The ongoing crisis at Maruti Suzuki clearly drives home the need to review India's labour policies. These were better suited for a time when the producer had a stable market for his output, and the fledgling workforce then needed some state support to enter into an equitable contract of employment. Today, the producer has to contend with an extremely uncertain business environment; but the legal framework for conditions of employment remains the same. Predictably enough, it disincentivises firms from hiring permanent workforce.

The Industrial Disputes Act prevents any establishment with more than 100 employees from undertaking lay-offs even in downturns without obtaining Government permission (which is seldom granted). Firms, therefore, prefer to keep their regular workforce as low as possible and hire casual workers to adjust the labour requirements to the ebbs and flows of the business cycle. It has created obvious inequities in the shop floor between permanent employees and those on contract. The latter have no job security and get barely a third of what the regular ones earn despite doing the same type of work.

Such a system is bound to create tensions and occasionally explode as it has in Maruti, which employs about 40 per cent of its workforce on contract. The ratio is even higher, apparently going up to 80 per cent in the case of auto component manufacturers. While labour troubles are not new to the Gurgaon-Manesar beltwhere India's No. 1 car maker operates, the seriousness of the latest unrest has been underlined by the participation of 130-odd fund managers at an analysts' conference call with the leadership of the agitation to understand their side of the story.

It is time for India to urgently undertake labour reforms without which it cannot hope to increase the share of manufacturing in its GDP to 25 per cent by 2020 from the present 16-17 per cent. The first thing that has to end is the system of hiring through contractors and pay discrimination between workers performing similar work in the same organisation.

Manufacturing firms should be made to keep all workers — other than those performing activities not core to the business — on their regular rolls, entitling them to uniform productivity-linked wages, provident fund and other benefits. This should be combined with the flexibility to lay off in a humane and transparent manner with reasonable advance notice. During the period of employment, there could also be compulsory payments made to an ‘unemployment fund' of every worker – a la payroll tax withheld from wages – that will serve as insurance in the event of losing his or her job. But all these cannot happen with the existing laws that benefit neither employers nor 90 per cent of the country's labour force. Maruti is a wake-up call for the Government to act.

Related Topics