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Business News/ Opinion / Online-views/  Views | Looking beyond the violence at Maruti
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Views | Looking beyond the violence at Maruti

Views | Looking beyond the violence at Maruti


The decision by India’s largest car maker, Maruti Suzuki India, to stop hiring contract workers, after an executive was killed and several injured in the most violent industrial dispute in the company’s 29-year history, shows the limits of the contract worker model. The decision has thrown open the debate on contractual employment in India, and on labour laws, which implicitly incentivize such employment.

Originally intended for peripheral work, the contractual system of employment has come to occupy the core of Indian manufacturing today, and especially so, in India’s high growth states such as Gujarat, Haryana and Andhra Pradesh. The rising share of contract workers has also bred conflict, often violent, in the industrial pockets of the country. Perhaps, employing workers on contract has become an over-used strategy to escape archaic labour laws.

The Indian labour policy regime suffers from a curious mix of improbably stringent laws and totally lax implementation, promoting a culture of weak governance that hurts employers, the employed, investment sentiment and economic growth.

Contract workers perhaps best portray this dualism today. Contract workers are as old as Indian industry and were unregulated till the sixties. Ironically, the share of contract labour in the organized sector has zoomed after an act that aimed at abolishing and restricting contract work was passed in 1970. Several provisions of the act such as --- payment of minimum wages and provident fund and avoiding contract work in the ‘core’ activities of a firm --- are often flouted.

Why have we come to such a pass, or rather, farce? A bit of history might be useful here.

From independence till the early eighties, the number of labour laws increased to reach roughly 100, and many more judge-made laws were added to the roster. In this period, which we can call ‘labour regime 1.0’, the country’s workforce was divided into two categories: organized and unorganized. The regime emphasized protection for the organized minority using distortionary cutoffs to decide which employers fall within the ambit of regulation. It put restrictions on the type of work a worker could do, and encouraged litigation rather than arbitration. This was a golden period for the labour bureaucracy, trade unions, and their political masters who enjoyed an outsized role in the industrial life of the nation.

A slowdown in growth in the unionized sectors such as textiles accompanied by rising labour militancy since the late seventies made this regime untenable. The turning point was perhaps the Mumbai mill strike of 1982 that ended in failure and signaled the collapse of union power.

The state was more willing now to relax labour restrictions but chose to retain the jaded laws. Starting from the eighties, the ‘labour regime 2.0’ has made minor relaxations in existing laws, reduced monitoring, and allowed de facto liberalization by encouraging informal employment, which bypass unions.

The share of contract workers in industrial employment has risen four-fold since the eighties, according to the conservative ASI estimates. This parallel system of employment has probably reached a saturation level now. Several instances of conflicts have arisen where contract workers form a majority and face unequal wages compared to their permanent peers. As a November ILO report on non-regular workers points out, since such workers are not part of regular collective bargaining, they are more likely to resort to wildcat strikes and militant action.

It is becoming increasingly evident that we need a labour regime, which stops tinkering with existing laws and makes a clean break from the past. We need ‘labour regime 3.0’ that mandates a universal code of conduct for employers and the employed. Such a minimalist regime that does away with silly distinctions between different types of workers or employers will provide a boost to growth. It can also succeed politically if flexibility to employers is combined with better governance and a more generous exit package or social insurance for employees.

Although the signs of a crisis are weaker compared to the late seventies, there are two key similarities between now and then: slowing growth and a new wave of labour militancy. Will our leaders wake up before the storm?

Also Read | History repeating for Maruti as season of supply strain looms

Social, economic undercurrents surface in Manesar worker unrest

Ourview | Violence, wages and Maruti

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Published: 26 Jul 2012, 11:08 AM IST
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