Mumbai: Archaic labour laws that impose myriad restrictions on manufacturers have hamstrung India’s ambition to be a low-cost centre to rival China and now threaten to spark greater tensions as layoffs bite in a slowing economy.
The Congress party-led government is expected to announce steps to protect jobs in its inaugural budget next week, but analysts fear the government will stop short of overhauling laws they say hurt competitiveness and lead to worker unrest.
India’s labour laws, rated by the World Bank as among the globe’s most rigid, place strict limits on number of hires and conditions for retrenchment, forcing manufacturers to hire more casual workers.
Only about 10% of the nearly 400-million strong workforce is in the organized sector, crippling the growth of skilled labour and hindering India’s manufacturing aspirations.
“During the boom, problems including labour were swept aside. Now that the economy is not doing as well, it’s popping up,” said Ajit Ranade, chief economist at Aditya Birla Group.
In the boom years, firms hired casual workers at a rapid pace to keep up with demand for cars and consumer products. But as the economy has slowed and production has been cut back, millions of jobs have been shed,
Casual workers were the first to go, sparking angry protests that have sometimes led to lockouts and police action.
While government data for strikes this year is not available, there is evidence they are on the rise, and more unrest may be in store as India looks to divest stakes in overstaffed state firms to bridge a yawning fiscal deficit.
Foreign investors have taken note: Korea’s Hyundai Motor is considering shifting some production of its new i-20 hatchback after a three-week-long strike at its factory in Chennai, once touted as its global hub for small cars.
Swiss food giant Nestle and truck maker Mahindra & Mahindra, which has ventures with Renault and Navistar, have also faced the ire of striking workers.
But the government, while free after this year’s elections from communist allies who had opposed any move to make labour laws more employer-friendly, may not be inclined to bring about sweeping changes, analysts said.
“Despite the strong endorsement from voters ... political constraints mean reforms to outdated labour laws are unlikely,” said Nikhilesh Bhattacharya, a Moodys.com economist.
India’s workforce is likely to hit 502 million by 2012, with the share of informal workers at more than 90%, said the National Commission for Enterprises in the Unorganized Sector.
Such a big percentage of casual labour is “bad for employers, employees, policy makers, tax collectors, cities”, said Ashok Reddy, managing director at staffing firm TeamLease, leading also to a decline in productivity and quality in the long term.
“Our laws protect the status quo, but they need to recognize the natural boom-and-bust cycle in an economy,” he said.
A World Bank report on ease of doing business ranked India a lowly 122 of 181 countries, and suggested greater flexibility in labour laws would help create more jobs and reduce poverty.
The number of labour days lost in 2007-08 from strikes was 1.1 million, just a small fraction of the nearly 35 million lost in some years in the 1980s, a decade marred by the textile mill workers’ strike in Mumbai which shuttered the industry.
But even recently there have been violent confrontations, as with Honda Motor’s Indian unit and the killing last year of a US-based IT firm’s local chief by workers he had fired.
Political intervention is common: last year, about 1,000 staff at Jet Airways, backed by regional parties, forced the management to rescind its decision to lay them off.
“Are India’s labour laws helping make it an attractive destination or are we going to lose out to other countries because they don’t adequately protect employers?” said Mohit Arora, a senior director at consultancy JD Power in Singapore.