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Rediff.com  » Business » India's 'jobs for life' culture takes a rest

India's 'jobs for life' culture takes a rest

August 04, 2003 09:42 IST

The number of people in India's job market is a tiny bit larger these days because of the rising number of top managers opting for voluntary early retirement.

Though the pace of voluntary retirement schemes is gathering pace, the decision to take part is scarcely any easier. After all, India has a deep culture of jobs for life.

"White collar workers still feel a great deal of stigma in participating in voluntary retirement schemes," says Dr Santrupt Misra, director, human resources at Mumbai-based conglomerate Aditya Birla, where VRS has become part of wider labour policies designed to make the commodities group sharper.

He cites the example of a man who was on the verge of being appointed chief executive of a local hospital but was rejected after a casual reference check revealed he had recently taken VRS but could not bear to reveal his new, diminished status.

VRS is now an established feature of human resource management in India. As a mechanism to reduce jobs, the policy has been tested out, with mixed success, among blue-collar workers in the public sector.

The controversial privatisation of Balco two years ago included an early retirement scheme that was introduced after the aluminium smelter was sold to Sterlite Industries, a non-ferrous metals group based in Mumbai.

Public-sector banks have led the way with early retirement policies that have covered thousands of workers. State Bank of India, the biggest in the country, parted with thousands of staff last year.

The bank was embarrassed at the keenness of so many officers to leave: their departure created holes in key areas of the bank's operations.

The final number of public-sector bank workers - among the most militant in India - opting for VRS could comfortably reach six figures.

Early retirement programmes may have allowed banks to lower their operating costs and raise their profitability. But the process has not been trouble-free.

"There has been a great deal of resentment in institutions such as state-owned banks, where the unwritten contract for years has been lower pay for job security," says one private sector banker.

Beyond public sector banking, the push behind large-scale VRS has been a wave of mergers and acquisitions, which has forced acquirers to restructure and remove overlapping jobs. A parallel reform of India's over-manned manufacturing sector has also contributed to the trend.

The result, at companies such as Bharat Forge, which makes vehicle parts for export to the United States and China, is a manufacturing process whose low costs have made it globally competitive.

Nor has VRS been easy to accommodate in the Indian mind-set. Domestic business groups have for decades taken a generous paternalistic view towards labour, providing housing and other welfare benefits.

Terminating a culture of company-funded welfare - best illustrated at Tisco, a large steel maker, that has built the entire town in which it is located near Calcutta in northeast India - has not been easy.

Not only have unions protested; companies such as Tisco have been forced to question a culture as old as their existence.

In the event, commercial reality won. Tisco's voluntary retirement programme covered about 30,000 workers, and the steelmaker has emerged as one of the lowest-cost producers in the world.

VRS is now rising from the factory floor to the level of middle management. Human resources chiefs believe there is a long way to go before companies achieve in management the efficiencies that they have achieved on the shop floor through early retirement schemes.

Foreign banks in India, whose cost-base is higher because of their higher pay, have been quietly but consistently forcing through VRS.

Citibank, one of the oldest foreign banks in India, is a notable example.

In industry, the Aditya Birla group's VRS is now beginning to embrace middle management. ICICI, India's largest commercial bank, recently offered early retirement to anyone aged above 40.

Although there is huge variation in compensation packages, search executives say a 50-year old middle manager with two decades' service and costing the company in the range of Rs 30 lakh (Rs 3 million), could reasonably expect to receive a package totalling Rs 25 lakh - Rs 30 lakh (Rs 2.5 million – Rs 3 million).

This would include superannuation entitlements, "VRS incentives", as well as writing off any company loans.

Human resources officials at top companies say the efficacy of a VRS scenario should not only be judged by its contribution to lowering operating expenses. The mark of a successful scheme must be judged on several other benchmarks.

These include communicating the need for a VRS; explanation of the fairness of compensation packages to different categories of staff; investment advice; correct documentation so that people are not burdened with paperwork when they leave; and giving advice on new job opportunities.

Although a VRS typically takes 90 days to implement, it will have been the culmination of many months of often destabilising speculation in boardrooms and the shop floor.

In any event, implementing the plan is not only easier these days because of more generous packages; the process is also self-contained because companies no longer need to gain prior approval from income tax authorities.

Beyond VRS and the company gates, participants have fallen into three broad bands of activity: some bankers and business consultants have turned to non-government groups, where their management skills are a welcome asset in a sector that is large and attracts generous funding. Some have retired.

Others have set up small businesses, though the opportunities here seem slim given a distinct lack of supply of start-up capital.

"We've not seen a flood [of managers from VRS] come to us for placement," says Deepak Gupta, country head and managing director of Korn/Ferry International, an executive search firm in New Delhi.

One explanation may be that VRS participants do not want to return to executive life, where competition for jobs is in any case hotter than ever.

What seems clear is that there is a greater willingness to opt out of dull, uninteresting careers.

The fact that many do so to pay for their children's education suggests voluntary retirement schemes may turn out to be a wiser long-term investment.

Khozem Merchant in Mumbai