Turning The Tide of Labour Unrest in India

Santosh N Gambhire
Ajitsingh K Patil
Anurag Sinha
Jamanalal Bajaj Institute of Management Studies, Mumbai


Recent clash between the Labour and Management of Honda Motors and Scooters India in Gurgaon has again brought back the bogey of strikes of socialist era. Everyone including MNCs, government, economist and employers are skeptical of resurgence of Labour movement. If labour Movement gets a new life, it can give a severe jolt to Indian economy. Therefore, it is necessary to analyze the reason behind these events and curb the nip in the bud.

Globalization and Liberalization has forced government to give a serious thought to our anarchic labour law, which makes our companies uncompetitive globally and discourages foreign companies from investing in India. Indian labour laws are among the most rigid in the world. Some recent data compiled by the World Bank collate the level of rigidity of hiring and firing rules in different nations -100 being the score of the highest conceivable rigidity. India is among the most rigid countries with a score of 48. China has a score of 30, Korea 34, Norway 30; Singapore closes to 0.  Therefore this crisscrossing network of chaotic, strangulating, overlapping and often- contradictory laws need an overhaul. The single most important labour law is arguably the Industrial Disputes Act (IDA), 1947. This was enacted a few months before India's independence and guides the hiring and firing rules of the industrial sector and is a good example of a well-meaning policy that is founded on antiquated economics and a handsome misunderstanding of the way markets function. The IDA makes it very hard for firms to fire workers. This law has probably done more to hold back the growth of India's manufacturing sector than any other policy.

In this scenario, Government recognized the need for increased flexibility in Labour market, but they can not bring the policy of hire and fire approach, more so, since the institutions of social security, particularly unemployment insurance are not well developed in our country. Therefore structural reforms in labour laws must ensure the welfare of workers. Reforming labour laws will boost industry and create more jobs.

Besides Government, it is the responsibility of the employer to develop some well specified procedure that must not create undue unrest among workers and whenever they need more manpower ,they should a give preference to the workers it is retrenching at present. They should also introduce some Unemployment Insurance schemes made by the contribution of employees and employer.

The fact that the less rigid nations also have more efficient economies, higher wages and a smaller share of laborers who are long-term unemployed is not a matter of coincidence. Given that the reform of labour laws is, contrary to popular perception, in the interests of the workers, what government needs to do is have this topic debated and explained so that workers, instead of opposing such reform, become its advocate.


Are the labour unions back? The riot that followed the labour management dispute in Gurgaon over the Honda Motorcycle and Scooter India spat could be the first major sign of things to come. After a decade-and-a-half of market friendly policy changes, the union seems to be sticking their neck out again to ensure they are being heard. Some says the left parties in power are the force behind this resurgence, the central unions disagree. They see the UPA government in the Center as a major conducive environment for their woes to be heard. For now, the battleground has been cleared and the soldiers are back home. A peace pipe is being passed around and the warring factions appear momentarily happy to take a drag as they put behind them the images of mayhem that hit the industrially flourishing Gurgaon-Manesar region in Haryana. But behind the wall of silence, tremors can still be felt. The question on everyone's mind is how to ensure that what happened on Black Monday in Gurgaon does not happen again.

Research has revealed that labour strikes globally hit once in eight to 10 years. That period is now nearing. "The Honda incident should be taken as early warnings of a big wave of labour militancy in the future." The All India Trade Union Congress (AITUC), which has just claimed a conquest by bringing Honda Motorcycle & Scooter India's workers' union into its fold, has now trained its guns on Maruti Udyog Ltd, the leading producer of passenger cars in the country pertaining to the dismissal of 92 employees during a labour trouble at Maruti in 2000-2001 and several hundreds opting for a voluntary retirement scheme, which, it is alleged, is not exactly voluntary.

These are the clear signs of tide of labor unrest to come.


A labour unrest is a social phenomenon of enormous complexity and it is very difficult to give any complete explanation of this phenomenon. It is a matter of controversy whether the predominant factors underlying labour unrest are economic or non-economic. It has been concluded that so long as income remained the all important means for satisfying human wants and needs, wage would continue to be major consideration in labour unrest.

Considering the nearing period of labour unrest with the recent cases of Honda and Maruti, it is the time to do root cause analysis and find out what are the possible reasons which lead to labour unrest so as to address these issues and untide the tide of labour unrest.




From the study of some of the strikes and lockouts over last 10 years, we concluded that all the possible reasons can be classified into five major heads. As specific problems are branched out from the major effect area, the result appears to look something like a fishbone diagram. The potential problems can then be researched to find the root cause and correct it. The five heads are as follows:

  • Monetary
  • Political
  • Legal
  • Job Specific
  • Others


All the causes mentioned above have some impact on the labour dissatisfaction which may eventually lead in Labour Unrest depending on the intensity of the problem. But the study done for the last 10 years led to conclude that major reasons for the strike and lockouts are as follows:
  • Wages
  • Retrenchment of labour which calls for sorting out the differences between employers and employees regarding Industrial Disputes Act, 1947.
  • Management's decisions to go for contract labours without giving them permanent job security and denying fair wages. This issue can be adderessed by bringing consensus between trade unions, employers, government and political parties in Contract Labour Act, 1947 based on their interests.

In order to bring down Labour unrest, there is need to cater for these issues separately.


Workers will not be happy to sacrifice on wage and job security. So long as income remained the all important means for satisfying human wants and needs, wage would continue to be major consideration in labor unrest. Government official warned that failure to upgrade labor skills in a globally integrated economy will make it more difficult for unskilled and low-skilled workers to demand higher wages. This situation, in turn, may worsen labor unrest.

As the economy globalizes, it would be difficult to increase wages for unskilled or low-skilled laborers. Companies need to continue improving their training programs to meet the critical skills needed in a globalizing economy, which can be identified through industry signals. Improving labor skills would effectively solve labor unrest in the country, as it will result in higher wages and, therefore, better quality of lives for the people.

A shortage in skilled labor would discourage investors from putting up factories or companies in the country. They might opt to transfer to other neighboring countries whose labor skills are comparative to those of the Philippines yet require less pay. So managers and factory owners should invest in people and machines in order to compete globally.


Honda says its 50 workers who were suspended for indiscipline will not be reinstated pending an independent inquiry - an issue that caused bloody clashes between its workers and police on Black Monday. Dismissing four employees, 13 more were suspended without reason in May, followed by suspension notices to 37 others a month later. HONDA took a stand of not allowing the suspended workers into gates until the third party inquiry is completed and management gets the report. Management decided to take a call on their reinstatement based on the inquiry's findings. But in any case, four employees who had caused the initial disruption of work will not be taken back under any circumstances.

The trouble at the group's two-wheeler unit began when some 2,000 workers protested a lockout of the factory and dismissal of some colleagues. This was followed by clashes with the police that left scores wounded after some irate workers vandalized civic facilities, police vehicles and shops.

But it stresses the need to study and find out the reasons for the labour unrest at Honda.

The misgivings between the Honda management and employees find roots in the demand for a union to protect workers' interests. Though the demand for a union did not go well with the management, the government and other companies in Gurgaon, the workers applied for registering the union. And even after the union was registered, there was a lot of pressure from the management, which finally dismissed four employees in the first two weeks of May.

To conclude, an idea of forming union did not go well with the management of HMSI. This finds the root in Industrial Dispute Act (IDA), 1947 which restrict the labour market flexibility. Had IDA included sections allowing labour market flexibility, HONDA would not have taken action against employees forming a union. It necessitates the changes in labour laws and calls for labour reforms in such a way to protect the interests of both employers and employees.


Liberalization of the Indian economy is almost a decade and a half old. Of all the economic liberalization reforms, labour market reforms have gained maximum attention. It is widely argued by many economists that in the open economy and liberalized trade, the country can no longer afford to carry on labour market rigidities. The employers (industrialists) have been vehemently pressing for labour reforms on the plea that these are necessary for making Indian industry globally competitive and for attracting more of foreign direct investment. The existing laws, it is contended by employers, slow down growth and job creation. They say that under the existing labour laws the churning of new skills is slower, companies lose cost cutting flexibility and ability to bounce out of recession quickly. The employers further contend that Labour Market will become more flexible with the amendments; more workers can be hired legitimately and can ask for better benefits including better work conditions, safety standards, welfare measures and health benefits.

The structural analysis of Labour Reform

Any change or reform in labour law will depend on the four competitive forces: Trade Union, Employer, Political parties and Government. In these forces, Trade Union and Employer take diametrically opposite stand on any issue. Employer wants more flexibility in retrenchment policy to become competitive, whereas Trade Union primary concern is on Job security and their influence on workers, which determines their bargaining power with Management. Political parties want vote bank from workers as well as financial support from businessmen. Whereas Government is keen to bring the labour reforms in order to keep Country on the fast track of development but don't want to create unrest among the workers.


Labour laws need to be amended to suit the changing economic scenario. However, different stakeholders like Employers, trade unions and political parties seem to differ on the issue. For e.g. the political parties in the ruling coalition of the Central Government possess contradicting ideologies on labour related matter. Leaders of the Communist Party of India (CPI), an important party of the coalition, have been opposing the flexibility to industry on labour related matters. The congress has been arguing for "labour reforms" to attract Foreign Direct Investment in the country. However, the journey for labour reforms seems to be difficult owing to inherent contradictions among the stakeholders involved in the process.

The trade union opposes the Employer's demand saying that any loosening of government control over the industry by way of labour reforms would throw workers out of job safety net. They want among other thing strengthening of social security for the workers, extension of social security benefits to workers in the organized sector, and participation of workers in the management.


  • Industrial Disputes Act, 1947
  • Contract Labour (Regulations and Abolition) Act, 1970
  • Social security net


It is a principal legislation dealing with the core labour issues like investigation and settlements of industrial disputes, regulation of strikes, lockouts, lay-offs, retrenchment, and other related matters. According to the chapter VB of ID Act it is compulsory for any industrial establishment employing more than 100 workers to seek permission before resorting to lay-off, retrenchment or closure. Employers and some political leaders have been arguing for a change in this provision.

Employers want that the limit for the application of Chapter VB should be raised to 1000. NDA government, during its tenure had expressed its willingness through various statements to amend ID Act to free employers from the restrictions on them in the chapter. It was proposed to give an additional retrenchment compensation of 45 days wages for every completed year of service. But trade unions are very much opposed to it, as almost every unit would come under this limit, giving employer's unrestrained right to close their units.


Trade Unions:  They oppose the increase of limit specified in Chapter VB from 100.

Behind this stance they want to safeguard some interest:

* Unions' influence at the workplace will decrease by this amendment
* Their bargaining power will be reduced
* Loss of job will be a major threat to workers
* It may affect Worker's economic welfare
* It will boos Union's identity as savior of worker's right

Employers: They support the idea of increasing the limit specified in Chapter VB up to 1000. They expect following favorable effects from this change.
  • It will provide the flexibility at work.
  • It will help in cutting cost
  • They will gain global competence
  • They will have favorable exit policy
  • There will be less legal battles
  • They will have better management control

Political parties:  There is lack of consensus among different key personnel among political parties regarding this amendment. They face following threats and advantage by bringing the changes in law.

  • They might lose the political support of worker
  • They will get financial support from employers to meet election expenses.

Government:  Every government talks about bringing the requisite change in the law. It is necessary to bring change in our archaic Labour law if government wants to attract huge amount of Foreign Direct Investment. But they don't have the enough political will to take such concrete step, as it can adversely affect their chances in election. So they also talks about revival of sick units to protect employment. But such a step will only ensure the locking of huge fund in unproductive work, which could have used in more wealth creation and employment generation.


As seen from the above list of interests, the ruling political parties carry a dilemma as to how to balance their interests regarding political support of the workers, financial support of the employers and attracting foreign investments. Clearly the interest of the trade unions and the employers are conflicting on the issues of managerial control at the workplace. The freedom to retrench people would construe to significantly higher managerial control of employers at the workplace. Unions are unlikely to agree to such scenario.

  • One way to maintain the balance of control at the workplace between the employers and the trade unions would be to develop well specified procedures to retrench employees. Such procedures do not provide flexibility to the employers to retrench arbitrarily. Hence, it could protect the balance significantly.
  • Some mechanism could be developed whereby, the company retrenching the employees should take an undertaking that whenever it needs to diversify or need more manpower, it shall give preference to the workers it is retrenching at present.
  • Companies could also opt for unconventional problem solutions:
    • * Cutting working hours of workers to avoid possible retrenchments, transfer or redeployment of labour from excessive labour to labour deficient units.

      * Labour can be given three to six weeks break and encouraged to go   in for skill enhancement. It will lead to a two way gain: personal growth for the employee and employer can put to use worker's enhanced skills.

There are a number of companies for e.g. Volkswagen, who have successfully used these methods to steer themselves out of the economically tough situations without opting for conventional means like freezing recruitments, going in for retrenchment or lay off etc.

  • Amendments under Industrial Relations Bill of 1982 should be implemented as it contains many provisions that would attend to the current concerns like setting up of a time-bound grievance redressal, fixing a time limit for the adjudication of individual and collective disputes.

Contract Labour (Regulations and Abolition) Act, 1970

For some time past there has been growing agitation for the abolition of employment of contract labour, as it was realized that the execution of work on contract through a contractor, who as an employer of the employed labour, was primarily to deprive of its due wages and various privileges of labour laws. It was also realized that certain work by their very nature can conveniently be executed by contractors through contract labour, or by labour on contract basis. In this regard, the matter of abolition and regulation of contract labour, caught attention of law makers. According to the Section 10 of the Act " Notwithstanding anything contained in this Act, the appropriate Government may, after consultation with the Central Board or, as the case may be, a State Board prohibit, by notification in the official Gazette, employment of contract Labour in any process, operation or other work in any establishment ".

On the current status, union leaders are of the opinion that a reference to labour reforms in the current context of economic liberalization can only mean a freedom to the employers to resort to a policy of 'hire and fire' as opposed to some what sheltered environment that the labour enjoys with the stringent norms on retrenchment, lay-offs and closure of industrial establishments under the present regulatory framework.

The law may forbid retrenchment or closure, but in practice employers simply stop paying salaries or running mills. Owners prevented from downsizing see no point in putting any more money or effort into a revamp. Instead they strip the assets of their ailing companies. Industrial sickness has been growing and many workers in the sick industries have employment security only in the theory. Employers search for escape routes has led to greater use of casual and contract workers. The growing casualisation of labour is reflected through employer's preference to outsource drivers, gardeners, canteen staff etc.


Trade Unions:  According to the Trade Union Section 10 should not be amended to the disadvantage of contract workers. It will ensure following favors for workers.

  • Ensure due wages to workers.
  • Job security
  • Get benefits of labour laws.

Employers:  Employers want amendment in Section 10 to facilitate of activities without any restrictions. It will help them in

  • Reducing costs.
  • Getting more flexibility at work place
  • Power and control at work place.
  • Saving from legal battles.
  • More flexibility leads to better outputs and a more competitive working environment.

Political parties: There is lack of consensus among different key personnel in political parties. They have to make balance between the two diametrically opposite interests,

  • Political support of workers
  • Financial support of employers to meet election expenses.

Government: It varies with the political party in power; NDA government seemed more inclined to allow outsourcing and engaging workers on contract. It is the responsibility of government to bring requisite amendment in this act so that more money can flow in India in form of Foreign Direct investment.


Though there are significant conflicts in the interests of the trade unions and employers, the contact workers are quite freely changed by employers owing to high vulnerability of those workers. The high job insecurity and unemployment in the country virtually forces the contract workers to insure compliance to employers. It enhances the control of the employers at the workplace. Hence, the trade unions are keen to develop strict norms of employing least number of contract labour and higher number of regular employees. In such scenario, it is a challenge to both the employers and trade unions to reach to a common ground to get solution to the present situation.


There is an urgent need to revisit our labour policies and other labour related issues, if India as a country has to remain competitive and in fact has to assume its legitimate share in global economy, give the country's size and resources. But one of the major constraints in making our labour laws flexible has been absence of an adequate and broad based safety net for the country's workforce.

India has two main social security schemes for workers in operation since 1950s in the organized sector. These are Employees Provident Fund Scheme and Employees State Insurance Scheme. The former provides social security like provident funds, pension on superannuation etc. to about four crore employees while the later caters to the medical care needs of specific group of workers particularly in the unorganized sector.

Despite being among the largest social security schemes in the world, the two main schemes mentioned above cater to not more than 8 to 9 per cent of the country's total work force. Secondly, these schemes don't have built-in mechanisms to neutralize/compensate for the adverse fall out of globalization like closures, retrenchments etc.

The closure of industrial Units and bankruptcies are normal feature in the developed economies all over the world. The workers of such unit do not feel adverse impact as they are covered by well-established social security system.

Cover during Unemployment

The advocate of the 'hire and fire' also wants to bring about a fundamental change in the nature or perception of employment. They want employment to be on the basis of contracts for stipulated periods- a total departure from the current system in vogue in most kind of employments.

Most of the developed countries where the majority of jobs are contacts have elaborate and effective system of social security. Even in China, to quote an instance, there are stringent laws on social security system that takes care of worker's income and requirements at least for two or three years of transition or unemployment. In India we don't have such provisions. There is a need of Unemployment Insurance. Let every worker in the organized worker pay Rs.10 per month into an unemployment insurance fund, and let every employer make a matching contribution. Rs.10 is a small sum but if 28 million workers contribute Rs.10 each, that means 28 crores per month. With matching contributions from employers, the sum rises to Rs.56 crores per month. Even allowing for the some defaults, that is sufficiently large and sustainable to take care of retrenchment compensation. Unemployment insurance can provide retrenched workers with 100 per cent of basic wages for six months, failing to 75 per cent, 50 per cent and 25 per cent in the next three six-month periods that will support workers for up to two years while find fresh jobs.


It must be recognized that labour market reforms are not going to be easy in a situation where employment opportunities have been shrinking. Also there is a larger question of providing social security to the workers employed in the organized sector. The vast unorganized labour force, which constitutes over 90 per cent of the total, is denied fair wages and even modest levels of social security. Hence, labour market flexibility must be accompanied by some kind of insurance and social security to the vast unorganized labour force in the country. Government should make all possible efforts to dispel the fears of trade unions by enlarging the scope and coverage of the social security net.

Hence no solution can be reached if the stakeholders continue to take extreme positions. There has to me a meeting ground to address everyone's interests, to the extent possible. The immediate challenge in bringing about the desired labour reforms is to resolve the anti-labour stand in the employer's mindset, and labour prejudices. They have to realize that employer and employee are not separate entities but two faces of the same coin. They equally need each other and the relationship between the two can only be harmonious if they work towards defending each other's interest rather than contesting the same. Hence employers should pay more attention to human resource development and capacity building of their employees. Industrial bodies have to take up workers education. Workers on the other hand realize the importance of 'no work no wages come'.

There should be a general consensus on the labour reform ideology among the major political parties. Political leaders should look beyond their narrow interests and develop consensus for the larger benefits of the Indian economy. It demands to bring in a balanced view whereby concerns of all the stakeholders, especially the trade unions and the employers are addressed. This may further be strengthened through a wider debate involving academicians, legal experts, policy makers and public at large. All the stakeholders should arrive at some consensus so that there is something for everyone.

Once such consensus is developed; it may be coupled with good and clean corporate governance.


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Santosh N Gambhire
Ajitsingh K Patil
Anurag Sinha
Jamanalal Bajaj Institute of Management Studies, Mumbai

Source : E-mail September 1, 2005




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