Disputes speeding beyond auto sector

Roudra Bhattacharya Mumbai | Updated on March 12, 2018

Labour trouble not only impact foreign-owned companies, but domestic firms as well.

Tough labour laws hitting investments, say analysts

As Maruti Suzuki's labour problems at its Manesar plant subside, industry experts and analysts warn that, if not checked, worker-management disputes could very well spread to other manufacturing sectors.

This is because industries such as capital goods and chemicals also boast of operational dynamics similar to automobiles – a sector plagued by labour trouble across the country for the past few years .

All of these sectors employ a large number of people and have registered sharp growth over the last few years, mirroring the growth of the economy.

“There is a higher chance (of such trouble) in sectors which are relatively new to the country and are growing fast. Such industries need a large number of trained manpower very quickly, for which they hire contract workers at lower wages,” said a senior analyst from one of the top advisory firms.

“In other industries, labour-management relations have usually settled down over time to an amicable compromise. This is something that should pass over time. It is a permanent issue, but should not come in the way of investment,” he added.

The services sector, which includes IT/ITeS, financial services, have a very low chance of labour trouble. With a 30-35 per cent attrition rate, employees in such firms do not stay in one company for long enough to form a union. In low-skilled jobs like construction as well, migrant labour has a much lower chance of forming a union and giving trouble to the management.

Contract Labour

The primary reason for labour disputes in manufacturing is that the share of contract workers is as high as 60-90 per cent of the total workforce in the factory. Companies opt for this route as contract workers, hired usually through middlemen/contractors, can be fired much more easily if the market demand worsens.

The high number of contract labourers creates animosity between them and the smaller number of permanent workers – who enjoy considerably more benefits and job security.

Permanent workers cannot be hired/fired easily and are protected by the ‘Industrial Disputes Act, 1947', which mandates that firms with over 100 workers (permanent) have to obtain Government permission for any layoffs, retrenchments or closures.

“Labour laws in this country are very strict, which is not good for investments. Contract and permanent workers want equal benefits. So if this large section of the workforce goes on a strike, work at the plant can come to a total halt,” Mr Abdul Majeed, Partner at PwC India, said.

“Communication channels need to be open (with management). Slowly, it will start erupting in other sectors as well,” he added.

Mr Sharad S. Patil, Secretary General, Employers' Federation of India, said, “Labour trouble does not only impact foreign-owned companies, but domestic firms as well. The worry is that if the economic slowdown hits here and more jobs are lost, we will have a bigger problem in our hands.”

Published on October 24, 2011

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