R Srinivasan

India Inc is living in denial

R Srinivasan | Updated on August 06, 2020 Published on August 05, 2020

Spanner in the works: Industry will be in trouble if the workers don’t return

The imperfections of the industry-labour relationship need to be fixed

‘Plausible deniability’ was a concept which was first publicly espoused by Allen Dulles, head of the CIA and America’s chief spymaster during the height of the Cold War in the 1960s. Simply put, plausible deniability involves withholding or deliberately not acknowledging information by those in power who are exposed to public scrutiny of their actions, so that they can deny any involvement with certain actions or developments with a reasonable degree of believability.

The trouble with plausible deniability, as former US President Richard Nixon found to his cost during the Watergate affair, is that once the “plausibility” part of the denial is compromised, it can blow up badly in one’s face.

What does all of this have to do with our industrious captains of industry, you ask? Well, thanks to the Covid-19 pandemic, they have lost plausible deniability on the exact nature of the relationship between business and industry in India — large-scale, organised, small, medium, unorganised, micro or what have you — and labour.

Sudden exodus

Nobody has really asked why there was a sea of migrant workers on the streets of our cities struggling desperately to go back to their homes, literally within days of the country entering its first lockdown. After all, if they had travelled hundreds or thousands of kilometres from their native places to these urban centres, and had been staying — and presumably, productively employed — in these places for years, how come they were forced to abandon everything and risk their lives and meagre savings to head back to the only sanctuary they knew, within a scant few days of the lockdown?

In fact, as most of us can attest from personal experience, in the first few days after Prime Minister Narendra Modi made his dramatic announcement of a total lockdown with just a few hours’ notice to get ready, most businesses were struggling to come up with some coherent response. It took days, even weeks before many could set processes and systems in place, organise work from home where they could, or manage to continue operations if they qualified as an “essential service”.

How come, then, so many millions of migrant workers were told to pack up and leave so soon after the lockdown? Who told them to go?

Therein hangs a shameful tale of exploitation and abuse of workers’ rights which can — and should — be linked all the way to India’s biggest names in business, the ones which can claim — truthfully — that they are complying with not just the letter but spirit of labour laws when it comes to their full-time or permanent staff, and ones which have been claiming — with plausible deniability so far — that their contractual or part-time staff are also treated exactly the same way.

Middle-men

The thing is, there is an elaborate system of cut-outs and go-betweens who operate in the murky world of the Indian labour markets. Press these paragons of business on how exactly their, or their vendors’, or their vendors’ vendors’ labour, particularly that engaged on contract or part-time, is treated and what are the exact terms and conditions under which they are employed; and the best one gets is a redirection towards some anonymous service provider who has the temp staff on rolls. And so on.

It is a system which suits everybody. Large employers get the labour they need at prices they like, without having to suffer the onerous burden of compliance which falls on any entity which actually tangles with India’s Byzantine labour laws.

The reality is that the really nasty fauna reside at the bottom of the food chain. These are so-called labour contractors, who have contacts — and often, the muscle power to back it up — to provide large numbers of skilled, semi-skilled or unskilled workers at short notice to the organised-sector players. The big companies themselves do not deal with them directly (plausible deniability, remember?) but through agencies and service contractors. These contracts themselves will bear some scrutiny — on minimum wages, ESIC or other benefits and so on — but the reality of how much actually reaches the actual workers is quite different.

These large contractors maintain their pool of labour pretty much like a labour camp, providing not only employment but often shared housing and even food or mess facilities, all for a healthy slice of the workers’ earnings of course.

When the lockdown happened, these contractors either vanished or threw the workers out, anticipating a long, unproductive time ahead for their “assets”. That is why there were so many millions of workers on the streets trudging home, so soon after Lockdown 1.0 started.

Pressure on operations

By ignoring the challenge of providing reasonably compliant, and therefore moderately fair, conditions of work to their temporary staff, by preferring the shortcut of dealing with intermediaries, by simply treating all legal requirements which increase the cost of labour as a hinderance to business, by treating this part of its labour (it can’t do much about the organised part of its workforce) as disposable inputs instead of partners in their business, India Inc today finds itself staring at the problem of migrant labour in reverse — when the departed labour does not or will not return.

According to a report by India Ratings & Research — titled Reverse migration leads to multiple headwinds for the manufacturing sector — “The manufacturing sector will be at the forefront of the disruption particularly micro, small & medium enterprises in Maharashtra and Delhi. Though the labour shortage could accelerate the automation process wherever feasible, the near-term challenges in the form of low capacity utilisations, higher production cost and hence margin contraction are likely to impact the companies facing labour shortage due to reverse migration.”

The report looked at the vulnerability of operations in States which are dependent on inward migrant labour. It found that manufacturing firms in Delhi and Haryana are extremely vulnerable to the impact of reverse migration. Delhi, for instance, has a ‘Migrant Dependency Ratio’ of 93.52 — the percentage of migrant labour as part of the total workforce. Neighbouring Haryana is also classified as “highly vulnerable” with an MDR of 51.74 whereas Maharashtra and Gujarat are classified as “moderately vulnerable” with their MDRs at 29.19 and 17.12 respectively.

Ind-Ra believes the lack of skilled labour will lead to “significant pressure on the output, leading to underutilised capacity.” Ind-Ra also believes that “manufacturing cost is likely to increase, led by either loss of economies of scale or higher wages of workers, as demand exceeds supply. Hence, the margins for such companies could come under pressure in 2QFY21, if not passed on to end-users.”

The chickens have truly come home to roost. By ignoring the reality of the labour market to save a few short-term bucks, India Inc has landed itself with a larger problem, one which will punish the bottomline more.

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Published on August 05, 2020
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