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'Is firing labour the only solution for India Inc?'

Business Standard | October 22, 2008

Clearly not. But to take the case of the Indian airline industry which is in the news, its fleet must be cut by a fifth but it can't do this unless it also has the right to fire workers.

Amit Mitra, Secretary General, Ficci

'If you don't have labour flexibility, firms will just employ more capital and this will hurt the workers whose interests are being protected'

There are those who fall under the Industrial Disputes Act and the Shops and Establishments Act and those who don't. These are two Acts under which non-officers and supporting staff cannot be retrenched. The law is very clear that those falling under these workmen's Acts can't be retrenched.

Retrenchment can only take place when it comes to the officer cadre in India. That is why industry has been asking for flexibility through a central industries act to enable retrenchment of non-officers as well. Once you hire for three months, you should have the freedom to terminate  jobs when you don't require the worker. The other issue is that most states don't give licences under Contract Labour Act to industries.

Where there is no licence available under contract labour law, industries are forced to either make a self declaration at the risk of getting caught and fined or fall back on more machines. Andhra Pradesh, Gujarat and Maharashtra are coming with separate laws to bring flexibility to their labour laws.

When you don't have a job and are offered one under contract, at least you get an opportunity to work. If that opportunity is denied, industry will become capital-intensive. This section needs more flexibility of law as industry is getting more and more capital-intensive.

As far as officers are concerned,  they get a month's advance notice period when asked to leave. It works both ways. The worker also can give a month's notice and quit and get a better job. In fact the latter is more common than the former.

Non-officers cannot be fired as the workers will go to court. But this law can be made flexible only if there is a social security net to cushion employees when the law permits retrenchments.

In India, we have no social security system and hence we don't want a hire-and-fire law for non-officers. This is an area which has to be rectified. In the US, when a workman is fired, he gets unemployment insurance for six months and so there is breathing space to find jobs.

The US is, in fact, today drowning under a social security system which makes workers today pay for workers of yesterday. With a decrease in population, it has meant a few supporting the pension costs of many.

We have to start off with flexibility of contract law and in the next ten years we should have a good social security system in place.

The good thing about contract labour is that it gives jobs. We have 12.5 million people joining the labour force annually and only 2.8 million have formal training. The remaining 10 million can get trained only in a contract job and they can then go up the ladder. If you don't have flexibility in the law to allow companies to remove workmen, industry will depend more on machines as they can't take on any more permanent liability than their capacity.


H Mahadevan, Deputy General Secretary, AITUC

'There's no evidence that lack of flexibility has hit investment. Also, even the nominal pay for firing workers has been kept at a mere 15 days of wages'

Some time ago, the Reserve Bank of India [Get Quote] did a study and found that workers are not responsible for 60 per cent of the problems with any given company. Problems like mismanagement, embezzlement and government policy took the chunk of the blame for companies running losses. But when an industry becomes sick, it  is the worker who gets the axe.

The Philadelphia declaration which led to the formation of the International Labour Organisation says labour is not a commodity but even today when MNCs outsource or offshore to other countries, they consider labour the chief commodity. What is happening now is the survival of the fittest which is a jungle law. We want welfare of the weakest which befits the human society.

Under Section 25 Clause 5B of the Industrial Disputes Act, if any company with more than 300 workers wants to close and hence retrench or lay off, it has to take permission from  the government. They invariably get it. Even this nominal protection measure is being questioned. There is no evidence to prove that this clause has affected investment in India.

On the other hand, in 2007, 10 top executives in India earned Rs 193. 85 crore while,  according to the Arjun Sengupta Committee report, 77 per cent of people earn just Rs 20 a day in this country. India tops the list of Swiss bank accounts worth $1.4 trillion as per the Tax Jubilee Network 2005. This is black money taken from India. Why not bring it back to India?

In public sector banks, non-performing assets are worth Rs 3,00,000 crore (Rs 3000 billion) and these are companies which have made banks sick. Why not get back all that money?

Regulations should help get redistributive justice for everyone. The second Labour Commission had recommended that every retrenched employee get 90 days' salary per year multiplied by the days of service. The law now provides just 15 days' salary.

In China, if someone loses his job in sick government units, it is the government's responsibility to provide 50 per cent wages per year till it is able to find him an alternative job. It may apply this to private companies too.

If you are a country with a surplus population, throwing you in the Arabian Sea is certainly not a solution. It is a governance issue. The government can't simply wash its hands off this. Profits should be for people and not over people. Surely companies can allow people to sit at home for six months with wages till they get another job?

Mahatma Gandhi said that industry is a trust and the employer is a father who should look after workers as his children. Today it is convenient to forget all this ideal of trusteeship.



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