barely rising
lations. But not only has the share of in- over the years, this share fell again to
formal workers gone up to 93 percent 14.6 percent in 2012-2013, the lowest in
today, the share of informal jobs in for- 20 years. To meet the goals of the
Hemal Shah
National Manufacturing Policy (NMP) – • Labor laws enacted by the Centre but
boosting the share of manufacturing to enforced by the State government
GDP to 25 percent and adding 100 mil-
• Labor laws enacted and enforced by
lion jobs – strong labor law reforms are
the various State governments which
needed now to put India on the path to
apply to respective States (Ministry
create around 110 million jobs by 2025
of Labor and Employment, 2011).
(Goldman Sachs, 2014). With more than
10 million Indians entering the job mar- The following items related to labor
ket annually, the stakes to reform sooner appear under the Seventh Schedule (Ar-
rather than later will be particularly high ticle 246) of the Constitution, under the
in the coming decade to exploit the op- Concurrent List, allowing State govern-
portunities from the demographic divi- ments to amend some Central statutes,
dend. and also add new statutes to a certain
extent:
Strong labor law reforms are
needed now to put India on the 22. Trade unions; industrial and labor dis-
path to create around 110 million putes
jobs by 2025. 23. Social security and social insurance;
employment and unemployment
Current Organization of Labor 24. Welfare of labor including conditions
Legislation of work, provident funds, employers’
liability, workmen’s compensation,
The Centre failed to make a case for invalidity and old age pensions and
flexible labor markets due to strong trade maternity benefits
union resistance (and political party affili-
ations) and problems with re-drafting This paper identifies the most ideal
amendments. To curtail this, there is a ten- reform scenarios in order of importance
dency on the Centre’s part to pass the buck but also rates their difficulty level.
on to States (Debroy, 2012). India’s labor
legislation is a subject in the Concurrent Most Difficult Scenario
List, which means that both the Centre
and the State could enact laws pertaining While India needs a major overhaul
to the relevant category. There are: in labor legislation, the IDA of 1947 war-
rants reform most urgently. Bhagwati &
• Labor laws enacted and enforced by Panagariya (2013) highlight some of the
the Central government pressing changes required that include
tightening the definition of retrenchment
• Labor laws enacted by Centre but and deferring disputes to independent
enforced by both Central and State authorities to deliver time-bound justice
governments as opposed to labor courts and tribunals.
Section 9A should be amended to give
the employer more flexibility to reassign nist parties whose hold was reduced to
workers to similar but alternative tasks the lowest ever vote share of 4.4 percent
at short notice should the need arise. – and a decisive victory for the centre-
The IDA also prohibits strikes only by right Bharatiya Janata Party (BJP), mak-
public utility services without notice, but ing way for some reform discussion.
such restrictions should also be extended
to other industrial establishments to dis- Moderately Difficult Scenario
courage “wildcat strikes.” And perhaps
the most crucial reform of all is to Chap- India is becoming more federal in
ter V-B that restricts laying off work- nature. The number of states has been
ers in a factory with 100 or more work- on the rise in India: from 14 states in
ers (Bhagwati & Panagariya, 2013). Be- 1957, India federalized to 29 in 2014. This
sides India, Pakistan and Sri Lanka are is just one of the reasons to devolve more
the only countries that require approval power to India’s 29 chief ministers, rather
by public administration before under- than concentrating it in New Delhi. In
taking any dismissal (Iyer & Vijay, addition to a majority in number, it also
2013). The Contract Labour Act and makes sense to move labor law items
Factories Act also need to relax their completely from the Concurrent to the
caps on restrictions. State list (by amending the Seventh
Schedule, Article 246, of the Constitution)
However, the Labour Ministry in New for several reasons:
Delhi rejects any idea of reform on the
pretext it would only apply to the 7 per- First, the current arrangement of
cent in the formal sector anyway. On the shared responsibility encourages inaction,
contrary, the discussion should be about non-accountability, and free-riding. On
how to bring the 93% under the system the one hand, it keeps the Centre tight-
and balance flexibility and security. Fur- fisted and avoid rocking the boat, and on
thermore, almost all major Indian political the other hand States remain complacent,
parties have a trade union wing. “This contributing to the decades-long impasse.
means political parties (more so in a coa-
lition) are reluctant to legislate on labor Second, performance-driven states
flexibility, since this would antagonize their are punished and complacent ones re-
own trade union wings” (Debroy, 2012). warded. For instance, states like Andhra
For instance, in February 2012 and 2013, Pradesh, Gujarat, Karnataka, Madhya
millions of trade union members organized Pradesh, and Maharashtra, wish to make
a national strike (All India Bandh) to de- labor laws more flexible to allow choice
mand permanent jobs and elimination of and opportunities for employees. This in-
contract labor preventing any change in cludes flexibility in work hours, night shifts
status quo. However, the dismal showing for women, or freedom to fix minimum
of the 2014 Lok Sabha elections marked wages. But these initiatives would require
a clear defeat for the left-wing political changes in legislation and have thus been
parties – especially the bloc of commu- shot down from the Centre (Debroy,
Hemal Shah
2011). But moving such legislation to the majority in the Lok Sabha, moving la-
State list could avoid this problem. bor from Concurrent to State list is not
an easy task. One way around this
Third, evidence suggests that States would be to use Parliament’s power to
which were able to enact seemingly more confer enabling power to states. In
“pro-worker regulations” have lost out on other words, the Lok Sabha could push
industrial production in general (Ministry for a politically easier reform by insert-
of Finance, 2005). Study by Hasan and ing additional wording to subjects in the
Jandoc (2012) shows that in labor-inten- Concurrent list stating two things: The
sive manufacturing, states with flexible particular piece of Central legislation
labor regulations enjoy a higher concen- shall apply to all states that do not
tration of large-scale firms and smaller amend that law; whereas amended leg-
share of employees in small-scale firms. islation shall apply in states that took
State-level reforms also help “to mitigate the initiative to amend it (Panagariya,
the detrimental effects that strict federal 2014). In general, changes made by
labor laws have on industrial outcomes” states are void if “repugnant” to exist-
with regard to formal sector manufac- ing Parliamentary legislation unless the
turing units (Dougherty et al, 2013). s t a t e h a s t h e P r e s i d e n t ’s c o n s e n t
(Bakshi, 2013).
However, moving labor laws from
Concurrent to State list will require a leg- However, considering that the new
islative amendment backed by the use of government does not yet enjoy a majority
significant political capital. While this is in the Rajya Sabha, Parliament’s attempt
difficult, it could be possible in the near to enable State power may be difficult. In
future given the new Prime Minister this case, another approach could be seek-
Narendra Modi’s BJP being the first party ing Presidential assent. Panagariya (2014)
with a majority seats since 1984 and first suggests that the “new government could
non-coalition since 1989. His affinity for facilitate this process by adopting a policy
decentralization (as former chief minis- of time-bound decisions on proposals for
ter of Gujarat) increases his potential to amendments submitted by states.” For in-
push for decentralizing labour laws but stance, he explains that government per-
the BJP does not yet have a majority in mission needed to lay off workers under
the Rajya Sabha. While moving these IDA 1947 is rarely granted making the law
items to the State list would be best, there restrictive. Here, a time clause could be
is no reason for states to try and reform added wherein the government has to
laws that are still within their power on make a decision on the layoff application
the Concurrent list. within a stipulated period of time, failing
which permission would be assumed as
Easier Scenario automatically granted. This could not only
make labor laws relatively more flexible
Even with the reform-oriented ap- but also result in efficient decision-mak-
proach of the new government and their ing.
The new BJP-led government in The hope is that marginal progress now
Rajasthan has recently adopted this will ease the transition to bigger future
route. The state’s Cabinet cleared reforms.
amendments to three labor-related Acts
and is seeking Presidential assent di- State Freedom & Flexibility for
rectly, as it may be “repugnant” to ex- Employers
isting Parliamentary legislation. The
state has proposed changes to IDA so Difficulties in complying with restric-
that permission for retrenchment is only tive labor laws and inadequate supply of
required for firms employing 300+ skilled labor are two of the major con-
people, as opposed to 100+ people. The straints for business (CII-KPMG, 2014).
state Cabinet has also introduced a Employers with more than 100 workers
three-year time limit for raising disputes; are covered by the IDA and cannot fire
trade unions can’t be registered with- anyone without prior consultation, notifi-
out 30 percent worker representation, cation to the public administration and
instead of the current 15 percent. Re- workers’ representation, followed by ap-
strictions from the Contract Labor Act proval from both before collective dis-
will apply only to companies with more missal (Iyer & Vijay, 2013). Only India,
than 50 workers, as opposed to the cur- Pakistan, and Sri Lanka have such strin-
rent 20; Factories Act would be appli- gent rules. In addition, TeamLease (2009)
cable only to companies with 20 work- recognises how “educated unemployment
ers with power and 40 without power, and shortage of competently skilled labour
as opposed to 10 and 20 respectively co-exist.” State governments can act on
(Iyer, 2014). some of the “controllable areas” of these
problems in the interim of unleashing big-
Easiest Scenario ger reforms (FICCI-Bain, 2012a).Best
practices emerge in areas where states
While much hope is pinned on the have a larger ability to introduce reforms.
new government, even the easier po- However in this case, where states have
tential changes outlined would still take a lesser capacity to legislate, strong, piece-
a while. In that interim, this paper at- meal initiatives undertaken by states can
tempts to identify the most common also serve as useful examples for other
problems for business and workers and states (FICCI-Bain, 2012a).
how State governments could under-
take smaller reforms to achieve mar-
Educated unemployment and
ginal progress to pave the way for big-
shortage of competently skilled
ger reforms in future. With six decades
labour co-exist.
of deadlock on labor reforms, it is time
to find a feasible approach by account-
ing for perceived short-term interests There is already some evidence of
of those favoring the status quo and State initiatives that have brought about
those demanding immediate reform. positive results. Besley and Burgess
Hemal Shah
(2004) show that states that “amended have slipped down in the same period.
the IDA in a pro-worker direction expe- While this is not a definite measure, it
rienced lower output, employment, invest- gives a rough blueprint to assess what
ment and productivity in formal went right and wrong in the respective
manufacturing.”A more recent study by states. But most importantly, it creates
Hasan and Jandoc (2012) concludes that competition to drive change.
Indian states with more flexible labor
regulations tend to have larger-sized Identifying Best Practices
firms in labor-intensive industries. Debroy
(2011) also identified various States – The Planning Commission’s state
Uttar Pradesh, Andhra Pradesh, Punjab, level assessment for manufacturing en-
Gujarat, Karnataka, Orissa, and vironment in March 2014 is a serious step
Rajasthan – that took initiatives to reduce in institutionalizing state initiatives in this
the number of inspectors for business area. It acknowledges that the first step
enterprises. Gujarat has also amended should begin with generating awareness
the IDA to allow retrenching workers but and motivation amongst states by com-
only at a higher compensation of 45 days’ parison with other states. The next step
pay. is to highlight best practices, followed by
how states can “tune up” their regula-
That positive state initiatives result tions by getting a sense of best practices
in labor market flexibility and productiv- in successful states (Planning Commis-
ity is clear from indices produced by or- sion, 2014).
ganizations like TeamLease or the Cato
Institute, who have undertaken studies to In association with Deloitte, the
rank State initiatives to improve labor Planning Commission recently ranked
regulations for business. The TeamLease states by the time taken and the effec-
(2009) labor ecosystem index aggregates tiveness of the process for registration
labor demand, supply and regulation, of manufacturing units under the Fac-
showing Andhra Pradesh and Karnataka tories Act and other labor laws. The
beating Delhi and Gujarat for the top most popular practices that emerged
spots on overall labor ecosystem, but sev- were in areas like simplifying informa-
eral others who are improving on other tion and creating awareness, online re-
variables. Cato’s 2013 Economic Free- newals, and rationalization of inspec-
dom of the States of India index also tions (Planning Commission, 2014). Mr.
ranks states under the category of regu- ArunMaira, member of the Planning
lation of labor and business (Debroy et Commission, argues that easing regu-
al, 2013). While Gujarat and Tamil Nadu lations for manufacturing enterprises
have maintained top spots since 2005 until should be in the hands of the states
now, states like Karnataka, Himachal since almost three quarters of the regu-
Pradesh, Uttarakhand have made tre- lations are state regulations (Rao,
mendous progress over the years, 2014). Outlined below are some ex-
whereas Jharkhand and Madhya Pradesh amples of such state initiatives that aim
to simplify labor regulations, both to Act of 2004 by making clear clauses for
ease doing business and bolster a skilled appointment and termination of labor for
workforce. SEZ units. Flexibility in complying with
IDA’s section V-A, V-B, V-C and V-D
Labor Management System are offered (MSME, 2014).The SEZ Act
has institutionalized the concept of ‘fixed
The “Mahashramm” initiative term’ – different from contract workers
launched in 2010 by the State government – to satisfy work needed to be done for
of Maharashtra is an important electronic short periods (Debroy, 2011). This fea-
portal that enables efficient and timely ture has brought about a major reduction
services to businesses and reduces in- in manpower days lost due to labor
spections. The portal provides online reg- strikes. Gujarat, therefore, accounts for
istration, application for licenses, exemp- only 0.6 percent of India’s manpower
tions, and renewals, in addition to paying days lost (CII-KPMG, 2014). In fact, re-
salaries by cheques. Businesses can cent research by Goldman Sachs (2014)
track the status of their application put- argues that 40 million manufacturing jobs
ting an end to delays and corruption that could be added to the economy if states
may arise in such cases. Filing and rec- made their labor laws as flexible as
onciling returns are simplified: businesses Gujarat. The state’s reform initiative
can file the 14 mandated returns in one brought a growth of 60 percent in manu-
go through one comprehensive annual facturing employment between 2000 and
report. Monthly returns are verified 2012 whereas West Bengal saw only a
against bank statements and alerts are 22 percent increase (Goldman Sachs,
generated for non-compliance. In this 2014).
manner, days taken to apply for licenses
were reduced from 10 to 0.5; license re-
40 million manufacturing jobs
newal from 7 to 0.5; and returns filing
could be added to the economy if
from 15 to 0.5 (DIPP, 2014). However,
states made their labor laws as
businesses have to ensure that their em-
flexible as Gujarat.
ployees are all registered on this system
and have individual bank accounts
(FICCI-Bain, 2012b). Self-certification & Inspector
Rationalization
Compliance in Special Economic
Zones The introduction of Single Window Act
in 2002 made Andhra Pradesh the first
Special economic zones (SEZ) are state to introduce the concept of self-cer-
designated areas to attract cutting edge tification. This enabled firms to avoid ar-
infrastructure and foreign investment bitrary inspectors by submitting their mus-
with the least possible regulations to boost ter rolls and registers along with a self-
economic activity. Gujarat has pioneered certification form showing compliance
labor compliance in this area by the SEZ with various labor laws. However, it is the
Hemal Shah
state’s thriving IT industry that goaded this State Freedom to Redesign

practice. This is yet to be scaled up to the NREGA
manufacturing sector, whereby labor laws
are more in number as it falls under the Though well-intentioned, the former
jurisdiction of the Centre’s Factories Act. government’s National Rural Employ-
While this initiative is laudable, improvement Guarantee Act (NREGA) that guar-
ments can be made by making inspections antees 100 days of work to the rural poor,
complaint-based or random as opposed to has unintended consequences. For India
mandatory inspection currently. Third to boost growth, jobs, and productivity, it
party agencies could also be recognized has to make a rapid transition from agri-
to issue compliance certificates (FICCI- culture to manufacturing coupled with
Bain, 2012c). skilling programs, and thereby urbaniza-
tion. Labor is four times more produc-
tive in industry and six times more in ser-
Third party agencies could also be
vices compared to agriculture (Goldman
recognized to issue compliance
Sachs, 2014). Government policies should
certificates.
incentivise this transition, but NREGA
does the opposite. While rural wages are
Industry -University MoUs going up, slowing urbanization and pro-
ductivity are together stoking inflation in
Gujarat, like a few other states, has India (Goldman Sachs, 2014).
been steering the setup of industrial train-
ing institutes (ITIs) to implement voca-
NREGA could be reformed to limit
tional training courses. But the state’s
the number of rural jobs to those
government differentiates itself from ITI
who strongly prefer to remain
initiatives by other states with its cam-
close to their households (for ex-
paigns to increase the participation of
ample, women).
industry to strike a match between skills
training and academia. As noted by
FICCI, industrial organizations like Tata, NREGA could be reformed to limit
LG, Eicher have signed MoUs with the the number of rural jobs to those who
state government’s employment and strongly prefer to remain close to their
training department specifying skills they households (for example, women). The
require and in exchange offering place- government could instead channel the
ments to successful students. This has remaining funds to sponsor or subsidize
led to university-business integration. For these workers for 100 days in private
example, Saurashtra University and Essar sector labour-intensive industries. This
Group work together in designing course would also incentivize employers to in-
curriculum relevant to industry; ITI vest in their skills in that subsidized time
Kubernagar works with Toyota and and hire them full-time by paying wages
Eicher to make skills relevant to their for the rest of the 265 days or more
business (FICCI-Bain, 2012d). (Kumar & Busvine, 2014). However,
NREGA is a one-size-fits-all Centrally

Sponsored Scheme (CSS), where state The EPFO is 10-20 times more ex-
governments contribute a share of the pensive than any other public or
finances and responsible for implemen- private government securities
tation but have no say in design mutual fund in the world.
(Raghunandan & Aiyar, 2013). With the
current government poised in favor of Social Security Cost-Value
decentralized decision-making over CSS, Mismatch
the Planning Commission, with Prime
Minister Modi at the helm, could extend The cost and administrative burdens
more freedom to state governments to of India’s social security schemes
redesign their NREGA schemes to align disincentivize employers from administer-
more with productive jobs and urbaniza- ing them. At the same time, employees
tion. find it unattractive to contribute to them.
Benefits and contributions leave low-
Social Security Reform wage employees with only 50% of their
monthly salary (Sabharwal, 2012). The
In the first quarter of 2014, 3,057,472 EPFO is 10-20 times more expensive
man-days were lost due to strikes and than any other public or private govern-
lockouts (Labor Bureau, 2014). While the ment securities mutual fund in the world
formal sector is characterized by a rigid (Sabharwal, 2012). In addition, its pen-
labor market, the 93% of the Indian sion scheme has an unfunded hole of ru-
workforce in the informal sector work pees 50,000 crore (Sabharwal, 2014).
under extremely flexible conditions. Moreover, the perceived value for money
However, social security coverage is is fairly less for low-wage workers —
miniscule or non-existent. Evidence from the EPF has often been criticized for
the most unionized state of India, West poor customer service. The ESI, on the
Bengal, suggests that three of their larg- other hand, is also blighted with poor hos-
est trade unions (CITU, INTUC, AITUC) pital facilities and lack of staff
focus their work around security for (Sabharwal, 2012).It is also the world’s
workers in the informal economy (Sen, only health insurance plan with a claim
2009).Scaling up security for informal ratio of less than 50 percent (Sabharwal,
sector workers could therefore be one 2014). Thus, businesses are increasingly
of the most crucial factors in reducing moving to the cost-to-company approach
the fierce resistance from trade unions. of monetizing all benefits to include in
Trade unions worry about any discourse salaries, as opposed to providing benefits
of reform equating it with dilution of their over and above the gross salary.
rights. This section argues for a two-
pronged approach: identify and address Cost-cutting also leads to collusion
trade union problems to the extent that it between businesses and labor inspectors;
makes bargaining unnecessary and un- unregistered firms often don’t return their
attractive. ex-employees contributions (Rajeev,
Hemal Shah
2009). Maharashtra’s “Mahashramm” Foi, Randstad, and Manpower, in the in-

initiative mandates all businesses – in formal sector. Besides offering human
formal and informal sectors – to pay all resource services, such organizations
salaries/wages by cheque. Businesses, dedicate their operations towards improv-
banks, labor and network correspondents ing their people supply chain by identify-
have to be all linked and financial institu- ing and matching contract laborers, or
tions are expected to provide the linkage temporary staff, a sensitive subject
by extending the option of “no frills” bank amongst the trade unions. Contract la-
accounts. This also ensures the payment bor is often exploited in India’s formal
of EPF to workers (FICCI-Bain, 2012b). sector as short-term “informal” laborers
absent social security provisions. The
Competition to Reform presence of such organizations would
ensure that contract laborers get a fair
Competition is yet another way to wage for their services in addition to so-
reform social security and improve value cial security, on the assumption that tem-
for money. With the extension of the porary jobs are still better than no jobs.
National Pension System (NPS) to all
Indian citizens, including from the infor- Developing the Informal Sector
mal sector – and the Pension Fund Regu-
latory and Development Authority Though ideal, formalization is imprac-
(PFRDA) as regulator of the pension tical until informal workers are equipped
sector – employers should allow and en- with required skills and training to enable
courage employees to opt into the employers to invest in them and adminis-
scheme of their choice. The NPS, unlike ter expensive social security options.
the EPF, runs on a defined contribution Needless to mention, compliance with
mechanism whereby a pensioner gets restrictive labor laws and poor infrastruc-
back the amount proportional to his con- ture add to the problem. Policymakers
tribution, rather than a fixed return. The need to think of ways to reduce the for-
NPS also enjoys a higher rate of return mality-informality trade off.
than the 8.25% under EPF. The NPS
scheme is web-enabled and removes the Costs of formalization include entry
human interface that could invite rent- costs and operating costs (Loayza, 1997).
seeking, thereby inviting choice and Entry costs of doing business in India in-
contestability, and incentivizing EPFO to volve 12 procedures that take 27 days,
reform alongside (Asher, 2011). costing 47 percent of income per capita
with paid-in minimum capital of 125 per-
Setting up Organizations cent - as opposed to 5 procedures in 11
days, costing 3.6 percent of income per
State governments should look into capita, with just 10% paid-in minimum
investing and encouraging formal sector capital in the OECD (World Bank, 2014).
organizations modeled after private com- Operating costs – complex taxes, labor
panies, like TeamLease Services, Ma regulations, property rights, contract en-
forcement, access to infrastructure – are Flexibility & Security – “Flexi-

already high. Ranking 134th out of 189 curity”
countries on the World Bank’s Doing
Business index, India falls behind even
Any use of the term flexibility or
her BRICS counterparts.
reform agitates trade unions.
Ranking 134th out of 189 countries

Any use of the term flexibility or re-
on the World Bank’s Doing Busi-
form agitates trade unions. India’s for-
ness index, India falls behind even
mal sector offers no flexibility to firms,
her BRICS counterparts.
but as a contrast, workers enjoy good
security coverage. So currently India has
Costs of remaining informal include an absolute welfarist model – something
penalties and corruption, limited access that a low middle income country cannot
to public services, missed opportunities afford. Instead, a good formula to emu-
on expansion, limited access to finance late is Denmark’s flexi-curity model: a
and cooperation with formal enterprises tripartite model that combines flexibility
(Ishengoma & Kappel, 2006). How- for employers, security for workers, and
ever, the situation in India can be an active labor market policy to encour-
summed up as follows: “the opportu- age skilling programs and matching the
nity costs of informality seem to be unemployed.
much lower than the cost of operating
formally…total formality may mean In addition to the reforms highlighted
closing up the business unless the busi- above, flexi-curity could be kickstarted
ness environment within which firms by segregating IDA’s meanings of lay-
operate is improved” (Ishengoma & off, retrenchment and closure provisions.
Kappel, 2006). The three concepts reflect increasing
degrees of severity, and unbundling them
Instead, until costs decline, attempts could make them more palatable to trade
should be directed at creating an assur- unions, making it easier to sell reforms
ance of sustainable livelihoods in the in- (Debroy, 2012). It is speculated that if
formal sector. For instance, states like compensation for layoffs and retrench-
Gujarat have been proactive in creating ment were increased from 30 days’ pay
more choice and opportunities for farm- per year worked to 45 days, political re-
ers by amending restrictions on the Ag- sistance may diminish. In West Bengal,
ricultural Produce Marketing Committee this compensation is higher for layoffs –
Act to allow them to sell their produce to 50% of basic wages plus other benefits
wholesalers, exporters, industries and for the first 90 days and 75% thereafter
large trading companies (Shah, 2013). until disposal (Sen, 2009).
This would ensure a smooth transition for
informal sector workers when the time Severance pay policies in India are
is right to formalize. already “modest” by international com-
Hemal Shah
parisons (Asher & Mukhopadhya, 2005). conditions could also make bargaining
That brings forth the scope to trade off through unions unnecessary making la-
higher severance pay for three important bor relations more efficient. Examples
opportunities – greater operational flex- from successful approaches used by
ibility for businesses, greater profession- companies show minimized backlash
alism in policy design and implementa- from unions. This includes community
tion by labor ministries, and lower trans- development, work benefits, and timely
action costs for new companies (Asher breaks.
& Mukhopadhya, 2005).
Community development measures
Like-minded Unionism include renovating railway stations, bath-
ing ghats, or social welfare activities like
Trade unions comprising similar indus- eye test camps – sometimes in partner-
try units are more credible and easier to ship with local bodies like the panchayats
engage with. On the other hand, unions with (Sen, 2009). Benefits that go over and
members from mutually exclusive indus- above the pay package, like free trans-
tries and varied interests lead to unchecked port, dining halls, or extra cash for buy-
multiplicity whereby member demands ing household items have also worked in
arise out of herd mentality, and lack cred- the past. The kind of composition of work
ibility. The Amendment Act 2001 to Trade times, breaks, and benefits could also
Unions Act 1926 was channeled towards incentivize amicability.
addressing superfluous multiplicity. As a
result, 10,274 registrations were cancelled In this manner, unions in large firms
in 2001in West Bengal, they probably did with increased benefits are seeing a de-
not meet the criteria of the Amendment in cline especially in the case of young and
terms of industrial homogeneity (Sen, white-collar employees, who do not indi-
2009). While there has not been much re- cate a strong urge to unionize. Moreover,
search on the direct implications of such state unions comprise nearly 90 percent
outcomes, the main aim of such reforms is of the total pie and informal unions are
to ensure “orderly growth, reduce multi- growing. Such patterns summon the in-
plicity and promote internal democracy in creasing need to shift reform narrative
the industrial organization and the to the states and the informal sector (Sen,
economy” (Business Portal of India, 2013). 2009).
With state unions comprising 89 percent of
the total pie and informal unions on the rise, Concluding Remarks
there is more reason to make this item part
of the State list. Labor market reform is one of the
most politically difficult tasks in a large
Improving Work Conditions democracy like India. India’s labor leg-
islation is archaic, restrictive, and con-
In addition to scaling up security in voluted, thereby discouraging businesses
the informal sector, creating better work to expand and create more jobs. If India
is to realize its full growth potential, it will workers, and improving work conditions
need to reform its heavily regulated la- can bring more security to workers and
bor market by ushering in more flexibil- encourage good quality unionism.
ity and scaling up security for workers.
Currently, 93 percent of workforce that Interim reforms outlined in this pa-
is employed in the informal sector where per from successful practices are in-
productivity is low and wages are small, tended to help push labor market dynam-
stands to benefit from such reforms. ics. Regulatory practices need to adapt
However, resistance from vested inter- to evolving structures – as otherwise
ests and lack of political capital in New welfare cannot be advanced. In the face
Delhi has contributed to six decades of of a slowing growth rate, attempts to
impasse on this issue. tame the deficit and inflation, and a forth-
coming demographic dividend, India’s
This paper identifies the most ideal political elite must remember that boost-
reform scenarios in order of political sen- ing good quality jobs is a matter of top
sitivity. This ranges from re-writing the priority.
IDA and other restrictive laws; to mov-
ing labour legislation from the Concur- Acknowledgments
rent to the State list; to seeking Presi-
dential assent for State-initiated changes. The author would like to thank Dr.
However, the paper lays out detailed and Mukul Asher (Takshashila Institution) for
easier policy reform options to pave the his comments.
way for bigger reforms in future.
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www3.weforum.org/docs/ 2014. Accessed on Jun 10, 2014:http://
WEF_GlobalCompetitivenessReport_2013- w w w. d o i n g b u s i n e s s . o rg / d a t a /
14.pdf exploreeconomies/india#starting-a-business
By Invitationsas
Labor Market Flexibility & Trajectories of

Development: Lessons from Brazil, India & China
Anil Verma & Ana Virginia Moreira Gomes

In China, labor policy first diluted Introduction
employment security rights to facili-
tate re-allocation of labor to the pri- The debate around labor reforms
vate sector. When new labor prob- in India became prominent once again
lems emerged, policy shifted to re- with the election of a majority BJP
regulate the labor market. Brazil’s government in May 2014. This change
success in achieving economic in government came when despite
growth and social progress simulta- much debate in the past, the previous
neously is unparalleled: informality, Congress-led governments had failed
income inequality and unemployment to undertake any significant reform.
decreased. India needs macro-level Great expectations now await the new
flexibility in re-allocating labor from government for reforms in labor
informal to formal work, from rural policy. It is in this context that we ex-
to urban areas, and from the un- amine the labor and employment sys-
skilled to the skilled. Micro-level tem in India with particular attention
flexibility through termination of em- to the issue of labor flexibility.
ployment must be coupled with stron-
ger social security programs for ad-
When one considers potential
equate severance pay and re-train-
solutions there is an alarming
ing for other employment and also
lack of consensus on possible
stronger protection for workers in the
directions for reform.
informal sector.
Anil Verma (E-mail:Verma@Rotman.Utoronto.Ca) is
Professor & Director, Centre for Industrial Relations & Recent research in India has richly
Human Resources at the University of Toronto where documented the dysfunctions of the In-
he holds a joint appointment at the Rotman School of dian industrial relations system to estab-
Management. He is also a Visiting Professor at the
lish the case for substantive reforms in
Universidade Federal do Ceará, Fortaleza, Brazil.
Ana Virginia Gomes (avmgomes@gmail.com) is a number of areas(Shyam Sundar, 2012;
Professor of Labour Law at Universidade de Fortaleza 2011; Sharma 2006; Sodhi, 2011). How-
– UNIFOR, Brazil, and Research Fellow at the Centre ever, when one considers potential so-
for the Law in the Contemporary Workplace, Queen’s lutions there is an alarming lack of con-
University, Canada.
sensus on possible directions for reform. It ready a middle-income country, faces the
is arguably one of the reasons why previ- challenge of moving its labor and employ-
ous governments found themselves stymied ment system to the next higher level from
into inaction. The analysis in this paper ex- its current plateau. Most skilled labor is
plores possible avenues for reform around in short supply despite a large labor pool
which parties to the employment system that is largely unskilled or semi-skilled.
could converge. It can be useful to look Labor regulation is designed to protect
for relevant lessons from both inside and workers and jobs but its large informal
outside India in a search for better ideas. economy leaves many workers unpro-
It is in this spirit, that we compare the la- tected. So, improving the skills of its
bor and employment systems in India, China workforce and reducing informality in the
and Brazil. These insights can be useful in labor market are significant challenges.
breaking the gridlock around labor reforms,
which in turn, could contribute to sustained In the next section we provide a brief
economic development. comparative sketch of the main charac-
teristics of the three countries. This is
Why compare India with China and followed by an overview of the Indian
Brazil? Despite significant differences, case for labor reforms. Lastly, we review
these three countries face many similar the lessons that policymakers in India can
challenges. They are striving to reduce draw from the experiences of China and
poverty, improve education and health, and Brazil for developing a consensus around
to become full employment economies. All much needed labor reforms.
three are among the biggest countries in
the world in terms of population, landmass BIC: A Comparative Overview
and total GNP. Together with Russia they
became known as BRIC, a moniker for India and China are the only countries
investors looking to profit from high in the world with a population in excess
growth emerging economies. of one billion each. Although Brazil is
much smaller with a population approach-
China and Brazil also share many of ing 200 million, it is the dominant economy
India’s challenges in making their labor in its neighborhood much in the way that
and employment systems more skilled, India dominates South Asia and, China, the
productive and flexible. For example, in global economy. There are other similari-
moving its 450+ million workforce from ties. Although China has been able to sus-
the public sector to the private sector, tain its high growth rate over a much
China faced a challenge unprecedented longer period, both India and Brazil are
in history in scale and scope. Labor regu- also considered to be emerging economies
lations needed to be changed dramati- that boosted their historically anemic
cally. This transformation of the labor growth rates to new highs in the most re-
market is far from being perfect or com- cent decade. High rates of growth have
plete but a substantive set of regulations generated more jobs, reduced poverty and
was put in place to facilitate this large- raised the aspirations for a better life.
scale re-allocation of labor. Brazil, al- Scores of enterprises from these three
Labor Market Flexibility
countries have confidently expanded at income countries (USD 11,208), India at

home and overseas. the low end (USD1,499) with China near
the middle of this range (USD6,807)
In terms of per capita GDPin 2013, (Table 1).
Brazil was at the higher end of middle-
Table 1 A Comparative Look at Brazil, India, China
Year Brazil India China

Population (millions) 2013 200.4 1,252.0 1,357.0
GDP per capita (US$) 2013 11,208 1,499 6,807
Av Annual GDP Growh Rate (%) 5-yr: 2009-13 3.6 7.0 10.1
10-yr:2004-13 4.6 6.7 8.9
Average Annual Inflation Rate (%) 2006-13 5.2% 9.3% 3.7%
Human Dev Index (HDI) 2012 0.73 0.554 0.699
HDI Rank 2012 85 136 101
Adult Literacy Rate 2010 90.0% 62.8% 94.0%
Male Life Expectancy (yrs) 2010 70.7 64.4 72.1
Female Life Expectancy (yrs) 2010 77.4 67.6 75.6
Doctors per 1000 pop. 2010 1.8 0.6 1.4
Fertility Rate (Per Woman) 2010 1.8 2.5 1.6
Workforce in Agriculture (%) 2011 15 47 35
Labor Force Participation Rate - Total 2012 70.0 56.0 70.7
Labor Force Participation Rate - female 2012 50.1 29.0 64.0
Trade Union Density (%) 2010 17.8 2.4 NA
# of Strikes & Lockouts 2008 411 423 NA
Sources: www.wdi.worldbank.org
Trade Union Density and Strike data from www.ilo.org
There are a number of similarities and India needs to generate new jobs at a
differences in factors relating to much faster rate over a longer time pe-
workforce development and the result- riod than do Brazil and China (Goswami,
ing flexibility of labor. First, India has the 2014).
youngest workforce while Brazil has the
oldest of the three countries. The popu- India has the largest share of its
lation pyramid for Brazil has been shrink- population still living in rural areas and
ing now for many years already. In dependent on agriculture. This share is
China, the pyramid has just begun to the lowest for Brazil, which has become
shrink while in India it is still expanding a largely urbanized country in recent de-
at the base. These trends suggest that cades. But despite such urbanization
Brazil’s workforce is underutilized in the
India needs to generate new jobs north and the north-east while southern
at a much faster rate over a longer Brazil experiences critical labor short-
time period than do Brazil and ages. Brazil is also a large landmass with
China. relatively poor infrastructure that makes
it hard to relocate the workforce and jobs.
India is the smallest of the three coun- Both China and India have followed
tries in terms of area but poor infrastruc- a trend that Piketty (2014) contends is a
ture creates problems of mobility with law of development itself: the rate at which
attendant adverse consequences for flex- wealth becomes concentrated in a few
ible allocation of labor. China is also a hands, i.e., rate of rising inequality, ex-
large land mass and has experienced ceeds the rate of economic growth. So,
uneven development between the fast even as countries grow economically, they
developing north and coastal areas on the inevitably contribute to rising inequality.
one hand and the less developed regions This is a challenge for all societies but for
of central and western China on the other developing nations it poses a specially dif-
Large investments in coastal infrastruc- ficult challenge: how to sustain growth that
ture have made China an export power- would raise living standards for all with-
house but its challenges in managing mi- out increasing inequality or even better,
grant labor resulting from the uneven while reducing inequality?
development remain substantial.
Flexibility Debate
In terms of inequality, Brazil has the
highest degree of income inequality of the The labor flexibility debate is often
three countries. Its Gini coefficient, a framed within the narrow context of the
measure of inequality, was 54.7 in 2009 workplace or the level of the firm. In
compared to 33.9 in India (measured in India, a major demand of those advocat-
2010) and 42.1 in China (also measured ing for greater labor flexibility is to ask
in 2010). But, whereas inequality in- the government to spell out an “exit”
creased in both China and India since the policy that would make it easier for em-
1990s, Brazil is among the few countries ployers to terminate employment for
that have managed to reduce inequality workers who are no longer needed be-
in recent decades. Its Gini coefficient cause of changes in technology or in de-
declined from an exceptionally high level mand for its products or in its financial
of 63.3 in 1989 to 54.7 in 2009. For In- ability to sustain a workforce. By itself
dia, the Gini increased relatively moder- this is not an unreasonable demand.
ately from 30.8 in 1994 to 33.9 in 2010. Schumpeter’s concept of “creative de-
In China, inequality rose more signifi- struction” captures well the dynamics of
cantly from 32.4 in 1990 to 42.1 in 2009.1 economic growth in our era of globaliza-
tion. No job or workplace or firm can
1
To put these coefficients in perspective, it may be remain unaltered for forever. The need
noted that among the developed countries, Norway to restructure, reorganize and refocus the
(26), Sweden (25) and Germany (28) are relatively enterprise is forever present in the glo-
more equal while the U.S. (41) is at the high end bal economy and it needs to be facilitated
with Australia (35 in 1994), Canada (33), France
by domestic policy for sustained growth.
(33 in 1995) and the UK (36 in 1999) falling in the
middle of the range. Unless otherwise noted Gini
coefficients were measured in the year 2000. All This approach to flexibility has been
Gini coefficients accessed from wdi.worldbank.org criticized by a number of scholars for
various reasons that are discussed in the strategy would involve massive invest-
next section. The purpose here is to put ments in construction of urban infrastruc-
this debate in the larger context of de- tures. From this perspective, it can be
velopment so that we can look beyond argued that India needs not only labor
India’s borders for lessons on how best flexibility at the micro level but also help
to facilitate flexibility. The narrowly- urbanize its population.
framed flexibility debate loses its moor-
ings if it is not embedded in the larger
India’s skill development infra-
context of India’s developmental needs.
structure lags behind its aspira-
When one examines the larger context
tions for ambitious and sustained
for human resources in India, a number
economic growth.
of issues become apparent.
First, India has a much larger share Second, India’s skill development in-
of its population in rural areas. In 2013, frastructure lags behind its aspirations for
68% of India’s population lived in rural ambitious and sustained economic
areas while in China, this proportion was growth. The skill development infrastruc-
47% and shrinking rapidly. In Brazil, less ture includes the basic education system,
than 15% of the population is rural. The the post-secondary and post-graduate
generally accepted wisdom is that it is university level institutions, on-the-job
extremely difficult to raise incomes, pro- workplace training, and research institu-
vide a decent level of education and tions. Drèze and Sen (2010) emphasize
health services, and create a full employ- several key ideas about basic education
ment economy if a large share of the in India. First, basic education has been
population lives in rural areas. It is for neglected by all elites including the gov-
this reason that China has embarked on ernment, employers and unions. They
an ambitious program to urbanize its speculate that this neglect may be related
population (Yusuf & Saich, 2008; Davis, to the potential of education to challenge
2013; China Development Research power and privilege vested in the status
Foundation, 2013). Urbanization does not quo. Second, basic education has been
necessarily mean that there has to be a limited in its reach. Literacy levels, even
shift of rural population to existing cities, according to government supplied and
which would be a huge challenge in it- somewhat inflated statistics, remain low
self given that Indian cities are already compared to China and Brazil. The adult
overcrowded. Rather, it implies that more literacy level in 2010 was 62.8% com-
areas need to be urbanized by develop- pared to 90% in Brazil and 94% in China
ing smaller towns into cities. Any new (Table 1). Female literacy levels are re-
labor policy initiatives need to carefully portedly even lower although reliable es-
weigh the implications for future urban- timates are hard to find. Third, there are
ization. Labor policies need to create the large variations in primary school atten-
kind of flexibility that would smoothen the dance and achievement within the sys-
path to urbanization. An urbanization tem across provinces, gender, family
income and the urban-rural divide. the goal of bringing industry-relevant vo-
Fourth, although some gains have been cational education to 550 million people
made in literacy levels in the last two by 2022 (Sodhi, 2014). These campaigns
decades, the system remains far short of seek to improve the quality of higher edu-
even the modest goal of achieving uni- cation through a series of administrative
versal primary education up till the age reforms, coordination with states, and im-
of 14. Moreover, school attendance, the proved targeted funding to institutions
most common measure of education, says based on meeting performance targets.
little about the level of learning taking Although it is too early to tell if these cam-
place. Numerous surveys have found paigns are yielding the desired results,
public schools largely understaffed and these initiatives provide a clear signal that
underfunded, often lacking the most ba- policymakers are taking note and tackling
sic facilities such as a separate toilet for the education deficits at the highest levels
girls, let alone qualified and dedicated of policymaking.
teachers (Drèze & Sen, 2010).
Labor Flexibility Argument &
India has some excellent post-second- Evidence
ary and post-graduate educational institu-
tions. The Indian Institutes of Technology The argument for labor flexibility is
and the Indian Institutes of Management that workplace level labor flexibility al-
have acquired national and international lows for efficient allocation and re-allo-
prominence in post-secondary education cation of labor to fit the demand pattern
in technology and management respec- for products or services. This flexibility
tively. A few dozen other universities and allows the enterprise to operate at opti-
research institutions have similar reputa- mal efficiency that, in turn, makes it com-
tions for excellence. However, for many petitive. The ensuing efficiency and com-
other hundreds of thousands of qualified petitiveness would then attract new in-
students, world-class higher education vestments and lead to growth in output
remains out of reach. The RUSA2 initia- and, ultimately, in jobs. Although intu-
tive launched in October 2013 by the Gov- itively appealing, this argument needs to
ernment of India is an ambitious effort to be placed within the industrial relations
improve the share of high school gradu- context and validated by evidence.
ates going on to post-secondary educa-
tion from 19.4% in 2012-13 to 30% by Several studies have examined the
2020 (Deloitte, 2013). A similar initiative empirical evidence for the hypothesized
for vocational education was set up in effects of labor flexibility on efficiency and
2009. The National Skill Development welfare outcomes. An ILO study is worth
Mission set up a three-tier structure with mentioning because of its scope and com-
parative focus. Sharkh (2008) examined
2
Rashtriya Uchchatar Shiksha Abhiyan (RUSA) in
evidence from a number of countries that
Hindi translates approximately to: National Higher span the spectrum in terms of both labor
Education Campaign. flexibility and social security programs. The
underlying hypothesis comes from the no- has occurred in recent years. First, India
tion that system performance is enhanced has one of the strongest legal regimes of
not simply by making labor flexible but by employment protection. Second, the le-
combining labor flexibility with a safety net, gal regime suffers from a proliferation
the so-called “flexicurity” principle (Keller of regulations that often overlap and are
& Seifert, 2002; Sarfati & Bonoli, 2002). not easy to follow. Most writers on the
The study concluded that the relationship subject acknowledge this complex web
between labor flexibility and system out- of laws and advocate the kind of simpli-
comes is more complex than suggested by fication that would lead to better under-
proponents of labor flexibility. Moreover, a standing of the regulations and thereby,
system could do well on some outcome better compliance (Sharma, 2006).
measures such as employment but that out-
come may be associated with other less Bhirdikar, Paul and Murthy (2011)
desirable outcomes such as greater inequal- analyzed industry data to examine the link
ity. In other words, there is no magic bul- between labor market ûexibility and em-
let. Within those qualifiers, the study did ployment over 1999-2006. They found
find that countries that were high on labor that formal employment shrank even as
flexibility but poor on the safety net were contract and informal employment grew
not the star performers. Equally, countries significantly. It suggests that employers
that were low on labor flexibility but high have increasingly resorted to contract
on the safety net also performed sub-opti- labor and to informal work to cut labor
mally. However, an optimal middle ground costs. Employers have effectively by-
on the flexibility-rigidity scale where a ba- passed the formal legal protections that
sic form of social insurance when combined make re-allocation of labor rather inflex-
with moderate dismissal protection, yielded ible. Within the organized manufactur-
better results across a range of outcomes. ing sector they found a trend towards
The message for policymakers is that sim- hiring contract labor and a rise in
plistic notions of creating labor flexibility ûexible work arrangements. In services,
by removing protections for labor can be economic growth boosted employment
self-defeating particularly for developing but the bulk of it was in informal employ-
countries. Rather, countries hoping to im- ment. Importantly, they found that states
prove system outcomes ought to combine with stronger worker protection
labor flexibility with enhancements in the laws, accounted for more workers hired
safety net if they are to achieve goals of on contracts. Another study examining
economic growth and of increasing worker the effect of external shocks (in this case,
welfare at the same time. average rainfall) on employment found
that states with more pro-employer legal
Flexibility Debate in India regimes did show relatively higher em-
ployment effects compared to states with
Certain facts and trends concerning more pro-labor regulations (Adhvaryu,
labor flexibility in India have become Chari & Sharma, 2013). These findings
clear in the evidence and the debate that suggest that the strong worker protec-
tion laws do not necessarily correlate with challenges in terms of its labor force.
more (and secure) employment. First, it needed to shift some 450+ mil-
lion people from the state sector to the
private sector. Second, a huge migration
Strong worker protection laws do
was to occur from rural areas to the ur-
not necessarily correlate with
ban centers. Labor and employment poli-
more (and secure) employment.
cies were continually adjusted over the
last thirty-plus years to facilitate these
The evidence from such studies sug- transitions. Although some of these policy
gests that flexible regimes do result in initiatives did achieve desired results,
greater employment but even these jobs many gaps persist in both policy and out-
are often contract jobs or in the informal comes that need to be addressed through
sector. Labor protection laws appear to further reforms.To facilitate the transi-
have been largely by-passed by employ- tion to the private sector, policymakers
ers to create de facto labor flexibility in China had to first undo the employ-
given that there have been almost no ment and wage laws of the previous era
changes in legal regulation (Sharma, when the “iron rice bowl” defined a sys-
2006, Shyam Sundar, 2012; Maiti, 2013). tem of lifelong employment security and
The labor market has been rendered flex- state-fixed wages. So, a de facto deregu-
ible despite restrictive labor laws due to lation of employment security and wage
the large informal sector and fixing was instituted. Before 1978, all
casualization of employment in the for- workers in China were assigned to jobs
mal sector. by the state after completion of educa-
tion. Wages were also fixed by the state.
Economic Growth &Labor Employers could not fire workers, which
Regulation in China resulted in lifetime employment for all.
This employment system reduced mobil-
China is currently closing the gap ity and incentives, and led to inefficien-
between the world’s largest economy, the cies due to overstaffing, low morale, and
U.S., and itself at a fast rate. It is ex- low productivity (Meng, 2000).
pected to be the world’s largest economy
sometime in 2014 if GDP is measured in
A de facto deregulation of employ-
purchasing power parity (PPP) terms and
ment security and wage fixing was
by 2025 in exchange rate terms, if cur-
instituted.
rent trends in GDP growth rates continue
for another decade. China’s scale and the
enormous transformation of its economy Reforms first took root in the rural
within a generation, provide a unique op- farm sector where effective deregulation
portunity to learn about the inter-related of prices led to rapid mechanization, ris-
dynamics of economic and social devel- ing yields and increasing incomes. It was
opment. When China began to liberalize not until the mid-1990s that the govern-
its economy in 1977-78, it faced two huge ment began restructuring state-run
enterprises. The largest state-owned en- Even as state enterprises were shed-
terprises would remain with the state ding employment more than 100 million
while smaller ones were cut loose from rural workers moved into cities by 2002.
state finances to compete in the market- What rural migrants could get were
place on their own or go bankrupt. To sometimes referred to as 3D jobs: dirty,
accomplish this transition, labor policy dangerous, and demeaning. Rural work-
was revised in 1986 to allow employers ers were generally less educated but more
to hire on a contractual basis. Wages likely to be employed because of their
were also deregulated in the emergent willingness to accept jobs that urban
private sector. Lastly, workers were en- workers would refuse. Their numbers
couraged and supported, financially and have continued to rise with the rapidly
with requisite training, to become self- growing economy. By 2012, there were
employed in their own small business. more than 260 million migrant workers,
Within a few years of such deregulation, with an average monthly salary of 2,290
millions of state sector workers were laid yuan ($374.09), according to a report by
off with some compensation, who then the National Bureau of Statistics of China
began to swell the ranks of the private (Song, 2013).
sector (Meng, 2012; 2004; Appleton,
Knight, Song & Xia, 2002; Giles, Park & These two large-scale mobilizations,
Cai, 2006). Known as the xiagang, they i.e., state sector to private sector and
numbered over 40 million by 2002 rural to urban, encapsulate both the tri-
(Betcherman, 2005). umphs and the trials of China’s strategy
to restructure its labor market. The de-
China’s system ofhukou,i.e., a per- regulation of wages and employment fa-
mit that defines residency as rural or ur- cilitated the movement but at a consid-
ban, played an important role in the erable human cost. Policy responses to
transformation. It allowed the govern- the problems created by these mobiliza-
ment to control allocation of labor first tions can be divided into two parts: an
within the urban system and later from earlier stage of providing immediate re-
rural to urban areas. Brazil and India lief to dislocated workers and a later
have no equivalent system which effec- stage of re-regulation to address long-
tively makes the allocation of labor more term problems of a freer labor market.
market-driven but it also fuels the Each of these is discussed in turn.
growth of the informal labor market with
all its attendant problems of worker pro- When a worker lost her (or his) job
tection. Although China continues to with a state-owned enterprise, She also
ease its restrictions on rural-urban mi- lost with it the social protection and ser-
gration, a majority of the population still vices that came with these jobs. In 1998,
holds rural hukou. Meng (2012) puts it the government under pressure to pro-
at 72% of the population based on the vide some relief, introduced a new labor
1% Population Survey of 2005 and other adjustment policy requiring state-owned
NBS data. enterprises to provide a living allowance
and maintain social services for laid-off employers at the local level. Further, the
workers for up to three years while the Labor Contract Law came into force
worker searched for reemployment. If beginning January 1, 2008. This legisla-
after three years, a worker was not re- tion laid down the fundamental frame-
employed, he would finally separate from work for the employment relationship. It
the enterprise and seek unemployment spells out the terms that must be included
benefits from the state. A centralized in every employment contract from ini-
unemployment program was established tial appointment to rules for termination
in the early 2000s. However, its cover- of employment and severance pay. For
age and operation fell short of expecta- many workers who had enjoyed absolute
tions at least in its early years. There employment security in the pre-reform
were numerous cases of labor protests era this law was a final notice that the
erupting because workers had not re- old system was now permanently re-
ceived payments and/or benefits as placed by a new regime that allows em-
promised or provided for in formal regu- ployers to lay off workers and terminate
lations. In many cases, local or state gov- employment under certain conditions. For
ernments have had to assume the finan- many others who had experienced the
cial burden of these regulations. Where turmoil of the transition era after reforms
layoffs were particularly large and could with confusion over their rights as an
not be met by the local or state govern- employee, this was a welcome wind blow-
ments, the central government stepped ing in greater order and clarity over rules
in to ensure that workers were paid of the employment game. The Labor
(Betcherman, 2004). Contract Law was followed up with the
Labor Disputes Mediation and Arbitra-
Even as the private sector grew it tion Law (LDMAL) which specifies how
gave rise to new labor problems from disputes are to be resolved including ar-
non-payment of wages and violations of bitration. It is an integral part of ensur-
work hours requirements to unsafe working that workers’ rights under the Labor
ing conditions. The policy response was Contract Law are protected when dis-
to introduce new legislation to regulate putes arise.
in emerging areas while reinforcing al-
ready regulated areas. In particular, two
Two challenges stand out that are
laws exemplify this phase of re-regula-
now shaping labor regulations in
tion. In 2004, a special regulation on mini-
China: first, a significant growth in
mum wage was issued which was a re-
the informal economy, and second,
vision of the “Enterprise Minimum Wage
the rising level of labor unrest.
Regulation” of 1993 (Cooke & Rubery,
2002). It did not set a national minimum
wage but rather created rules under By 2012, the private sector in China
which state governments could set mini- accounted for over 60% of the national
mum wages for cities or municipal-level output (Yiyuan, 2013). China now shares
aggregations after consulting unions and some of the same problems that other
developing countries with a market taxes. Another category of informal

economy face. In particular, two chal- workers may be employed by informal
lenges stand out that are now shaping organizations that supply labor on a ca-
labor regulations in China: first, a signifi- sual basis to other organizations. Xu
cant growth in the informal economy, and (2007) notes that in Shanghai alone more
second, the rising level of labor unrest. than 400,000 workers were employed in
such arrangements including nearly half
Informalization of that number in local public services
such as street cleaning and garbage col-
Informal markets were relatively lection, etc.
controlled in their size under the older
socialist when almost everyone lived and As may be expected, most informal
worked within a defined work unit, the workers take these jobs because they
so-called danwei. But when the deregu- have few other options given their level
lation of the 1980s and the 1990s took of education and, frequently, the lack of
hold, millions of workers had to find their an urban hukou. This leads to wide-
own employment. Inevitably, this mobili- spread exploitation and violation of ex-
zation has given rise to increasing num- isting laws and protections. By all ac-
bers of workers being employed (or self- counts, the problems of labor exploita-
employed) in the informal economy tion are well recognized by the govern-
(Cooke, 2011). By 2009, according to ment in Beijing but the Central Govern-
some estimates, nearly 30% of the ur- ment needs the support of provincial and
ban labor force, and 65% of the 150 mil- local governments to enforce labor laws
lion rural migrant workers in urban ar- designed to protect workers.
eas were employed informally (Cai &
Chan, 2009). Labor Unrest
From a labor and employment per- The All China Federation of Trade
spective, the informal labor market is an Unions (ACFTU) is the only recognized
unregulated zone where workers end up trade union in China. Although it is not
involuntarily or voluntarily. Demand for completely independent of the govern-
such labor is so great especially in the ment and the Communist Party, most
urban service sector that for many work- writers suggest that the ACFTU has
ers there is no choice but to become income under increasing pressure to speak
formal. Informality occurs due to a num- up for workers who have become pow-
ber of factors. Some are casual or con- erless against the tide of privatization.
tract workers needed for temporary work Much of this pressure comes from labor
such as repair and construction in for- protests that have been breaking out spon-
mal establishments. Others are employed taneously in recent years. In fact, em-
by small and medium size establishments ployers have been signing collective
that are themselves unregistered and agreements that are permissible under
hence maintain no payroll nor pay any the Labor Contract Law. According to
ACFTU data cited in Liu (2011), there After conquering hyperinflation in the
were 1.4 million establishments that had 1990s, economic reforms under Presi-
signed 2.438 million collective agree- dents Cardoso and Lula led to higher
ments covering 184.6 million workers. growth in the 2000s. The economy be-
Although reliable data on the number of gan to embrace globalization, albeit
disputes or work stoppages are not avail- gradually and cautiously. The gradual
able, some idea of the extent of unrest opening up of the economy brought in-
can be gleaned from the official (and creasing pressures on the labor market
likely understated) numbers. According to adopt reforms. It has led to significant
to the China Statistics Yearbook, there changes in the Brazilian employment re-
were 589244 labor disputes “accepted” lationship justified, rightly or otherwise,
by the official labor dispute arbitration by the perceived need to be competitive
committees (LDACs) in 2011 of which in a global market. One prominent chal-
6592 were classified as collective dis- lenge is to invest in the education and
putes covering 174,785 employees (as skills of its workforce. The other chal-
cited in Liu, 2014). Though these num- lenge is increasing labor flexibility even
bers look small compared to the size of as the size of the informal economy is
China’s labor force it should be noted that reduced.
official reporting greatly underestimates
the actual number because most disputes Education & Skill Development
would be either unreported or not “ac-
cepted” if they did not follow certain cri- Despite being a middle-income coun-
teria. try, Brazil’s investments in developing a
skilled workforce have lagged behind the
The policy response so far has in- pace of capital investment in the coun-
volved the Labor Contract Law and as- try. The inadequacy of its investment in
sociated laws and regulations. But, policy basic education is well demonstrated by
remains unclear in many areas of collec- the performance of its pupils on standard-
tive disputes, which leads to a large vari- ized international tests. In the OECD Pisa
ety of responses depending on the choices (Programme for International Student
made by state and local authorities. The Assessment) study, Brazilian students
possibility remains that the government ranked 52 nd-54th out of 65 countries in
could introduce new legislation in the fu- reading and 57th-60th out of 65 in sci-
ture that would address collective dis- ence and mathematics (OECD, 2012).
putes and their resolution more specifi- While Brazilian students performed be-
cally and directly. low the OECD average, their scores in
mathematics have improved since 2003
Brazil’s Policy Challenges from 356 to 391 score points, making
Brazil the country with the largest per-
Brazil’s economy enjoyed resurgence formance gains since 2003. Significant
under the democratic rule after many improvements are also found in reading
decades of slow growth and military rule. and science. Between 2003 and 2012,
Brazil also expanded enrolment in pri- an irregular way or are self-employed,

mary and secondary schools, with enroll- with no formal links to the social secu-
ment rates for 15 year olds rising from rity system or the FGTS3 — has been in
65% in 2003 to 78% in 2012. a continuous decline since the 2000s. Be-
tween 2000 and 2012, formal work in-
An earlier study had found that Bra- creased from 44.6% to 56.9% of the
zilian teachers are often poorly educated workforce (IBGE, 2013:142). Informal-
and teach on subjects they know little ity declined further from 38% in 2010 to
about, while no federal program exists 33% in 2013 (IPEA, 2014:14). Berg
to better train and monitor their perfor- (2010:12) cites the following reasons for
mance (JBIC, 2005). The government of the decrease of informality: more inclu-
President Rousseff initiated a series of sive macroeconomic policies that pro-
measures to strengthen the skills of Bra- mote the demand for formal workers;
zilians including better funding of schools demographic shifts in the Brazilian popu-
for teachers, equipment and infrastruc- lation; educational policies; micro-level
ture. Another ambitious initiative is the policies that promote the formalization of
Science without Borders program, which small enterprises including ones that em-
is sending 100,000 students on scholar- ploy only one worker.
ships to study science and technology at
leading foreign universities. In return, The broad concept of informal
Brazil is hosting students from other economy – based on the production unit
countries on an exchange basis. Brazil- – includes different forms of informality:
ian students spend up to a year abroad e.g., tax evasion, small enterprises, street
studying with well-known professors trade, illegal work, temporary work, do-
abroad. The hope is that they will return mestic work, precarious work, etc.
to Brazil with new knowledge and in- (Cacciamali, 2000:153). According to
spired passion for further learning. Even- Cacciamali (2000:164), there are two
tually, they are expected to meet the con- major elements present in informal labor
tinuing demand for skilled labor needed markets: the subordinated labor and self-
for sustained development. employed work. Their relationships share
common traits: high job mobility; low and
Informality, Flexibility & Policy highly variable earnings; absence of so-
Responses cial protection and labor regulation;
After the crisis in the 1990s, the 3

Fundo de Garantia por Tempo de Serviço is
country’s economy has been on a recov- Severance Indemnity Fund, a mandatory fund
ery path: unemployment reached a low created by the Law #5.107, in 1966. Only
of 7.1 % in the first trimester of 2014 employers contribute to it and the current rate of
(IBGE, 2014:5) and in almost all the re- contribution is 8% of the wage, which is paid by
the employer into a state-managed fund. It can be
gions, job growth occurred through for- used by the individual in case of being dismissed
mal employment. Informality – workers without cause, to cover expenses during illnesses,
who lack registration or are working in or to build or buy one’s first primary residence.
flexible and unpredictable hours and du- new relations can be found not only in
ties; and generally lower qualification. the more disadvantaged segments of the
Pochmann (1999) argued that the legal labor market, but also among the more
ease of hiring and firing combined with qualified and traditional segments, e.g.,
an abundant supply of low-skill workers health, education, management, and law.
and the lack of workers’ organizations in No longer does informal work limit itself
the workplace gave employers excessive to any specific sector, demographic group
power in the employment relationship. or region.
The combination of these factors places
Brazil among the countries with the high- This picture indicates that informal-
est firing rates – 64% in 2012 (DIEESE, ity is not a transitory problem. Even
2014: 12). Prior to 1966, workers acquired though informality has been decreasing
lifelong employment security under Bra- in Brazil, it is unlikely to disappear any
zilian law after ten years of continuous time soon. It is important to identify an
employment. A new regime was intro- appropriate labor policy response to pro-
duced in 1966 with the creation of the mote formalization and thereby provide
FGTS, a fund that would pay compensa- protection to the most vulnerable work-
tion to workers who lost their jobs. This ers. For example, laws can help increase
regime gradually replaced the old system the cost of informality and, at the same
of lifelong employment security. The old time, the benefits of formalization. Pre-
system was fully replaced by the 1988 vious research has found that the main
Federal Constitution, which permits fir- reason for choice of informality is to
ing workers but requires indemnification avoid taxes and the cost of social secu-
from the FGTS. Brazil has not ratified rity (Neri, 2002:4).For example,
ILO Convention 158 on termination of healthcare access is universal in Brazil.
employment and still lacks rules on the However, access to private healthcare is
procedure for and limits on termination much higher among formal workers with
of employment. a labor registration card (42.9%) than
among other groups such as the self-
Besides the traditional types of infor- employed (15.3%), employees with no
mal work – in small production units, do- labor registration card (16.3%), agricul-
mestic work, and illegal work – there are tural workers (18.4%), domestic work-
newer types of informal work that have ers (15.9%) and unpaid workers (24.3%)
become more prominent in recent years. (Neri, 2002: 4). Informal workers do not
These jobs result from the adoption of have any income guarantee protection in
more flexible work relations. Globaliza- case of accident, sickness or unemploy-
tion and the search for labor flexibility ment. However, they are covered by the
constitute the framework within which public pensions system, even though they
new types of informal work has grown. do not make any contributions. The value
Formal employees were turned into con- of their pension is based on the minimum
sultants, cooperative members, wage – R$724,00, approximately US$316
outsourced workers or partners. These per month. Many informal sector employ-
ers and workers are reluctant to contrib- The main changes in the law were the
ute to the social security fund because approval of a temporary contract,5 sus-
they will receive the public pension re- pension of the labor contract,6 and com-
gardless of whether they contribute or pensation of hours.7 These were piece-
not. Guaranteeing a low pension without meal reforms that ended up not having a
the obligation of any contribution to the significant impact on the labor market.
social security system has a negative ef- No comprehensive labor reform has been
fect on formalization. The problem here undertaken in recent years. Looking at
is that this guarantee makes the cost of the Brazilian case, the most important
formalization higher without increasing its examples of de facto flexibility are la-
gains. Thus, we disagree with Chen bor outsourcing and employment coop-
(2007:11) that one policy goal should be eratives. These practices did not come
to “decrease the cost of working infor- from legal reforms, but from fraudulent
mally”. Since formality is an important practices and by escaping trade unions.
way to guarantee social protection, the
real policy challenge is to increase the Labor outsourcing (terceirização)8 is
benefits of formalization and to increase allowed by the Superior Labor Court -
the costs of informality (e.g., with inspec- SLC, rulling #331, in the case of inter-
tions, fines, etc.) “without necessarily mediary services, when there is no di-
increasing or reducing informality’s ben- rect subordination and the work is per-
efits” (Carmargo & Reis, 2005 :277). formed by the individual specified in the
labor contract. The SLC requirements
Brazil: Trends in Labor Flexibility have not been enough to effectively regu-
late this practice, which disguises the de
During the economic crisis in the facto employment relationship by mak-
1990s, the Brazilian government began ing a non-employment contractual ar-
to modernize by embracing some degree rangement with a third party to avoid the
of labor deregulation and flexibilization. costs of a bilateral employment relation-
One important argument in this discourse ship. According to Pochmann (2007:12-
was that the rigidity of the labor market 14), who examined the period between
was one of the reasons of informality. 1985 and 2005 in the state of São Paulo,
An inflexible formal labor market drove the number of workers in these triangu-
both employers and workers to subscribe
to the informal labor market. Some mi- 5
Law 9.601 of 1998.
nor alterations were made in the Brazil- 6
Consolidação das Leis do Trabalho (CLT), Decree-
ian labor code – the CLT4— had the ob- law nr. 5452, art. 476 (promulgated 1 May 1943).
jective of creating jobs and to ease ac- 7
Law 10.101 (enacted 19 December 2000).
cess of informal workers to formality.
8
“Triangular employment relationships occur when
4
The CLT (Consolidação das Leis do Trabalho) was employees of an enterprise (the “provider”)
promulgated by the Federal Decree-law # 5.542 on perform work for a third party (the “user
1 May 1943, joining all the legal texts covering enterprise”) to whom their employer provides labor
individual and collective labor relations. or services.” ILO, 2003 at 39.
lar relationships increased from 60,400 the law by resorting to outsourcing or the
to 423,900; indeed, 12.1% of the formal use of worker cooperatives. Therefore,
jobs created during this period consisted there is a gray area in which even big
of these relationships. As well, the num- enterprises can comfortably hire work-
ber of enterprises that provide triangular ers through those relations behind a thin
services went up from 257 in 1985 to veil of legality. Only if the case goes to a
6,308 twenty years later. In 2005, almost labor court, the employment relationship
a third of these enterprises had no em- can be identified and recognized by law,
ployees, only “partners” in the enterprise but this remedy is not so efficient. Usu-
(another term used to disguise the em- ally, workers will go to the court only af-
ployment relationship). There has been ter dismissal, since there is no protection
some ongoing discussion in National Con- against dismissal before deciding to sue
gress to regulate labor outsourcing. The the enterprise. Also, there are time limits
main points of this debate is whether to on when legal questions can be taken to
allow labor outsourcing both in interme- court. Complaints can not be taken to
diary and final activities of the enterprise court after an absolute limit of 5 years
and on who bears the liability for viola- after the event, or during the employment
tion of labor rights. There is still no con- relationship, or after 2 years of the end
sensus on these issues and labor of the relationship.
outsourcing remains largely unregulated
and widespread in the labor market. Informality and flexibility
The employment cooperatives also There has been a strong movement

act as “providers” of workers (coopera- in recent years advocating more flexibil-
tivas de mão-de-obra). In the case of ity in the labor market, arguing that labor
the disguised cooperatives (the ones that rights make the employment relationship
act only to provide labor for employers), expensive and rigid, and thus not acces-
the workers are deemed to be full mem- sible to informal workers. The cost of an
bers of a cooperative, and not eligible for employment relationship then has been
the benefits that come with employee the object of a sharp debate. Calculations
status. Employment cooperatives were of “rollup” costs over and above base
regulated by the law #12.690 from 2012, pay for payroll taxes, mandatory benefits
establishing new conditions for their and the like vary from 19.4% to 101%
functioning and rights for their member. (Gomes, 2001:109-10). There are differ-
The law aims to decrease the incidence ent ways of making the assessment, and
of fraudulent employment cooperatives. no clear consensus over any of them.
Because many labor rights have direct
Both practices (labor outsourcing and implications for money paid to workers,
employment cooperatives) are not illegal directly or indirectly, rights are seen as
per se. They become illegal only if an added cost factor, which seems to be
fraudulent practices disguise the actual a good reason to many for abolishing
employment relationship in the eyes of them.
In this context, labor regulation has Instead of just deregulating or creat-

been associated more with the problems ing more flexible labor relations, Brazil
in the labor market than as a solution to has developed social policies that create
the challenges brought by globalization. social and economic opportunities to the
For example, although there was a de- more excluded segments of the popula-
cline in the informality rate in the last tion and, in some cases, introduced more
decade, Ramos (2006:34) calls attention regulation aiming to formalize some sec-
to the fact that sometimes informality is tors of the labor force characterized by
seen as a solution to the lack of opportu- high informality, as was the case of the
nities in the labor market. However, as employment cooperatives law and the
the author emphasizes, informality is gen- more recent domestic workers constitu-
erally a survival strategy when the labor tional amendment (Constitutional Amend-
market is not able to produce enough jobs ment 72 of 2013). Brazil’s experience
with acceptable standards. It is in the suggests that governments, rather than
informal market that we find the most focusing on deregulating the labor mar-
excluded segments of the Brazilian popu- ket, should tackle issues of labor flexibil-
lation: 51.3% of poor Brazilians are in ity and informality by encouraging firms
families whose principal earners are in- “to register their businesses and their
formal workers (Neri, 2000:5). workers, either through simplifying reg-
istration, lowering taxes or providing in-
centives to develop high-road competi-
The experience of the 1990s and
tiveness strategies” (Berg, 2010).
2000s did not support the claim
that labour regulations caused
Policy Priorities for India
growing informality”.
Recent policy developments in both
Recent trends in informality have been China and Brazil provide useful insights
analyzed by a number of studies. Berg to policymakers in India in terms of craft-
(2010) reviewed all evidence available at ing future labor policy. China has made
the time to conclude that, “the experience great strides in recent decades. When
of the 1990s and 2000s did not support China began its economic liberalization
the claim that labour regulations caused circa 1980, its per capita income was
growing informality”. Among other evi- lower than India’s. By 2013, China’s per
dence, she cites the strong growth in for- capita GDP was more than four times
mal jobs in the 2000s, a period during which that of India’s (Table 1). Brazil’s per
the minimum wage nearly doubled in real capita GDP is more than seven times that
terms. In a growing economy, labor regu- of India’s. Both China and Brazil also
lation per se is not necessarily an impedi- have higher attainments on some indices
ment. In fact, some labor policies, such of social and human development. The
as the minimum wage, can stimulate 2012 Human Development Index for In-
growth and job creation by increasing the dia was 0.554, well below both Brazil’s
income of the poorest segments. HDI of 0.73 and China’s of 0.699 (Table
1). The challenge for India is not only to China’s experience with the great
once again kick-start economic growth transition shows us that labor regulation
but to make significant social gains at the needs to be designed in accordance with
same time. development goals and needs of the na-
tion. In the early phase of its economic
When we consider India’s needs in liberalization, labor policy tilted in favor
this light it puts the labor flexibility de- of employers by diluting employment se-
bate in a somewhat different light. As sug- curity rights of millions of workers. The
gested earlier, there is no doubt that some “iron rice bowl” guarantee of lifelong
reform of the complex web of labor laws employment was removed to facilitate a
would bring greater clarity for both em- shift of employment from the state sec-
ployers and workers. On the other hand, tor to the private sector. However, when
simply making it easier for employers to the shift accelerated and other labor
hire and fire would be an over-simplifi- problems began to crop up such as infor-
cation of a policy challenge. Moreover, mality and increasing level of labor dis-
there is no guarantee that any social gains putes, both individual and collective, the
would result from a single and simple policymakers moved gradually to re-regu-
change in the law. Even the potential late the labor market. The re-regulation
economic benefits could be negated by a has at its core the pluralist objectives of
regressive “race to the bottom” when protecting the rights of both employees
Indian firms would be tempted to com- and employers. One lesson to take away
pete on the basis of cost cutting rather from China’s experience is that regula-
than through innovation and value addition needs to be adjusted to development
tion. needs over time. When greater labor
mobility is desired across sectors then
Lessons from China have to be labor policy needs to facilitate transfers.
drawn with the caveat that the govern- However, China’s experience has also
ment in Beijing can afford to be a lot more shown that policies facilitating mobility
authoritarian than its counterpart in New can not address deficits in aggregate de-
Delhi. But these differences may not be mand for labor. To make the economy
as significant for economic policymaking grow other types of reforms may be
as it may appear at first glance. First, a warranted and they should not be con-
majority government in New Delhi wields fused with an undue emphasis on de-regu-
more power in carrying its agenda lating labor policy.
through the parliament. Second, Beijing’s
authority may be supreme in political life
When greater labor mobility is de-
but in many aspects of workplace gov-
sired across sectors then labor
ernance including labor flexibility, the
policy needs to facilitate transfers.
central government’s role can be more
limited as it navigates policy implemen-
tation by enlisting the help of state and We also learn from the China expe-
local authorities. rience that both over-regulation and
under-regulation have costs associated growth and ultimately, the surplus would
with them. The same policy can appear fund more and better jobs. So, just as mon-
to be a case of over-regulation in one etary supply tries to keep step with eco-
time period and inadequate regulation in nomic growth, so should regulation evolve
another time period. This notion of “ap- as labor market needs and goals change
propriate” regulation may be criticized by over time. It should be pointed out that
some who would argue that worker rights the analogy is not perfect specially when
should be based on principles rather than we consider adjustment cycles. In case
on the state of the economy. Certainly, of money supply, adjustment frequency
raising the bar on rights is often consid- can be very short, sometimes as short as
ered as righting the historical wrongs. In monthly or even at normal times, quar-
this formulation, any deregulation is re- terly. Labor regulation does not need to
gressive, amounting to nothing more than be adjusted so frequently. It may be sev-
“turning the clock backwards”. This may eral years before sufficient changes take
be true of certain core labor standards place to warrant changes in regulation
which are well-articulated by the ILO in or on occasion it may occur over a
its Decent Work agenda (ILO 2001). But shorter duration.
labor regulation is much more than core
labor standards. Moreover, the early theo- Brazil’s experience in reducing infor-
rists and practitioners in the then emerg- mality and income inequalityis even more
ing field of labor market regulation and pertinent to India’s case. Although de-
employment relationships, such as the mocracy arrived in Brazil more recently,
Webbs in the U.K., John R. Commons in it is proving to be as resilient as India’s.
the U.S. and Mackenzie King in Canada, With a Presidential system it provides
held that labor regulation should be closely more stability and continuity in
related to industry and workplace condi- policymaking than does India’s parlia-
tions for both efficiency and stability con- mentary system of governance. Brazil
siderations (Kaufman 2004). This view has embarked on an ambitious program
has a parallel in monetary economics, of providing universal healthcare and
which can be helpful as an analogy. education. As a middle income country,
Money supply in any economy is regulated it faces greater pressures from global-
by the central bank to reflect growth in ization to cut costs and improve flexibil-
the production of goods and services. If ity. The policy response has been to pur-
money supply keeps in step with economic sue social programs as aggressively as
growth, growth can be expected to be pro-market reforms aimed at improving
sustainable and prices can be expected to macro-economic efficiency. Brazil is
be stable. If money supply grows faster among the very few countries where
than the rate of economic growth it would economic growth has occurred at the
lead to rising prices (i.e., inflation). On the same time as social progress as measured
other hand, if money supply grows more by decreasing informality, decreasing in-
slowly than the economy, the limited sup- come inequality and decreasing unem-
ply of money would compromise economic ployment.
Conclusions poverty through education and urbaniza-

tion and by investing in people’s skills and
As of mid-2014, India was facing great in physical infrastructure. The human
opportunities as well as significant chal- development and infrastructure gap be-
lenges for reforms which if done right, tween India and other major emerging
could propel the country and its citizens economies such as Brazil and China are
towards greater prosperity (Tellis, 2014). considerable but bridgeable. India lacks
Our analysis of Brazil and China suggests not the physical, human capital or finan-
two overarching paradigms that could in- cial resources but the political will and
form policy reforms in India. First, the la- administrative capacity to deliver results.
bor flexibility debate needs to be recast in Only a shared grand vision can loosen
light of development priorities of the na- the status quo sufficiently for change to
tion. India needs re-allocation of labor from seep into the ossified layers of govern-
the informal sector to the formal sector on ment and other institutions of gover-
a large–scale. Ubiquitous informality holds nance.
back economic growth as well as gains for
labor in terms of legal protections, income,
Workers should have access to
working conditions and skill development.
compensation based on length of
India needs flexibility incenting informal
service and the opportunity to re-
workers and employers to move to formal
train for other employment.
status. India also needs a re-allocation of
labor from rural to urban areas. Rural resi-
dence prevents people from having access The above does not, in any way, ne-
to better education, health and employment gate the need for reforms for greater la-
prospects. Lack of opportunities for im- bor flexibility at the workplace level. At
proving skills and accessing employment the very least, some administrative sim-
perpetuates poverty. Similarly, the educated plification of the web of labor laws will
but unemployed youth need policies that certainly help. But, if re-allocation of la-
would facilitate easier transition from school bor across firms and industries is to be
to work. made easier by allowing employers to
terminate employment more freely then
These are all examples of re-alloca- this policy must be matched with simul-
tion of labor in which India needs the kind taneous policy responses in at least two
of flexibility that would allow these tran- areas. First, workers should have access
sitions to occur smoothly. It is labor flex- to compensation based on length of ser-
ibility at a macro-level without which vice and the opportunity to re-train for
micro-level flexibility by itself would not other employment. Such worker assis-
lead to the achievement of key goals of tance programs have been used in other
development. countries with considerable success.
Second, worker protection by law and
Second, India needs to build consen- through enforcement must be strength-
sus around a grander vision of reducing ened in the informal sector. Some aspects
of informality have to do with lack of lit- Betcherman, Gordon.(2004),”Labour Market

eracy and local capacity to accommodate Reform In China: How 700 Million Chi-
nese Workers Are Coping With Global
formality. But, a large share of informal- Capitalism”. Sefton Memorial Lecture,
ity lies in weak enforcement of existing University of Toronto April 29, 2004
regulations and fraudulent practices.
Bhandari, Laveesh (2014), “Expanding Education
These “leaks” can be plugged if govern-
and Skills”. In Bibek Debroy, Ashley J.
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dia Back on Track. Washington, D.C.:
Discussions of labor flexibility at the Carnegie Endowment for International
workplace level should not occur with- Peace.
out a consideration of adequate labor pro- Bhirdikar, K., Bino, P. G. D., & Venkatesha, M.
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Sociedade, Campinas, (14): 153-74, Jun.
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By Invitationsas
Quo Vadis, Industrial Relations Disputes

Resolution…?
Jerome Joseph
Differences and disputes are in- Quo Vadis, Industrial Relations
trinsic to employer-employee re- Disputes Resolution…?
lationships thus necessitating fair
disputes resolution mechanisms The clamor for labor law reforms is
and processes. The increased de- back to centre stage with the change of
mand for labor law reforms and guard at the Centre in India and the first
the general trend underlying the move has been initiated by a state gov-
target provisions for change point ernment run by the same party now in
towards an assertion of the mana- charge of labor policy changes at the
gerial prerogative of employers Centre. The targets again are three la-
on grounds of competitive sur- bor legislations which have been the fo-
vival and growth through labor cal points in the labor market flexibility
market flexibility. However, dis- debate – The Industrial Disputes Act
putes resolution reforms need to (1947), Contract Labor (Regulation &
bear in mind that in the pursuit Abolition) Act, 1970 and the Factories Act
of shareholder centric dividends, (1948)(indianexpress, rajasthan-shows-
the democratic dividend of work- way-in-labour-reforms).Many of these
place democracy should not be moves are in response to demands from
sacrificed. The reforms related to industry associations. For instance, ac-
fair and speedy disputes resolu- cording to FICCI, “The multiplicity of la-
tion deliverability therefore bor laws has created confusion and com-
should be geared towards plexity.” (economictimes. indiatimes,
creating workplace “ombuds- 2014dl-sachdev).With the clear objective
committees” and strengthening of asserting the managerial prerogative of
conciliation services while leav- employers, according to FICCI the Indus-
ing the democratic rights of la- trial Disputes Act should be amended to
bor untouched. facilitate ‘hire and fire’ to meet market
demands and to give employers the power
Jerome Joseph is Professor, Personnel & to change service conditions without the
Industrial Relations, Indian Institute of statutory 21day notice that needs to be
Management Ahmedabad 380015. E- Mail:
jerome@iimahd.ernet.in
given to employees before any such
Jerome Joseph
change is implemented. Trade unions have be addressed here is related to the na-
their own stand on the reforms debate as ture of reforms in this important sphere
reflected in statements by their leaders. of stakeholder engagement.
According to the General Secretary of the
Centre of Indian Trade Unions, “The la- Ecosystem of Industrial Relations
bor force is the real contributor to the Disputes
value-added society so they should be
treated as human beings and not as a com- A consideration of the changes
modity. Proper enforcement and protec- needed in disputes resolution will have
tion of laws should be there for the labor to take into account the ecosystem of
force. Labor standards are often ignored industrial relations disputes in today’s
by employers and exploitation of workers context. The history of industrial relations
takes place. These violations should be shows that as long as there is an em-
taken seriously by the government ployer and an employee, and there are
and the violators should be punished.” terms and employment contracts, there
(economictimes.indiatimes, 2014dl- will be differences and disputes, conflicts
sachdev). over rights and conflicts over interests,
standoffs between what the employee is
expected to deliver and what the em-
Labor standards are often ignored
ployee gets in return from the employer.
by employers and exploitation of
Even if all the laws are amended in line
workers takes place.
with organizational-managerial and inves-
tor demands, the fundamental contradic-
The stage is thus set with the play- tions between employer and employee
ers ranged on various sides of the reforms will remain on the workplace justice
debates and demands with the inevitable fronts. Disputes in industrial relations
differences and disputes which will be cannot be wished away through legal
played out in the various theatres of rep- reforms in the thrust towards greater “la-
resentative forums on offer in a demo- bor market flexibility”. The removal of
cratic setting made possible by the mo- prevailing fences and boundaries which
saic of the Indian Constitution. While may result from such changes will ne-
there are many themes which will be the cessitate higher order disputes resolution
focus of the reforms drama and the di- agencies, strategies, methods, processes
verse enactments of dramatis personae, and competencies in order to create a fair
this paper will focus on one area which workplace informed by human dignity and
will always remain significant in em- speedy disposal of industrial relations dis-
ployer-employee relations whatever the putes.
denouement on other reform themes
which are likely to be enacted in the near Table 1 gives a glimpse of the causes
future.The area in question is that of dis- of disputes in industrial relations during
putes and disputes resolution in employer- the period 1961-2011. Disputes over
employee relations and the question to wages and allowances, bonus, personnel,
Industrial Relations Disputes Resolution
retrenchment, leave and working hours, of the state withdraw in playing their
indiscipline and violence and a whole host mediatory and statutory role in the data
of causes under the category “others” given in Table 1. As trade union numbers
which include layoffs, workload issues, dwindle and “de facto” reforms through
union rivalries, have held constant over a tactical withdrawal of state labor de-
the past fifty years. Some evidence is partment services, workplace indiscipline
available as to what happens when or- and violence seems to have escalated as
ganized labor shrinks and the agencies is evident from the 1961-2011 data.
Table 1 Industrial Disputes by Causes: 1961-2011
1961 1971 1981 1991 2001 2011

Wages and Allowances 30.44 34.30 28.70 28.90 24.63 24.90
Bonus 06.85 14.10 07.80 04.65 06.53 03.80
Personnel 29.30 23.00 21.40 17.90 10.98 09.20
Retrenchment 00.00 00.00 00.00 02.59 01.34 00.50
Leave and Working Hours 02.97 01.40 02.20 01.20 00.20 00.30
Indiscipline and Violence 00.00 03.60 10.20 22.26 23.20 30.80
Others (Lay-off, 30.44 23.60 29.70 22.50 33.20 30.50
Union Rivalry, Work Load,
Gherao, Not Known)
Total 100.00 100.00 100.00 100.00 100.00 100.00
Source:Indian Labour Year Book: 1961-2011
Besides the 50 year decadal data on in the area of industrial relations disputes
workplace indiscipline and violence, there resolution.
have been three major incidents of seri-
ous workplace violence leading to the
At the root of the three incidents
tragic loss of life in the recent past be-
tween 2008 and 2012– a Greater Noida clearly is the progressive increase
in “de facto labor market flexibil-
firm(timesofindia. indiatimes 2008 india-
ity”.
unit-graziano-trasmissioni-commercial-
production), a Coimbatore firm (dnaindia
2009 12-arrested-for-murder-of-pricol-v- At the root of the three incidents
p-near-coimbatore) and a Manesar firm clearly is the progressive increase in “de
(timesofindia.indiatimes2012manesar- facto labor market flexibility” expressed
plant-awanish-kumar-dzire) which were in the form of the ratio of contract work-
linked to on-going disputes and thus have ers to permanent workers. The insecu-
a bearing on the discourse on reforms rity and inequality which enters into the
related to disputes resolution. A careful shop floor dynamics as a result of the
analysis of anecdotal information avail- contradictions inherent in workforce
able in the public domain related to the structures becomes a major factor ac-
three tragic events referred to above sug- counting for the simmering discontent.
gests ample evidence of a serious deficit The Coimbatore firm workers, for in-
Jerome Joseph
stance, were agitating for over two years Greater Noida firm at the time paid its
against the hiring of contract workers regular workers Rs.3200 a month for
prior to the workplace incident (reuters working 12 hours a day; contract work-
2009-pricol-killing-labour-at-the-receiv- ers were paid Rs.2200 per month, and
ing-end). According to the top manage- denied various rights (sanhati/998/12)
ment, at the Manesar plant, the ratio of
regular to contract was 50-50 before the Disaffection and discontent and
incident as compared to 30-35 percent worker reactions with wages and work-
contract workers in the parent country ing conditions have been countered with
(businesstoday.intoday 2012-violence-at- terminations and suspensions which are
maruti-manesar-criminal-act). used freely especially at the slightest sign
of mobilization and collectivization for
Contractualization has led to wage enhancing wages or for demanding regu-
disparities between permanent and con- larization. For forming a union the
tract employees contravening the “equal Coimbatore firm terminated about 1,500
pay for equal work” principle leading to workers who had not been made perma-
serious disaffection and disputes with nent for the last 20 years (cpiml/libera-
managements. The Coimbatore firm tion, 2009). The company terminated 42
workers were agitating for over two employees for indiscipline on grounds of
years against the non-payment of pay preventing capacity utilization of the fac-
and other benefits prior to the incident tory and stopping other workers from
(reuters/2009/pricol-killing-labor-at-the- carrying out their duties (dnaindia 2009
receiving-end).The management had also report12-arrested-for-murder-of-pricol-
been deducting up to Rs.1,000 a month v-p-near- coimbatore).
from each worker citing the loss incurred
by the company as the reason (hindu/ The Greater Noida firm had been
2009/09/26/).The Greater Noida firm dis- compelled by worker protests to agree
missed 250 contract employees in June to reinstate all but 15 of the 200 contract
after they had staged a sit-in demanding employees whom it had dismissed after
a salary raise and the status of perma- they had staged a sit-in demanding a sal-
nent employees consequent to the ary raise and the status of permanent
Greater Noida firm reneging on an agree- employees (timesofindia. indiatimes.
ment to provide a 3000 Rupees per month 2008).The Manesar plant’s reaction to
pay increase, by attaching conditions to the July 18 violence was strong, “There
the pay hike (timesofindia. indiatimes. is no scope to retain any of the workers
2008-india-unit-graziano-trasmissioni- involved in the assault and violence at
commercial-production). A fact-finding Manesar. We want to create a strong
team of a union that visited the spot af- deterrent with a clear message to
ter the September 22 incident found that miscreants that the guilty have no chance
out of the 1200 workers employed in the as we restart production” (economic-
factory, only 500 were regular workers, times.indiatimes,2012). Again as reported,
and the rest were on contract. The the Manesar Plant, while lifting the
month-long lockout from August 21 “There is no compromise on vio-

served termination notices on 500 regu- lence,” was the Manesartop manage-
lar workers (indianexpress, 2012 ment assertion when asked whether he
manesar-violence-maruti-suzuki-to-lift- was ready to engage the Union, in any
lockout-sacks-500-workers) kind of peace talks to start operations
(Ttimesofindia.indiatimes,2012-07-21,
manesar-plant-maruti-suzuki-workers-
Another tactic used is to threaten
union-shinzo-nakanishi). And when asked
closure although this has not been
what would happen to the new union that
implemented in any of the three
had got recognition from the Haryana
cases.
Government as well as the Manesar
management’s support after the previous
Another tactic used is to threaten clo- one was disbanded last year, the response
sure although this has not been imple- was unequivocal-“It will be derecognized,
mented in any of the three cases. The for sure” (timesofindia. indiatimes/2012-
Coimbatore firm, for instance, said these 07-22, manesar-plant-awanish-kumar-
strikes have hit profitability and they dzire)
could shift base (reuters/2009/pricol-kill-
ing-labor-at-the-receiving-end). When To try and offset the influence of the
the Greater Noida firm top management union on the worker, a good conduct bond
came to India after the incident and a was required to be signed by the work-
local company director said as quoted, ers at the Manesar plant to declare they
‘’One of the key issues they will discuss would “not resort to go slow, intermittent
is whether the Greater Noida plant should stoppage of work, stay-in-strike, work-
continue to function or be closed down. to-rule, sabotage or otherwise indulge in
(timesofindia.indiatimes, 2008_greater- any activity, which would hamper normal
noida-lalit-kishore-chaudhary-marcello- production in the manufacturing unit” and
lamberto) was intended as a preventive mechanism
(indianexpress,2011/11/29maruti-good-
As many as six workers who formed conduct-bond—unfair). In addition, as an
a union in Coimbatore were transferred to alternative to worker affinity to unions,
Uttaranchal (cpiml/liberation/2009) and the top management said that the company
workers protested against it a couple of had taken steps to improve relations with
years before the incident (cpiml/liberation/ the workers by engaging a consultant to
2009). A senior official was quoted as say- conduct an impartial assessment and also
ing that the HR manager was targeted be- conducted communication programs.
cause he was “weaning away” employees “Perhaps it was not enough” (timeso-
from a union that was leading the protests findia.indiatimes, 2012-07-21manesar-
(hindu, 2009/09/23).Though the workers plant-maruti-suzuki-workers-union-
were ready for talks, the management said shinzo-nakanishi) to show any
they should not be part of a particular trade permanent result and remove any
union (cpiml/liberation/2009). chances of a trust deficit. From what
Jerome Joseph
transpired on July 18th, such initiatives did dictions which arise in their transactions
not appear to have weaned away work- and to work towards consensus among
ers from their unions or improved rela- contending stakeholders. Conflict and
tionships with supervisors and managers. congruence, contradictions and consen-
“The management and the workers need sus, cooperation and confrontation
to improve relationships,” MSI Chairman characterize the interactions of various
said (english.samaylive/maruti-violence- stakeholders brought together by the
manesar-new-delhi-gurgaon-business- contract of employment within the
news.html) framework of legality and constitution-
ality. Respect for constitutionally and
legally conferred rights like the right to
The underlying inducers which
associate, right to be recognized, right
have emerged are also the main
to represent workers in collective bar-
themes of the reforms agenda re-
gaining processes, right to withdraw
lated to industrial relations.
labor when all else fails could be the
foundations for strengthening fair and
The analysis and interpretation of the speedy disposal of disputes even as the
three tragic workplace incidents and the Indian democracy considers reforms in
emergent insight into the ecosystem of the arena of disputes resolution.
industrial relations disputes suggests that
the underlying inducers which have The changes in labor laws initiated
emerged are also the main themes of the by the state of Rajasthan are but a har-
reforms agenda related to industrial rela- binger of things to come in the thrust
tions. In a sense the analysis is also in- towards labor market flexibility. Dis-
dicative of the kind of issues which indus- putes are likely to increase as a conse-
trial relations will confront if the de facto quence even as labor feels the heat.
reforms of lived industrial relations expe- Disputes resolution needs to be
riences as described above become a de strengthened for the sake of the vul-
jure reality through changes in labor laws. nerable employee and for the survival
of organizations which provide liveli-
However in the backdrop of a long hoods for the employed. What are the
and well established context of a demo- changes which can create a fair indus-
cratic society and polity, industrial re- trial relations disputes resolution sys-
lations has evolved into a complex phe- tem is the question before us.
nomenon in which employers and their
organizations, employees and their col- Disputes Resolution Practices:
lective associations as well as the state Current Scenario
and its agencies connect in order to
evolve procedural as well as substan- The Industrial Disputes Act 1947 pre-
tive policies and instruments to regu- scribes a multi stage structure for reso-
late the point of contact employer-em- lution of disputes:
ployee relationship, to manage contra-
Level I: Works Committees to ad- ings by appointing a Conciliation Officer

dress and deal with issues on an ongoing to negotiate with the parties and try and
basis in a proactive and participative help the parties to find a solution as per
manner. the provisions of the Act towards a settle-
ment. Conciliation is mandatory in “pub-
Level II: When a collective of work- lic utilities” and recommended in non-
ers feels aggrieved and negotiations with public utilities although generally concili-
management fails, can resort to a strike ation is initiated even in such cases. Any
by giving a strike notice as per the provi- organization is deemed to be a public util-
sions of the Act or conversely manage- ity if it is notified as a public utility by
ment can declare a lockout when it ap- appropriate government.
prehends threat to the firm’s assets or
personnel. The provisions related to Level IV: If conciliation fails, there are
strikes or lockouts as a means of disputes three possibilities – the appropriate gov-
resolution are as follows: ernment can refrain from further action,
or make a reference of the dispute either
• A notice of strike or lockout is to be to arbitration proceedings or to the Labor
issued and from the date of issue of Courts for adjudication proceedings. If the
the notice, the notice is valid for 6 appropriate government refrains from fur-
weeks. ther action, the ball is back in manage-
ment-employee court for either negotiat-
• The strike can commence only after
ing an agreement amicably or engaged in
14 days of the date of issue of the
a contest of wills through a prolonged
strike notice
strike or lockout till either party blinks.
• A strike or lockout during the pen-
dency of conciliation or arbitration or Level V: If reference is made for
adjudication proceedings would be arbitration as per the provisions of the
declared illegal with the attendant Act subject to the consent of both par-
consequences in respect of employ- ties, the dispute goes through arbitration
ees like the initiation of disciplinary proceedings towards an award.
proceedings under the Industrial
Employment Standing Orders Act Level VI: If reference is made to the
(1946) which may lead to dismissal Labor Court, the disputes go through ad-
and the imposition of the “no work, judication proceedings with provision for
no pay” principle for a period equiva- appeals by either of the aggrieved par-
lent to the duration of the illegal ties through a single judge and then a
strike. Bench of the High Court on to the Su-
preme Court for a decade or more of liti-
Level III: On receipt of the notice of gated resolution of the dispute with all
strike or lockout, the appropriate govern- the attendant delays, costs and conse-
ment – state or Centre depending on ju- quences. Labor courts have original ju-
risdiction – initiates conciliation proceed- risdiction only in termination cases.
Jerome Joseph
The praxis of industrial relations dis- Committee which is representative, im-

putes resolution system seems to be ori- partial, independent to deal with em-
ented to containment of the disputants ployee grievances and disputes inter-
as well as the dispute rather than nally, amicably and honorably. The
inclined towards a purposeful composition could consist of a manage-
deliverability of sustainable solutions ment representative, a trade union or
within the framework of legality, con- an elected worker representative and
stitutionality and mutuality within a a neutral third party acceptable to both
specified, reasonable time frame. There parties as Convenor. The Ombuds
is also the tendency to use the elements Committee should be effective enough
of the resolution processes to stall and to find solutions through an iterative
to obstruct rather than to move towards and interactive process with the main
a legally, constitutionally and substan- parties to the dispute within specified
tively sustainable conclusion. Once dis- time frames.
putes get into the statutory processes,
they meander around interminably with
The Ombuds Committee should be
negative work life and livelihood conse-
effective enough to find solutions
quences for the more vulnerable among
through an iterative and interac-
the employee categories with mounting
tive process.
frustration and anger among the
marginalized leading to untoward and
avoidable incidents. The second change can be by mak-
ing a strategic shift from government run
If disputes are inevitable in industrial disputes resolution machinery to a pro-
relations irrespective of whether the cur- fessionally run disputes resolution ma-
rent laws are amended or not, and if chinery within the framework of “mini-
deliverability of sustainable solutions in- mum government, maximum gover-
formed by skill and speed is the goal, the nance”. This will call for deregulation of
current arrangements are woefully lack- the disputes resolution processes espe-
ing. If disputes resolution is to be given cially with reference to the conciliation
an identity and character, and the focus machinery. This will mean conciliation
is on legally, constitutionally and substan- services to deal with industrial relations
tively sustainable deliverability, bringing disputes will be offered both by govern-
about changes in the disputes resolution ment and professional service organiza-
machinery becomes a categorical im- tions, will have the same powers as they
perative. have now and will be fee based. Accredi-
tation and registration systems can be
Fair & Speedy Disputes Resolution developed to have a choice of recognized
conciliation and mediation services on
The first change proposed is to re- offer for disputants. Disputants can ap-
place the Works Committee with an Or- proach whichever agency they see as
ganizational Ombudperson or Ombuds capable of independent, impartial solu-
tions deliverability in the shortest possible putants might act as a check and also
time at reasonable cost and within a serve as a leverage to seek resolution
framework of purposeful mutuality. This through conciliation and mediation from
will also open up employment possibili- the reinforced services available with both
ties for disputes resolution professionals government as well as non-government
skilled and experienced in this field and professional conciliation agencies.
professionalize disputes resolution.
The current practice of using concili-
The third change relates to the power ation as well as the power of reference
of reference of appropriate government to curb strikes and lockouts and not so
to labor courts and industrial tribunals if much to find conciliated solutions through
conciliation or mediation fails. More of- professional, independent and impartial
ten than not the power of reference has services needs a rethink. This conclusion
been used to curb strikes and lockouts is based on the current provisions of law
rather than to resolve disputes. It is for related to strikes and lockouts in the In-
the disputants to decide if they wish to dustrial Disputes Act 1947 wherein the
seek justice from the courts or not and restrictions on strikes and lockouts de-
to weigh the costs and benefits of litiga- scribed earlier only have to do with mak-
tion over a conciliated or mediated reso- ing a determination on whether the strike
lution of the dispute or through strikes and or lockout is legal or illegal with the pen-
lockouts. Labor courts should also be alties associated with engaging in an ille-
primarily oriented to get labor and man- gal strike or lockout activity. The provi-
agement to resolve disputes through con- sions of law only spell out the penalties
ciliation processes. The feasibility for which can be imposed when a strike is
labor courts to be given original jurisdic- declared illegal but by themselves they
tion (currently available only in termina- do not prevent a strike or a lockout from
tion cases) should be explored so that any taking place. The calling of a strike in
aggrieved party – individual employee, a the pursuit of dispute resolution by a union
group of employees, a trade union, an or collective of workers is a function of
individual employer, a group of employ- collectively mobilized power and per-
ers or an association of employers can ceived ability to sustain the withdrawal
approach the labor court with provision of labor long enough to get managements
for appeals to the High Court and Su- to the negotiating table and to negotiate
preme Court as may be necessary or per- a resolution. The current practice of us-
missible as the contending disputants ing conciliation and the power of refer-
move towards a resolution of their dis- ence as restrictions on strikes is only
pute. This will give protection to ag- adding to the low credibility of concilia-
grieved individual employees to seek jus-
tice in the context of non-unionized or By themselves they do not prevent
even unionized settings.The possibility of a strike or a lockout from taking
litigation or direct action as a choice place.
available to individual or collective dis-
Jerome Joseph
tion as a disputes resolution mechanism, Resolution: This skill calls for not
which in industrial relations circles is con- only understanding labor laws which
sidered just a “waiting room” before the fall within their jurisdiction but also
dispute is referred to adjudication. While to be able to interpret the laws in
the provisions related to giving a strike specific disputes contexts while try-
notice before going on a strike and the ing to get the disputing parties to
specification of a strike date may be remove towards sustainable agree-
tained, the provisions prohibiting strikes ments and settlements. The higher
during the pendency of conciliation order competency is the ability to in-
should be repealed in order to give con- terpret law in the context of disputes
ciliation a fighting chance as a disputes which may arise in the industrial re-
resolution mechanism. The prospect of lations context to ensure legality and
prolonged litigation or direct action should constitutionality while seeking reso-
impel management and labor towards lution of the substantive issues.
reinforced and professional conciliation
2. Multiple Stakeholder Orientation:
and mediation services.The reforms re-
Invariably, the practice of industrial
lated to disputes resolution therefore
relations is characterized by multiple
should be geared towards strengthening
stakeholders engaging each other on
the ombuds committee and the concilia-
a roller coaster cooperation-conflict
tion alternative as the key instruments of
continuum. Different stakeholders
fair and speedy solutions deliverability
dealing with the issues on the table
through relevant amendments to the In-
bring different perceptions and inter-
dustrial Disputes Act 1947.
pretations which may often make the
situation appear intractable to the
Conciliation Services &Conciliator
uninitiated. For the seasoned concili-
Competencies
ator, the challenge is to see the is-
sues on the table through the eyes of
The challenge of recasting the disputes
the interacting stakeholders and to try
resolution identity with Ombuds commit-
and steer their expectations into a
tees and Conciliation can be met only
zone of workable agreements by
through the enhancement of capabilities
helping them to recognize areas of
and competencies rather than by succumb-
congruence and divergence through
ing to the clamor for the expansion of the
a process of iterative engagement.
statutory powers and authority of the
conciliator.Based on our interactions with 3. Solutions Generation Capability:
Central Conciliators, our informed and Disputes in the industrial relations
considered view is that the following com- arena are often characterized by
petencies are necessary to fulfill their roles rigid bargaining positions and parti-
with credibility and professionalism: san posturing. Ruthless power play
featuring a fruitless exercise of
1. Interpretative Understanding of blaming and point scoring vitiates
Labor Laws Towards Disputes relationships and stakeholder com-
munications. In this context the abil- proach to relationships involves

ity to help disputants to see beyond swinging towards one or other of the
the game playing and getting them disputing parties for personal gain or
to move towards a reasonably sus- to avoid personal loss with little sen-
tainable agreement is best served by sitivity to conflict of interest consid-
the ability to generate creative so- erations. An opportunistic relation-
lution propositions. The more the ship orientation operates on the ba-
solution propositions generated the sis of expediency and instant gratifi-
greater the possibility of getting the cation. A professional relationship
disputants to the dotted line. This is orientation is always conscious of
possible only if the conciliator can one’s role as a conciliator wherein
see beyond the partisan perceptions one is part of the disputes resolution
and conflicting expectations and vi- process and yet not part of the dis-
sualize solution propositions which pute. The challenge is to maintain
can lead to sustainable outcomes that equilibrium day in and day out in
informed by legality and constitution- the midst of playing out one’s role –
ality. a state of mind which can best be
described as one of detached en-
4. Self-Confident Serenity: Disputes in
gagement.
the industrial relations space are in-
formed by atmospherics and theat- 6. Integrity based Credibility: The
rics. The conciliator needs to guard greatest danger in today’s opportu-
against misinformation and misrepre- nistic environment is to surrender in-
sentation by one or more of the dis- tegrity based credibility to the lure of
puting parties. Verbal abuse and illicit gain and instant gratification. In
physical threats, allegations and ac- a context of corruption and bribery,
cusations are all inextricable compo- abuse of power and misuse of statu-
nents of industrial relations disputes. tory authority, adopting a policy of
The ability to be able to maintain unflinching and unyielding integrity is
one’s composure whatever the a rare standard of professional be-
provocation and the capacity for ver- havior. Conciliation without credibil-
bal dexterity in the midst of verbal ity is like a body without a soul and is
violence can go a long way in gain- essential for long term effectiveness
ing respect and staying in control of as conciliators
the situation whatever the ultimate
7. Resilience: Given the nature of the
outcome.
conciliation process and considering
5. Professional Relationship Building that the process is based on dispu-
Skills: Conciliators in today’s envi- tant voluntarism and the disputant
ronments face greater danger of col- commitment to speedy resolution,
lusive or opportunistic relationship ori- setbacks and failures are intrinsic to
entations in their engagements with the process. To be a great concilia-
disputing parties. A collusive ap- tor calls for great resilience in the
Jerome Joseph
wake of hostile posturing, rigid posi- professionals. A deeper understand-

tional bargaining and raw power play ing of the thinking behind modern
especially by the more powerful dis- commercial businesses with their
putants. The ability to stay the course unwavering focus on profit maximi-
with persistence and patience are zation and the impact such a focus
vital qualities for the conciliator. has on workers, consumers and the
ecological environment can help in
8. Transactional Impartiality: Very of-
situating the conciliator role dynam-
ten, stakeholders engaged in indus-
ics, pressures and challenges.
trial relations disputes perceive con-
ciliators to be biased in their deal- • Gaining a better understanding of the
ings– epithets like pro labor or pro impact of the neo liberal ideologies
employer are often heard in indus- and free market orientations on the
trial relations circles. Few concilia- industrial relations institutions like leg-
tors earn the respect of stakeholders islative bodies, labor ministries and
on both sides of the fence on grounds functionaries, workers and trade
of transactional and relational impar- unions, legal provisions and compli-
tiality, independence, fair play and ance pressures, collective bargaining
purposefulness. The ability to be re- and settlement processes, disputes
spectful to all and partial to none resolution and adjudication pro-
while being intensely engaged with cesses.
the stakeholders in order to try and
• Within the above context, while ac-
move them towards a sustainable
knowledging the legal acumen of the
settlement is a daunting task but criti-
conciliators born of long years of ex-
cal to the long term effectiveness and
perience in their multifaceted roles
efficiency of conciliators
as regulators and enforcers, there is
Besides these competencies, concili- also need to look at the conciliator
ators also need to expend efforts in “per- role and to recognize that there is a
spective building” in order to understand need to focus on one single skill
better the changing context of concilia- which could make or mar the com-
tion processes and the attendant need for pliance and conciliatory role of the
conciliation professionals to become commissioners – the skill of negoti-
more aware of the dynamics underlying ating - to move the interacting em-
industrial relations today. Some of the ployers, employees and unions indi-
elements in the perspective building vidually and collectively towards bet-
framework are as follows: ter processes, better relationships and
better outcomes.
• Developing a critical understanding
• Need to realize that business “utili-
of the contemporary economic and
tarianism” driven by shareholder cen-
business environments in order to
tric profit maximization has to be
better appreciate the challenges and
countered with the normative infusion
opportunities confronting conciliation
of legal and constitutional standards ally constructed industrial relations dis-

within the conciliator jurisdiction putes resolution system in India. Mana-
considering that even compliance gerial prerogative can manage resources
with law is seen purely in cost ben- but the democratic dividend unleashes
efit terms by business in a market resourcefulness through connectedness
driven economy and relatedness. It is the clash of the anti-
thesis with the thesis which produces a
• Need to uphold legal and constitu-
higher order synthesis – this is the law
tional rights of individual and orga-
of higher order change.
nized labor even as the conciliator
steers the disputants towards a sus-
Strikes and lockouts, conciliation, ar-
tainable outcome.
bitration and adjudication are options
The perspective building approach available to resolve disputes. Credible
should move away from an overly legal- Ombuds Committees and competent con-
istic approach towards a skill based ap- ciliation can still hold its own provided
proach. Legal acumen is necessary in Ombuds Committee professionals and
understanding and applying law in a cre- conciliation services have the right com-
ative manner to industrial relations situa- petencies and the right perspectives to
tions, but what is needed in today’s dy- deploy the competencies for facilitated
namic and volatile environment in which disputes resolution processes, while it is
market dynamics dominates discourse, is incumbent on disputants to work towards
the ability to influence interacting indus- strengthening the ecosystem for concili-
trial relations solutions through astute and ated settlements as opposed to resolving
enhanced conciliator capability. Speedy disputes through other available methods.
disposal will only come through skilled
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By Invitation
Reforming the Industrial Dispute & Trade Union

Acts
Tushar Poddar
Introduction
This paper looks at how labor India’s employment growth in recent
laws in India may have slowed years has been anemic. The economy
down employment growth. It es- added only about 2 million jobs each year
timates how much growth is be- in FY05-FY12, compared to 12 million a
ing foregone due to the lack of year in the five years before that. More-
labor mobility from agriculture to over, increasing numbers of workers are
industry. It then focuses on In- leaving the workforce – the labor force
dustrial Disputes Act and Trade participation rate fell by 3 percentage points
Unions Act. The paper discusses over the same period. As a labor-abun-
specific provisions which may dant country, India should be generating
have negatively impacted em- jobs in labor-intensive manufacturing.
ployment growth, including the However, the manufacturing sector saw
provisions for employment termi- a net decline of 5 million jobs in FY05-
nation in India, requiring the FY10 at a time when industrial growth
permission of the government was very strong at over 9% during this
and consultations with trade period. The industries that are losing jobs
unions. It examines how they are in the most labor-intensive sectors –
need to be reformed, by looking textiles, electronics, and apparel. Firms are
at lessons from within India and substituting capital for labor.
other countries. Finally, it exam-
ines the case of Korea as a suc- This paper begins by looking at struc-
cess story in generating labor- tural problems in India’s labor market, and
intensive manufacturing growth. how they have hindered employment. We
estimate how much growth is being fore-
gone due to the lack of movement of sur-
plus labor from agriculture to industry. We
then focus on labor laws – two in par-
Tushar Poddar is Chief India ticular that we believe could reap large
Economist at Goldman Sachs, Mumbai. dividends if they are reformed. We look
E-mail:Tushar.Poddar@gs.com at labor laws in other countries in order
Tushar Poddar
to distill lessons from how those labor

laws have been revised. We conclude by Employment growth has been ane-
looking at employment growth examples mic, and this is reducing the gains
from some of the more successful manu- from labor input from the young.
facturing countries in Asia, Korea in par-
ticular.
In practice, the gains have been
much smaller than they could have been.
The Labor Problem
Employment growth has been anemic, as
discussed above, and this is reducing the
In theory, India can realize significant
gains from labor input from the young.
labor market gains from its favorable de-
India’s employment profile is remarkable
mographics due to: 1) increases in labor
for its small scale and informality. To
input from the young; 2) economies of
escape stringent laws, entrepreneurs
scale in operation – as a firm grows, it
keep the scale of their operations small.
can initially have increasing returns to
Most workers are in small enterprises,
scale – whereby adding more labor and
with their share in enterprises employing
other inputs leads to a more than propor-
less than six people at 65.6%. Self-em-
tional increase in output; and 3) urban-
ployed workers constitute half the
ization – moving labor from low-produc-
workforce.
tivity agriculture to high-productivity in-
dustry and services.
Exhibit 1 Informal employment is highest in India
Source: Planning Commission (2013): Twelfth Five Year Plan (2012-2017),Volume III,22. Employ-
ment and Skill Development
Reforming the Industrial Dispute & Trade Union Acts
Exhibit 2 Scale of employment is very small

Percent Percent
100 100
94.9 Micro, small and medium enterprises:
Micro
Small
80 80
Medium
69.2
60 60
40 40
26.0
20 20
4.9 4.8
0.2
0 0
Number of enterprises Employment
Source: Fourth All India Census of Micro, Small and Medium Enterprises, 2006-07: Registered Sec-
tor; Planning Commission, 12th Five Year Plan Draft
According to research by the World opportunities for rent-seeking. There is

Bank, the value added per worker in the also no standardization of documentation
informal sector is less than half of the required or time periods for which records
value added per worker in the formal have to be kept. The inflexibility of labor
sector. Further, employers have no incen- laws has prevented large-scale employ-
tive to invest in skills of contractual ment growth in manufacturing. Moving
workers or in providing insurance. workers from the informal to the formal
sector can unleash productivity growth.
In addition, formal workers in the formal
Complex labor laws incentivize sector pay taxes, so revenue collections
firms to remain small and stay in can rise.
the informal sector.
Labor mobility has also been ham-
Complex labor laws incentivize firms pered, as labor laws have reduced the
to remain small and stay in the informal demand for manufacturing labor. We use
sector. This allows them to remain under a simple framework to estimate the im-
the radar of labor officials and escape pact of labor mobility on growth rates.
stringent provisions. The large number of We broke down GDP growth into three
laws leads to inspection visits by differ- components: 1) the contribution from
ent officials under different laws, which sectoral increases in labor productivity,
increases transaction costs and opens up suitably weighted by the sector’s share
Tushar Poddar
of GDP; 2) the contribution from growth

in the labor force in the sector, in the ab- ∏ I − ∏ A AI A ∏ S − ∏ A AS I ∏ S − ∏ I IS
(l A × × m ) + (l × × m ) + (l × ×m )
sence of labor mobility, again weighted ∏ ∏ ∏
by the sector’s share of GDP; and 3) the (2)
impact on GDP growth from inter-
sectoral labor mobility, in the presence We find that labor is four times more
of differences in sectoral labor produc- productive in industry and six times more
tivity levels. productive in services compared to agri-
culture (Exhibit 3). We measured the
These are summarized in the equa- impact on GDP of urbanization by look-
tion (1) below: ing at productivity differences between
g = S Aπ A + s I π I + (1 − S A − S I )π S agriculture and the manufacturing and
+ S An A + s I n I + (1 − S A − S I )n S services sector. We find that in recent
years the increase in GDP due to the shift
∏ I − ∏ A AI A ∏ S − ∏ A AS I ∏ S − ∏ I IS
+ (l A × × m ) + (l × × m ) + (l × ×m ) from rural to urban areas has not in-
∏ ∏ ∏ creased significantly. The increase in
where: GDP from the migration of workers from
agriculture to other sectors was 0.87 per-
superscript A stands for agriculture, centage points of GDP, according to our
I stands for industry, S stands for ser- estimates, in FY05-FY12. This was not
vices. significantly higher than the contribution
of migration in FY00-FY05 of 0.73 per-
g: GDP growth cent points of GDP. Moreover, the con-
tribution of moving from agriculture to
s: share of a sector in GDP
industry has actually fallen over this pe-
n: natural rate of growth of labor riod. Compare this with China, where we
force in the sector estimate urbanization is contributing 2-3
percentage points to GDP growth.
l: share of a sector in total
employment The Straitjacket of Labor Laws
Π: level of labor productivity
India has some 44 labor laws, which
π: growth rate of labor productivity are enacted by the Central Government
m: the net movement of labor and enforced by both the Central as well
between sectors (e.g., mAS stands as state governments. In addition, there
for labor movement from are also labor laws enacted and enforced
agricultural to industry). by the various state governments. Some
laws date from the colonial era. The
The contribution of inter-sectoral la- Trade Unions Act is from 1926, the
bor mobility on overall GDP growth is Workmen’s Compensation Act is from
represented by: 1923, and the Factories Act is from 1948.
We focus on two acts in particular, that
Exhibit 3 Labor is much more productive in industry & services compared to agriculture
Source: “India: Adding 110 million jobs”, Goldman Sachs Asia Economics Analyst (2014), Issue
No: 14/13
have some of the most restrictive provi- have more than 100 workers. “Lay-offs”
sions and where we believe labor reforms denote being out of work temporarily,
can have the largest impact on manufac- though still remaining on the employer’s
turing employment and growth. payroll, while “retrenchment” implies per-
manent loss of job.
The Industrial Disputes Act (1947)
Sections 25M and 25N deal with pro-
The law deals with the firing of work- cedures to be followed for lay-offs and
ers, strikes, and the closure of firms. We retrenchment, respectively. Under both
believe this law has done more to hold sections, the prior permission of the gov-
back the growth of India’s manufactur- ernment is required on an application
ing sector than any other policy. It keeps made in this regard. For retrenchment,
most of the labor force in the informal the workman has to be given three
sector, primarily in temporary jobs, pre- months’ notice in writing indicating the
venting employers from investing in their reasons for the retrenchment. Impor-
training. tantly, the government consults with the
workman before giving permission: “The
We believe the most consequential appropriate government, after making
part of the Industrial Disputes Act is such enquiry as it thinks fit and after giv-
Chapter Vb, which deals with special pro- ing a reasonable opportunity of being
visions relating to lay-off, retrenchment heard to the employer, the workmen con-
and closure in certain establishments. cerned and the person interested in such
This chapter is applicable to all firms that retrenchment, may, having regard to the
Tushar Poddar
genuineness and adequacy of the reasons

stated by the employer, the interests of A factory job is not a voluntary con-
the workmen and all other relevant fac- tract between an individual and an
tors, …grant or refuse to grant such per- employer, but a tri-partite arrange-
mission…” ment with the government.
Section 25O deals with the proce- A factory job is not a voluntary con-
dure for closing down an undertaking.The tract between an individual and an em-
employer has to apply for permission at ployer, but a tri-partite arrangement with
least 90 days before the date of the government.
closure.Workmen are entitled to receive
compensation equivalent to 15 days’ av- These provisions, which have seen
erage pay for every year of service. some more pro-worker amendments by
the states, essentially mean that the gov-
Section 25Q of the Industrial Dis- ernment is involved with every lay-off
putes Act lays out the penalty for lay-off and retrenchment of workers. A factory
and retrenchment without previous per- job is not a voluntary contract between
mission: “Any employer, who contravenes an individual and an employer, but a tri-
the provisions of section 25M section partite arrangement with the government.
25N shall be punishable with imprison- Moreover, whenever a worker needs to
ment for a term which may extend to one be fired, the government would consult
month, or with fine which may extend to with the workers and their representa-
one thousand rupees, or with both.” tives, thereby bringing in the approval of
the trade unions in the case. As a result,
Section 25R, which deals with pen- Indian employers looking to lay-off or
alty for closure, argues that any employer retrench workers are presumed to be
that closes down an undertaking without acting improperly until they can prove oth-
complying with the procedure of getting erwise. India stands virtually alone
permission from the government shall be among countries in having such stringent
punishable with imprisonment for a term norms for employment termination. This
that may extend to six months or with a sort of government permission is not re-
fine that may extend to five thousand quired in any developed country and al-
rupees, or with both. most none of the emerging markets re-
quires the permission of the government
In addition, there is Section 25G on and consultations with trade unions. Even
procedure for retrenchment: “the em- countries with restrictive labor regula-
ployer shall ordinarily retrench the work- tions (for example, Bangladesh, Philip-
man who was the last person to be em- pines, and Malaysia), do not require con-
ployed in this category.” The principle fol- sultation and approval from trade unions.
lowed is last come, first go. There is no
consideration of merit. There are few, if any, countries that
require government permission to fire
workers. In China, to dismiss a worker shut down a loss-making factory. The

does not require prior authorization from employer with the application for closure
the government though the labor admin- must contain the particulars of the quan-
istration must be informed. In Malaysia, tum, mode, manner and time of payment
the courts do not interfere with the em- of compensation to the workmen. The
ployers’ decision to retrench workers pro- owner is also required to furnish a guar-
vided the decision is bona fide and not antee to discharge liability for payment
taken to victimize the employee. of compensation to the workmen. Most
factory owners thus prefer to keep their
Comparing Gujarat & West Bengal loss-making units barely viable, but strip
their assets. Not only this, the West Ben-
An interesting case study is a com- gal amendment says that where an ap-
parison between Gujarat and West Ben- plication for closing down an undertak-
gal on state amendments to the Indus- ing is made, the appropriate government
trial Disputes Act. The Gujarat govern- may issue such directions as may be nec-
ment amended the Industrial Disputes essary for maintaining normalcy and con-
Act in 2004 to allow for greater flexibil- tinuity of work during the notice period.
ity in the labor market for Special Eco- This allows the government to keep a
nomic Zones (SEZ). It allowed firms loss-making enterprise afloat even after
within the SEZ to lay off workers, with- the employers are unable to do so. This
out seeking the permission of the gov- prevents the churn of capital and labor,
ernment, by simply giving one month’s which is at the heart of modern enter-
notice to the worker. To allow for firm prise.
exit, the law was amended such that the
employer can close an undertaking by The results are quite clear-cut. While
giving two months’ notice to the govern- Gujarat saw a 60% growth in manufac-
ment. Contrast this with the normal legal turing employment in 2000-2012, West
requirement of getting permission from Bengal saw only a 22% increase.
the government, with the latter giving an
opportunity for the employees to be heard
There is a strong case for adopt-
on the issue. The Gujarat Act 12 changed
ing an entirely new law to govern
the definition of “industrial dispute” to
industrial relations.
exclude the termination of service of an
employee in an SEZ, thereby significantly
reducing the scope for litigation. Given the issues detailed above, and
considering that the Industrial Disputes
The West Bengal Government, in Act dates back to 1947, we believe there
contrast, made several pro-worker is a strong case for adopting an entirely
changes. The IDA was amended to be new law to govern industrial relations.
applicable to more firms – those employ- Due to several state amendments over
ing above 50 workers. It changed the the decades, the law has become un-
laws to make it virtually impossible to wieldy, apart from the strict measures
Tushar Poddar
mentioned above, which we believe are Third, the law provides the scope for
clearly in need of revision. However, a outsiders to the tune of 50% of the of-
new law may take several years in order fice bearers. This is undesirable as it
to get a consensus among the states. In opens the door to outsiders who can cap-
the meantime, the Gujarat amendment ture the unions and may not have the in-
shows one way forward. The most terest of firm employees as their prior-
stringent conditions, especially regarding ity.
retrenchment, may be excluded for the
SEZs. This would allow these zones to It is instructive to see how other
be havens of employment and allow mar- countries have reduced the role of trade
ket forces to work in the labor market. unions. Bangladesh reformed its labor
With the government no longer involved laws in 2006 and now requires a mini-
in every employment decision, employ- mum membership of 30% of workers to
ers would be encouraged to increase form a trade union. In Sri Lanka, at least
formal employment and expand manufac- 40% of workers on whose behalf the
turing, thereby taking advantage of trade union seeks to bargain with the
economies of scale and investing more employer should be members of such a
in the training of their workers. trade union. In Pakistan, 20% of work-
men should be members of a union to be
The Trade Unions Act (1926) entitled for registration. However, for col-
lective bargaining, the union with at least
We believe there are at least three one-third of workers employed in an es-
key aspects of this act that merit retool- tablishment will be eligible for collective
ing. First, the act allows for a multiplicity bargaining.
of trade unions. The Trade Unions Act
stipulates that any seven or more work-
The union with at least one-third
ers can form a trade union and apply for
of workers employed in an estab-
registration. Further amendments allow
lishment will be eligible for collec-
the formation of at least ten unions in an
tive bargaining.
establishment with a size of 70 workers.
This means multiple trade unions in an
establishment, which can reduce har- In the US, to curtail the power of
mony, increase conflict, and promote unions, the Taft-Hartley Act was passed
competition between them. in 1947. It declared closed shops as ille-
gal. A closed shop is where the employer
Second, members enjoy immunity agrees to hire only union members and
from criminal and civil liability when fur- an employee who resigns from the union
thering the interests of the trade union. must be dismissed. The act forbade
This immunity allows them to call strikes, strikes in order to assign particular work
which can hinder the smooth functioning to the employees. For a strike or lay-off,
of industrial units. This includes breach- an 80-day notice had to be given by ei-
ing terms of the employment contract. ther side. Further, the president could
obtain an 80-day injunction to stop the ject of a lawful ballot. Further, union
continuation of a strike. This has been members could not be disciplined for
used often by US presidents to forestall failing to participate in a strike. These
industrial strikes. The act strengthened pieces of legislation changed the nature
the employees’ rights relative to the es- of industrial relations in the UK, and
tablished union in several ways, includ- they were followed by a period of strong
ing that an employee’s membership of an economic growth and job creation.
established union is not required for him
to work. The landmark act helped cor-
These pieces of legislation
rect the balance in industrial relations and
changed the nature of industrial
led to reduced industrial action and strikes
relations in the UK, and they were
as the US economy entered its historic
followed by a period of strong eco-
post-war economic expansion.
nomic growth and job creation.
In the UK, Margaret Thatcher’s
Government passed six pieces of leg- Given how outdated the Trade
islation in 1980-1993 to reduce union Unions Act has become, there is a clear
bargaining power. Initially, the permis- need to overhaul to act to make it more
sible grounds to refuse to join a union applicable to the modern era. Legisla-
were extended. The definition of a tion in the US and particularly the UK
trade dispute was narrowed to cover provide examples of how this can be
only disputes between workers and done with sufficient political will. A
their employer, and the applicability of modern act could promote better rela-
unions’ immunity for civil and criminal tions between employers and unions,
liability was reduced. Inter-union dis- encourage greater formal sector em-
putes and all others lost immunity. ployment and economies of scale, and
Unions became financially liable to
lead to less conflict.
employers by unlawful industrial ac-
tion. Industrial action outside the au-
Lessons from Korea
thorized terms could lead to the union
being sued for damages and result in
India has one of the lowest shares of
injunctions being granted against the
manufacturing in GDP in Asia, at about
union. Contracts specifying that only
union labor was to be employed were 15%. An interesting comparison is with
outlawed. All unions were required to Korea, which has one of the highest
ballot members before engaging in in- shares of manufacturing in output at over
dustrial action. Absent such a ballot, the 30%. India and Korea’s share of manu-
union automatically lost immunity and facturing in output was similar until the
could be sued for breach of contract. early 1970s at about 14% of GDP. How-
Individual union members had the right ever, the trajectory since then has di-
to take their union to court when in- verged dramatically. While Korea’s share
dustrial action had not been the sub- of manufacturing in GDP has acceler-
Tushar Poddar
ated, India’s share has stagnated at about times that of India’s in the early 1950s.
15%. Korea’s per-capita income was 2.5 Today it stands at eight times.
Exhibit 4 India and Korea manufacturing as a share of GDP has diverged since the 1970s
Percent Percent
35 35
Manufacturing output as a share of GDP:
India
30 30
Korea
25 25
20 20
15 15
10 10
5 5
0 0
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
Source: “How India can become the next Korea”, Goldman Sachs Asia Economics Analyst (2014),
Issue No: 14/15
Korea’s labor laws during 1970s- Korea’s manufacturing growth began

1990s were liberal, allowing consider- with labor-intensive industries. In 1970,
able flexibility in employment deci- the main export items were textiles, ply-
sions. Until the mid-1970s, Korea’s wood and wigs, representing 40%, 11%
labor markets were in a state of per- and 11% respectively. Given that these
manent excess labor supply on rapid are labor-intensive sectors, exports drove
urbanization and demographic job creation. The main items changed to
tailwinds. About 3% of the population garments, steel plate, and footwear in
was aged over 65 years in 1970 com- 1980. Garments remained the top export
pared to 11% in 2010, with the work- item in 1990, with a 12% share but fol-
ing age population growing at around lowed by semiconductors, footwear and
3% per annum in the 1970s. Against TVs. By 2000, however, the top export
this backdrop, labor regulations fo- items were transformed to capital-inten-
cused on job creation and training, and sive items; the top five items were semi-
the formation and activities of labor conductors, computers, automobiles, pe-
unions were restricted until the late troleum products, and ships. Industrial
1980s, especially for foreign-invested sectors, of which most are manufactur-
companies. The minimum wage was ing, have stopped adding to their share of
introduced only in 1988, and Korea did total employment since the peak of 28.5%
not join the ILO until 1991. in 1988.
The experience of other success References

stories in manufacturing in the region
is similar. In China, in its high-growth Addison, JohnT.& Siebert, W. Stanley (2000),
phase starting from 1998, computers, “Labor Market Reform in the United King-
dom: From Thatcher to Blair”, Journal of
electronics, electrical machinery, and Private Enterprise, 15(2)
textiles added the most jobs in manu-
facturing. Similarly, Taiwan saw simi- Baird, Charles W. (2011), “Freeing Labor Mar-
kets by Reforming Union Laws”, CATO
lar increases in computers, electronics,
Institute, Washington D.C.
electric parts, and leather products
from the 1970s. Thus, in the initial Comparison of Labor Laws: Select Countries
(2013), Exim Bank’s Occasional Paper No.
growth phase, the labor-intensive sec-
160.
tors see the most rapid growth. As
growth gets more broad-based, more Planning Commission (2013), Twelfth Five Year
technology-based sectors become the Plan (2012-2017), Vol. III, 22.Employment
and Skill Development
key drivers of job creation. This pro-
vides valuable lessons for the sectoral Ministry of Finance of India, Economic Survey
composition of growth in India. (2012-13), “Seizing the Demographic Divi-
dend”, Chapter 2.
There is little doubt from the Asian Poddar, Tushar & Vaibhaw, Vishal (2014), “In-
examples that the initial phase of growth dia: Adding 110 million jobs”, Goldman
Sachs AsiaEconomics Analyst, Issue No:
has to come from intensively using the
14/13.
factor that is the most abundant: labor.
India’s growth strategy has to rely on Poddar, Tushar, Kwon, Goohoon & Vaibhaw,
labor-intensive manufacturing, and to do Vishal (2014), “How India can become the
next Korea”, Goldman SachsAsia Econom-
that requires urgent attention on laws ics Analyst, Issue No: 14/15.
governing labor. India’s labor laws are
currently not geared to encourage large- The Industrial Disputes Act, (1947), Universal
Law Publishing, New Delhi (2012).
scale labor-intensive manufacturing, and
we believe the Industrial Disputes Act US: 1947 Taft-Hartley Substantive Provisions,
and the Trade Unions Act should be National Labor Relations Board, http://
www.nlrb.gov/who-we-are/our-history/
changed to make them more supportive 1947-taft-hartley-substantive-
of job creation. Such a retooling of provisions,retrieved June 2014.
India’s labor laws would also be in line
with the new government’s stated pri-
ority of ensuring sufficient jobs for
India’s youth.
By Invitationsas
Labour Law Reform in India
J.S. Sodhi
Introduction
Universally the power structure in the

society has been and is weighed towards
There has been an all pervasive
the haves and therefore, the weaker sec-
recognition that the county
tions of the society need protection. In-
needs to reform its labor law re-
dia has been no exception. That was the
gime. It has become counterpro-
primary motivation for organization of
ductive to the twin objectives of
workers and formulation of labor laws by
job creation and industrial
the governments across the world. In
peace and hurts the very people
India, except for four decades 1950-90,
it meant to benefit. Successive
the balance of power has remained with
governments failed to match
the employers. Since the 1990s, however,
their rhetoric with concrete ac-
the state has been soft in implementing
tion. The present government’s
labor laws in its letter and spirit. It real-
intent of reform followed by se-
izes that the labor law regime is out of
lective swift action is a welcome
sync with the realities of the economic
departure from the past. Malaise
environment and it has not been able to
of the labor laws is deep rooted
restore cordial industrial relations and
and covers the broad spectrum
peace.
of 44 Central and a large num-
ber of State laws. The paper,
Industrial relations had worsened dur-
however, takes up the critical
ing the last decade which witnessed man-
changes needed to make these
agements’ aggressiveness towards the
laws less cumbersome and less
workers and trade unions. They have
rigid while keeping intact the le-
been resisting formation of unions at the
gitimate rights of the workers.
enterprise level and coercing the unions,
wherever they exist, to terminate their
political affiliations and insist on not to
have outside leadership. Employment of
J.S. Sodhi is Director, Shri Ram Centre for
Industrial Relations, Human Resources, Economic
contract labor has increased manifold
& Social Development, New Delhi. much of which is in violation of the Con-
E-mail:josodhi44@gmail.com tract Labor (Regulation & Abolition) Act,
1970. Such workers are paid much less Central Government (12 in number);
wages compared to a permanent worker those enacted by the Central and en-
doing the same job and have no security forced both by the Central as well as the
of job (Sodhi-ILO, 2010). State governments (16 in number); and,
those enacted and enforced by the vari-
ous State governments which apply to
Government of India has also been
respective states (16 in number). The
an active player in the employment
most critical laws were enacted before
of contract labor in contravention
or just after Independence (the Trade
of the Contract Labor Act.
Union Act, 1926, Industrial Disputes Act,
1947, Workmen Compensation Act 1923,
Strangely enough, Government of Payment of Wages Act 1936 and the In-
India has also been an active player in dustrial Employment-Standing Orders-
the employment of contract labor in con- Act, 1948). Amongst others, majority
travention of the Contract Labor Act. In were enacted 30 years back. Chronologi-
fact it is the largest employer of con- cally, sixteen of the forty four Central
tract labor. The violation of other labor laws were enacted before or immediately
laws is happening under its very nose. after Independence, nine in the late 1950s
Labor law enforcement in Export Pro- and the 1960s, ten in the 1970s, six in
motion Zones is negligible. The position 1980s, two each in the nineties and one
is similar in the IT sector. State govern- in the last decade. (Annex 1)
ments like Kerala have passed orders re-
stricting the functioning of trade unions. Changing Labor Laws
Haryana State Government had passed
a similar order preventing its employees Obviously, the laws are too old. While
from going on strike. the age of the law per se may not be an
indicator of its relevance or otherwise, it
The Legal Framework is important to mention that liberalization
and globalization, which began in the
There are 44 Central and a large 1990s, had totally changed the the eco-
number of State laws in the coun- nomic paradigm in the country. The con-
try. text in which these laws were enacted
has, therefore, undergone a metamorpho-
sis.
The country has plethora of labor
laws. Since labor in India is on the con- With these laws in the background,
current list, the Central and the state gov- doing business in India is a cumbersome
ernments are competent to enact legis- vocation particularly for an upright en-
lation. There are 44 Central and a Large trepreneur. The multifarious labor laws,
number of State laws in the country. The with varying connotations and definitions,
Central laws are categorized in to three force the employer into submission to the
viz: those enacted and enforced by the labor inspectorate, multiple trade unions
J.S. Sodhi
and rigidities in which it cannot retrench portant is the fact that India needs to cre-
any employee once employed (subject to ate 80 million jobs during the next 10 years
the completion of 240 days of continu- while at present it has created only two
ous work). The laws bind him to not even million jobs every year during 2005-12.
close the enterprise. Government permis- Almost five million persons lost jobs in
sion is required to effect these changes. the labor intensive manufacturing like the
textiles and apparels and electronics dur-
ing 2005-10. According to Goldman
The object of formulating labor
Sachs, it is because firms are substitut-
laws was laudable but the chang-
ing capital for labor largely because of
ing economic environment has
fear of coming into the ambit of a large
made them outdated.
number of labor laws.
The object of formulating labor laws Despite the felt need, the noise and
was laudable but the changing economic commitment have almost never been fol-
environment has made them outdated. lowed through with any concrete action.
The malady is well recognized at the high- The logic given for no major changes in
est levels. The former Prime Minister Dr the laws is that any change in Central
Manmohan Singh had repeatedly stated legislation has to be approved by both
that labor laws needed to be changed. houses of the Parliament and the States
He had said (ILC 40 th Session) “the pro- (labor is on the concurrent list) can bring
cess of doing business with India has to in appropriate regulations given in the
become less intimidating, less cumber- broad structure of labor laws
some and less bureaucratic to attract (Panagariaya, 2014). The President of
more investment. Many of the legacies India has the constitutional authority to
of the past have not much relevance to- amend the laws as sent by the State gov-
day. Indeed, some of them have become ernments under section 254 (2) of the
counterproductive today and may well be Constitution. However, despite this, only
hurting the very people they are meant states like Gujrat, Maharashtra, Andhra
to benefit”. He further stated that the Pradesh and Rajasthan (proposed
country needed new laws which provided amendments), amongst others have ad-
safety standards catered to the basic dressed the issue to some extent.
needs of workers, took care of their wel-
fare and were flexible enough to create Amendments have also been made
rather than destroy jobs. during the last four years to the Central
laws. The Employees Compensation Act
The plea for changes in the labor laws (earlier known as Workmen’s Compensa-
had gathered momentum with the present tion Act) had been changed with respect
government’s commitment to create a to the wage ceiling limit, which was in-
conducive environment for investors and creased from Rs. 4000 to Rs 8000 per
liberate the entrepreneurs from the tyr- month for purpose of calculating compen-
anny of myriad labor laws. Equally im- sation along with other minor changes;
Employee State Insurance Act, 1948 was The State of Rajasthan has recently
amended to improve the quality of service proposed changes in the Industrial Dis-
under the scheme; the Plantation Labor putes Act, 1947 to the effect that gov-
Act, 1951 was amended to provide safety ernment permission will now not be re-
and occupational health care to plantation quired for retrenchment in companies
workers and the Industrial Disputes Act, employing up to 300 (up from 100 under
1947 was amended in 2010 to: amplify the the Central Act) workers. Other amend-
term ‘appropriate government’ defined ments relate to the change in the Facto-
under section 2(a) of the Act; enhance the ries Act regarding the applicability of the
wage ceiling from Rs. 1600/- to Rs. 10000/ Contract Labor Act, 1970 to establish-
- per month to cover workmen working in ments by raising the limit of number of
supervising capacity; provide direct access workers to 20 and 40 with or without
to workman to the labor court or tribunal in power up from the present 10 and 20
case of disputes arising out of Section 2 workers. These amendments though
(a) of the Act; establish grievance redressal have to be ratified by the President of
machinery; and, empower labor courts or India.
Tribunals to execute Awards. Some of the
proposed amendments are with various Andhra Pradesh government had
committees of the Parliament and at vari- made amendments in the Contract La-
ous stages of discussions. bor Act, 1970 which were hailed as a
model for other states to follow. It had
Amendments by State Govenments introduced a clause restraining the em-
ployment of contract labor in core ac-
Some of the state government’s have tivities of any establishment if the same
been active in making amendments. For was prohibited by notification. However,
example, the Gujarat government had wide ranging exemptions were made
made changes allowing the SEZ’s to lay such as the normal functioning of the
off redundant workers without seeking establishments such that the activity is
the permission of the government. It ordinarily done through contractors; or
mandaded the SEZ’s to give a formal the activities are such that they do not
notice, severance pay and a compensa- require full time workers for the major
tion of 45 days for a year of work rather portion of the working hours in a day or
than the 15 days given to other work- for longer periods as the case may be;
ers. It also allowed “Fixed Term Em- and any sudden increase of volume of
ployment” under the Industrial Standing work in the core activity which needs
Order Act 1946 and Gujarat Rules 1955 to be accomplished in a specified time.
which defines conditions of employment, The amendments amply clarified the
Self consolidation–cum-consolidated core activity meaning as any activity for
Annual Return scheme; keeping a maxi- which establishment is set up which in-
mum of two inspection registers and, fol- cludes any activity essential or neces-
lowing the Supreme Court verdict, no pay sary to the core activity with certain
for no work was also introduced. exceptions.
J.S. Sodhi
West Bengal government has turned controversy of too much protection to

the clock back in 2014 by making it vir- the workers: lay off and retrenchment
tually impossible to shut down a loss of the workers; and, the closure of the
making factory. The law in the state ap- enterprise. The clauses state that an
plies to all establishments employing up employer cannot layoff or retrench any
to 60 workers. worker or close down operations of the
establishment without prior permission
It is argued that the States of Gujarat, from the appropriate government.
Andhra Pradesh, Maharashtra and now There is though a caveat that permis-
Rajasthan have made meaningful amend- sion is deemed to have been granted
ments to labor laws of the country. Gujarat by the appropriate government after 60
has been able to create more manufac- days if no communication is received
turing jobs than other states, such as West by then.
Bengal & Kerala with restrictive labor
laws. However, these forward looking This clause, according to employ-
changes have been done by a handful of ers and economists, has been a major
states and are partial in nature. Moreover, bottleneck of employment generation in
the amendments relating to the Central the organized sector. While total em-
laws have not addressed most of the core ployment has increased during the last
issues plaguing the labor laws. ten years, formal sector employment
has been decreasing i.e., employment
Let us, for example, take up some generation in smaller establishments
core issues being discussed and debated (where no permission is required for lay
in the context of labor law reform. These off, retrenchment and closure) has
are: too many laws and their consolida- been increasing faster than in other
tion; anomalies and divergent definitions (those with 100 workers and above) es-
of the worker, establishment, wages etc.; tablishments.
employment of contract labor in activities
longer than presently allowed; applicabil-
While total employment has in-
ity of labor laws to companies with vary-
creased during the last ten years,
ing size & employment; labor administra-
formal sector employment has
tion and enforcement of labor laws or the
been decreasing.
inspector raj, dispute settlement; and ri-
gidities of labor laws. The demand to re-
move rigidities has drawn the maximum In view of these rigidities, the em-
attention and debate. Let us take it up first ployers have been resorting to technol-
along with other issues related Acts. ogy up gradation with the intention of
keeping their workforce below 100.
ID Act 1947 UNIDO’s (2012) report in this context
states that the clause relating to applica-
Flexibility vs. Rigidity: Flexibility bility of the ID Act has kept the Indian
debate in India has been mired in the enterprises small. According to them, the
average number of workers in Indian trenchment in an establishment of any

firms in the organized sector is 75 size. It, however, suggested an enhance-
(UNIDO, 2012), compared to 178 in In- ment of the notice period from one to
donesia and 191 in China. The Govern- two months and enhancement of re-
ment of India’s Economic Survey (2012- trenchment compensation from the
13) stated that it could be due to the out- present 30 to 45 days. For closure of
dated labor laws. the enterprise too the compensation
(which is 30 to 60 day’s salary depend-
It is also argued that India is among ing upon whether it is a sick and ongo-
the very few countries where prior per- ing industry with a view to become vi-
mission is required for lay off, retrench- able, nonprofit organization etc.) may be
ment and closure. A comparison with enhanced.
other countries (Table 1) shows that
such permission is required in India,
Prior permission may not be nec-
Pakistan and Sri Lanka only. Such per-
essary in respect of layoff and re-
mission is not required in Bangladesh,
trenchment in an establishment of
China, Indonesia, Philippines, Malaysia,
any size.
Thailand and Vietnam. In all countries
of Europe, North America, and those in
Africa, such a permission is not re- The issue and the prognosis appear
quired. In China, Indonesia and Vietnam simple and should be implemented. How-
and most of the countries in Europe and ever, there is a huge question mark on the
Africa, only prior consultations are re- role and intentions of the employers while
quired with the trade unions. In UK, dealing with the issue. Many argue that
every employer must give a reasonable the employer’s attitude is just to get rid of
notice after one month of work for sev- the workers because of multifarious rea-
erance of employment and after two sons not necessarily connected with the
years of service, employers must pro- vagaries of business. Some of these are:
vide a sufficiently fair reason of dis- permanent workers are drawing much
missal and redundancy payments. higher salaries by virtue of the number of
years of service and replacing them would
The Government of India had set up reduce their wage costs substantially.
many committees, including the Second Most of them are unionized and they do
National Commission on Labor (NCL, not submit to the whims of the employer;
2002) to look into the broad framework the process of legal suspension is very
of labor laws including the ID Act and cumbersome even for the genuine delin-
suggest changes. The NCL which had quents. Senior age worker’s skills and pro-
broad based consultations had suggested ductivity are always a matter of concern.
a fine balance between organizations’ In any case the employer is happy to have
need and workers interest. It had sug- a workforce whom they can hire and fire.
gested that prior permission may not be Large scale employment of contract la-
necessary in respect of layoff and re- bor, much in contravention of the law, is a
J.S. Sodhi
Table 1 Labor Laws Provisions Related to Consultations and Notifications Prior to Collective
Dismissal: Comparison in Select Countries
Prior Consul Notification Notification Approval Consent Employers

Country tations to the to the by public of workers’ obligations to
with trade public admin- workers’ admini- represent consider alt
unions req- is tration represen stration -atives ernatives
uired required -tative or judicial required to dismissal
required bodies required
required
ASIA
Bangladesh No Yes Yes No No No
China Yes Yes Yes No No Yes
India Yes Yes Yes Yes Yes* Yes
Indonesia Yes No Yes No No Yes
Pakistan - - Yes Yes - -
Philippines No Yes No No No No
Malaysia No Yes No No No No
Sri Lanka No Yes No Yes No No
Thailand No Yes No No No No
Vietnam Yes Yes Yes No Yes Yes
EUROPE
France Yes Yes Yes No No Yes
Germany Yes Yes Yes No No Yes
Russia Yes Yes Yes No No Yes
UK Yes Yes Yes No No Yes
NORTH AMERICA
USA No Yes Yes No No No
FRICA
South Africa Yes No Yes No No Yes
Tanzania Yes No Yes No No Yes
Uganda No Yes Yes No No No
Source: International Labour Organisation (1947) cited in Exim Bank (2013)
* Section 25N of ID Act states that the appropriate government or the specified authority may grant
or refuse permission after giving a reasonable opportunity of being heard to the employer, the work-
men, and the persons interested in such retrenchment, which implies that without the consent of the
workers’ union it would be difficult to get the permission granted.
point in this direction. It is, therefore, quired for lay-off, retrenchment and clo-
rightly feared that giving them the right sure of the enterprise and required
to hire and fire would result in large scale changes may be made in Chapter VA and
unemployment in the organized sector VB of the ID Act. But given the attitude
with an adverse effect on working con- of a large section of the employers, it may
ditions of those (contract or casual work- be appropriate to make it justifiable
ers) who will be hired. (based on economic/business ups and
downs which they should give in writing
Despite this, there is acceptance that to the unions and have discussions with
no government permission may be re- them). The retrenchment compensation
though must be high (at least 60 days of constituted by the appropriate govern-
each year of completed service or num- ment for the adjudication of industrial dis-
ber of years of service left whichever is putes relating to any other matter speci-
less) including a notice period of two fied in the Second Schedule. Industrial
months may be statutorily fixed. This is tribunals likewise are constituted for the
to enable employers to achieve flexibil- same purpose under the Second or the
ity but in case of absolute necessity only. Third Schedule.
The issue of closure may also be dealt in
a similar manner. It is well known that The ID Act’s main objective was to
there are sick companies in India but not contain dispute, promote cordial industrial
sick employers. In fact, many of them relations and keep litigation to the mini-
remain very rich and enjoy a lavish life mum. However, experience has proved
style. to the contrary. The major reasons have
been: lack of trust between the employ-
Notice of Change: Section 9A (item ers and the unions/workers; lack of suc-
11 of fourth schedule of ID Act) requires cess of conciliation; legal provisions (sec-
employer to give 21 days notice of change tion 2a and section 36 of the ID Act)
in workers conditions (with respect to permitting a worker or a union to raise a
change in technology, workload, manning, dispute any time after its occurrence;
shift work etc). It has been forcefully lack of faith in the arbitration process;
argued that in today’s context, it is a se- the dilatory legal process which is fa-
rious drawback on the functioning of day vored by the employers; absence of a
to day activities of the factory as many proper and statutory bi-partite forum
changes are to be implemented at a short (Works Committees have been defunct
notice. The employers have been de- for a long time) to settle differences with-
manding that this section should be com- out the third party intervention; and above
pletely deleted from the ID Act. all employers’ disinclination to settle the
dispute as a majority of them are regard-
It is fair that no notice may be re- ing the dismissal of the employees.
quired and the amendment may be made
after discussions with the unions on the The solution lies in introducing mul-
legitimacy of the change. tiple amendments of having competent
conciliation officers (Sodhi & Guha,
Dispute Settlement: The ID Act sets 2006), fixing a limit of one year for rais-
a procedure for settling labor disputes ing a dispute (Section 2A and Section 36),
through collective bargaining-- Section 18 barring the unions below 15% of the rep-
(1), negotiation, conciliation-Section 18 resentation and most importantly, bring-
(3) and mediation, voluntary arbitration ing in amendment to statutorily promote
(Section 10A), compulsory adjudication bi-partite forums to settle disputes rather
in labor court (Section 7) and industrial than depending upon a third party for the
Tribunal (section 7A) and National Tri- same. The country can take cue from the
bunals (Section 7B). Labor courts are German Co-determination Model which
J.S. Sodhi
to the labor tribunals or court. In a few

The solution lies in introducing others (10-20% of the cases), if the dis-
multiple amendments of having pute remains unresolved at the bi-partite
competent conciliation officers. level, it may be referred to conciliation and
upon its failure to arbitration or adjudica-
has statutory bi-partite forums where tion with a directive that the legal process
most of the issues have to be resolved would be completed on a maximum of
(Sodhi et.al, 1995). three hearings. This change may be
brought about statutorily. This will, on the
Most of the disputes in the labor tri- one hand, reduce the role of third party
bunals and courts relate to suspension intervention and on the other, de-burden
and dismissal of the worker. There is a the courts leading to a speedy completion
fair and a comprehensive mechanism of of the pending cases.
suspension and dismissal given in the ID
Act. It is suggested that if the worker is Applicability of the Act: The ID Act
dismissed after proper and fair enquiry is applicable to every enterprise irrespec-
on charges of violence, sabotage, assault, tive of the number of workers. However,
as well as insubordination of any kind, Chapter VB of the Act is applicable to
the matter may be deemed to have been enterprises which are not seasonal or
sorted out at this stage itself and it should work is not performed intermittently em-
not be allowed to be escalated upwards ploying more than 100 workers on an
as allowing the worker to raise this dis- average per working day in the preced-
pute at higher levels is tantamount to ing 12 months. The applicability was re-
questioning of the process of suspension duced from 300 to 100 workers during
of the employee. the Emergency (1976). There has been
intense debate on the restoration of the
An amendment may be made here to manpower threshold limit as according to
broad base the representation of suspen- some studies (Fallon & Lucas, 1993) the
sion and dismissal process by including one 1976 amendment of the ID Act 1947 re-
person of eminence in the existing produced the demand for labor by 17.5%.
cess-an ombudsman type to allay the ap- The employers have also been arguing
prehensions of the unions and workers that this threshold limit should be re-
about the fairness of the process. The stored. This change may be favorably
recommendation of the committee should considered.
be binding on both the parties on a broad
based list of acts of misconduct which may Contract Labor (Regulation &
be developed by the government. Similar Abolition) Act, 1970
process may be followed in other cases
of differences including the grievance The Act allows employment of con-
redressal machinery between the man- tract labor in a large number of activities
agement and the workers/unions. No dis- which are considered peripheral in na-
pute under this list may be allowed to go ture. It stipulates that such employment
should be provided through contractors contract labor, mostly in contravention of

who are expected to adhere to the legal provisions of the Contract Labor Act.
obligations of employment of contract
labor. The Act applies to every estab- Admittedly, the rigidities of labor laws
lishment in which 20 or more workmen and employers inability to regulate their
are employed or were employed on any workforce in high and lows of the de-
day of the preceding 12 months. It does mand is an important issue and organiza-
not apply to establishments where the tions must have the flexibility to adjust
work is of intermittent nature. The Act work force to remain competitive. There
applies to establishments of the govern- are two sets of the policy changes which
ment and local authorities as well. may be considered here. One, the rec-
ommendation that flexibility can be intro-
The ‘appropriate government’ under duced by deleting Ch. VB and Section
section 10 (1) of the Act is authorized 9A of the ID Act as highlighted in the
after consultation with the Central or earlier part of the paper. If this amend-
State Boards to prohibit employment of ment is made, contract labor should only
contract labor in any establishment in any be permitted as per the law in non-core
process operation or other work. Such activities and the appropriate government
restrictions are often decided on the ba- should strictly enforce their right to abol-
sis of: whether the work is of perennial ish them in activities which are core to
nature; whether the work is incidental or the organization. Aberrations may invite
necessary for the work of an establish- serious penalties which need to be en-
ment; whether the work is sufficient to hanced sufficiently.
employ a considerable number of whole
time workmen; and, whether the work is
Contract labor should only be per-
being done ordinarily through regular
mitted as per the law in non-core
workmen in that establishment or a simi-
activities.
lar establishment.
The main purpose of the Act was to Two, in the absence of the suggested
facilitate the employment of workmen in changes in the ID Act, the law should be
activities which are not perennial and do renamed as Contract Labor Regulation Act
not form the core activity of the organi- and the word ‘prohibition’ may be removed.
zation. However, the practice has been However, contract labor employment may
otherwise both by the government and be allowed in specified activities, the list of
other organizations. The reason given is which may be decided through consulta-
the inflexibility of the existing labor laws. tions. This should be done if the industry
Also, employers’ claim that in today’s would employ them responsibly by paying
changing economic-environment, the dis- wages suitably calibrated with the skill lev-
tinction between the core and non-core els of the employees rather the minimum
does not exist. This belief by the employ- wages. Wages should be fixed in relation
ers has led to large scale employment of to the equivalence of the job in which per-
J.S. Sodhi
manent workers of a particular organiza- the present competitive environment. For

tion are engaged, the level of skills required example, Bangladesh reformed its labor
for the job and years of experience of those law and minimum membership of work-
being employed as a contract labor (Sodhi, ers required for forming a trade union is
2013). Tripartite consensus on engagement 30, in Pakistan 20 % for its registration
of contract labor and payments as well as and union with one third of the workers
the working conditions must be created for collective bargaining (2012 amend-
before Section 10 of the Act is deleted. An ment). In Sri Lanka, only the union with
integral part of the amendment is the re- 40% of the membership in the company
sponsibility of the contractor and the aber- can engage in collective bargaining
rations inviting severe penalty on them. (EXIM Bank, 2013).
Another possible approach in en- It is suggested that only one outsider

gagement of contract labor is the con- may be allowed as an outside leader and
cept of ‘Fixed Term Employment’ under that there should be a limit of companies in
which employment is for a predetermined which an outsider can become a leader of
period and wages and allowances as well internal unions. Second National Commis-
as statutory benefits would be similar to sion on Labor (NCL) had made a number
regular workers with such workers not of meaningful suggestions to bring amend-
having any right to regularization after ments in the Trade Union Act. These were:
completion of the term. union must have the representation of 20%
of the workers for its recognition as a bar-
The Trade Union Act, 1926 gaining unit; and that section 16 of the
Trade Union Act may be deleted. These
The Act and its many clauses have are important suggestions and the Act may
led to more confusion and problems than accordingly be amended.
sorting them out. It gives the right to any
seven persons to register a union but is Labor Administration
silent on its recognition in the enterprise.
The Act allows one-third of its leaders as Labor administration comprises La-
outsiders. All this has led to multiplicity of bor Commissioners, Labor Officers and
unions, problems in recognition of unions Labor Inspectors. Section 4(1) (9b) (v)
and outside leadership (Section 16) which of Chapter 6 defines their roles and du-
led to politically motivated leaders’ inter- ties. The most difficult and annoying part
ference in the affairs of the establishment. of labor administration for the employ-
ers is the inspection notoriously given the
The multiplicity of trade unions is label of Inspector Raj. The labor offic-
abhorred by the employers and creates ers and inspectors are expected to verify
problems with respect to their recogni- multifarious sets of regulations under the
tion as a bargaining agent. Even coun- labor and industrial relations legal frame-
tries like Bangladesh and Srilanka have work. The officials have the power to
enacted far reaching amendments to suit seek information/records as well as en-
ter any establishment, factory or office For a policy recommendation, the two
and make copies of any documents main- issues which need to be looked at are:
tained by the management. They can the number of laws and their procedures
impose fine for any labor law violations. have to be simplified along with a drastic
reduction in the items under inspection;
and total freedom from inspection which
Since the employers find it ex-
the employers want would be total disre-
tremely cumbersome to maintain
gard of the primary obligation of the state
such registers, the violations are
to formulate and regulate the implemen-
high.
tation of the laws. There is, therefore,
the need to maintain a balance first by
The system has been unable to meet statutorily reducing the provisions and list
the laudable objective of monitoring the of inspections while keeping intact the
implementation of labor laws largely be- objective as administering the compliance
cause of the multifarious registers and or otherwise of the legal obligations. The
regulations. The scope extends to regu- matter has been under consideration and
lating the height of urinals to workers a number of suggestions which have al-
wash rooms to how often the workplace ready come up as follows.
must be lime washed. The employer is
expected to maintain 6 different regis- The Prime Minister’s Council on
ters of attendance logs, 10 different ac- Trade & Industry on 4th December 2004
counts of overtime wages, five types of was set up under the Chairmanship of
annual returns besides adhering to a host Anwarul Hoda, Member (Industry), Plan-
of other stipulations and maintenance of ning Commission and it recommended in
registers. Since the employers find it ex- December 2005, the following steps:
tremely cumbersome to maintain such
registers, the violations are high. The “A system of third party inspection
employer prefers to give bribes rather should be established to give to enterprises
than maintain all the registers and they an option to get their regulatory compliance
find a willing partner amongst majority certified by reliable agencies like the ISO
of labor inspectors. This system has re- 14001 certification by the Quality Council
mained ineffective because quite often of India, Occupational Health and Safety
labor officers do not have reliable infor- Standard (OHSAS 18001) by the British
mation about the location and dispersal Standard Institute UK, Social Accountabil-
of establishments within their jurisdiction. ity Standard (SA 8000) by Social Account-
The ratio of labor inspectors to the num- ability International, USA and correspond-
ber of enterprises is also adverse. It is ing standard developed by Bureau of In-
physically impossible to cover the area dian Standards (BIS). Once such certifi-
and the number of companies under the cation has been obtained, the unit should
jurisdiction of one inspector. Even facili- be exempted from routine inspection. Spe-
ties like transport and other logistics to cial inspection would be authorized only on
carry out inspections are insufficient. receipt of credible complaints”.
J.S. Sodhi
The employers demand is for self Acts. Some like the Minimum Wages
certification and some of the state gov- Act, Payment of Gratuity Act, Employee
ernments have already introduced this Provident Fund Act and others do not
system. However, given the rent seek- define a ‘worker’ and instead define an
ing behavior of the labor inspectorate, ‘employee’ with different definitions.
the employers will get away with what- The ID Act Section 2(g) defines work-
ever they do. The Government of India’s man “as any person (including an ap-
program of filling e-returns is welcome. prentice) employed in any industry to do
But this not being implemented swiftly any manual, unskilled, skilled, technical,
and may take a long time. Therefore, operational, clerical or supervisory work
till the time this process is completed, a for hire or reward………..”. This in it-
mechanism of joint inspections with joint self has given rise to ambiguity as courts
annual calendar of inspections should be have upheld that even a Pilot is a work-
developed. However, it is imperative
man since their work is of technical na-
that the list of inspection is significantly
ture. Even supervisors are a part of the
pruned.
definition of a worker according to the
ID Act.
It is imperative that the list of in-
spection is significantly pruned. One definition of a workmen irre-
spective of the act and the size of estab-
Other Issues lishment is the immediate need. The su-
pervisors should be out of the ambit of
Too many laws: There are too many the definition of the worker except in the
laws and there is an urgent need to con- smaller establishments (10 and 20 work-
solidate them. As Second National ers), in which the salary is of below Rs.
Commission on Labor (NCL) suggested, 10000/-.
these must be grouped together under
five categories: labor relations; wages A summary at all the suggested
& working conditions; social security, amendments in labour laws is given in
and a separate bill for agricultural work- Table 2.
ers and others in the unorganized sec-
tor. Also, there are different laws appli- Concluding Remarks
cable to establishments according to
Business must not be tied up to too
micro, small and medium, size of
many rules and regulations and then ex-
workforce and across sectors. This
pected to deliver. Labor law reform
should be done away with.
though not the only contributor, will pave
the way for robust growth and invest-
Different definition of the worker
ment. It has been an important agenda
in laws: There is also the problem of
of a number of governments, national
no uniform definition of a worker in the
committees and the Second National
Table 2 Suggested Labor Law Changes at a Glance
Labor Law Current Legislation Proposed Amendment/Change
1.ID Act, 1947 • Government permission required a. No government permission may be required for
• Lay off, Retrenchment & • Retrenchment compensation of 15 lay off, retrenchment and closure
Closure days for each year completed. b. Retrenchment compensation to be increased to
(Chapter VB, VA) • One month’s prior notice indicating 45 days per year of completed or number of
reason for retrenchment years of service left whichever is less
• Compensation for closure depends upon c. Notice period of 2 months for retrenchment
whether the industry is sick, non-profit etc. d. Closure requirements may be made stringent
with higher compensation compared to the
present one.
•Notice of Change (Section 9A) • 21 days notice to be given to the government. a. No government notice may be required
b. Carry out the changes after discussion of the le-
gitimacy of change with the unions/workers.
Submit the legitimacy report to the government.
2.Dispute Settlement
• Provision for raising a dispute • Permits a worker/union to resort to a dispute a. Put a six month limit for raising a dispute
(Section 2 A & Section 26) any time a. Bar unions with less than 15% from raising the
•Collective bargaining Section • Bi-partite forums, except Works Committees, dispute
18(1), (3), and Labour Courts are not statutory in Nature b. Provide legal sanctity to the bi-partite forums
(Section 7A & B), Voluntary like the co-determination model of Germany.
arbitration (Section 10A) and c. Involve a third party like the ombudsman in the
The Indian Journal of Industrial Relations, Vol. 50, No. 1, July 2014
Compulsory adjudication enquiry process of suspension and dismissal.
(Section 7) d. The recommendation should be binding (on a
broad based mutually developed list). On both
the parties.
e. The remaining 10-20% of the cases, where dis-
agreement persists, should be referred for con-
ciliation and upon its failure to voluntary arbi-
113
tration or adjudication.
114
3.Contract Labor • Meant for regulation and prohibition of a. Keep the applicability limit of worker from
(Regulation contract labour employment 10 to 20.
and Prohibition • Applicability of the Act to establishments with b. Mutually develop a broader list of core
Act, 1970 10 & 20 worker, with and without power activities
• Section 10 of the Act allows prohibition of of c. In case chapter VA & VB are amended, Section
contract labour in any process, operation or 10 for the Contract Labour Act may not
other work in any establishment be amended.
• Contract labor is entitle to the payment of d. Introduce an amendment in CL Act that the em-
Minimum Wages as announced by the ployer may pay contract labour above the
government from time to tome minimum wages calibrated with the skill levels
of such workers having a bearing with the wages
of permanent workers in each establishment.
e. Introduce ‘Fixed Term Employment’ for a prede-
termined period with wages equivalent to the
regular workers with no right to regularization.
4. Trade Union Act, 1926 • Section 16 allows one third of its leaders a. Only one outsider member may be allowed as an
to be outsiders outside leader.
b. Put a limit in the number establishments an out
sider can be leader of internal unions.
c. Unions must have the representation of 20% of
the workers for its recognition as a bargaining
agent
5.Labor Inspection • To seek compliances of labor law stipulations a. Reduce the items/registers required by employ-
ers for labor inspection.
b. Allow submission of online compliances.Till this
takes place, allow self certification with strict
penalties
The Indian Journal of Industrial Relations, Vol. 50, No. 1, July 2014
J.S. Sodhi
Commission on Labor. All of them
Only supervisors with a salary of Rs. 10,000/-

All laws may be consolidated under five categories.
Wages and other components of com
rent to violate labour laws. These must be en-

Agricultural and other workers with
The current penalties are an insufficient deter

have categorically stated the need to
One definition of worker irrespective of the

change labor laws. What has stalled
these reforms is the lack of consen-
sus among the three actors i.e., the
may be covered under the Acts.

government, employers and the
unorganized sectors
Working conditions
unions. The unions and the employers

Labor relations
just would not give up an inch of their

Social security
respective turfs. Yet a consensus at
hanced substantially.
pensation
the tripartite forums is the essence of

the labor law framework of India. The
Central Government had also not been
steadfast despite understanding the
Act.
felt need and public postures. The

4.
1.
2.
5.
3.
stalemate has, therefore, continued.

The governments have also been anx-
•
ious of the so called ‘political back-

lash’. It is difficult to comprehend that
successive governments have not
been so much concerned about giving
legal protection at par with the orga-
nized sector workers to 94% of the
unorganized sector workers but is
• Consolidation of labor laws
worried about the political backlash of

making amendments for six percent of
them. It will be pertinent to highlight
here that the coverage of ID Act, 1947,
the rigidity clauses of which have been
the bone of contention, has a cover-
age of about 1.4% of the workforce
or 3% of the hired workforce. The
other apprehension is of large scale
retrenchments and closure which is
not without valid reason. This though
• Supervisors are categorized
can be addressed by substantially in-

• Different definitions of
creasing the compensation to be paid

along with worker
in such cases so that the employer

• Penalties for labor
‘Worker’ in Acts
• Too many Laws
resorts to them only in case of abso-

law violations
lute necessity. The experience of some

6. Others
of the state governments like Andhra

Pradesh for the contract labor, Gujarat
for making a number of desired
J.S. Sodhi
changes in the labor laws and now the Government of India (2012-13), India: Economic
Survey, Ministry of Finance, New Delhi
proposed ones in Rajasthan should help
the authorities in allaying some of these Government of India (2002), Second National
apprehensions to create an investor and Commission on Labour, Ministry of Labour
business friendly, environment. As long and Employment, New Delhi.
as the amendments in labor laws do not International Labor Organization (1947), Indus-
trample the rights of workers, these trial Disputes Act for India, Exim Bank
should be carried forward. Fimally, the Research Brief No. 75, August 2013
Central Government must take the lead Panagariya, A. (2014), “Masters of Their Des-
in bringing the desired amendments tiny”, The Times of India, May 31, New
rather than passing the buck on to the Delhi.
State governments. Leaving it to the lat- Sodhi, J.S, Joshi Rama, Chellapa, H.V.V,
ter will only escalate disparities within the Masilamani, S, Kalia, S. & Sandhu, H.
country with its economic and social con- (1995), In Search of Participation, Shri Ram
sequences. Centre for IR,HR Economic & Social De-
velopment, New Delhi.
References Sodhi, J.S.(2013), Employers Perspectives on

Contract Labor, Mimeograph, Shri Ram
Centre for IR,HR Economic & Social De-
Exim Bank (2013), “Comparison of Labor Laws:
velopment, New Delhi
Select Countries”, Research Brief No. 75,
August 2013, Mumbai. Sodhi, J.S. & Guha B.P. (2006), Effectiveness of
Conciliation Machinery in India,
Fallon, Peter R. & Lucas, E. B. R. (1993), “Job
Mimegragh, Shri Ram Centre for IR, HR
Security Regulations and the Dynamic De-
Economic & Social Development,, New
mand for Industrial Labor in India and Zim-
Delhi.
babwe”, Journal of Economic Development,
40 (2) UNIDO (2012), International Year Book on In-
dustrial Statistics, Geneva.
Annex I Labor Laws Enacted by the Central Government
Sl No. Name of the Act

a. Labor laws enacted & enforced by Central Government
1. The Employees’ State Insurance Act, 1948
2. The Employees’ Provident Fund and Miscellaneous Provisions Act, 1952
3. The Dock Workers (Safety, Health and Welfare) Act, 1986
4. The Mines Act, 1952
5. The Iron Ore Mines, Manganese Ore Mines and Chrome Ore Mines Labor
Welfare(Cess) Act, 1976
6. The Iron Ore Mines, Manganese Ore Mines and Chrome Ore Mines Labor Welfare Fund
Act, 1976
7. The Mica Mines Labor Welfare Fund Act, 1946
8. The Beedi Workers Welfare Cess Act, 1976
9. The Limestone and Dolomite Mines Labor Welfare Fund Act, 1972
10. The Cine Wokers Welfare (Cess) act, 1981
11 The Beedi Workers Welfare Fund Act, 1976

12 The Cine Workers Welfare Fund Act, 1981
b. Labour Laws enacted by Central and enforced by both the Central as well as the
State Governments
13 The Child Laobr (Prohibition and Regulation) Act, 1986
14. The Building and Other Constructions Workers’ (Regulation of Employment and Condi-
tions of Service) act, 1996
15. The Contract Labor (Regulation and Abolition) Act, 1970
16. The Equal Remuneration Act, 1976
17. The Industrial Disputes Act, 1947
18. The Industrial Employment (Standing Orders)Act, 1946
19. The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Ser-
vice) Act, 1979
20. The Labor Laws (Exemption from Furnishing Returns and Maintaining Registers by
Certain Establishments) Act, 1988
21. The Maternity Benefit Act, 1961
22. The Minimum Wages Act, 1948
23. The Payment of Bonus Act, 1965
24. The Payment of Gratuity Act, 1972
25. The Payment of Wages Act, 1936
26. The Cine Workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981
27. The building and Other Construction Workers Cess Act, 1996
28. The Apprentices Act, 1961
c. Labour Laws enacted by Central Government and Enforced by the State Govern
ments
29. The Employers’ Liability Act, 1938
30. The factories Act, 1948
31. The Motor Transport Workers Act, 1961
32. The Personal Injuries (Compensation Insurance) Act, 1963
33. The Personal Injuries (Emergency Provisions) Act, 1962
34. The Plantation Labor Act, 1951
35. The Sales Promotion Employees (Conditions of Service) Act, 1976
36. The Trade unions Act, 1926
37. The Weekly Holidays Act, 1942
38. The Working Journalists and Other Newspapers Employees (Conditions of Service) and
Miscellaneous Provisions Act, 1955
39. The Workmen’s Compensation Act, 1923
40. The Employment Exchange (Compulsory Notification of Vacancies) Act, 1959
41. The Children (Pledging of Laobur ) Act 1938
42. The Bonded Laobur System (Abolition) Act, 1976
43. The Beedi and Cigar Workers (Conditions of Employment) Act, 1966
44. The Unorganized Workers’ Social Security Act, 2008
By Invitationssas
Indian Industrial Relations Law: Case for Reform
Debi S. Saini
Introduction
Aneconomic growth model that a

Indian labor laws were con- country adopts has to have a clear no-
ceived in the pre-independence tion of the basic postulates of industrial
period or shortly afterwards relations (IR) as a facilitator. After at-
based on an import-substitution taining Independence, India adopted the
and statist model of economic statist,import-substitution model of eco-
development. They were pre- nomic development. Economic planning,
mised on adversarial IR assump- licensing, foreign exchange rationing and
tions, social justice and indus- regulation, and capital market regulation
trial peace. The paradigm is policies were followed strictly so as to
shifting towards global compe- be aligned with the national priorities.
tition, productivity, efficiency Economic growth was juxtaposed with
and mutual cooperation.IR is giv- “social justice” as an essential societal
ing way to employee relations. value. Trade unions were allowed to
This paper examines the way the flourish and expand as instruments of
Industrial Disputes Act 1947, the promoting countervailing power of the
Trade Unions Act 1926, and the working class subject to the above val-
Industrial Employment (Standing ues. Simultaneously was preached the
Orders) Act 1946 have been concept of responsible unionism; as
working and to what effect. It adversarial collective bargaining was
discusses a broad framework of seen as the “law of the jungle.” Espe-
changes that need to be effected cially during the 1960s and 1970s trade
in them so as to be aligned with unions grew in strength. But this model
the contemporary global and In- ceased to be effective and resulted in
dian economic realities. what came to be labeled as “the Hindu
rate of growth.” Eventually, the model
led into a deep crisis during the late eight-
Debi S. Saini is Professor & Chairperson—
ies. Critics reminded the planners the vir-
HRM Area, Management Development tues of Thatcherism and Reagonomics,
Institute, Mehrauli Road, Gurgaon 122007. and suggested the adoption of the glo-
E-Mail:debisaini@mdi.ac.in balization model as a savior. The new
Indian Industrial Relations Law
economic policy (NEP) adopted in July difficult to be liberal in granting wage

1991 was symptomatic of a shift from increases.
the pursuit of values like socialjustice,
status, and welfare state to efficiency, India has about 47 major pieces of
productivity, freedom of contract, mar- central labor legislation and more than
ket focus, competition and flexibility of 100 pieces of state labor legislation that
work. The then finance minister, Dr. were intended to carry out the Constitu-
Manmohan Singh who later became tional vision of building a welfare state
Prime Minister during 2004-2014, prom- as envisaged in the Directive Principles
ised labor law reform to facilitate the of the State Policy. These directives
new paradigm. For addressing the sys- have been described as the “soul” of In-
temic malaise of the earlier model, mar- dian Constitution (Dhavan, 1989). Indian
ket was viewed as an instrument of de- labor laws can be grouped into five ma-
livering justice through the ‘trickle jor categories i.e. laws relating to: work-
down’. ing conditions, wages and monetary ben-
efits, industrial relations, social security
and miscellaneous labor laws (Saini, 2011
Employers saw trade unions to be
for a detailed discussion). Some of these
hindering operational flexibility
laws were already in existence at the
without which they found it very
time of Independence; more were added
difficult to compete in the chaotic
later.
economic environment.
The supporters of globalization have
The above policies of globalization argued that many pieces of Indian labor
eventually got reflected in a new kind legislation have lost their relevance due
of workplace order. Employers saw to changes in the global and Indian eco-
trade unions to be hindering operational nomic environment and the onset of the
flexibility without which (flexibility) intense competition. Research exists to
they found it very difficult to compete testify that perceived rigidities in Indian
in the chaotic economic environment. laborlaw have been negatively impacting
State became far less sympathetic to the development of the Indian economy
the cause of social justice and the re- (Mitchell, Mahy&Gahan, 2012: 41). In-
sultant union crisis; this was still more ternational institutions like the World
so in the developing countries. The in- Bank, IMF, and foreign investors have
stitution of trade unionism and collec- been waiting since long about fulfillment
tive bargaining came under heavy pres- of the government’s promise to make
sure so as to take a comprehensive care changes in labor law, and still more so in
of all employees at work (Kochan et the IR law. The top most concern of in-
al., 1986). Cost became a concern due dustry is the belief that too much of job
to the rising intensity of competition. security promotes inefficiency and low
Collective bargaining zones were get- productivity. It also reduces labor mobil-
ting squeezed; and employers found it ity that is a necessary condition for effi-
Debi S. Saini
cient working of firms in a competitive lective bargaining (also named as the

environment. The example of China is Classical Oxford School of IR in pre-
being cited to support this; as it has un- Thatcher UK) to substantial legalism and
dertaken industrial re-structuring as per state involvement in USA to almost no
the needs of the investors and globaliza- labor law in some parts of the develop-
tion. At the same time, there is plenty of ing world (Saini, 2003).Indian model is
literature to testify that the system is somewhere in between,upholding the
implemented such that there are severe freedom to unionize and promoting indus-
problems in justice reaching the work- trial peace through negotiation as well as
ers (Saini, 1997; Mitchell, Mahy&Gahan, state control of the industrial action. Glo-
2012: 22). balization has, however, made its indel-
ible impact on these models. And, there
In the above context, this paper ex- is a trend towards a greater degree of
amines the structure and working of In- cooperation in IR.
dian IR law and suggests areas of state
action through reform. Towards this end,
The Industrial Disputes Act 1947
it discusses the framework of changes
(IDA) is the most important piece
that need to be effected in them so as to
of IR legislation in the country.
be in sync with the contemporary global
and Indian economic realities. It also
analyses the new employee relations India’s IR law is enshrined in three
strategies that employers are following pieces of legislation: the Industrial Dis-
to stay ahead in the era of intense com- putes Act 1947 (IDA), the Trade Unions
petition. On the basis of the analysis of Act 1926 (TUA), and the Industrial Em-
the structure and working of the three ployment (Standing Orders) Act 1946
main pieces of IR legislation in India, it (IESOA). The Industrial Disputes Act
has argued for a case of reform in many 1947 (IDA) is the most important piece
aspects of these three Acts. The paper of IR legislation in the country. It has its
also identifies areas of action for the roots in the Rule 81-A of Defence of In-
trade unions, employers and the state. dia Rules that was promulgated by the
British Indian Government in 1942 to
The Indian IR Law: Structure & control industrial unrest in the country,
Working as the British were focusing themselves
on fighting the Second World War and
Many alternative models of social and could not afford to have a rising curve of
economic justice have been adopted in industrial disputes. This rule envisaged a
different parts of the world in the field system of compulsory adjudication of in-
of industrial relations (IR). These mod- dustrial disputes by government-ap-
els range from powerful corporatism pointed tribunals in case the disputant
ofContinental Europe to complete parties failed to resolve it bilaterally.
voluntarism of the type where labor law Even after the War was over, it was
has been seen as only a footnote to col- found that Rule 81-A was successful in
controlling the industrial unrest. Shortly tion on all present and future workers of
before Independence in April, 1947, this the organization till the settlement is in
rule was converted into a full-fledged Act operation. In addition, under section 18
in the form of IDA. The Act envisages a (1), parties can enter into a voluntary
conciliation-adjudication-arbitration settlement (without the intervention of the
model of industrial disputes resolution. It CO); but this settlement is enforceable
empowers the “appropriate government”, only against the signatories. In 1971, sec-
in its discretion, to refer an industrial dis- tion 11-A was inducted in the IDA at the
pute for adjudication either on failure of behest of trade union leadership, which
conciliation or even without any resort claimed rampant victimization of the
to conciliation. Among others, the Act workmen by the employers. This had the
provides for a dispute prevention mecha- effect of making labor court virtually a
nism in the form of works committee, court of appeal in termination cases. In
conciliation officers, board of conciliation, these cases, the labor court could alter
and court of inquiry. After the failure of the punishment even if the workman is
the dispute to get resolved through the found guilty of misconduct. This provi-
preventive mechanism, it can be referred sion is seen by the industry as contribut-
by the appropriate government, in its dis- ing to inflexibility, and as an obstruction
cretion, for adjudication to a labor court in maintaining discipline. It is argued that
or industrial tribunal, depending upon the under this section courts have many times
nature and type of the dispute. exonerated delinquent workers or given
much less punishment to them even when
Initially, only disputes espoused by a they were found guilty of having com-
trade union or substantial number of permitted a misconduct.
sons were treated as industrial disputes,
but later on, a provision for processing
Courts have many times exoner-
individual termination (including dismissal,
ated delinquent workers or given
discharge or retrenchment) disputes was
much less punishment to them even
inducted in the IDA, thus treating some
when they were found guilty of hav-
individual disputes as industrial disputes.
ing committed a misconduct.
The 2010 amendment to the IDA is the
latest. Among others, it has provided that
for individual termination disputes the The strike provisions of the IDA are
parties can directly approach the labor provided in sections 22 to 25. Workers
court, and no reference is required for employed in a public utility service can-
the same.1 There is a provision for en- not go on strike without giving a notice
tering into conciliated settlement under of at least 14 days, and before the day
section 12 (3), which has wider applica- specified in the notice. But there is no
such provision that obliges workers to
1
give strike notice in non-public utilities.
Discretionary reference by the appropriate
government is still a necessity for adjudication of They may even go on a lightning strike
collective interest disputes. instantaneously, and yet the strike would
Debi S. Saini
not be considered as illegal for not serv- office of the registrar of trade unions, and
ing any notice. Also, there is no provi- often workers are denied trade union reg-
sion in the Indian law for conducting a istration on frivolous grounds. Many a
strike ballot amongst workers. Thus, even time, political pressures or court interven-
a minority of workers can give a call for tion is sought for compelling the regis-
strike. Section 36 of the Act bans the trar to register the trade union.
presence of lawyers in conciliation pro-
ceedings. It also restricts lawyers’ ap-
The standing orders when certified
pearance before the adjudicatory bodies.
are deemed to have become a part
But a lawyer can be allowed to appear
of the contract of employment.
before these bodies if the other party
gives his consent to this effect. Section
9-A provides for a notice of 21 days to The main objective of the IESOA is
be given by the employer before making to ensure standardization of the terms of
any change in service conditions of the employment and their certification by a
workmen.2 This provision is also being government officer, who is known as the
contested by the industry as it restricts certifying officer. He is charged with the
its flexibility, and finds it difficult to ad- duty of certifying that the contents of the
just to the needs of the changing busi- standing orders are just and fair. There
ness environment. For, workers raise an is also provision for payment of subsis-
industrial dispute once such notice is tence allowance during the suspension
given, which further restricts the period while the domestic inquiry is be-
employer’s flexibility. ing conducted against the worker. The
standing orders also contain among oth-
The TUA confers on workers the ers, the procedure for taking disciplinary
freedom to register a trade union subject action against the workers. The standing
to the requirements of the Act. There is orders when certified by the certifying
a provision for creation of a political fund officer are deemed to have become a part
for being used for different political pur- of the contract of employment.
poses. This is another provision which
has attracted bitter criticism. The Act also Looking at the way the IR law is
provides to unions and workers immunity working, it can be said that the industrial
against civil and criminal liability for par- disputes resolution systems and pro-
ticipating in certain types of industrial cesses suffer from the problems of de-
action. Maximum problems faced by lay, formalism and inaccessibility (Baxi,
workers under the TUA relate to regis- 1993; Saini, 1997). The system has not
tration of a trade union. There are wide- been able to check the commission of
spread malpractices indulged in at the unfair labor practices (ULPs)3 both by
the employers and the employees (Saini,
2
The matters in respect of which change in service
3
conditions cannot be done have been provided in See the Fifth Schedule of the Industrial Disputes
Schedule IV of the IDA. Act 1947.
1995). The law has also not been able to sive organizations and many MNCs.
protect the interest of the trade union They are pursuing union-substitution
leaders who come in the forefront to fight strategies through provision of better
for their associates. A study of the ac- employee welfare, care, empowerment,
tual working of the adjudication system employee involvement, and communica-
found that especially in the context of tion. This is called neo-unitarism—also
medium and small organizations, labor called the IBM model of employee re-
tribunals, in effect, do the work of pro- lations. Companies like the Tata Steel
viding “legitimacy to the union-smashing are very successfully practicing a pa-
exercises of the employers” (Saini, ternalistic IR model (Saini &Budhwar,
1997). 2013). Even some manufacturing com-
panies like Jindal Aluminium Ltd. in Ban-
There is a serious problem of the non- galore are practicing IBM type of non-
enforcement of labor laws from the union policies (Patil, 1998). At the same
workers’ point of view. This is largely a time there are many stories of success
result of the acts of collusion between in resisting these HR strategies which
employers, bureaucracy, labor law con- are perceived by the union to be diluting
sultants, and even union leaders, espe- the efficacy of union strength.
cially in the private sector (Saini, 1995a). (Ramaswamy, 2000; 219).There are
At the same time, comparatively pro- also revelations that unions are becom-
gressive employers are supporters of ing more cooperative with the employ-
most of these provisions, but are asking ers than before in the private as well as
for changes in some of these provisions public sectors (Ramaswamy, 1994;
so as to adapt to the needs of the VenkataRatnam, 2003).
changed times. Especially the MNCs and
conscientious employers want an IR
Unions are becoming more coop-
framework with simpler laws. They want
erative with the employers than
to keep themselves away from
before in the private as well as
maneuverings that are known to be tak-
public sectors.
ing place at the behest of the labor de-
partment or ‘brief-case union leaders’.
Overall, we are witnessing an era of
There are some good indicators for a greater degree of cooperation even as
the employers. More dismissal decisions it might be partly due to the covert pres-
rendered by the higher judiciary are going sure on the trade union leaders. But it
in favor of the employer in the name of has also to do with the workers realizing
efficiency and productivity. Also, over the that employers can no more shell out
years, the number of strikes is declining, money to meet all types of demands.
and so is the number of mandays lost. Cooperation seems to be becoming the
need of the employers as well as the
A new IR strategy is discernible employees.
from the IR policies of more progres-
Debi S. Saini
Policy Suggestions and on the individual employee. ER in-

Recommendations volves building relationship and orga-
nizational culture through human re-
On the basis of the structure and source interventions for employee
working of these industrial relations and commitment (Saini &Budhwar,
other laws, the following amendments to 2013). Hence a case for re-naming
the Indian IR legislation are suggested: the IDA as the Employees Relations
Act.
1. Renaming the IDA as the Employee
2. Integration &Simplification:India
Relations Act:The term industrial
has 47 central labor statutes, and
relations came into vogue in the late-
some 150 pieces of state labor legis-
nineteenth century, more and gained
lation. There is a demand for inte-
populanity during and after the Sec-
gration and simplification of these
ond World War. After the War was
laws so that at least trade union lead-
over more and more employers en-
ers and common managers can un-
tered into collective agreements with
derstand their spirit and contents.
their employees. Trade unions also
Ironically, no attempt has been made
showed rise in their membership.
in this regard. Sometime back the
The focus of IR was on the relation-
National Labor Law Association pre-
ships between an employer and the
pared, what they referred to as the
employees and resolving industrial
draft Indian Labor Code, 1994
disputes collectively through the in-
(NLLA, 1994). This was an attempt
volvement of union.But since the
to imbibe fundamental principles of
1980s and beyond, a sea change is
Indian labor jurisprudence in an inte-
discernible in the IR field. Large sec-
grated manner. This code was also
tions of the workforce are temporary,
an attempt to integrate and simplify
part-time, ad hoc, agency and con-
definitions of certain terms as defined
tract workers, who may not be mem-
in different pieces of labor legisla-
bers of any union. They expect to be
tion. Presently, we have some 13 dif-
talked to individually for their moti-
ferent definitions of wages, and as
vation and commitment. There is
many definitions of worker and other
more emphasis on forging coopera-
terms. This causes tremendous con-
tion through employee engagement
fusion in the mind of the worker and
interventions almost all over. Both
all others dealing with these pieces
researchers and employers are now
of legislation.
using the term employee relations
(ER) which emphasizes more on the 3. Industrial Relations Commissions
individual than the unionized worker (IRCs):As is clear from the earlier
force. Though many use the two sections, IDA has its roots in a tem-
terms IR and ER inter-changeably, porary war-time ordinance. In most
the focus in the former is more on developed countries, labor disputes
the unionized and in the latter more are resolved through collective bar-
gaining, and not through adjudica- not settled by any of the above
tion. India had intense debate dur- methods.Despite nearly three de-
ing 1970s and 1980s about constitu- cades of debate, recommendations
tion of autonomous multi-member to constitute the IRCs were never
industrial relations commissions put into operation. Presently, it seems
(IRCs) at the central and state lev- to have gone into oblivion; the con-
els in place of the present industrial cerned parties have even forgotten
tribunals that are presided over by about them. It is suggested that with
one person only. This debate started a view to arrive at more acceptable
after the recommendations of the solutions to IR problems there is an
first National Commission on Labor urgent need to put the recommen-
(Government of India, 1969). Later dation for constituting these IRCs
on, the NLLA’s Draft Labor Code into operation. These IRCs would
of 1994 also made similar recom- have one judicial and two non-judi-
mendations of setting up autonomous cial members who should be experts
commissions. 4 Even the second Na- in matters related to labor issues and
tional Commission on Labor 2002 social sciences. The labor courts
(Government of India, 2002) en- could continue to decide individual
dorsed the recommendation to pro- termination matters, as activated di-
vide for IRCs at the central and state rectly by the workman concerned
levels. They were to deal with indirectly.
terests as well as rights in labor
4. Re-orienting the Conciliators &
matters. The functions expected to
Adjudicators: IR adjudication is a
be performed by these IRCs in-
unique branch of law. Many distin-
cluded: certification of bargaining
guished jurists and sociologists of law
agents and bargaining councils; de-
have opined that every person han-
ciding the level at which collective
dling labor matters should have the
bargaining shall be held; mediation
knowledge of law and social sciences.
of disputes if desired by disputant
Otto Kahn-Freund, a celebrated labor
parties; and adjudication of disputes
expert insisted that a lawyer could not
4
understand law, let alone be an edu-
On the basis of the recommendations of the
National Commission on Labor (Government of cated lawyer unless/he learnt the law
India, 1969) and some other committees, NLLA in conjunction with other social sci-
also recommended constitution of such multi- ence disciplines. Another jurist, Jus-
member mediation-cum-adjudicatory bodies at the tice Brandeis, has gone to the extent
state and the central levels. The NLLA National of commenting that “a lawyer who has
Labor Code draft used the term NationalLabor
Relations Commission (NLRCs) in place of IRCs. not studied economics and sociology
It also provided that NLRCs shall have powers is very apt to become a public enemy”
exercisable by the Supreme Court of India under (Wedderburn, 1983:30). This is true
clause 2 of Article 32 of the Constitution. It also of labor law where scholars and
envisages the taking away of the jurisdiction of the
judges often need to cross disciplin-
high courts over the labor relations commissions.
Debi S. Saini
ary boundaries to articulate labor jus- the entire conciliation file including
tice issues. Report of the First Labor the failure report of the CO should
law Review Committee of the Gov- be forwarded to the labor court/in-
ernment of Gujarat had envisaged a dustrial tribunal along with the refer-
continuous training for a period of six ence order. Further, this will help di-
months for the new recruits to labor lute legalism in processing the indus-
judiciary and also a refresher course trial disputes.
for labor court judges and labor offic-
6. Lawyers in Conciliation &Adjudi-
ers at the end of every three years
cation Processes: Section 36 of the
(Desai, 1994; Government of Gujarat,
IDA prohibits the presence of law-
1974). It is suggested that the Central
yers in the conciliation process, and
Government establishes a special na-
restricts their presence in adjudica-
tional institute exclusively to train la-
tion proceedings. Lawyers have been
bor judges, labor administrators and
described as “traditional elites”
members of the proposed IRCs. It will
(Abel, 1973) and “repeat players”
help developing in them the acumen
(Munger, 1991: 604), and having end-
for the inquisitorial method of dispute
less ingenuity. Often, they tire out the
processing.
other side as also the judges by in-
5. Sending the Conciliation File to dulging in endless arguments. The
Adjudicator: It is a fact that the idea underlying section 36 of the IDA
conciliation file of the industrial dis- was to ensure that an industrial dis-
pute contains some useful data that pute does not become a complete
can be helpful in understanding the lawyers’ domain and subjected to le-
nuances of the case by the presiding gal wrangling; but must be discussed
officer of tribunal/labor court con- between the parties as one involving
cerned. But it is never sent to them. economic relations through political
It may be recalled that the whole solutions. But the situation today is
purpose of the IDA was promoting such that in labor courts and tribu-
inquisitorial and not adversarial inves- nals lawyers have completely taken
tigation of the industrial dispute. The over the industrial disputes resolution
file can help understand better the processes. This leads to a greater
issues on hand, the attitude and be- degree of legalization or what has
havior of the parties concerned on the been known as juridification 5 There
issues, the nature of the demands in- should be complete ban on lawyers
cluding their genuineness, the pres-
sures on them, and the contents of 5
The term “juridification” does not exist in English.
the failure report by the conciliation It has been borrowed from German. It refers to the
officer including the confidential part. extent to which the behavior of personnel and other
This will also make the COs more managers in dealing with collective and individual
responsible in writing the failure reemployment issues is determined by reference to
port. It is therefore suggested that legal norms and procedures rather than to
voluntarily agreed norms (Saini 1995).
to appear before these bodies, ex- for provision for strike ballot before
cept only at the argument stage if going on strike, in which not less than
necessary where articulation of le- 50 per cent of the workers should
gal point might be in question. This vote in favor of the strike before a
will save the ER from becoming over- legal strike can be called.
legalized.
9. Chapter V-B of IDA: Perhaps the
7. The Fate of Sections 11-A 6 6 Sec- most controversial issues in Indian
tion 11-A envisages that even in labor legislation is Chapter V-B of the
cases of disciplinary action taken by IDA, which applies to factories, plan-
an employer after a properly con- tations and mines that employ 100 or
ducted domestic inquiry, if a labor more workers. This chapter contains,
court/tribunal finds that the among others, sections 25-M, 25-N,
employer’s order of dismissal or dis- and 25-O. These sections provide for
charge is not justified, it may set aside the prior permission of the appropri-
such an order and direct re-instate- ate government before any workman
ment of the workman on such terms in such industries can be laid-off or
and conditions as it thinks fit or give retrenched or the undertaking is
some other relief to the workman in- closed down respectively. It has been
cluding lesser punishment in lieu of the experience of industries that most
discharge. state governments have denied to-
tally or unduly delayed such permis-
8. Strike/Lockout Notice & Strike
sion, which is often done on extrane-
Ballots: In the neo-liberal world,
ous considerations. Interestingly, In-
work stoppages are becoming less
dia is the only country in the world
relevant. As mentioned before, un-
(besides Zimbabwe, which followed
der the IDA there is no provision for
Indian law on this issue), which pro-
strike/lockout notice in non-public
vides for such a provision. This chap-
utility service operations. There is a
ter was inducted in the IDA in 1976
need to make such a provision, un-
and the number of workers provided
less strike is called under a grave and
for the purpose of its application then
emergent situation (e.g. a lockout
was 300 or more. This number was
declared in a emergent situation of
later on reduced to 100 or more in
violence, etc.). Also, there is a need
1982. In a highly competitive world,
some organizations are bound to fail
6
Section 11-A envisages that even in cases of or perform low despite their best ef-
disciplinary action taken by an employer after a forts. So it is important to ask, what
properly conducted domestic inquiry, if a labor
court/tribunal finds that the employer’s order of
the justification of this chapter today
dismissal or discharge is not justified, it may set is. How can we ask a non-viable or-
aside such an order and direct re-instatement of the ganization to continue to exist in its
workman on such terms and conditions as it thinks original form without making any
fit or give some other relief to the workman change in the employment structure
including lesser punishment in lieu of discharge.
Debi S. Saini
andthussuffer perennial losses? No chapter V-B to 1000 or more work-

law is immutable and has to change ers, retrenchment compensation
in the changed context. Such provi- should be such as to be perceived as
sions are bound to adversely impact an equally attractive option for the
foreign direct investment (FDI) in the worker.Omkar Goswami Committee
country as well. Report had suggested 45 days wages
for every completed year of service
How can we ask a non-viable or- as the retrenchment/closure com-
ganization to continue to exist in pensation (Government of India,
its original form without making 1993). This may also motivate the
any change in the employment employer to re-deploy and re-train the
structure and thus suffer perennial surplus employees rather than re-
losses? trench them; at the same time, it will
minimize the trade unions’ resistance
to retrenchment and promote greater
The new NDA government has the
flexibility.
massive mandate of people; and they
have from it high expectation of the
Retrenchment compensation
economic turnaround, which is un-
should be such as to be perceived
thinkable without effecting realistic
as an equally attractive option for
labor law reforms. Keeping this in
the worker.
view, this number for applicability of
chapter V-B may be reduced to 1000
or more workmen in the first attempt. 10. Trade Union Multiplicity & Poli-
After some two years or so it can be tics: Especially after the globalization,
scrapped altogether so that workers one can witness steep diminution in
can remain prepared for the same. the trade union power in general. It
is almost impossible to organize a
Simultaneously, retrenchment provi-
trade union in new organizations with-
sions can be made more attractive.
out the support and patronage of out-
Presently, under section 25-F and 25-
sider union federations. For example,
FFF 15 days’ wage for every com-
in the case of Honda Motorcycles
pleted year of service is provided as
and Scooters India Ltd. (HMSI)
retrenchment/closure compensation,
workers’ victory was unthinkable
which is too meager. In actuality,
without the help and support of
companies that have effected re-
GurudasDasgupta (Secretary of
trenchment/closure as a result of a
AITUC &Rajya Sabha MP) and the
settlement, through voluntary retire-
Congress President Sonia Gandhi
ment scheme (VRS), have provided
(Saini, 2006). However, if a trade
far more attractive packages. It is
union does not want outsiders in its
suggested that apart from raising the
executive body that should remain a
employment limit for applicability of
choice with it. It is good that through
the 2001 amendment to the Trade should be provided that any union that
Unions Act, 1926, we have limited the does not do so for three years or more
presence of outsiders in the union should automatically stand de-regis-
executive from ½ to 1/3 rd of the ex- tered. This will lead to more respon-
ecutive members of the trade union, sible unionism.
subject to a maximum of five. This
11. Punishment &Fines for Labor Law
can be further reduced to 1/4th sub-
Violation: If we look at the punish-
ject to a maximum of three or four.
ments provided and fines imposable
As the economy progresses and
for violation of different pieces of la-
workers become still more mature to
bor legislation, it is clear that they are
decide whether they want a union or
shockingly low in most cases. We still
not by themselves, this number can
have Rs 10 or 50 or 100 as fines for
be reduced gradually.
such violations. Even imprisonment
The 2001 amendment to the Trade provided is just about one to six months
Union Act 1926 has also provided a in most cases, which almost never
minimum number of persons who takes place, and the delinquent is
must be members of the proposed mostly left by imposing meager fine.
trade union at the time of registra- Similar is the situation for non-pay-
tion. This is 10 per cent of the total ment of minimum wages or undue de-
workforce or 100 whichever is lower. duction from wages, or delay in pay-
We should remove the number 100, ment of wages. Under the IESOA,
and insist that any trade union that there is no imprisonment for violating
wishes to register must have at least the law. It is just fine. The fines are
1/10th of the workforce as applicants, so inadequate that the employers take
subject to a minimum of seven these provisions casually. Similar is
whichever is higher. We must keep the situation under the IDA. Section
in mind that in the developed world, 29 envisages imprisonment for six
there is mostly one trade union fed- months and or a fine or both and for
eration at the national level. In the continuing breach with a further fine
UK, we have just one trade union of rupees two hundred for every day
federation, the Trade Union Congress during which the breach continues.
(TUC). The USA had only two, the Minimum imprisonment for the em-
American federation of Labor (AFL) ployer and the workmen, contraven-
and Confederation of Industrial Or- ing any provision, should not be less
ganization (CIO). The workers no- than two years and must be increased
ticed that two was a crowd and depending upon the severity of the
proved antithetical to their interest. particular violation. Even the Unfair
So they merged, after which it is Labor Practices (ULPs) are commit-
known as AFL-CIO. Also, a number ted by the parties with impunity. There
of trade unions in India do not sub- is a strong case for making these sen-
mit annual returns as per the law. It tences and fines realistic.
Debi S. Saini
Concluding Remarks be minimized. While industrial conflict has

assumed a different color and dimension
today, it has not withered away nor will
It is not quite correct to think that
it in the near future. The unions have a
the Indian labor law is highly in fa-
fierce challenge ahead in order to sur-
vor of the worker.
vive and be meaningful for a realistic role.
They also have to devise and explore
From the foregoing discussion it is dis- worker-oriented meanings of concepts
cernible that there is a clear case of re- such as “flexibility, security and opportu-
form and re-definition of the rights and nity” more through cooperative and dia-
responsibilities of the two sides on the logue than through adversarial means
lines suggested. At the same time, it is (Hyman, 1999). For a greater incidence
not quite correct to think that the Indian of social legitimacy trade unions have also
labor law is highly in favor of the worker. to conduct themselves democratically
That is more a myth than reality in most and give up oligarchic functioning. The
cases (Saini, 2003; 1997). However, some Gen Y worker has very different expec-
parts of the framework are not in tune tations from the employer as well as the
with the contemporary global and Indian union. The worker would stay with the
realities. Chapter V-B of the IDA is the union only if s/he sees any tangible gains
real villain of the peace. Most MNCs by being in the union.
want simple, workable labor law frame-
work. But they would have to work within The state cannot be oblivious to the
the ethos of the agreed framework and needs of the worker, as has been the case
the constitutional values, and not adopt in the recent past. The worker is pre-
strategies of exploitation of labor through pared for being violent if he is made to
low-wage strategies. In actuality, chap- feel desperate. That is the message from
ter V-B proves to be the only social pro- some of the incidents of industrial vio-
tection to the Indian worker as there is lence from recent cases such as HMSI,
no system of unemployment insurance Graziano, Maruti-Suzuki, Northbrooke
for them like in the developed world. Jute Mills, and many similar instances.
Therefore, the retrenchment/closure The state ought not to feel complacent
compensation has to be realistic. The at the declining strikes and man days lost
present tokenism of just 15 days wage data. This is not a symbol of effective-
for every completed year of service ness of the role played in IR by the state
should be changed through legislative agencies, but is largely due to declining
action. labor power. The state’s policy of indif-
ference or being with the employer in the
Further, for being more effective, interest of more FDI or regional indus-
trade unions will eventually have to form trial development is not sustainable. It
coalition federations like in national gov- must prepare its conciliation and adjudi-
ernance such as UPA and NDA so that cation mechanisms for performing more
fragmentation of the worker power can professional roles as per expectations.
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By Invitationssas
Legal Reforms for the Self-Employed: Three

Urban Cases
Martha Alter Chen, Roopa Madhav & Kamala Sankaran

Four out of five urban workers in Introduction
modern India are engaged in the
informal economy, and half of The need to balance job creation with
these are self-employed. This ar- basic protection for workers — to make
ticle examines what legal reforms economic growth inclusive — is a major
are needed for home-based pro- challenge for the early 21 st century. In
ducers, street vendors and waste India, as in most countries, labor laws rest
pickers who together represent on the assumption of a clear employer-
one-fifth of the urban workforce. employee relationship, and commercial
The article describes the condi- laws rest on the assumption of incorpo-
tions of employment and work pro- rated enterprises with documented ac-
cesses of these groups, and intro-
counts. But eighty per cent of the urban
duces key organizations of these
workforce in India is informal, and half
workers. It then examines the le-
of urban informal workers are self-em-
gal demands of these organiza-
tions, grouped under: municipal, ployed (Chen & Raveendran, 2011, up-
sector-specific, employment or dated 2014). The mismatch between the
commercial, and macro-economic. existing legal frameworks around employ-
Finally the article draws out les- ment and the existing employment struc-
sons for legal reforms for the self- ture creates a major challenge for policy
employed including the need for makers and calls for significant legal re-
legal identity and incorporation form.
into economic planning.
Labor laws rest on the assumption
Martha Alter Chen is Lecturer in Public
Policy, Harvard Kennedy School, Affiliated of a clear employer-employee re-
Professor, Harvard Graduate School of lationship.
Design & International Coordinator, WIEGO
Network.E-Mail: martha_chen@harvard.edu.
Roopa Madhav is Associate Professor, School of At the beginning of the 21st century,
Habitat Studies, Tata Institute of Social Sciences. employment grew at a faster rate per year
E-Mail: mroopam@gmail.com. Kamala Sankaran in urban India than in rural India
is Professor, Faculty of Law, University of Delhi.
(Chandrasekhar & Ghosh, 2007). As of
E-Mail: kamala.sankaran@gmail.com
2004-05, over half (54%) of the urban home-based workers, street vendors and
working age (15+) population was in the waste pickers. In 2011-12, these three
labor force, either actively working or groups combined represented one-fifth of
actively seeking work: 79 percent of men the total urban workforce in India: home-
and 24 per cent of women (ibid). But since based workers (15%), street vendors (4%)
2004-05, there has been a marked slow- and waste pickers (1%). Home-based
down in employment growth in both rural work was particularly significant for
and urban India. By 2011-12, just under women: representing almost a third (32%)
half (49%) of the urban working age popu- of the female urban workforce. The ar-
lation was in the labor force: 76 per cent ticle describes the conditions of employ-
of men and 21 per cent of women (Chen ment and work processes of these three
& Raveendran, 2011, updated 2014). This groups, and introduces key organizations
slowdown in employment growth was of these workers in India. It then exam-
accompanied by a decline in self-employ- ines the legal demands of these organiza-
tions of workers. Finally it draws out some
ment, which had been growing. By 2011-
lessons for legal reforms for the self-em-
12, the shares of self-employment and
ployed in India and elsewhere. This article
wage employment in total urban employ-
draws on findings and recommendations
ment had reverted to their 1999-00 levels:
from three multi-country initiatives led by
at 42 and 58 per cent, respectively (ibid). the global network WIEGO (Women in In-
formal Employment: Globalizing and Orga-
However, the urban informal nizing): an on-going program to improve
workforce was almost evenly divided official national statistics on informal em-
between self-employment (51%) and ployment around the world; a 2012 study
wage employment (49%) in 2011-12. of urban informal workers in 10 cities/9
There are three main categories of the countries (including waste pickers in Pune
self-employed: employers (who hire oth- and home-based workers plus street ven-
ers), own account workers (who run dors in Ahmedabad); and a multi-year
single person or family enterprises with- project on law and informality in four coun-
out hired workers), and unpaid contrib- tries (Ghana, India, Peru and Thailand).
uting family workers. In 2011-12, 38 Many of the sector-specific findings, as
per cent of the urban informal workforce well as recommendations of the 10-city
(39% of men and 31% of women) were study and the 4-country project, are com-
own account workers; 11 per cent (8% mon across the different cities and coun-
of men and 20% of women) were un- tries. In other words, what is detailed be-
paid contributing family workers; and low about legal reforms for home-based
only 3 per cent of men and 0.5 per cent workers, street vendors and waste pickers
of women were employers (ibid). is not unique to India.
This article examines what laws and Home-Based Workers

regulations impinge on — and what legal
reforms are needed for — three groups of Home-based workers produce goods
informal self-employed in urban India: or services for the market from their own
Legal Reforms for the Self-Employed
homes or adjacent grounds and premises: When the home is also the workplace,
stitching garments and weaving textiles; basic infrastructure services are essen-
making craft products; processing and tial for the productivity of work, espe-
preparing food items; assembling or cially electricity and water. The acces-
packaging electronics, automobile parts, sibility and cost of public transport is also
and pharmaceutical products; selling a key factor for home-based workers
goods or providing services (laundry, hair- who commute to markets on a regular, if
cutting, beautician services); or doing not daily, basis to buy raw materials and
clerical or professional work, among other supplies, to negotiate orders, and
other activities. Although they remain to sell finished goods. A recent study of
largely invisible, home-based workers are home-based workers in Ahmedabad (In-
engaged in many branches of industry dia), Bangkok (Thailand) and Lahore
and represent a significant share (14%) (Pakistan) found that transport accounted
of the urban workforce in India, particu- for 30 per cent of business expenses; and
larly among women workers (32%). of those who had to pay for transport,
one quarter operated at a loss (ibid). The
distance between the home-based
Inadequate housing is a commonly
worker’s home and the market, contrac-
cited problem by home-based
tor, or customers she deals with is criti-
workers.
cal, affecting the cost of transport. When
home-based workers are relocated to
For home-based workers, whose home peripheral areas they often have poor
is also their workplace, housing is an es- access to public transport and their trans-
sential productive asset. Inadequate hous- port costs rise sharply.
ing is a commonly cited problem by home-
based workers. A small house hampers There are two basic categories of
productivity: as the home-based worker home-based workers: independent self-
cannot take bulk work orders because she employed workers who take entrepre-
cannot store raw materials and her work neurial risks; and sub-contracted work-
is interrupted by competing needs for the ers who depend on a firm or its contrac-
same space of other household members tors for work orders, supply of raw ma-
and activities. Poor quality housing allows terials and sale of finished goods. This
goods and raw materials to be damaged. second category of home-based work-
Monsoon rains force home-based workers, the sub-contracted workers, is offi-
ers to suspend or reduce production, as cially referred to as “homeworkers”.
equipment, raw materials or finished Since they are not directly supervised by
goods get damaged when roofs leak or an employer, provide their own
houses flood; products (e.g. incense sticks) workspace and equipment, and cover
cannot dry due to leaks and humidity; and many of the non-wage costs of produc-
orders are reduced due to decreased de- tion including power and transport,
mand and/or difficulties associated with homeworkers are often classified as self-
transport during the rains (Chen, 2014). employed. However, because they are
dependent on a firm or its contractor for products (mainly incense sticks), and 5 per
work orders, raw materials, and sale of cent made furniture (ibid). Compared to
finished goods, they are sometimes clas- women home-based workers, a lower
sified as wage workers. In reality, sub- percent of men home-based workers were
contracted home-based workers – or in manufacturing (41%) and a higher per-
homeworkers – occupy an intermediate cent were in trade (35%) and other ser-
status in employment between fully in- vices, including repairs (6%) (ibid).
dependent self-employed and fully depen-
dent employees (Raveendran et al, 2013:
Home-based workers and their ac-
2). Also, many self-employed home-
tivities are affected by government
based workers are not fully independent:
policies and practices, notably land
as they have limited access to capital,
allocation, housing policies, basic
knowledge of markets, bargaining power,
infrastructure services, and public
and control in commercial transactions.
transport.
Because they work at home, both
groups of home-based workers tend to Home-based workers and their ac-
remain isolated from other workers in their tivities are affected by government poli-
sector (apart from those in their neigh- cies and practices, notably land alloca-
borhood) and to have limited knowledge tion, housing policies, basic infrastructure
of markets and market prices. These fac- services, and public transport. This is
tors limit their ability to bargain for more because their homes are their work-
favorable prices and piece rates or to ne- places; and they have to commute to
gotiate with government for basic infra- markets and transport supplies/goods to
structure and transport services. and from their homes. Legal reforms
should support policy interventions that
While home-based workers are upgrade settlements with large concen-
present in most branches of economic trations of home-based workers to en-
activity, they are concentrated in manu- sure they have adequate shelter, water,
facturing, trade and repair services: in In- sanitation and electricity. If and when
dia in 2011-12, 73 per cent of women home-based workers and their families
home-based workers were in manufac- have to be relocated, efforts should be
turing, 14 per cent in trade, 4 per cent of- made to ensure the relocation sites have,
fered education services, and 3 per cent from the outset, adequate shelter, basic
provided lodging or ran small eateries infrastructure, transport services, and
(Raveendran et al, 2013). Among women access to markets.
home-based in the manufacturing sector,
29 per cent produced hand-rolled ciga- Home-based workers also need le-
rettes (bidis), 26 per cent stitched or em- gal rights and protections against unequal
bellished garments, 22 per cent wove tex- and, often, exploitative value chain prac-
tiles, 6 per cent produced food or bever- tices and relationships. Home-based
ages; 7 per cent produced wood or cork workers have limited scope for negotia-
tion or leverage: due in large part to their and Delhi there are 250 thousand or more
isolation in their homes but also to exclu- street vendors (Bhowmik, 2014). Some
sionary urban policies or practices and street vendors come from castes or com-
to unequal or exploitative value chain munities for whom street vending is a he-
dynamics. To demand and secure their reditary occupation. Others are migrants
rights, home-based workers need in- or laid-off workers for whom street vend-
creased bargaining power, which comes ing affords low-end but steady employ-
with being organized and being invited to ment. Also, many home-based produc-
have a seat at the policymaking, rule-set- ers of garments, textiles, crafts or cooked
ting or negotiating table. Thus, for home- food sell their goods in street markets.
based workers, belonging to their own Street vendors offer working people, and
organizations and having supportive in- even middle class consumers, a conve-
termediaries are critically important. nient place to buy goods at low prices;
serve as key links in the wider urban dis-
There are many organizations of tribution system; and enrich the cultural
women home-based workers in India and life of cities.
a South Asia regional network of
home-based workers (Home Net South In India and elsewhere, there are
Asia) headquartered in India (see three basic categories of street vendors:
www.homenetsouthasia.net). The Self- those who buy goods, typically from
Employed Women’s Association (SEWA), wholesalers, and sell them at a margin
a trade union of some 2 million informal (e.g. those who sell fresh fruit and veg-
women workers, has organized home- etables); those who make, manufacture,
based workers in 11 states of India. It is or transform goods and sell them directly
the lead organization in the regional net- to consumers (e.g. cooked food ven-
work. SEWA has led the way in advocat- dors); and those who provide or perform
ing for social protection and pension cov- services from a street or other open pub-
erage to home-based workers; negotiat- lic space (e.g. barbers) (Roever, 2014).
ing welfare boards for different catego- Those who buy-and-sell “are challenged
ries of home-based workers; and negoti- to find good prices from suppliers; keep
ating higher piece rates for sub-contracted other costs, such as transport and stor-
home-based workers who manufacture age, to a minimum; and sell at volume to
incense sticks, bidis, and garments. generate profit” (Roever, 2014: 10).
Those who transform goods “must find
Street Vendors a place to make their goods, usually at
home or in the street, but sometimes at a
Street vendors offer a range of goods workshop or other unused space; then
and services from streets and other open they must find a place to sell them to
public spaces. They represent 4 per cent consumers. They must also find a place
of the urban workforce across India to store unsold goods, or to store the
(Chen & Raveendran, 2011, update equipment used to make the goods (such
2014). In large cities such as Mumbai as portable stoves or juice machines for
cooked food or prepared drink vendors).

The work of these vendors entails value Across most cities of India and
addition and is sometimes more depen- other countries, government poli-
dent on workplace infrastructure, such cies or practices undermine the
as electricity and running water, than buy- ability of street vendors to pursue
sell traders” (ibid: 10). Service provid- their livelihoods.
ers tend to “have fewer challenges when
it comes to transporting goods, although plaint: this “includes police harassment,
they may need machinery or tools to be demands for bribes, arbitrary confisca-
stored at or transported safely to their tions of merchandise, and physical abuse.
vending post. However, they are often These practices tend to take place in ur-
reliant, like manufacturers, on electricity ban policy environments that do not de-
and/or need either specialized training or fine a role for street trade or offer a vi-
substantial access to capital to purchase able space to accommodate it. In that
the necessary machinery, tools or inputs” context, street traders also rank the lack
(ibid: 11). of a fixed and secure workplace and
evictions from (or demolitions of) exist-
Within these basic categories, street ing workplaces among the most signifi-
vendors can be further differentiated by cant negative drivers” (ibid: 25). A study
a) whether they sell perishable or durable of street vendors and public space in
goods; b) whether they work on their Ahmedabad found that local leaders col-
own, with family workers, or with hired lect “protection” money each day, week
workers; c) whether they are indepen- or month from street vendors in their
dent, tied through credit-purchases to a market areas which they hand over to
wholesaler, or sell on commission for for- the police after taking their cuts: the
mal retailers; and d) whether they sell in amount paid differs by whether the street
central business districts or more periph- vendor sells from the pavement or from
eral areas, around wholesale markets, a push cart (Brown et al, 2012).
near transport nodes, religious institutions
or educational institutions, or near resi- Where cities attempt to regulate
dential areas. street vending, the licensing and permit-
ting practices and their associated taxes,
More so than home-based workers, fees, tolls and levies have a significant
street vendors are directly affected by impact on vendors. Most vendors “pay
the regulations and policies of city gov- all manner of tolls, levies, and fees – as
ernments and the practices of city offi- well as bribes – to use public space”
cials. Across most cities of India, and (Roever, 2014: 26). But most street
other countries, government policies or vendors lack urban infrastructure ser-
practices undermine the ability of street vices at their vending sites, including run-
vendors to pursue their livelihoods. ning water and toilets, electricity, and
Abuse of authority by the police and lo- waste removal. “Prepared food vendors
cal officials is the most common com- must cook at home or ferry water to their
stalls, street tailors and hairdressers stop for hospitals, parks, offices, residential
working when the power goes out, and colonies, and bus and rail terminals but
market vendors spend time and money excluded the vendors who naturally con-
organizing ad-hoc waste removal sys- gregate around these areas, providing
tems where city services fail” (Roever, essential goods and services at low costs.
2014: 26). The fact that most cities do Increasingly, cities around India, and else-
not consult with street vendors around where, are allocating public space for
such practices only compounds the prob- large-scale modern retail – malls and
lem. shopping arcades – while continuing to
neglect small-scale traditional retail.
The license regime for street
Because they congregate in public
vending is opaque and repressive.
spaces street vendors come to know their
common harsh treatment by local au-
When they operate without a license, thorities. Because they often are banned
street vendors in India are considered il- or evicted from their vending sites street
legal under most municipal acts: leaving vendors know the value of collective ac-
them subject to treatment as criminals tion. As a result, more so than other
under the Indian Penal Code and to rent- groups, street vendors have organized
seeking in the granting of licenses. But themselves into trade unions and asso-
the license regime for street vending is ciations. The National Alliance of Street
opaque and repressive. Many cities have Vendors of India (NASVI) based in
inappropriate license ceilings: for in- Delhi, is a federation of 715 street ven-
stance, in Mumbai, where there are an dor organizations, trade unions and sup-
estimated 250,000 street vendors, the port organizations (NGOs). SEWA has
municipal corporation arbitrarily fixed a large numbers of street vendors among
ceiling of only 14,000 licenses; and even its members across in many cities across
these were not issued for many years 11 states of India. SEWA and NASVI led
(Bhowmik, 2000). In Kolkata, street the long campaign for a national law of
vending without a license is a non-bail- street vending, passed in March 2014,
able offense (ibid.) and continue to advocate for the law to
be implemented.
Estimates suggest that street vendors
occupy only two percent of urban land Waste Pickers
but are legally barred from doing so. A
2000 study of street vending in seven cit- Roughly one per cent of the urban
ies of India found that only two cities, workforce in India is engaged in waste
Bhubaneswar and Imphal, made provi- collection and recycling (Chen &
sions for street vendors in their city plans Raveendran, 2011, updated 2014). Waste
(ibid). The other five cities, Ahmedabad, pickers are those who do the primary
Bangalore, Delhi, Kolkata, Mumbai and collecting and sorting of waste, reclaim-
Patna, earmarked spaces in their plans ing reusable and recyclable materials.
Waste pickers may collect household nomic hazards such as heavy lifting, static
waste door-to-door or from the curbside; posture and repetition, and may have high
commercial and industrial waste from incidences of low back and lower ex-
dumpsters; or litter from streets and ur- tremity pain (ibid.).
ban waterways. Some work on munici-
pal dumps. There are many organizations and a
national alliance of waste pickers in In-
Treated as nuisances by authorities dia. Many of these organizations are le-
and with disdain by the public, waste pick- gally incorporated and/or function as a
ers are usually ignored within public trade union or cooperative, collectively
policy processes and frequently suffer bargaining for access to waste and waste
low social status and self-esteem. They collection contracts. If they secure a
are particularly susceptible to violence by contract, these organizations then legally
the police. They may face exploitation incorporate a cooperative and/or func-
and intimidation by middlemen, which can tion as a cooperative, collectively provid-
affect their earnings. Most crucially, they ing a service. What is distinct about the
are negatively impacted by the organizations of waste pickers is that they
privatization of municipal solid waste have to both collectively bargain for ac-
management services which increases cess to waste and waste collection con-
competition for waste and makes the re- tracts and, if they receive a contract,
cycling activities of waste pickers ille- collectively provide a service. The or-
gal. ganizations have to perform, that is, the
functions of both a trade union and a co-
Handling waste poses many health operative.
risks to workers. These are even greater
for informal workers due to their unpro- SEWA has been organizing waste
tected exposure to contaminants and haz- pickers since the late 1970s, beginning
ardous materials on a day-to-day basis. in Ahmedabad city but now covering
Risks include contact with fecal matter, cities across several states: Bihar,
paper saturated by toxic materials, bottles Gujarat, Delhi, and more. SEWA has
and containers with chemical or health created nearly 90 waste pickers coop-
residues, contaminated needles, and eratives to help its members negotiate
heavy metals from batteries (Cointreau, collective work contracts and access to
2006). A lack of worker protection and credit, training, and markets. The
poor access to health care aggravate Kagad Kach Patra Kashtakari
these risks. Waste pickers face great Panchayat (KKPKP) Union in Pune has
risks of injury, especially those who work also created a waste picker cooperative
at open dumps and may be run over by which has secured a contract for col-
trucks or become the victims of surface lecting and sorting waste from the Pune
subsidence, slides and fires. They are also Municipality. Hasiru Dala, an organiza-
exposed to great quantities of toxic tion of waste pickers in Bangalore, has
fumes. Waste pickers also endure ergo- teamed up with the IT sector to create
a cloud-based technology whereby Legal Demands

households and firms that generate
waste can procure waste management The common legal rights that all three
services directly from waste pickers and sectors demand and have pursued include
their organizations. Safai Sena is an as- the right to identity and dignity as work-
sociation of waste pickers in Delhi sup- ers, the right to work, the right to orga-
ported by Chintan, an environmental re- nize and to have their organizations rep-
search and action group. The Alliance resented in relevant policy-making and
of Indian Waste Pickers (AIW), a na- rule-setting processes, and the right to
tional network of 35 organizations in 22 social protection coverage. There are on-
cities, facilitates peer support, learning going legal struggles - with some victo-
and advocacy among waste picker or- ries - to extend the right of identify as
ganizations and support NGOs. workers to include own account workers
and unpaid contributing family workers and
to expand the right to work to include the
Waste pickers collect, recover and
right to livelihood. Organizations of in-
recycle a sizeable share of the
formal workers are gaining increased of-
waste generated by cities and,
ficial recognition and, to a lesser extent,
thus, contribute to both cleaning
increased representation in official policy-
the cities and reducing carbon
making and rule-setting processes.
emissions.
In India, as elsewhere, there is
Individually and collectively, these greater reception to the demand for so-
organizations have made the case – and cial protection than to the other legal de-
generated credible evidence – that mands of informal workers (Sankaran &
waste pickers collect, recover and re- Madhav, 2013). In India, several states
cycle a sizeable share of the waste gen- have been willing to set up welfare funds
erated by cities and, thus, contribute to and to invite companies to contribute to
both cleaning the cities and reducing car- industry-specific welfare funds; to ex-
bon emissions. 1 But municipal govern- pand existing funds and schemes; to set
ments across India continue to issue up new health and pension schemes for
solid waste management contracts to informal workers. The national health
private companies who compete with insurance program, Rashtriya Swasthya
the waste pickers for waste and do not Bima Yojna, is being extended to cover
reclaim recyclables, thus contributing to informal workers, including construction
carbon emissions. workers, domestic workers and street
vendors. But the rules and procedures
of this program are not very favorable
1
A 2009 report by Chintan estimates that informal for these workers or easy to navigate.
recycling in Delhi reduced carbon dioxide (CO2)
emissions by 962,133 tons last year — roughly
equivalent to taking 175,000 vehicles off the road Indeed, “a complex range of sector-
(Chintan,2009). specific regulatory laws impact workers
in the informal economy, especially own- Municipal Regulations

account workers and the self-employed
more generally” (ibid: 5). For example, the
Overly strict separation of land
right to access public resources - whether
uses (such as single-use zones) can
waste, urban space, or urban services (ba-
negatively impact the livelihoods
sic infrastructure and transport) - is fun-
of urban informal workers.
damental to all sectors: key legal battles
pit the privatization of these public re-
sources against the demands for the right Zoning, land allocation, and relo-
to livelihoods of informal workers (ibid). cation policies: Overly strict separation
of land uses (such as single-use zones)
The laws and regulations that impinge can negatively impact the livelihoods of
on urban informal workers, especially the urban informal workers. It is important
self-employed, can be broadly catego- to promote a balanced mix of uses that
rized as follows: 2 fruitfully interact with each other. In re-
gard to home-based production and street
• municipal regulations that specify trade, “it is important to distinguish not
who can do what, where; determine only land uses but also the scale of the
access to - and use of - public re- uses – because, for example, a small tai-
sources; and balance conflicting lor workshop may enrich a residential
needs and uses neighborhood while a sewing factory may
cause undue nuisance” (Nohn, 2011:4).
• sector-specific regulations that
Distinguishing both land uses and the
govern specific sectors (e.g. manu-
scale of uses would allow policy makers
facturing, trade, waste)
to better address the needs of home-
• employment and commercial regu- based workers and street vendors. In the
lations that govern economic trans- case of home-based work and street
actions and relationships vending, “it may be advisable to let neigh-
bors decide whether or not such activi-
• macro-economic regulations and ties are desirable in the neighborhood”
policies that govern taxation, expen- (ibid). Most critically, evictions and relo-
diture and investment. cations of homes and other workplaces,
What follows is the specific legal especially to the periphery of cities at a
demands of the three groups of urban distance from markets, contractors and
informal self-employed under each of customers, pose a direct threat to the live-
these categories: lihoods of the urban self-employed.
2
This typology is an expanded version of a typology Access to - and use of - public re-
of regulations developed by Kamala Sankaran and sources and services:most self-em-
Roopa Madhav who directed the 4-country project ployed informal workers in urban areas
on Law and Informality of the WIEGO network
and its local partners in each country (Sankaran &
rely on access to public resources for
Madhav, 2013). their livelihoods: for example,
• public land and housing for home- livelihoods of a large number of waste
based workers pickers. Similarly, policy or regulatory
choices to protect public green spaces
• public space for street vendors might also support the livelihoods of
• waste for waste pickers street vendors by allowing them to vend
around these spaces as part of the cul-
• public space/warehouses for sorting tural landscape.Also, policy or regula-
and storage for street vendors and tory choices to protect the environment
waste pickers might support home-based production,
• basic infrastructure services at their which leaves less of a carbon footprint
homes for home-based workers and at than production in workshops and fac-
their natural markets for street vendors tories.
• public transport for all three groups Balance of conflicting needs and
The policies and regulations that de- users:Some legal and regulatory frame-
termine access to public resources and works seek to balance competing inter-
services are often biased against the ests of different groups - citizens, infor-
working poor in the urban informal mal workers, other economic actors.
economy, who are not considered to be Here are two key examples that affect
productive and are not, therefore, in- street vendors:
cluded in most urban plans or local eco-
nomic development plans. Most criti- • use of public space, such as sidewalks
cally, privatization of public resources - street vendors
and services often poses a direct threat • public health regulations - street food
to the livelihoods of the urban self-em- vendors
ployed.
Citizens have the right to use side-
walks and to be assured that street food
Privatization of public resources is safe. In such cases when competing
and services often poses a direct interests are legitimate, the legal demands
threat to the livelihoods of the ur- of street vendors need to be carefully
ban self-employed. chosen and negotiated.
On the other hand, policies, legisla- Sector-Specific Regulations

tion and regulations that seek to protect
the sustainable use of public resources
and the environment may contribute to Informal workers and their activities
protecting livelihoods of the urban infor- are affected by laws, regulations and
mal self-employed. For instance, policy policies that govern specific sectors of
or regulatory choices to protect the en- the economy: some of these fall under
vironment through composting and re- the jurisdiction of municipal govern-
covery of recyclables can protect the ments, others under state or provincial
governments, and still others under the government policies and practices, unfair
national government. Regulations that practices by suppliers, buyers and com-
govern specific manufacturing industries petitors were identified as key negative
should in principle cover home-based drivers in the urban informal economy
workers in those sectors: for example, (Chen, 2014; Roever, 2014). There are
home-based workers who produce few regulatory frameworks that address
hand-rolled cigarettes (bidis) should be value chain dynamics and relationships
entitled to certain protections and ben- and those that exist typically address the
efits mandated in two laws from the concerns of sub-contracted, not self-
1960s governing the bidi industry. Also, employed, informal workers. Yet the in-
welfare funds set up for workers in spe- formal self-employed are also often de-
cific manufacturing industries should pendent on other actors in the value chain
cover home-based producers in those and this dependence renders them vul-
industries. But in both cases, home- nerable to exploitation. Home-based
based producers need to be organized workers often rely on specific suppliers
and have supportive intermediaries to or buyers as they lack market knowl-
leverage these protections and benefits. edge; street vendors often rely on spe-
cific wholesalers who sell them goods on
Street vendors are impacted by the credit; and waste pickers often sell to
regulations governing the location, man- specific waste traders as they too lack
agement and fee structure of wholesale market knowledge: in all such cases, the
markets. Marketing costs at the whole- informal self-employed are not able to
sale markets include market fees, com- negotiate reasonable prices for what they
mission fees, loading and unloading buy or sell or protect themselves when
charges. How much is incurred by sell- the goods they buy or supplies they are
ers to or buyers from these markets is given turn out to be of poor quality.
determined by local multi-stakeholder
committees that manage wholesale mar- Macro-Economic Regulations
kets and often differ for sellers/buyers
of different goods such as fruits versus In addition to hostile government poli-
vegetables. And, as noted earlier, waste cies or practices and unfair value chain
pickers are directly impacted by whether dynamics, fluctuating demand and rising
or not municipal governments decide to prices are key macro factors that impact
privatize solid waste management or re- negatively on the urban informal economy
tain public responsibility for social waste (Chen, 2014; Roever, 2014). Therefore,
management. ensuring steady markets and reasonable
prices for their inputs and products is of
Employment & Commercial critical importance to the informal self-
Regulations employed. Whether or not prices should
be set by governments or markets is hotly
In the 10-city study of the urban in- debated. Other accepted domains of
formal economy, in addition to hostile macro-economic regulations and policies
ganized by SEWA and NASVI in collabo-

Fluctuating demand and rising ration with the Ministry of Urban Devel-
prices are key macro factors that opment. At this meeting, the government
impact negatively on the urban in- promised to set up a taskforce to draft a
formal economy. national policy on street vending. This
policy was approved by the cabinet of
- taxation, expenditure and investment - India in 2004. The same year, the gov-
are not particularly sensitive to the spe- ernment set up a National Commission on
cific needs of the informal self-employed Enterprises in the Unorganized Sector
(Sankaran & Madhav, 2013). The whole (NCEUS), which was mandated, among
issue of taxation and the informal other tasks, to review the national policy
economy needs to be better understood on street vendors. A new policy was ap-
and addressed: most informal workers proved in 2009.
pay taxes and operating fees of various
kinds but feel they get little in return from While SEWA and NASVI had advo-
the government (Chen, 2014; Roever, cated for the national policy, they felt that
2014). The informal self-employed who a national policy was not enough: that
pay value added tax (VAT) on supplies street vendors also needed legal rights.
cannot easily claim tax rebates to which They argued that street vending was not
they might be entitled if their enterprises just an issue of urban policy but rather
were legally incorporated (Valodia, an issue of the legal right to livelihood
2014). Further, one important means to (Bhowmik, 2014). They began organiz-
increase and stabilize demand for the ing meetings and demonstrations of street
goods and services of the informal self- vendors in all their constituencies across
employed is government procurement, India to demand a uniform law to protect
notably: contracts to supply goods and the livelihoods of street vendors by regu-
services to public institutions such as lating street vending in an appropriate and
schools or hospitals; and also contracts transparent way.
to provide waste management services.
The Street Vendors (Protection of
Legal Reform in Action Livelihoods and Regulation of Vending)
Act was passed by the Lok Sabha (Lower
What does it take to bring about legal House of the Parliament of India) in Sep-
reforms in support of informal workers? tember 2013 and by the Rajya Sabha (Up-
Consider the case of legal reforms for per House) in February 2014, and received
street vendors. In the late 1990s, SEWA the assent of the President of India in
and the National Alliance of Street Ven- March 2014. The Act aims to provide live-
dors of India (NASVI) conducted studies lihood rights and social protection to street
on street vending in seven major cities of vendors and to regulate and improve the
India (Bhowmik, 2000). The findings of prevailing license system. “The Act states
this study were presented at a large meet- that no existing street vendor can be dis-
ing of street vendors in Delhi in 2001, or- placed until the local authorities conduct
a census of street vendors in the concerned What is required is focused and sustained
urban centre. All existing vendors have attention to determine which policies, laws
to be provided with permits for conduct- and regulations impinge - directly or indi-
ing their business and a Town Vending rectly, negatively or positively - on work-
Committee (TVC) will supervise the ac- ers in each sector of the informal economy.
tivities of the vendors. This commit- This will require on-going efforts to en-
tee, which will be the main policy making sure that informal workers in all sectors
body on street vending, comprises munici- are visible in labor force and other eco-
pal authorities, policy, the health depart- nomic statistics, that in-depth case stud-
ment and other stakeholders. Represen- ies of specific groups of informal work-
tatives of street vendors will constitute ers are prepared, and that organizations
40% of its membership and women will of informal workers have a voice in rel-
comprise 33% of the street vendors’ rep- evant policy-making and rule-setting pro-
resentatives” (Bhowmik, 2014:1). cesses. It will also require that informal
workers and their activities are recognized
The Act came into force on May 1, and valued as the broad base of the
2014. NASVI, SEWA and street ven- workforce and economy in India and are
dors around the country welcomed this incorporated into economic planning at all
levels of government.
Act as a major victory as it mandates that
street vendors should be protected, not
Legal reforms for the informal
just regulated, and specifies clear proce-
workforce in general, and the self-em-
dures for regulation and registration, in-
ployed in particular, will also require
cluding the local vending committees
transforming existing legal and regulatory
with street vendor representatives.
frameworks.Here are some common is-
sues or themes for future legal reforms
Legal Reforms for the Self that have emerged from the legal
Employed struggles summarized in this article:
Legal reforms in support of the infor- Legal Recognition
mal workforce in general, and the self-
employed in particular, will require trans- Underpinning the many legal demands
forming the debates and mindsets about raised by different groups of informal work-
the informal economy. So long as the in- ers is a primary demand for legal recogni-
formal economy is viewed as illegal or tion and status (Sankaran & Madhav,
even criminal and informal workers are 2013). This demand for legal recognition
blamed for being illegal or criminal, they has several inter-related dimensions. First,
will continue to remain under the punitive, informal workers want to be recognized as
rather than the protective, arm of the law. being legal, not illegal. Through their legal
And yet most of the working poor in India struggles, they try to highlight that the ex-
are engaged in the informal economy isting regulatory frameworks force them
where they are trying to earn an honest to operate illegally: if their residential area
living in a hostile regulatory environment.
is zoned for single-use (home-based work- access to resources, especially to public

ers), if not enough licenses are issued resources and services. As noted
(street vendors), or if waste is privatized throughout this paper access to key pub-
(waste pickers), these informal workers lic resources are essential to the liveli-
and their activities are considered illegal. hoods of the three groups: for home-
Second, informal workers want to be rec- based workers, housing in central loca-
ognized as economic agents who contrib- tions; for street vendors, vending sites in
ute to the economy, to the city, to society good locations, ideally in existing natural
and want to be integrated into local eco- markets around transport nodes, institu-
nomic development and city plans. Third, tions, and residential areas; for waste
they want legal recognition of their organi- pickers, access to waste and also to solid
zations and the related right of representa- waste management contracts; for home-
tion. Fourth, most informal workers, with based workers and street vendors, basic
the exception of employers who hire oth- infrastructure services at their work-
ers, want to be recognized as workers3 and, place; for street vendors and waste pick-
more specifically, to have their organiza- ers, space to sort and store goods. And
tions recognized by the Workers Group in for all three groups, accessible and af-
the tripartite system of the International La- fordable public transport is essential.
bor Organization. Evictions from established places of work
as well as privatization of public re-
sources and services are major threats
Informal workers want to be rec-
to their livelihoods. For urban informal
ognized as economic agents who
workers, most of these access rights are
contribute to the city, to society and
governed by municipal regulations: a mix
want to be integrated into local eco-
of the regulations governing the resources
nomic development and city plans.
themselves, including balancing compet-
ing users and interests, as well as regu-
Access Rights lations governing who can do what, and
where.
The livelihoods of informal workers,
especially the self-employed, depend on Municipal Regulations
3
The right of own account workers to be recognized Urban informal workers demand
as workers, belonging to the Working Group of the more inclusive municipal laws, policies
International Labor Organization, was endorsed in
Clause 4 of the ILO Resolution on Decent Work & and plans that take into account their
the Informal Economy, 2002 which reads:“Workers contribution to the city economy and in-
in the informal economy include both wage workers tegrate their needs. In addition to inte-
and own-account workers. Most own-account gration into city plans and local economic
workers are as insecure and vulnerable as wage development, each group of urban infor-
workers and move from one situation to the other.
Because they lack protection, rights and mal worker needs municipal governments
representation, these workers often remain trapped to guarantee certain specific rights:
in poverty” (ILO, 2002). home-based workers need housing rights
and mixed-use zoning of the areas where is premised on formal establishments of

they live and work; street vendors need a certain size. Therefore, in their legal
licenses (or permits) and secure vending struggles, many organizations of informal
sites, ideally in the natural markets where workers turn to the state to be the arbi-
they have always vended; and waste ter and regulator of working conditions
pickers need access to waste and the and relationships. But governments and
right to bid for solid waste management the organizations of informal workers
contracts. Underlying all of these sec- have struggled to formulate an effective
tor-specific demands is a common response to this demand (Sankaran &
struggle against the tendency of munici- Madhav, 2013). More can, and should,
pal governments to privilege formal com- be done to modify and extend employ-
mercial enterprises over informal comment and commercial regulations to
mercial enterprises and the leisure and match and cover the various types of in-
consumption of the rich over the work formal workers.
and production of the poor. What is
needed is a fundamental transformation Finally, legal reforms for the infor-
of the vision of cities to embrace eco- mal workforce in general, and the self-
nomic diversity - the informal and tradi- employed in particular, will require fun-
tional alongside the formal and modern - damental rethinking regarding regulations
and a fundamental transformation of the and the informal economy. To begin with,
political economy of cities to reduce the there is a common assumption that the
disadvantage of the working poor in the informal economy - and those who work
urban informal economy. in it - are outside the reach of the state
or its laws.But, as the evidence presented
Employment & Commercial Rights in the article has illustrated, the informal
workforce and their activities are not out-
A key, but challenging, area of legal side the reach of the state or its laws.
demands by informal workers is for Rather, often they are inside the punitive
rights pertaining to their working condi- arm of the law but outside the protective
tions as well as their economic relation- arm of the law.
ships and transactions. Many informal
workers do not operate within the bounds
The informal workforce and their
of traditional labor jurisprudence, which
activities are not outside the reach
is premised on establishing an “employer-
of the state or its laws.
employee relationship”, notably the self-
employed but also sub-contracted work-
ers and even some informal wage work- Secondly, labor and employment laws
ers (such as domestic workers). have limited salience for the informal
self-employed. In urban India in 2011-
But the informal self-employed also 12, only 3 per cent of men informal work-
do not operate within the bounds of tra- ers and half a per cent of women infor-
ditional commercial jurisprudence which mal workers hired others. The vast ma-
jority of the informal self-employed are Brown, Alison, Michal Lyons, & Darshini
own account workers or unpaid contrib- Mahadevia (2012), “Claiming Urban Space:
Street Vendors in Ahmedabad” Law, Rights
uting family workers (Chen & and Regulations in the Informal Economy
Raveendran, 2011, updated 2014). ESRC-DFIC Research Project. Cardiff
University, London South Bank University,
Thirdly, a wide range of policies, laws and Centre for Urban Equity, CEPT Uni-
and regulations have salience for the in- versity.
formal self-employed: from municipal to Chandrasekhar, C.P. & Jayati Ghosh. (2007),
sector-specific to commercial regulations “Recent Employment Trends in India and
to macro-economic. What is required to China: An Unfortunate Convergence?” Pa-
per presented at ICSSR-IHD-CASS semi-
reduce the legal risks and barriers faced nar on “Labor Markets in India and China:
by the working poor in the informal Experiences and Emerging Perspectives,”
economy - and thereby to increase their 28-30 March 2007, New Delhi.
earnings and productivity - is to assess
Chen, Martha Alter (2014), “Informal Economy
and monitor the impact of all laws, regu- Monitoring Study Sector Report: Home-
lations and policies on their livelihoods Based Workers.” Cambridge, MA, USA:
and lives. At present, most laws, regula- WIEGO.
tions and policies relating to the function- Chen, Martha A. & G. Raveendran (2011 updated
ing of cities and the economy ignore the in 2014), Urban Employment in India: Re-
productive roles and contributions of the cent Trends and Patterns. WIEGO Work-
working poor, relegating them to the doing Paper (Statistics) No. 7. Cambridge,
main of social policies.What the working MA, USA: WIEGO.
poor in the informal economy want and Chintan (2009), Cooling Agents: An Examination
need is legal recognition and legal pro- of the role of the Informal RecyclingSector
tection as economic actors as well as in- in Mitigating Climate Change, New Delhi,
India: Chintan.
tegration into economic planning at all
levels. Cointreau, Sandra (2006), Occupational and En-
vironmental Health Issues of Solid Waste
Management – Special Emphasis on
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Statistical Brief No. 9. Cambridge, MA, gal and Policy Tools to Meet Informal
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By Contribution
Turnover Intentions among Indian Software

Professionals
Gloryson R B Chalil & L Prasad

Introduction
The paper explores the influence of
Maslach’s three burnout dimensions During the past 20 years, In-
(Depersonalization, Personal Accom- formation Systems function has
plishment and Emotional Exhaustion) on experienced a rapid growth in al-
various Job Attitudes in combination most every organization resulting
with Work Environmental factors, rep- in the development of more com-
resented by Organizational Politics and plex and specialized jobs for soft-
Distributive Justice. Job Satisfaction is ware professionals (Hurang,
conceptualized as Intrinsic and Extrin- 2001). Employment relationship
sic components to identify the relative has also undergone a dramatic
importance in the development of Turn- shift wherein employees prefer to
over Intention. Results indicate the rela- move across various organizations
tive importance of Intrinsic Satisfaction; during the course of their work-
there was no empirical support for hy- ing life without any commitment.
potheses involving Extrinsic Satisfac- For most of the software firms,
tion. Results also indicate that process retention of the organizational
model of burnout is not applicable knowledge is closely linked with
among software professionals. Organi- the ability to retain the employees.
zational Politics became a central vari- Approximately two thirds of the
able through multiple significant rela- IT managers who participated in
tionships with other study variables. Longenecker & Scazzero (2003)
The paper discusses the theoretical and study reported serious consider-
managerial implications of these results ation about leaving the current
and identifies various themes for future organization. Turnover of Infor-
research. mation System professionals has
shown relationship with failed sys-
tem projects and inadequate de-
ployment of organization’s re-
Gloryson R B Chalil is Professor at XLRI, Xavier School of sources (Igbaria & Guinmaraes,
Management, Jamshedpur 831001. E-mail:gloryson@xlri.ac.in.
L Prasad is Professor at IIM Bangalore 560076 1999). As one of the largest avoid-
able expenses, preventing employee turn- fied just three empirical studies with
over becomes an area of prime concern complementary results. Software profes-
for most of the software firms. sionals are reported to suffer from either
similar or higher stress than many of their
Organizational issues cause more colleagues (Hurang, 2001). Analysis of
turnover than technological issues among typical software professionals has pro-
managers in software firms vided evidence of work overload, role
(Longenecker & Scazzero, 2003). It ambiguity, and role conflict.
means majority of the factors driving
software professionals’ retention are con- The three-dimensional conce-
trollable for most organizations. This study ptualization used by Maslach and her
is an attempt in that direction and makes colleagues and its various modifications
three important contributions to the re- (Maslach, Schaufeli & Leiter, 2001) is still
lated literature. An inverse relationship the most popular inventory to measure
between Turnover Intention and Job Sat- Burnout. Emotional Exhaustion is char-
isfaction has been established in the lit- acterized by the lack of energy and a
erature. As the first contribution, this feeling that one’s emotional resources are
paper treats Job Satisfaction as two com- used up. It will usually coexist with feel-
ponents, Intrinsic and Extrinsic Satisfac- ings of frustration and tension. Deper-
tion to identify the relative importance of sonalization is characterized by the ten-
both in the development of Turnover In- dency of employees to treat people as
tention. Second, we consider the influ- objects. They start to display a detached
ence of three Burnout dimensions on and emotional callousness, and become
various Job Attitudes in combination with more cynical towards coworkers and cli-
Work Environmental factors, represented ents. Diminished Personal Accomplish-
by Organizational Politics and Distribu- ment refers to the tendency to evaluate
tive Justice. Third, Distributive Justice has oneself negatively. Empirical evidence
got comparatively less attention within suggests that Burnout is a process that
justice literature in comparison with other gradually develops over time resulting in
facets of justice. This study contributes various process models (Lieter &
more towards the literature on this un- Maslach, 1988).
derstudied facet of Justice.
We also propose relationship among
Burnout among Software the three dimensions, leading to the de-
Professionals velopment of Burnout among software
professionals. Depersonalization is con-
Burnout among software profession- sidered a dysfunctional coping and those
als has been examined only to a limited software professionals who are not able
extent in literature. Salanova, Peiro & to balance the work stressors will exhibit
Schaufeli (2002) in their review on the a tendency to distance themselves from
relationship between the use of informa- job. Decreasing involvement with work
tion technology and Burnout have identi- may result in reduced accomplishments
Turnover Intentions
and inability to achieve success, as in past, low a tendency to assign critical projects
may lead to increasing Emotional Exhaus- to highly regarded employees, and these
tion. A process model with Depersonal- high performers find themselves trapped
ization as the starting point and Emotional in an exhaustive situation which will ulti-
Exhaustion as the final stage will help us mately result in a higher propensity to
consider Emotional Exhaustion as the leave the job (Moore, 2000). Employees
connecting link between Burnout and who get trapped in an exhaustive situa-
various Job Attitudes such as Job Satis- tion may not be able to derive satisfac-
faction, Organizational Commitment and tion in those motivators which had been
Turnover Intention as in existing litera- intrinsically rewarding before. Hence,
ture (Brown & Benson, 2003; Moore,
2000). Hence
Employees who get trapped in an
exhaustive situation may not be
H1a: Burnout development among soft-
able to derive satisfaction in those
ware professionals follows a se-
motivators which had been intrin-
quence wherein Depersonalization
sically rewarding before.
leads to reduced Personal Accom-
plishment and reduced Personal Ac-
complishment leads to Emotional H2a) Greater the Emotional Exhaustion
Exhaustion. among software professionals,lower
their intrinsic Job Satisfaction.
Job Attitudes
While conducting research on profes-
Various review papers and meta- sionals involved in open-source projects,
analysis have identified Job Satisfaction Hars &Ou (2002) identified certain ex-
and Organizational Commitment as inter- trinsic rewards important to software
vening variables in turnover process professionals. Mainstream literature on
(Hom& Griffith, 1995; Tett& Mayer, Burnout and Job Satisfaction has treated
1993). Job satisfaction is generally rec- both Extrinsic and Intrinsic Satisfaction
ognized as a multifaceted construct with as a combined variable with a negative
intrinsic and extrinsic job elements and relationship. Another objective is to com-
research on software professionals em- pare the relative strength of the relation-
phasized the need to treat them sepa- ship of Emotional Exhaustion with both
rately (Hars&Ou, 2002). Extrinsic and Intrinsic Satisfaction. Em-
ployees suffering from Burnout may not
Highly motivated individuals, who are be able to appreciate extrinsic factors
strongly committed to their work, are such as pay, quality of supervision and
more prone to suffer from Burnout. administration of fringe benefits. Hence,
Working in a stressful environment will
result in development of Burnout among H2b) Greater the Emotional Exhaustion
software professionals with high intrin- among software professionals lower
sic work motivation. Managers may fol- their extrinsic Job Satisfaction.
Studies that have analyzed the rela- components. Affective Commitment re-
tionship with Job Satisfaction, Organiza- fers to (a) strong belief and acceptance
tional Commitment and Turnover have of the goals and values of the organiza-
come up with conflicting results. While tion (b) readiness of employees to exert
some researchers predict a direct nega- considerable effort on behalf of the or-
tive relationship between Job Satisfac- ganization and (c) represents a strong
tion and Turnover (Tett& Meyer, 1993) desire to remain as a member of the or-
majority of studies conducted across a ganization. Committed employees may
wide range of employees suggest a me- have a desire to remain within the com-
diator role played by Organizational Com- pany because they identify the success
mitment (Griffeth, Hom&Gaertner, 2000; and future of the organization with them-
Price & Mueller, 1986). Degree of Job selves and therefore exhibit a reduced
satisfaction is associated with specific Turnover Intention. Hence,
and tangible facets of job and requires
relatively lesser time to develop than H4) Greater the Organizational Commit-
Organizational Commitment. Commit- ment lower the Turnover Intention.
ment with an organization develops over
Work Environment
a period of time and more stable in na-
ture. Satisfaction/dissatisfaction with
Previous research has shown the in-
extrinsic and intrinsic aspects of the job
fluence of Work Environment factors on
influences the development of organiza-
Job Satisfaction and Turnover Intention
tional commitment over a period of time.
(Griffeth et al, 2000). This study focuses
Hence,
on Work Environment factors such as
Organizational Politics and Distributive
H3a) Greater the Intrinsic Job
Justice to study its interaction with Burn-
Satisfaction,greater the Organiza-
out dimensions in the development of Job
tional Commitment.
Attitudes.
H3b) Greater the Extrinsic Job Satisfac-
tion, greater the Organizational Com- Understanding Organizational Justice
mitment. as a Work Environment is important for
organizations because of its relationship
Organizational Commitment is a with Job Attitudes such as Job Satisfac-
strong predictor of Turnover. tion and Organizational Commitment and
subsequently to their propensity to search
for another job (DeConinck & Stilwell,
Organizational Commitment is a
2004). It has four distinct justice dimen-
strong predictor of Turnover (Griffeth et
sions such as distributive, procedural, in-
al, 2000;Tett & Meyer, 1993). Mayer &
terpersonal and informational justice.
Allen (1991) have come up with three-
Several studies have showed Distributive
component conceptualization of Organi-
Justice as a better predictor of Job Sat-
zational Commitment involving affective,
isfaction than procedural in line with Dis-
continuance and normative commitment
Turnover Intentions
tributive Dominance Model suggested by Organizational Politics refers to the

Levanthal (1980). Distributive Justice has set of behaviors designed to maximize
its roots in Equity Theory. Employees the self-interest, either in short term or
determine whether an outcome was fair long term and has a dysfunctional con-
by calculating the ratio of one’s contri- notation in this study. Work Environment
butions such as experience and efforts with a dominant political atmosphere
to outcome such as pay and promotion could result in development of negative
and then comparing this ratio with that attitude among employees such as di-
of others. Any perceived inequity in this minished Job Satisfaction (Witt,
comparison process may result in dissat- Andrews & Kacmar, 2000), Organiza-
isfaction. Some of the previous studies tional Commitment (Cropanzano,
(DeConinck & Stilwell, 2004) have stud- Howes, Grandey &Toth, 1997) and
ied the relationship of Distributive Jus- greater Turnover Intentions
tice with extrinsic factors such as pay (Cropanzano et al., 1997). In this con-
but not on intrinsic factors. In line with text individual’s perception about the
Equity Theory we hypothesize a positive politics attains more significance rather
relation with both extrinsic and intrinsic than the objective reality that exists in
factors. Hence, an organization. While individual em-
ployees perceive themselves as a vic-
H5a) Greater the Distributive Justice tim of Organizational Politics, they get
greater the Intrinsic Satisfaction. dissatisfied with both the extrinsic and
the intrinsic rewards allotted to them, and
H5b) Greater the Distributive Justice
exhibit a drop in Organizational Com-
greater the Extrinsic Satisfaction.
mitment. Other set of employees, who
Despite the sound theoretical consider politics as undesirable may
grounding, very few studies have tested choose to withdraw from the organiza-
the linkage between Burnout and Justice tion as a means to avoid political activi-
(Brown & Benson, 2003). Most of the ties. Hence,
employees consider themselves as good
performers and expect equitable and fair H6a) Greater the Perceived Organiza-
returns for the same. Lack of Distribu- tional Politics lower the Intrinsic Sat-
tive Justice may prohibit the fulfillment isfaction, Extrinsic Satisfaction and
of this expectation, and the employee Organizational Commitment, and
who believes in the inability of the sys- greater the Turnover Intentions.
tem to reward him fairly may feel emo-
A Work Environment characterized
tionally depleted. Repeated occurrence
by high-perceived Organizational Politics
of such incidents resulting in emotional
will not ensure fairness among every
depletion will finally lead to Emotional
employee of the firm. Unfairness in dis-
Exhaustion. Hence,
tributing outcome can occur in two ways
(Brown & Benson, 2003) in a politically
H5c) Greater the Distributive Justice
dysfunctional Work Environment (a) al-
lower the Emotional Exhaustion
location of high rewards to favorites (b) H6b) Greater the Perceived Organizational
setting up of unrealistic targets for the Politics lower the Distributive Justice.
employees who are not considered as
All hypothesized relations with direc-
favorites of power centers. Hence,
tions are given in Fig. 1
Fig. 1 Hypothesized Model & Variables Included in the Study
Methodology 29.8 years with a standard deviation

of 4 within the range between 23 and
The participants were software 46 years. Eighty percent of the re-
professionals working in a medium spondents were males representing the
sized firm in Bangalore, India. In or- typical gender ratio existing in most of
der to ensure the familiarity with or- the IT firms. 63 percent of the par-
ganizational fairness and established ticipants were married while 30 per-
practices we limited our sample to cent of the entire sample has one or
those employees who have a minimum more kids. Average work experience
experience of two years in the current of the participants was 6.7 years with
firm. Through HR department of the a standard deviation of 3.8 years. To
organization, we contacted the em- ensure the confidentiality, researcher
ployees and 100 of them volunteered visited the organization and collected
to participate in the study and filled the filled questionnaires directly from
the questionnaire. The mean age was respondents.
Turnover Intentions
Measures used, with a scale reliability of 0.78. A

sample item was ‘There are cliques and
To measure Burnout, twenty-two- in-groups which hinder effectiveness
item Maslach Burnout Inventory (Maslach here’. Distributive Justice was measured
& Jackson, 1981) was used generating by a six-item scale developed by Price
separate scores for the three sub & Muller (1986) with a scale reliability
dimensions,viz., Emotional Exhaustion, of a= 0.88. Items reflect the way in
Depersonalization and Reduced Personal which management considers the effort,
Accomplishment. Emotional Exhaustion results produced, roles and responsibili-
was measured with nine items (a = 0.82) ties in deciding rewards. Allen and Mayer
like ‘I feel emotionally drained during my (1990) devised a measure for Affective
work’; Depersonalization measured with Commitment with six items. One sample
five items (a = 0.64) like ‘I feel I treat item is ‘this organization has a great deal
people in an impersonal manner’; and, of personal meaning to me’. This study
Reduced Personal Accomplishment mea- reported a reliability of a= 0.73, for this
sured by eight reverse coded items (a= measure. A six point Likert scale was
0.75) like item ‘I have accomplished many used to measure Burnout dimensions, Job
worthwhile things in this job’. Satisfaction measures, Organizational
Politics, Distributive Justice and Affec-
Spector (1997) developed a 36 job tive Commitment.
item measure for Job Satisfaction with
nine sub dimensions such as pay, promo- Turnover Intention measured using a
tion, supervision, fringe benefits, contin- single reverse coded item reads as
gent rewards, operating conditions, co- ‘length of time you planned to stay in the
workers, nature of work and communi- company’. Options given were ranged
cation. Two sub dimensions that failed from less than one year to more than five
to report acceptable reliability were re- years as five possible answers. Other
moved from further analysis. Seven of studies have either supported or used a
the remaining sub dimensions were clas- similar kind of measure for similar con-
sified into Extrinsic and Intrinsic Satis- structs (Wanous, Reichers &Hudy,
faction. Thus Extrinsic Satisfaction is 1997).
measured by adding all items under the
sub dimensions of Pay, Supervision, Analysis
Fringe Benefits and Communication (ex-
cept one item), while Intrinsic Satisfac- Path Analysis using Structural
tion had Promotion, Contingent Reward Equation Modeling (SEM) was em-
and Nature of Work as sub dimensions. ployed to test the model presented in
Reliability scores for both were 0.87 and Fig. 1, since it provides a simultaneous
0.79 respectively. test for various study hypotheses.
Model parameters were estimated
Ferris &Kacmer’s (1992) five-item through the maximum likelihood method
measure for Organizational Politics was using LISREL 8.5. Several commonly
-0.27** -0.38**
(0.73)
8
used fit indices were used to assess the
overall model fit (Jöreskog & Sörbom,
1993): the Chi-square statistic; the
(0.79)
0.60**
7
Adjusted Goodness-of-Fit Index
(AGFI); the Normed Fit Index (NFI),
and the Comparative Fit Index (CFI)
and the Root Mean Square Error of
(0.87)
0.75**
0.45**
6
-0.22*
Approximation (RMSEA). Insignificant
Chi-square value is desirable for SEM,
since it suggests sufficient closeness
** Correlation is significant at the 0.01 level (2-tailed)

(0.75)
5
0.13
0.11
0.07
-0.17
between the model developed from
samples covariance matrix and the true
population covariance matrix. Signifi-
(0.64)
-0.06
-0.01
4
-0.12
-0.23*
-0.16
cance of the specific relationships was
estimated by t-values.
Results
-0.32**
(0.82)
0.57**
3
-0.21*
-0.18
0.09
-0.18
Table 1 Means, Standard Deviations and Intercorrelations of Study Variables
Descriptive statistics and correla-

tions are presented in Table 1.
(0.88)
0.43**
-0.25*
0.72**
0.61**
-0.16
2
-0.09
0.10
Chronbach’s a reliabilities are in paren-
thesis along the diagonal.
Initial analysis of the hypothesized

-0.57**
(0.78)
-0.62**
-.51**
-0.47**
0.14
1
0.07
0.16
-0.15
model has produced fit indices below the

acceptable levels. Hypothesized model
indicated a significant (p < 0.001) Chi- * Correlation is significant at the 0.05 level (2-tailed)
square value of 51.72 with 21 degrees of
SD
1.22
0.9
0.76
0.99
1.05
0.79
0.81
1.06
0.87
freedom. Since all other fit indices (AGFI

= 0.78, NFI = 0.74, CFI = 0.80) are be-
Reliabilities (alpha) are on the diagonal
low the suggested limit of 0.90, we ex-

amined the Modification Indices for theo-
2.31
Mean
3.66
3.51
4.42
3.62
2.01
3.93
2.13
2.72
retically feasible improvement. Two ad-

ditional paths were added to the model
in two steps based on suggested Modifi-
cation Indices. We added a path from
Affective Commitment
Organizational politics
Emotional Exhaustion
Extrinsic Satisfaction
Intrinsic Satisfaction
Depersonalization to Emotional Exhaus-

Distributive Justice
Turnover Intention
Depersonalization
Reduced Personal
Accomplishment
tion (MI = 29.79) first and then another

one from Reduced Personal Accomplish-
ment to Affective Commitment. Final
Variables
model indicated a non-significant (p >

0.001) Chi-square value of 11.92 with 18
Turnover Intentions
degrees of freedom with acceptable fit result of incorporating paths based on two
indices (AGFI = 0.93, NFI = 0.94, CFI = Modification Indices are presented in
1.00). Improvements in fit indices as a Table 2.
Table 2 Fit Indices for Various Nested Models
Nested Chi square Df p value RMSEA AGFI NFI CFI Largest MI

Models
I 49.53 20 < 0.001 0.12 0.77 0.75 0.80 29.79
IA 20.19 19 >0.1 0.03 0.90 0.90 0.98 8.58
IB 11.92 18 >0.1 0.00 0.93 0.95 1.00 3.09
Among Burnout dimensions the path hibited a very strong significant path
estimate from Depersonalization to Re- (standardized path coefficient = -0.43, t
duced Personal Accomplishment (t value value = -3.76) in expected direction sup-
= -1.15) and Reduced Personal Accom- porting Hypothesis 5.
plishment to Emotional Exhaustion (t
value = -1.26) turned out to be insignifi- The two hypotheses dealing with the
cant, while the path estimate from Dep- relationship between Work Environment
ersonalization to Emotional Exhaustion, factors and two forms of Job Satisfac-
as suggested by Modification Index re- tion got partial support. The path from
mained significant (Standardized path Distributive Justice to Intrinsic Satisfac-
coefficient = 0.53, t value = 6.60). Thus tion (standardized path coefficient = 0.27,
results do not support Hypothesis 1 sug- t value = 4.94) got very strong empirical
gesting a process model on Burnout de- support while the path to Extrinsic Satis-
velopment. faction became insignificant (t value =
0.32). There was a very strongly signifi-
Hypothesis 2 received partial support cant path from Organizational Politics to
wherein the path coefficient from Emo- Intrinsic Satisfaction (standardized path
tional Exhaustion to Extrinsic Satisfac- coefficient = -0.26, t value = -4.05), and
tion has not got empirical support (t value an insignificant path (t value = -1.18)
= 0.80), while the path coefficient to In- between Organizational Politics and Ex-
trinsic Satisfaction got strong support trinsic Satisfaction. Results also exhib-
(standardized path coefficient = -0.22, t ited moderately strong path to Organiza-
value = -2.86). In a similar manner the tional Commitment (standardized path
path towards Organizational Commit- coefficient = -0.21, t value = -2.42), in-
ment from Intrinsic Satisfaction (stan- significant path to turnover (t value = -
dardized path coefficient = 0.60, t value 0.49) and finally very strong path to Dis-
= 5.25) got empirical support, while the tributive Justice (standardized path co-
path from Extrinsic Satisfaction became efficient = -0.59, t value = -5.16) sup-
insignificant (t value = 0.45). Thus reporting hypothesis 6(b). Final model with
sults produce partial support for Hypoth- significant path coefficients is given in
esis 4. Organizational Commitment ex- Fig. 2.
Discussion relative importance in a turnover model,

serves as the initial attempt in this direc-
The effects of Job Attitudes on turn- tion.
over under various contexts have been
well documented. But the combined ef- Any study on the combined effect on
fects of Work Environment and Burnout two distinctive sets of psychological con-
dimensions are yet to be explored. Ex- structs starts with identification of its
amination of various facets of Job Satis- connecting link. Our path analysis results
faction is useful, in understanding the clearly point to Intrinsic Satisfaction as
reasons behind employee dissatisfaction the connecting link between work envi-
and in subsequent preparation of an ac- ronment and Burnout dimensions in the
tion plan for resolving the dissatisfaction development of various Job Attitudes.
(DeConinck et al., 2004). Categorization This constitutes the major theoretical
of satisfaction measures into Intrinsic and contribution of this study and has great
Extrinsic factors and identification of the significance to practitioners.
Fig. 2 Final Model and Standardized Solution from Path Analysis
* : p < 0.05 ** : p < 0.01

*** : p < 0.001
Turnover Intentions
Most of the software jobs are highly haustion. Houkes et al., (2003) has lon-
demanding in terms of: (1) high workload gitudinally studied the relation among In-
requiring the employees to put in addi- trinsic Motivation, Emotional Exhaustion
tional hours of extra work, (2) role ambi- and Turnover Intention in two samples
guity due to the inherent need to work in consisting of bank employees and teach-
close relation with people outside their ers. While proving empirical evidence for
respective fields, (3) lack of sufficient Intrinsic Motivation and Turnover Inten-
and timely information and (4) nearly tion, they failed to establish a link be-
impossible deadlines. tween Intrinsic Motivators and Emotional
Exhaustion.
According to conservation of re-
source theory, Burnout occurs as a re- Work Environment factors have a
sult of losing certain valuable resources direct impact on Intrinsic Satisfac-
required to meet demands. Lack of re- tion while the same is lacking with
source will lead to Burnout and result in Extrinsic Satisfaction.
certain behavioral and attitudinal out-
comes like coping responses, Turnover
Intentions, and attitudinal changes like Work Environment factors have a
erosion of Organizational Commitment, direct impact on Intrinsic Satisfaction
Job Involvement and Job Satisfaction. while the same is lacking with Extrinsic
Since certain demands that could trigger Satisfaction. Huang & Van de (2003) in
strain in the form of Physical and Emo- their study across 46 nations conclude that
tional Exhaustion are inherent and in- certain basic necessities are a must to
separable to this profession, one solution ensure Intrinsic Satisfaction. In our study,
is to increase the availability of resources similar results were not obtained due to
within the job context. Empirical findings two possible reasons. Software profes-
of this study emphasize on the need to sionals are getting a relatively higher pay
provide more Intrinsic Satisfaction in and better working conditions than their
terms of higher autonomy, regular feed- counterparts in other professions and
back about performance, and identifiable hence Extrinsic Satisfaction in terms of
piece of work requiring variety of skills. pay cease to motivate them further. They
These initiatives will keep their Intrinsic have already shifted to next level of needs
Satisfaction high and help them derive (Maslow, 1954) and the current needs are
better satisfaction from their job. It will better represented by factors included in
result in positive cascading effect on other Intrinsic Satisfaction. Another possible
related Job Attitudes like increased Or- reason can be explained in terms of the
ganizational Commitment and lower job market condition wherein software
Turnover Intentions. professionals are always in demand.
Hence, those software professionals who
Previous research has also failed to are extrinsically dissatisfied with the or-
get empirical support for the link between ganization start searching for alternative
Intrinsic Satisfaction and Emotional Ex- employment and move out of the organi-
zation within a short span of time. Orga- further exploration in future studies. In
nization may try to retain crucial employ- line with the relationship between Work
ees by revising their extrinsic rewards to Environment factors, Burnout dimensions
the possible extent. As a result, at any exhibit a link with Intrinsic Satisfaction
point of time, the number of extrinsically (but not Extrinsic Satisfaction) through
dissatisfied employees in an organization Emotional Exhaustion.
is negligible.
Our path analysis results failed to
support hypothesized process model of
At any point of time, the number
Burnout development. While Emotional
of extrinsically dissatisfied em-
Exhaustion remains as the core compo-
ployees in an organization is neg-
nent of Burnout, Reduced Personal Ac-
ligible.
complishment seems to develop indepen-
dently with a negative impact on Organi-
Our study has not found any support zational Commitment. This result is con-
for the relation between Extrinsic and sistent with previous research (Lee &
Intrinsic Satisfaction. Highest Modifica- Ashforth, 1996), which describes differ-
tion Index between these two variables ential impact of Burnout dimensions on
is 1.75, which is not significantly strong Job Attitudes. While Emotional Exhaus-
enough to add a path between them. This tion exhibited an indirect relationship with
indicates partial support for two-factor Organizational Commitment through In-
theory (Herzberg, 1959). Further studies trinsic Satisfaction, Reduced Personal
are required to confirm the same in the Accomplishment has shown a direct re-
context of software professionals. lation. Realization of a parallel (or simul-
taneous?) development of these dimen-
Organizational Politics (OP) seems sions, will help the managers develop a
to be the central variable in this model range of concurrentpreventive and sup-
influencing Distributive Justice, Intrinsic portive measures to tackle the develop-
Satisfaction, and Organizational Commit- ment of Burnout.
ment. Consistent with existing literature,
our study found an inverse relation be- While our analysis has revealed in-
tween OPand Job Attitude. Given the fact teresting findings, many of them are in-
that politics is inevitable in every organi- dicative due to some limitations associ-
zation, management should take proac- ated with this work.The study was based
tive steps to minimize the selfish motive on the perceptual data collected from a
arising out of it, by increasing available single organization. In such a scenario,
supportive mechanisms within the orga- actual turnover data would have helped
nizational context. in building a better model, rather than
Turnover Intention. In a job market domi-
Lack of a link between Work Envi- nated scenario, many of the turnover in-
ronment factors and Burnout dimensions cidents are guided by impulsive decisions
was a surprise finding, which requires rather than rational decisions. Finally,
Turnover Intentions
cross sectional nature of this study, may Houkes, Inge; Janssen, Peter P. M. de Jonge, Jan
result in inherent weaknesses associated & Bakker, Arnold B. (2003), “Specific De-
terminants of Intrinsic Work Motivation,
with most of the contemporary research Emotional Exhaustion & Turnover Inten-
of this type. tion: A Multi-Sample Longitudinal Study,”
Journal of Occupational & Organizational
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By Contribution
Powerful Leadership &Excellence in Public

Enterprises
V N Srivastava
Introduction
Leadership emerges from the
core values of the organisation. Within the literature on leadership,
It has been regarded as an im- generally, there is a clear recognition of
portant and powerful driver of the link between leadership and culture
excellence when adequately in the process of change (Schein, 1992;
backed by globalization issues Afsanesh, 1993; both cited in Parry &
and flexibility in leaders’ style Proctor-Thomson, 2003; Kotter, 1998).
dynamisms. This paper touches Only through leadership can one develop
upon the cornerstones of the and nurture a culture that is adaptive to
concepts and constructs sur- change (Kotter, 1998:166). According to
rounding powerful leadership Schein (1992, cited in Parry & Proctor-
and therefore, cuts across Thomson, 2003), transformational lead-
through and between various ership behavior such as directing atten-
intervening concepts such as tion to critical incidents, reacting to cri-
leadership, culture and also sis, role modeling, formal statements and
change. It provides a spectrum telling stories, legends and myths influ-
of leadership phenomena to ex- ence culture. Kilmann (1985) believes
plain the possible kind of lead- that leadership is critical because, as
ership that is needed for the pub- organisational culture develops and
lic sector enterprises to excel. It change, they also need to be managed
supports the theoretical under- and controlled. According to Bass
pinnings with a host of data (1998), survival of the organisation de-
through a study of a cross-sec- pends upon the shaping of the culture
tion of senior managers in the initiated by effective leaders, particu-
organizations. larly during change efforts. Kotter &
Heskett (1992:84) state that the single
most visible factor which distinguishes
major cultural changes that succeed
V N Srivastava is Professor, New Delhi Camp from those that fail is ‘competent lead-
Office, Centre for Organisation Development, ership at the top’. They inspire and help
Hyderabad. E mail: srivastava@codhyd.org create adaptive culture.
V N Srivastava
Romig (2001) reports that today’s through communication”, “trust through

organisational leaders required a new kind positioning” and “confidence through re-
of person having great managerial lead- spect”. Through the vision they take their
ership talents and who did not depend on organisations beyond the horizon and the
top-down organisational superiority and established map.
subordination. Reference is to powerful
leadership in dealing with normal human
Leadership is prime and leader-
responses such as fears, insecurity, self-
ship excellence emerges from the
doubt, confusion, etc firmly and sensitively,
core values of the organisation.
give support where it is needed and stand
firm in the face of strong resistance. They
help to create enhanced capacity in their In Kanji’s Business Excellence
people and who, in turn, become the stew- Model (Kanji & Moura, 2001), leader-
ard of all the organisation’s stakeholders ship plays a prime role for the creation
(McLagan & Nel, 1996). According to of excellence in organisations. Accord-
them, the new style of leadership requires ing to them, leadership is prime and lead-
changes throughout the organisation and ership excellence emerges from the core
culture by looking deep within and trans- values of the organisation. Bennis &
forming themselves, creating direct rela- Nannu (1985, cited in Northhouse, 1997)
tionships with employees, helping manag- state that “management controls, ar-
ers and front line to change, acting as fo- ranges, does things right; leadership un-
cused visionary and increasing leashes energy, sets the vision, does the
organisational strengths. right thing”. This view is shared by Kotter
(1990) when he states that the overrid-
Excellence in Leadership ing function of the management is to pro-
vide order and consistency in
In achieving organisational develop- organisations, whereas the primary func-
ment and excellence, the role of a suc- tion of leadership is to produce change
cessful entrepreneurial and/ or and movement (Kanji & Moura, 2001).
intrapreneurial leader is important and the Georgiades & Macdonell’s (1998) model
leader has to be a powerful one who can also puts leadership at the center of ef-
communicate and inspire by appropriate fective functioning of an organisation
means, the level of competence neces- with three main leadership tasks: estab-
sary to influence a group of individuals lishment of the vision, the alignment of
to become willing participants in the ful- the culture, and specification of manage-
fillment of innovational goals (Darling & ment practices. According to Nadler &
Beebe, 2007). They create new ideas, Tushman (1990), leaders need to provide
new products and services, new policies, a focal point for the energies, hopes and
new procedures and effective communi- aspirations of people and serve as role
cation networks. According to Nurmi & models whose behaviors, actions and
Darling (1997) these leaders believe in personal energies demonstrate the de-
“attention through vision”, “meaning sired behavior for concrete outcomes.
Powerful Leadership in Public Enterprises
Kanji’s model of leadership (Fig. 1) aging effectively the relationships

incorporates critical success factors for among the globalization issues, the
leadership identified as vision, mission, organisation’s vision, mission and strat-
strategy and key issues which are es- egy, and leader’s style dynamisms. The
sential for achieving excellence in lead- meaning of each of the model’s con-
ership. To emerge as a powerful leader, structs and relationships among them is
therefore, the major challenge is man- explored in Fig. 1.
Fig. 1 Kanji’s Leadership Structural Equation Model
Source: Adapted from Kanji & Moura (2001:710).
Global Leadership reach in terms of business operations,

cultural reach in terms of people and in-
The emergence of global leadership tellectual reach in terms of development
is the offshoot of what we call the man- of global mindsets. Lane et al. (2004)
agement challenges of globalization is- argued that, as a term, globalization at-
sues, which need to develop executives tempts to describe a complexity of four
to manage and lead from a global per- different kinds—multiplicity, interdepen-
spective (Mendenhall et al., 2003). Lead- dence, ambiguity and cross-cultural dif-
ership began to be regarded as more ferences. The field of global leadership
complex and challenging to drive development has started developing and
organisations towards excellence. Schol- scholars are undertaking continuous re-
ars came up with identical findings that search and surveys to contribute to this
developing global leadership and business field in the nascent stage of development.
competence in leaders was a high prior-
ity (Gregersen et al., 1998; Suutari, 2002; Some scholars have conceded that
Mendenhall et al., 2003). Osland et al. most competencies associated with lead-
(2006) identified challenges emanating ership from the domestic and traditional
from global contexts such as geographic leadership literature are necessary to lead
V N Srivastava
globally. The global context places high is in this context that a review of global
demands on the deployment of these com- leadership literature will help develop an
petencies that for all intents and purposes appropriate framework of ‘powerful lead-
render the phenomenon very differently ership’ to have a distinct competitive ad-
(Mendenhall, 2008) and the study of global vantage over global organisations. Domes-
leadership therefore becomes necessary. tic organisations, too, have to function to-
Osland &Bird (2006) distinguish between gether with global corporations as operat-
global and domestic leadership in terms of ing in isolation in the context of massive
issues related to connectedness, boundary globalization phenomenon today is impos-
spanning, complexity, ethical challenges, sible. Tichy et al. (1992, cited in
dealing with tensions and paradoxes, pat- Mendenhall, 2008) wrote about “true
tern recognition, and building learning en- globalists”, as they called them, who have
vironments, teams and community, and (i) a global mindset; (ii) a set of global lead-
leading large-scale change efforts across ership skills and behaviors; (iii) energy,
diverse cultures. Living and working con- skills, and talent for global networking; (iv)
stantly in a global context, and experienc- the ability to build effective teams; and (v)
ing the ongoing intensity of the dimensions global change agents skills. These leaders
of complexity (Lane et al., 2004) can trig- develop people and organisations simulta-
ger a transformational experience within neously. Kets de Vries & Mead (1992)
managers (Osland, 1995). These powerful developed a list of leadership qualities that
transformational or crucible experiences included envisioning, strong operational
(Osland, 1995, Bennis & Thomas, 2002) codes, environmental sense making, ability
have been found to produce new to instill values, inspiring, empowering,
mental models in the individual—new building and maintaining organisational net-
worldviews, mindsets, perceptual acumen, works, interpersonal skills, pattern recog-
and perspectives that simply do not exist nition and cognitive complexity, and hard-
within the people who have not gone ness. Rhinesmith’s (2003) articulation of
through such a series of experiences in a global mindset has two components— in-
global context. tellectual intelligence and emotional intelli-
gence. Both lead to business acumen and
Powerful Leadership personal management. Articulating the vi-
sion, mission and strategy of an organisation
Combining the strong aspects of what is an important attribute of a leader (Kets
can be had from the traditional leadership de vries et al., 2004). Goldsmith et al. (2003)
literature and those that are essential from identified 15 dimensions of global leader-
the global leadership literature has produced ship and noted that 10 of their dimensions
something that can be called as powerful are also found in domestic leadership and
leadership to make domestic organisations continue to be important. They are
not only successful, but also achieve high demonstration of integrity, encouraging con-
organic growth amidst the severe chal- structive dialogues, creating shared vision,
lenges thrown or likely to be thrown by glo- developing people, empowering people, cus-
bal organisations in the domestic place. It tomer satisfaction, maintaining competitive
advantage, leading change, achieving per-

sonal mastery and anticipating opportuni- Leadership will be required to be
ties. Powerful leadership will also require nurtured at all levels across the
possession of shared leadership, building organisation.
partnerships and traits of thinking globally.
developing good leadership qualities
Goldsmith et al. (2003) list the follow- within self and others. According to
ing important leadership competencies to Chopard (2002, cited in Winter, 2003), to
drive future organisations towards excel- successfully manage high performing
lence: genuinely listening to others, creat- organisations who, worldwide, are oper-
ing and communicating a clear ating in an environment of increasing
organisational vision, becoming a role model volatility, high performance leadership is
for living the very same organisational val- the only way. Leadership will be required
ues, uniting an organisation into an effec- to be nurtured at all levels across the
tive team, clearly identifying priorities and organisation. Between 1984 and the
focusing on a vital few, building partner- present day, three things have changed:
ships across the company, and constantly scale from national to global, speed from
treating people with respect and dignity. steady to fast, and standards from local
Leadership competencies to lead in the 21st to world class. Nelson Mandela influ-
century in domestic organisations can be enced the world from his prison cell, and
drawn from McCall & Hollenbeck’s (2002) we are talking of a leadership which is
model of global executives. The model is powerful and can influence an
developed based on interviews with global organisation in the most turbulent state
executives (who are also global leaders) (Winter, 2003). Powerful leadership is
and focuses on the interaction and part- bound to make a difference as they in-
nership between the individual and the spire creativity in the groups they lead.
organisation. Most of the competencies are Efforts such as creative problem solving
appropriate for leading public and private and strategy are essential to the work of
sector enterprises and a great deal of at- leaders in the knowledge economy
tention is paid to this model as these can (Leonard & Swap, 1999).
be powerful drivers of organisations to-
wards excellence. Organisational leaders are continu-
ously resorting to one or the other trans-
A Powerful Leader formation efforts with a strong determi-
nation to transform and turnaround to-
The important competencies required wards making it a great organisation.
to make a powerful leader, among oth- However, as Kotter (1995) reports, most
ers, can be: leading and managing oth- transformation efforts fail, particularly
ers—selection; development, motivation because a critical mistake in any of the
and team building; dealing with problem- phases has a devastating impact, slow-
atic relationships—headquarters, bosses, ing momentum of pace of change and
unions, government, media, politics; and sometimes negative hard-won gains.
V N Srivastava
Also, many change leaders—internal or According to Locander & Leuchauer

external—may have relatively lesser (2006), the phrase, “simultaneous loose-
experience in renewing organisations tight properties” used by Peters &
and even very capable people often Waterman (1982) captures the essence
make at least one big error (Kotter, of the leadership paradox of structure.
1995). Eight steps listed by Kotter Organisational units require to be so
(1995) relate to establishing a sense of structured that work can be effectively
urgency, forming a powerful guiding coordinated, performed and assessed
coalition, creating a vision, communi- without robbing employees of their dig-
cating the vision, empowering others to nity, stifling their creativity, and inhibit-
act on the vision, planning for and cre- ing their ability (Locander & Leuchauer,
ating short-term wins, consolidating 2006). Kotter & Heskett (1992: 146) iden-
improvements and producing still more tify successful leaders as those who re-
changes and institutionalizing new ap- peatedly communicate their vision, allow
proaches. Starting a transformation pro- people to challenge these messages and
gram, cascading it down below, and see- stimulate middle managers to take up the
ing it achieving transformational goals cause and provide leadership themselves.
through the aggressive cooperation of These are characteristics of transforma-
many individuals are important. A para- tional leadership and are described by
lyzed senior management has too many Bass & Avolio (1993) to be made of five
managers and not enough leaders. key compositions: idealized attributes,
Enough real leaders are required in an idealized influence behavior, inspirational
organisation (Kotter, 1995), particularly motivation, intellectual stimulation, and
‘powerful leaders’ for driving and lead- individual consideration. Idealized influ-
ing change towards its transformation ence and idealized attributes describe
and excellence. If a change target is leaders who act as role models, can be
the entire company, the CEO is the key; trusted, are respected and demonstrate
if it is needed in a division, the division high ethical standards. Inspirational mo-
general manager is the key. At all these tivation involves arousing team spirit,
key positions, great leaders, powerful motivation and enthusiasm. It also de-
leaders or change champions are scribes the process of creating vision for
needed. Kotter’s analysis towards cre- the future. Intellectual stimulation de-
ating a powerful guiding leadership coa- scribes leadership that supports and en-
lition to have a minimum mass for courages innovation and creativity. In
something worthwhile to be happening addition, intellectual stimulation encour-
is helpful in understanding the success- ages the followers to question old as-
ful transformation efforts. sumptions. As the fourth transformational
leadership style, individualized consider-
ation occurs when leaders pay attention
If a change target is the entire to the developmental needs of the fol-
company, the CEO is the key. lowers, and develop personalized inter-
actions and relationships (Bass & Avolio,
1997). Osterman (1994) found that con- ship as described by Bass (1998). This
cern for employees’ well being was a may more appropriately be referred to
primary factor contributing to innovation as performance culture. Nutt & Backoff
within an organisation. Podsakoff et al. (1993) highlight factors such as using ide-
(1990) defined similar constructs of als (visions) that are co-created in the
transformational leadership, including place of objectives or goals, moving to
identifying and articulating a vision, pro- be proactive rather than threat driven,
viding an appropriate model, and foster- adopting innovative ideas, emphasizing
ing acceptance of goals. Bass (1998) and participation of key stakeholders, reduc-
Podsakoff et al. (1990) conceptualized ing hierarchical distinctions, and empow-
transformational leadership as promoting ering followers.
flexibility, adaptability and innovation in
their followers and their organisations. A powerful leadership must, how-
Gill et al. (1998) believe that the ‘new ever, use power and trust dimensions ju-
post-bureaucratic organisation’ will re- diciously while leading. Kotter &
quire transformational leadership for en- Schlesinger (1979) defines power as “a
hancing flexibility, horizontal networks, measure of a person’s potential to get
high-trust relationships, adaptability to others to do what he or she wants them
change and uncertainty, innovation and to do, as well as to avoid being forced to
empowerment of employees. Such a phe- do what he or she does not want to do”.
nomenon will lead to the necessary re- Machiavelli (1950) suggested fear and
invention of organisational cultures love as the main base of power. Hersey
which, in turn, will lead to organisational & Blanchard (1982) proposed seven
success. According to Valle (1999), be- bases of power—coercive, legitimate,
cause of the changing nature of public expert, reward, referent, information, and
service, the public sector requires new connection. Pareek (1997, 2003) have
leadership that will promote flexibility and given six bases of power in the coercive
adaptability in organisations and in indi- power group—organisational position (le-
viduals. Public sector leadership must gitimate power), punishment (coercive
provide clear and pronounced vision, ef- power), charisma (charismatic power),
fective communication, and inspired mo- personal relationship (emotional power),
tivation towards organisational goals. closeness to the source of power (re-
Leaders who inspire and help create flected power), and withholding informa-
adaptive organisational cultures possess tion or resources (manipulative power).
the qualities of transformational leader- He has also proposed six persuasive
power bases—reward (reinforcing
Public sector leadership must pro- power), expert power, competence
vide clear and pronounced vision, power, behavior power (being a role
effective communication, and model), extension power (empathy, car-
inspired motivation towards ing and helping others), and logical power
organisational goals. (based on information and the rationale
of the information).
V N Srivastava
Followership
Shared leadership is expected to
According to Kellerman (2007), in an gain prominence as the operating
era of flatter, networked organisations model of the future.
and cross-cutting teams of knowledge
workers, it is not always obvious who narrow sense to have control in a much
exactly is following (or, for that matter, broader sense.
who exactly is leading) and how they are
going about it. Reporting relationships are Public Sector Leadership
shifting and new talent-management tools
are constantly emerging. A confluence of Leaders, according to Goldsmith et
changes—cultural and technological— al. (2003), can not embody all of the
has influenced what subordinates want needed critical capabilities. However, in
and how they behave. Leaders need to the present times of globalization issues,
understand bosses better and to under- where the very changed nature of busi-
stand the dynamics between them and ness organisation (merged, behavior,
their followers. outsourced and virtual) is beginning to
dictate organisations, shared leadership
At times they also act by withhold- is expected to gain prominence as the
ing support from bad leaders, throwing operating model of the future. In future,
their weight behind good ones, and there will be fewer “all knowing” CEOs;
sometimes claiming commanding voices instead, leadership will be widely shared
for those lower down in the social or in executive teams. New demands for
organisational hierarchy (Kellerman, collective responsibility and accountabil-
2007). CEOs share power and influence ity will emerge, as will competencies for
with a range of players, including sharing leadership. Not one person only,
boards, regulators, and shareholder ac- but more than one person will lead
tivists. Expertise can—and often does— organisations collectively (Osland, 2008,
trump position as an indicator of who cited in Mendenhall, 2008:51-52). Lead-
really is leading and who is really fol- ers style dynamism is about high perfor-
lowing (Drucker, 1967, cited in mance leadership, developing leadership
Kellerman, 2007). Kellerman also points at all levels, shared leadership, and de-
out that relationship between superiors veloping a second in command.
and their subordinates is not one-sided
and nor are all followers one and the According to him, “high performance
same. Followers too act in their own leaders” must harness two energies that
self-interests as leaders do. While fol- are the “performance drivers”—mental
lowers may lack authority, at least in and relationship energy, and two energies
comparison with their superiors, they do that are “performance enablers”—physi-
not lack power and influence. Accord- cal and emotional energy. Performance
ing to Waterman (1994), to be a true leaders can not build and capitalize on the
leader, one needs to give up control in a knowledge, creativity and relationships
unless their physical energy (endurance) are some sub factors which gives some
and their emotional energy (resilience) kind of identity to leadership and they are
permit. Many leaders invest vast time and discussed under each identified factor.
effort in increasing their knowledge and
relationships and then fail to use these Top Management Leadership
resources because of physical and emo-
tional fatigue. Though some reviews had The top leadership in public enter-
concluded that the situational leadership prises needs to be full of dynamism and
model has some logical and internal incon- is evidenced by the fact that it is highly
sistencies and lacks empirical support, it talked about also at every place in the
has been found to be adequately repre- organisation even when he has left the
senting reality. Blank et al.’s (1990) organization. His examples are often
framework also provides supportive evi- cited and have often left a deep mark on
dences and is based on the assumption everybody’s mind. The important sub
that subordinates’ maturity moderates the factors of this phenomenon of leadership
leadership task relationship behaviors with that came out were:
indicators of leader effectiveness.
i) Vision Document Development:
Research Based Analytics Development of a vision document
appears a theoretical exercise; how-
A qualitative research methodology ever, it is important in traversing some
was carried out using individual inter- distance in a planned way, though,
views and focus group discussions to mere development of a document
assess the important isues that typically does not guarantee or ensures achiev-
are associated with the achievement and ing excellence. Referring to such an
nurturance of excellence. About 20 indi- initiative by one of the public sector
vidual interviews of about 20 senior man- CMDs of public sector Hydropower
agers in public enterprises and 4 focus Company, a group of employees men-
group discussions (6 - 7 in each group) tioned:
were carried out.
“The present CMD has got a vision
document developed: ‘Hydro Power
Three important factors identified
50000 MW initiative’. In this, projects
that was felt to be important related to:
worth 50000MW are identified and
vision document prepared for devel-
1. Top Management Leadership
opment across the country. Policy
2. Leadership Effectiveness makers have been persuaded and
there is a constant push for hat by
3. Super-Speciality Centered Leader-
the top leadership. Vision document
ship
of public enterprises is a very valu-
Within each of these factors of pow- able document related to public en-
erful leadership, it was found that there terprises vision and mission fulfill-
V N Srivastava
ment. The present CMD’s strengths “It is a good thing. Achieving a world-
are talked about as regards dynamism wide status is one of the missions of pub-
is concerned”. lic enterprises”.
Vision document of public enter- iv) Leadership Ownership:”In some

prises is a very valuable document public enterprises, leadership has
related to public enterprises vi- been changing frequently and has
sion and mission fulfillment. been for durations ranging between
1–7 years, which in one case report-
edly had the longest duration of 7
The powerfulness is being continu-
years. The next longest duration was
ously talked about by people below.
5 years. It is observed and also re-
“What the great ones do, the less prattle
ported that there has been a maxi-
off” (Shakespeare in Julius Ceaser). This
mum growth of the said public en-
is an important indicator of powerfulness
terprises during this period.”
of leadership.
Continuity of leadership is an impor-
ii) Turnaround Leadership: “In one of tant issue for higher organic growth. En-
the public sector enterprises, a leader terprise may spirally go up or even go
who had a stay of more than 7 years down.
in the organisation is regarded as a
turnaround leader because of whom Leadership Effectiveness
the organisation is what it is today.
The state of public enterprises when i) Assertive Leadership: “A wide-
he took over as a CMD was not very spread feeling persists of the Minis-
good and was a 3500 MW company. try not giving free hand to some pub-
However with his strategies, drives lic enterprises and making frequent
and plans it had had a continuous interferences in functioning. More
growth of projects, JVs etc and the than half of the time of the top lead-
projects finalized by him have started ership would be getting away in man-
giving results now”. aging these interferences. At times,
many CMDs act assertively, giving
iii) Global Leadership Initiatives:
high empowerment to people and are
“Public enterprises have started mak-
supportive to innovative ideas and
ing a concerted drive towards achiev-
initiatives. As assertive leaders, they
ing a place in the international com-
aptly manage what is called the ‘in-
munity by beginning to providing
terferences’ coming from the bu-
consultancy services to developing
reaucratic and governmental regimes
countries in their areas of core com-
/ processes, and not put them forth
petence such as hydropower engi-
as limitations and constraints for
neering by an enterprise in hydro-
achievements. A high clarity of di-
power generation”.
rections with every decision has high
impacts in terms of motivation to- who have huge capacity but do not
wards achieving excellence”. get freedom need to be made good
followers by giving good support to
ii) Developing Managers as Leaders:
them. The followers wanting to take
“There is no specific initiative for
challenging tasks, if are supported in
developing leaders for taking up po-
true spirits, will become very good
sitions at various plants, projects, re-
followers who will be the future lead-
gions, etc. It is purely based on se-
ers.
niorities, competencies, exhibition of
talents in positions held and also the iv) Developing Leadership Skills:
personal choice of CMD. This is an “Leadership development initiatives
important factor as evidenced by are mostly by way of exposing em-
many respondents saying, ‘it is ployees to leadership concepts and
CMD’s team’. Through this process challenges for change and growth.
very dynamic heads of projects have There is also high emphasis of de-
been identified. In some places, veloping leadership among officers at
projects have been completed in a Manager and above upto Executive
record period of time and is among Director through processes such as
one of the talked about projects is an competency mapping, assessment
example. Heads of projects are gen- and development centers”.
erally given freedom to choose their
v) Coaching Subordinates: “When-
team and members are not forced
ever a subordinate is in a fix to de-
upon him for deliveries in the project.
cide between one he is being asked
They are generally from among those
to do and what he is actuallywanting
who have earlier worked in the past
to do is basically confronted with
with him and according to those
value laden issues, superiors have
project heads, they are capable of
been found in some instances to giv-
giving results, have gone through the
ing their subordinate a patient hear-
project hardships”.
ing and facilitating him to take the
iii) Powerful Followers: “Powerful fol- most appropriate decision. The effort
lowers, defacto the ‘leaders of to- observed has been to building
morrow’ have made to the top levels strength in the subordinate and de-
including the ‘board’ level. They have velop or adapt more flexibility in lead-
reached those levels by greater trust, ership than remaining in a state of
support, and empowerment and rigidity which is important for getting
shared leadership processes. They results”.
have reached these positions by way
vi) Project Leadership Challenges: In
of strength of their hard work. They
some public enterprises particularly
have the capacity to take the
the hydropower enterprises, the lead-
organisation forward. There are also
ership has been admired for their
some at the chief level, plant level,
capacity to achieve amidst odds, as
V N Srivastava
cited by some respondents: “Each been working on various projects for

project has a typical problem with a long time these employees have
respect to geographical and geologi- been developing but of late since
cal conditions, and tunneling opera- there has been reduced intakes at
tions for dam construction requires entry levels and so this process of
different strategies. Various issues developing as an understudy has also
also require to be handled particularly reduced. This has however been a
relating to environment, water, apart very effective way of developing high
from technical drives required. A level of technical competence among
powerful leadership for completing novice engineers and diploma hold-
projects before time is required”. ers”.
vii) Developing Subordinate: “There ii) Work Pressure Management: “The
have been many instances where top leader has to manage high pres-
subordinates have been developed sure from various quarters, central
by superiors. They have been infor- government, state government, local
mally guided and coached to obtain political leaders, union, and many oth-
higher qualifications and that has ers including difficult working condi-
helpd in raising knowledge levels of tions. In one project of a public sec-
people in the organisation”. tor, the tunnel boring machine got
stuck in the mountain. The same is
Super-Speciality Centered
there and the decision is to be taken
Leadership
by the government and also to some
extent political as local people are
“Based on three different nature of
involved”. The environmental clear-
work involved in setting up hydro power
ances are a part of public sector
plants, such as investigation, design and
management and needs to be handled
construction, the technical employees
as per the environmental policies.
have developed specialized skills
(super speciality) in their respective ar- Conclusions
eas of working. Organisation has been
particular about this and has provided Leadership needs to be given due
several opportunities to those who have importance to in public enterprises. Pub-
developed these kinds of specialities by lic enterprises need to focus on develop-
providing international consultancy”. ing effective leadership skills for trans-
forming organisatons, and leading and
i) Leadership Development by Un- managing change. A good leadership can
derstudy: “There has been a process transform an organization and help
of placing junior or new appointees achieve excellence. There are several
at officer and supervisory levels to skills in those leaders and it is suggested
those having engineering degree and that organizations undertake planned
diploma but do not have experience. Leadership Skills Development programs
By working with those who have at various levels.
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By Contributionsas
Strategy & Structural Dimensions – A Comparative

Study of Four Industries
Bindu Gupta & Ajay Singh

Introduction
This study examines the linkage
between organization’s strategy Organization Structure is a dy-
and structural dimensions. There namic element which can change over
are significant differences time as a consequence of new organi-
among the organizations in terms zational and environmental conditions.
of structural dimensions and the It reflects the way in which informa-
strategy used. Prospector strat- tion and knowledge are distributed
egy is used more in the IT indus- within an organization and it substan-
try, analyzer strategy in the tially influences the distribution and co-
banking industry and reactor ordination of the company’s resources,
strategy in power industry. Ver- the communication processes and the
tical linkages and formalization social interaction between organiza-
are more used in the power sectional members (Chen & Huang, 2007).
tor, horizontal linkages in auto- It can be frequently customized so that
mobile sector, centralization in staff could have access to and acquire
banking sector. When the orga- new and varied knowledge that would
nization uses reactor as dominant help them to overcome a range of prob-
strategy, vertical linkages and lems, fluctuations and diverse situations
formalization were perceived (Lloria, 2007). Studies (e.g., Dodgson,
more. Horizontal linkages are 1993; Fiol & Lyles, 1985) also have
more prevalent in the organiza- suggested that structures have an in-
tion using prospector strategy fluence on the organization’s learning
and organizations using the ana- ability. Researchers further suggest that
lyzer strategy were found to be organizational personnel are meaning-
high on centralization. less unless some type of structure is
used to assign people to tasks and con-
nect the activities of different people
Bindu Gupta is Associate Professor, IMT or functions (Denison, 2000; Drucker,
Ghaziabad. E-mail: bgupta@imt.edu Ajay Singh Is
1974).
Associate Professor, IIM Lucknow, Ghaziabad.
E-mail: asingh@iiml.ac.in
Strategy & Structural Dimensions
tural considerations, the findings pertain-

Organizational structure may ob- ing to the relationships between strate-
struct or support the capacity of gic orientation, organization structure and
the organization to adapt, innovate performance may not apply in the Indian
or improve its ability to add value cultural context, as Indian culture has
for its customers. been rated high on power distance and
also differ on other value dimensions
Organizational structure may obstruct from US culture.
or support the capacity of the organiza-
tion to adapt, innovate or improve its abil- Organizational Structure
ity to add value for its customers and to
its performance. One of the purposes of Child (1972) defined organizational
the study was to understand the organi- structure as “the formal allocation of
zational strategy and structure in Indian work roles and the administrative mecha-
organizations belonging to different indus- nisms to control and integrate work ac-
try segments. It also examines the rela- tivities including those which cross for-
tionship between strategy and structure. mal organizational boundaries”. Daft
Although, there have been rich theoreti- (1998) stated that organization structure
cal and empirical descriptions about determines the formal reporting commu-
structure and strategy (e.g., Schaffer & nications and represents the levels which
Litschert, 1990; Tse, 1991), this study exist in administrative hierarchy and also
intends to examine it further in the In- specifies the extent of the managers’
dian context. The rationale behind are control. The people’s formal communi-
that the Indian culture is different from cations, job status in an organization, the
the western culture. Research suggests extent of accessing information, job de-
that when national and organizational scriptions, resource allocation, rules and
cultures come into conflict, the national regulations, compliance and implement-
culture is likely to dominate (Hofstede, ing the rules, co-ordination between the
1980; Pang et al., 1998). activities, depend on designing organiza-
tional structure (Ergenli et. al., 2007). To
Peters and Waterman (1982) and oth- understand the organizational structure,
ers reported that organizations in the number of structural dimensions has been
United States (US) are influenced by identified in various studies. Among the
national cultural values: there have been many structural dimensions, formaliza-
focus on open and honest communication, integration, centralization and com-
tion and teamwork and staff are being plexity are commonly used in describing
empowered to make decisions structural characteristics.
(Mwaura et al., 1998). Hofstede
(1980) found that in cultures with high Centralization is the degree to which
power distance relationships, employees employees are empowered to make de-
have limited expectations for participa- cisions. When decisions are kept at the
tion in decision making. Given such cul- top, an organization is centralized,
whereas in decentralized organizations,

decisions are delegated to lower organi- An organization with higher de-
zational levels (Daft, 1998). Formaliza- gree of formalization and central-
tion can be defined as the extent to which ization may make it easy to avoid
an organization uses rules and proce- chaos, inconsistency, and dupli-
dures to prescribe behavior such as the cated efforts.
details on how, where, and by whom
tasks are to be performed (Fredrickson, tralization may make it easy to avoid
1986). In the organization with higher chaos, inconsistency, and duplicated ef-
level of formality, there are many bureau- forts, especially within a large, complex
cratic and rigid rules and set procedures, organization (Adler, 1999). Chen et al.,
and little individual freedom of action (2009) reported that formalization and
(Ahmed, 1998). centralization of organizational structure
would affect staff’s absorption capacity,
Complexity describes many, usually and further affect organizational innova-
interrelated, parts of an organization tion performance.
(Fredrickson, 1986). Structural integra-
tion refers to the coordination of activi- An innovative organization needs
ties among the different specializations open channels of communication, decen-
within the firm (Miller, 1987). The more tralization and informal decision making,
the complexity increase, higher is the need and flexibility in processes and proce-
for structural integration in the organiza- dures. Loosely coupled decision linkages
tion which can be in the form of vertical and loosely identified job descriptions are
or horizontal linkages. Vertical linkages conducive to greater entrepreneurial and
are used to coordinate corporate activi- innovative activity (Mintzberg, 1979).
ties between the top and the bottom of Azadegan, (2008) opined that an organi-
the organization. Top management con- zation with lower centralization has bet-
trols planning, problem solving, decision- ter capabilities for organizational innova-
making and directing (Hyden, 1994; tion. Chen and Chang (2012) reported
Hankinson, 1999). Horizontal linkages that the higher the degree of organiza-
help to integrate the different functions, tional centralization, the lower the ab-
units and expertise in the organization. sorptive capacity of the organization, and
then the lower the degree of organiza-
These structural dimensions influ- tional innovation.
ence firms’ ability to perform efficiently
or effectively. Studies indicates that mem- Organizational Strategy
bers in highly centralized organizations
had less motivation to learn, and were Organizational strategy can be de-
less efficient and slower in making deci- fined as a plan for interacting with the
sions (Duhaime & Schwenk, 1985; Slevin competitive environments to achieve or-
& Covin, 1995). An organization with ganizational goals (Daft, 1998). Through
higher degree of formalization and cen- its strategy, an organization selects and
interprets its environment, and adapts its

strategy to the requirements of the envi- Reactor organizations do not
ronment (Porter, 1985). Miles and Snow present any consistent pattern of
(1978) classified strategy types as de- response behavior to environmen-
fender, analyzer, prospector, and reactor. tal conditions.
Defenders are internally oriented organi-
zations. They stress efficiency, and are Reactor organizations do not present
tightly organized firms focused on main- any consistent pattern of response be-
taining a niche with a limited range of havior to environmental conditions and
products or services (Miles & Snow, their actions are mostly reaction to out-
1978). They try to protect their markets side forces, such as the economy, com-
through lower prices, high-quality, well- petitors, or market pressures.
targeted products, and superior delivery
while not often being at the forefront of Strategy & Structure
industry developments. The prospectors
have an external focus and assumes more Why some organizations outperform
business risk and attempt to be “first to others? The answer is grounded on the
market” with new products and services. contingency perspective. It advocates that
These firms emphasize more in maintain- organizational structure follows from a
ing the image of an innovator in product firm’s strategic choices in response to its
terms than securing high profitability environment and successful firm perfor-
(McDaniel & Kolari, 1987). The structure mance to some degree results from a proper
of these firms is characterized by a low fit between environment, strategy and
degree of formalization and routine, de- structure (e.g., Chandler, 1962; Child,
centralization and lateral as well as verti- 1972). It provides a motivation for an or-
cal communication, emphasizing aspects ganization in misfit to move into fit to gain
such as innovation and flexibility. the higher performance that fit produces
(Burns & Stalker, 1961).
Analyzers blend the characteristics
of both the prospector and defender ori- Porter (1980) claims that organiza-
entations (Miles & Snow, 1978). They are tions require a high degree in all of the
rarely first-in with new services or into structural dimensions in order to imple-
new markets, but are often second-in ment generic strategies. Miller (1988)
with better offerings. The analyzer par- reported that integration and formaliza-
titions its technology so that it can serve tion are relevant for performance for
its stable domains with efficient technolo- specific strategic types. Zeffane (1989)
gies and its dynamic domains with flex- reported that certain structural dimen-
ible and effective technologies. They in- sions must be present with given strate-
clude flexibility as well as stability, adopt- gies in order for the firm to achieve high
ing structures that can accommodate both performance level. All these indicate that
stable and changing domains. a ‘fit’ or, alternatively, an interaction be-
tween strategy and structure is relevant
to performance, hence managers must Methodology

design the organization correctly if it is
to be effective for a particular strategy Data were collected by means of
(Fiedler, 1984; Feghhi Farahmand, 2005). questionnaires that were sent through
electronic mail. Overall 1000 question-
Objectives of the Study naires were mailed, and 431 usable ques-
tionnaires were received, with response
a) To examine the structural dimension rate 43.1 percent of respondents. The
of the Indian organizations belonging respondents came from 16 organizations
to different industry segments from four industries namely, Banking
(34.2%), Information Technology
b) To examine the strategy used by the
(22.3%), Power (18.3%), and Automo-
Indian organizations belonging to dif-
bile (20.3%). Those selected for the study
ferent industry segments.
are high performance organizations within
c) To examine the relationship between their industry segment and represent a
strategy and structure in the Indian right mix of public, and private sectors.
context.
The average age of participants was
Hypotheses 34.08 years, average experience in cur-
rent organization being 4.96 years. Only
H1:There are significant differences in those employees were requested to re-
the structural dimensions used by spond to questionnaire who have mini-
organizations from different industry mum three years of experience with the
segments. present organization. With respect to the
H2:There are significant differences in level of qualifications, 65 percent were
the strategy used by used by organi- graduates; and 35 per cent were post-
zations from different industry seg- graduates. Male respondents accounted
ments. for 70 percent and 30 percent were the
females.
H3:Organizations following defender
strategy are high on formalization, Banking: Banking in India has a long
centralization and vertical linkages. and detailed history of more than 200
H4:Organizations following prospector years. It includes nationalized banks, pri-
strategy are high on both vertical and vate banks and specialized banking insti-
horizontal linkages. tutions. Nationalized banks are the big-
gest lenders in the country because of
H5:Organizations with analyzer strategy the size of the banks and the penetration
are high on centralization and hori- of the network. According to a World
zontal linkages. Bank report, there are around 3.5 ATMs
and less than seven bank branches per
H6:Organizations following reactor strat-
100,000 people and there will be improve-
egy are high on centralization and
ment in near future as the Government
formalization.
aims to have maximum financial inclu- facturers buy more components and ser-
sion in the country. (http://www.ibef.org/ vices from suppliers than they are used
industry/banking-india.aspx). to and are increasingly relying on them
to reduce costs, improve quality, and de-
Information Technology: This is velop new processes and products faster
among the rapidly growing industries in than their rivals’ can.
India and has created a brand equity for
itself in the global markets. According to Measures
the report by Confederation of Indian
Industry (CII), India’s IT-business pro- Business Strategy: A multi-item scale
cess outsourcing (BPO) industry revenue developed by Parnell (1997), based on
is expected to cross US$ 225 billion mark the work of Conant et al. (1990) was used
by 2020. The report by Internet and for operationalizing the Miles and Snow
Mobile Association of India (IAMAI) and strategic typology. There were a total of
IMRB International suggests that India 12 questions with each consisting of four
is expected to become world’s second- statements, one for each possible strat-
largest online community after China egy. Each respondent was required to
with 213 million internet users by Decem- indicate which statement is true for his/
ber 2013 and 243 million by June 2014. her organization. The twelve responses
All these reports suggest the potential of for each participant in each organization
growth in this industry. was used to classify the business into one
of the four strategy categories, depend-
Power: India is the 5th largest power ing on which strategy received more than
producer and one of the most diversified or equal to 50 percent responses.
sectors in the world. The Planning
Commission’s 12th Plan projects that to- Structure: Structural configuration
tal domestic energy production would was measured by fourteen items designed
reach 669.6 million tons of oil equivalent to determine the dimensions, including
(MTOE) by 2016–17 and 844 MTOE by vertical linkages (3 items), horizontal link-
2021–22 (http://www.ibef.org/industry/ ages (2 items), centralization (5 items), and
infrastructure/power-sector-india.aspx). formalization (4 items). These structural
dimensions were measured using a scale
Automobile: India is predicted to be ranging from [1] strongly disagree to [5]
among the world’s top five auto-produc- strongly agree. Reliabilities are as follows:
ers by 2015, with the increasing growth .65 for vertical linkages, .60 for horizon-
in demand with rising income, expanding tal linkages, .65 for centralization and .77
middle class and young population base for formalization.
along with a large pool of skilled man-
power and growing technology (http:// Results
w w w. i b e f . o rg / i n d u s t r y / i n d i a -
automobiles.aspx). Experts opine that in Business Strategy: Table I shows the
developed economies, automobile manu- mean scores for all the strategies for each
industry. The results of ANOVA with

repeated measure on strategy indicated There are significant differences in
the significant difference in the use of the use of strategy by the organi-
these four strategies (F (3, 428) = 110.60, zations from different industries.
p, 0.00). The result of ANOVA also in-
dicated the significant differences in dif- cate that prospector strategy is used
ferent industries for the use of prospec- more in IT sector and less in power in-
tor, analyzer, defender, and reactor strat- dustry. Analyzer strategy is used most in
egies (F (3, 427) = 13.98, p <, 0.00; F (3, banking sector. Reactor was reported to
427) = 106.83, p <, 0.00.; F (3, 427) = be used more in power sector (Table I).
8.90, p <, 0.00; and F (3, 427) = 113.10, p Defender was reported the least used
<, 0.00), respectively. Thus the results categories across all strategies. There-
support the stated hypotheses (H1) that fore, further in the analysis, no organiza-
there are significant differences in the use tion was categorized as belonging to de-
of strategy by the organizations from dif- fender strategy.
ferent industries. The mean scores indi-
Table 1 Mean Scores for Business Strategies
Industry P A D R
Automobile Mean 2.80 3.09 2.13 3.91
N 92 92 92 92
Std. Deviation 1.55 1.33 1.40 1.38
Banking Mean 3.12 4.69 1.53 2.63
N 155 155 155 155
Std. Deviation 1.55 1.60 1.53 1.22
Information Mean 4.05 3.19 1.80 2.95
technology N 101 101 101 101
Std. Deviation 1.93 2.28 1.27 1.99
Power Mean 2.77 .72 2.41 6.09
N 83 83 83 83
Std. Deviation 1.03 .85 .91 1.08
Note: P- Prospector Strategy; A- Analyzer Strategy; D – Defender Strategy; R-Reactor Strategy
Structural Dimensions: Table 2 (F (3, 427) = 77.54, p <, 0.00; F (3, 427) =
shows the mean scores for all structural 48.68, p <, 0.00.; F (3, 427) = 40.49, p <,
dimensions for each industry. The results 0.00; and F (3, 427) = 103.26, p, 0.00),
of ANOVA with repeated measure on respectively and support the stated hy-
structural dimensions indicated the signifi- potheses (H2). The mean scores indicate
cant difference in the use of these struc- that vertical linkages are more used in
tural dimensions (F (3, 427) = 41.27, p, power sector than in IT sector. Horizon-
0.00). The result of ANOVA indicated the tal linkages were reported in automobile
significant differences among industries sector centralization was reported more
for the use of vertical linkages, horizontal in banking sector and formalization is
linkages, centralization, and formalization highly prevalent in power sector (Table 2).
Table 2 Mean Scores for Organizational Structural Dimensions
Industry Vertical Horizontal Centralization Formalization

linkages linkages
Automobile Mean 3.73 4.00 3.89 4.07
N 92 92 92 92
Std. Deviation .62 .66 .38 .41
Banking Mean 3.75 3.71 4.11 3.49
N 155 155 155 155
Std. Deviation .68 1.01 .55 .65
Information Mean 3.12 2.93 3.37 3.40
Technology N 101 101 101 101
Std. Deviation 1.15 .98 1.17 1.13
Power Mean 4.81 2.78 3.23 5.00
N 83 83 83 83
Strategy Structure F (2, 428) = 23.19, p <, 0.00; F (2, 428)

= 19.54, p <, 0.00.; and F (2, 428) =
Table 3 shows the mean scores of 82.70, p, 0.00), respectively. Vertical
organizational structural dimensions for linkages and formalization are perceived
different strategies used by different more when organization was reported
organizations. Results of ANOVA indi- to use reactor as dominant strategy.
cated significant differences in the use Horizontal linkages are more prevalent
of structural dimensions namely verti- in the organization which followed pros-
cal linkages, horizontal linkages, central- pector strategy. Organizations using the
ization, and formalization with respect analyzer strategy were found to be high
to the dominant strategy used by orga- on centralization than organizations us-
nizations (F (2, 428) = 60.84, p <, 0.00.; ing other strategies.
Table 3 Means Scores for Organizational Structural Dimensions for Different Strategies
Strategy Vertical Horizontal centralization Formalization

linkages linkages
Analyzer Mean 3.34 3.29 3.96 3.34
N 167 167 167 167
Std. Deviation .96 1.17 1.02 .98
Prospector Mean 3.76 3.87 3.73 3.24
N 127 127 127 127
Reactor Mean 4.38 3.13 3.42 4.50
N 137 137 137 137
Discussion & Conclusion correctly if it is to be effective for a par-

ticular strategy (Fiedler, 1984; Feghhi
As the earlier researches suggest Farahmand, 2005), the present research
managers must design the organization focused on identifying the strategy and
structural dimensions adopted in the In- Miles and Snow (1978) proposed that
dian organizations and their alignment organizations develop relatively enduring
with the strategy of the organizations. patterns of strategic behavior to co-align
The contribution of the study lies in ex- the organization with the environment.
amining the differences in the strategy Prospectors perceive a dynamic, uncer-
and structure of organizations belonging tain environment and maintain flexibility
to different industry sectors. The busi- to combat environmental change and
ness environment varies for different in- seek to identify and exploit new products
dustries and influenced by number of fac- and market opportunities. Indian IT in-
tors such as stakes of government, num- dustry started to cater to the needs of
ber of competitors, entry of global play- global clients, now going through a shift
ers, maturity of the industry, government and there are a lot of opportunities for
regulations for the new entrant, require- growth in this sector as opined by ex-
ment of capital, scope of innovation, de- perts. These facts may justify
pendence on the suppliers etc. which are respondent’s perception of the organiza-
likely to influence the internal character- tions using the prospector strategy. Re-
istics of the organizations. The findings of garding the power sector, the electricity
the study support the hypotheses proposed generation capacity in India is the fifth
for investigation and suggest that there are largest in the world, still there are num-
significant differences among organiza- ber of issues such as a substantial per-
tions belonging to different industry seg- centage of population still in blackouts,
ments in terms of structural dimensions frequency of power cuts, industrial cus-
and strategy. Also the use of structural tomer facing problem, and regulations by
dimensions varies depending on the strat- state government etc. may be the rea-
egy adopted by the organizations. These sons why power sector has been reported
findings support those of Gupta, (2011) in using reactor strategy.
the Indian context examining the differ-
ences in the use of strategy by organiza- Given the dependence on suppliers for
tions from different industry segments. auto parts, developing horizontal linkages
becomes the major need of organizations
from automobile sector. In the power sec-
The use of structural dimensions
tor any single mistake can be very expen-
varies depending on the strategy
sive, that is why control and coordination
adopted by the organizations.
is achieved through vertical linkages and
formalization. Organizations belonging to
Organizations from the IT sector banking sector were perceived high in cen-
were reported to use the prospector strat- tralization, the reason may be that the dif-
egy, and banking organizations the ana- ferent branches of the bank spread over
lyzer strategy. Organizations from auto- different geographies are controlled by the
mobile and power sectors have been policy framework of corporate office and
found to use reactor strategy. Different banking sector is governed by regulations
explanations can be given for the same. by Reserve Bank of India. For IT sector,
most of the responses came from the em- markets, and other changes in the value-
ployees working on client’s projects, and added system. The overuse of vertical
that may be the reason why employees linkages and formalization may be the
perceived that there is high degree of cen- reasons the organizations reported using
tralization and formalization. reactor strategy are not able to sense the
changing environmental forces and have
As regards the relationship between reacted when are faced with crisis.
strategy and structure, the direction is Nahm et al., (2003) also indicated that a
viewed differently by different authors. formalized structure may result in em-
Some studies view structure as follow- ployees losing their courage of innova-
ing strategy while others say strategy tion, independence and learning opportu-
follows structure (Fredrick, 1986). nity. Organizations using analyzer strat-
While, the direction of causality between egy were reported to use more central-
strategy and strategy is beyond the scope ization, the reason being that manage-
of this study, our results indicate that ment wants to make sure that there is
these two are interrelated and need to free flow of ideas as well as effective
be aligned to ensure organizational suc- implementation of the same.
cess and support the findings of earlier
studies. Implications of the Study
This study suggests that the organi-

The more proactive and aggres-
zations that operate in different competi-
sive a firm’s strategic posture is,
tive environments and rely on different
the more flexible its organizational
types of strategies should have different
structure would have to be.
structural dimensions which help them to
meet the unique demands of the competi-
Organizations with the prospector tive environment. The results obtained by
strategy need to have a structure which the study have implications for Indian
can respond to particular control, coor- organizations:
dination and learning problems created
by a high degree of organizational (1) Organizations in the Information
innovativeness. Organizations with pros- Technology sector need to use more
pector strategy use more horizontal and prospector strategy as there is lot of
vertical linkages and less centralization untapped market in this sector and
and formalization compared to organiza- scope for growth and innovation.
tions using other strategies. These find-
ings are in alignment with Day (1986) (2) Organizations in the banking industry
who views that the more proactive and need to have blend of defender and
aggressive a firm’s strategic posture is, prospector strategies, which can help
the more flexible its organizational struc- the organizations to do its traditional
ture would have to be, to allow it to take roles of monetary transactions as well
advantage of new technologies, new as to come with the new products
and services to meet the needs of and multinational organizations. Future

customers. study can examine the differences in or-
ganizational strategy and structural di-
(3) Organizations with prospector strat-
mensions with respect to size, ownership
egy should support it with more
etc. The findings of the study suggest that
vertical and horizontal linkages,
structural dimensions and relationships
which help to bring successful in-
between strategy and structure do not
novation.
vary in different cultural contexts, how-
(4) Organizations which are high on ver- ever, conclusive statement can be made
tical linkages and formalization are only with a cross cultural study. The au-
not able to identify and use the right thors opine that trend can be the same in
strategy to position themselves. different cultural contexts but the extent
of implementation may vary depending
Conclusions on cultural values of a nation.
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ISSN No.

The Indian Journal of Industrial Relations

¨ Developing a Culture of High Performance 325

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VOLUME 50 NUMBER 1 JULY 2014

Reforming Labor Laws Meghnad Desai 1

Labor Law Reform in India: Insights from

Rethinking Labor Law Reforms Arun Maira 24

Transition to Labor Law Reform: State-Level

Labor Market Flexibility & Trajectories of Anil Verma &

Quo Vadis, Industrial Relations

Reforming the Industrial Dispute &

Labour Law Reform in India J.S. Sodhi 100

Turnover Intentions among Indian Gloryson R B Chalil &

Powerful Leadership &Excellence in

Strategy & Structural Dimensions – A Bindu Gupta &

IJIR announces the release of its back volumes (1965 onwards) in

IJIR online www.irhrjournal.com

Reforming Labor Laws

Labor Law Reform in India: Insights from Tangled

programs (Hinton, 1983). This economic

bureaucratic regulation of business, steep more general exposition of the industrial

is that in early capitalism the mass of An economic system is socially effi-

successful entrepreneurship, manage- for being born into a socially advantage

Implications for Labor Law Reform through a two-pronged strategy which

hatma Gandhi National Rural Employ-

Rethinking Labor Law Reforms

“If you don’t know where you are

At the outset, it must be admitted that

employees in service. To them, ‘flexibil- will be damaged if Government forces

2. Pay explicit attention to the quality laws to improve competitiveness of

Transition to Labor Law Reform: State-Level

poorly paid and seldom covered by so- Adverse Effects

which experienced a steady annual mal sector companies is also on an up-

Even if employment increased slowly India is amongst the most difficult

state’s thriving IT industry that goaded this State Freedom to Redesign

NREGA is a one-size-fits-all Centrally

2009). Maharashtra’s “Mahashramm” Foi, Randstad, and Manpower, in the in-

forcement, access to infrastructure – are Flexibility & Security – “Flexi-

Ranking 134th out of 189 countries

Labor Market Flexibility & Trajectories of

Anil Verma & Ana Virginia Moreira Gomes

countries have confidently expanded at income countries (USD 11,208), India at

Year Brazil India China

developing countries with a market taxes. Another category of informal

Brazil also expanded enrolment in pri- an irregular way or are self-employed,

After the crisis in the 1990s, the 3

The employment cooperatives also There has been a strong movement

In this context, labor regulation has Instead of just deregulating or creat-

Conclusions poverty through education and urbaniza-

of informality have to do with lack of lit- Betcherman, Gordon.(2004),”Labour Market

Chen, M. (2007), “Rethinking the informal

Keller, B. & Seifert, H. (2002), “Flexicurity: Wie Mercado de Trabalho - Conjuntura e

Quo Vadis, Industrial Relations Disputes

1961 1971 1981 1991 2001 2011

month-long lockout from August 21 “There is no compromise on vio-

Level I: Works Committees to ad- ings by appointing a Conciliation Officer

The praxis of industrial relations dis- Committee which is representative, im-

munications. In this context the abil- proach to relationships involves

wake of hostile posturing, rigid posi- professionals. A deeper understand-

of legal and constitutional standards ally constructed industrial relations dis-

As long as there are employers and http://articles.economictimes.indiatimes.com/

Reforming the Industrial Dispute & Trade Union

to distill lessons from how those labor