Multi National Companies & Impact on Labor Scene in India

...

[pic 5]

Prior approval of government is not required for investment in deregulated industries. This gives greater flexibility for MNCs in planning and diversification of their operations. Specific high technology and priority industries are now given automatic approval to conclude foreign technology agreements within certain guidelines. Permission is no longer necessary for the hiring of foreign technicians and the testing of locally developed technologies outside of India. The Foreign Investment Promotion Board (FIPB) negotiates with a number of large international firms to promote substantial investment, improved access to advanced technology and world markets. Bulk of the investment in the 1991-liberalisation era came through the FIPB route. The MNC's main attraction in India is the size of its market, which is not only large but also is growing phenomenally. A vibrant democracy, credible judicial system, strong bureaucracy, competitive human and natural resources, and continued popularity of English as a business language add to it. The Indian Industry is concerned about the role of MNCs in India. In the early 1990s many Indian companies had gone in for foreign tie-ups and many foreign companies have increased their stake in Indian operations. A spate of mergers and acquisitions too followed and many alliances got soured too soon for one reason or the other. The established Indian brand names began to be replaced by foreign brand names and a new practice of charging royalty for use of brand names, both by the Indian and the foreign companies, has created a flutter. Critics of trade liberalization have blamed it for a host of ills such as rising unemployment and wage inequality in the advanced countries, increased exploitation of workers in developing countries and a “race to the bottom” with respect to employment conditions and labor standards, the deindustrialization and marginalization of low-income countries, increasing poverty, global inequality, and degradation of the environment. These views have spread in spite of the fact that the benefits of free trade, in terms of improved allocation of resources and consequent gains in productive efficiency and economic growth, are a basic tenet of mainstream economic analysis. Economic reforms may have given a boost to industrial productivity and brought in foreign investment in capital intensive areas. This has not created jobs and was not unexpected.

---------------------------------------------------------------

-

INDIAN LABOR LAWS

The labor in India consists of about 497 million workers, the second largest after China. India has numerous labor laws such as those prohibiting discrimination and child labor, those that aim to guarantee fair and humane conditions of work, those that provide social security, minimum wage, right to organize, form trade unions and enforce collective bargaining. India also has numerous rigid regulations such as maximum number of employees per company in certain sectors of economy, and limitations on employers on retrenchment and layoffs, requirement of paperwork, bureaucratic process and government approval for change in labor in companies even if these are because of economic conditions. India is considered to be highly regulated and most rigid labor law countries in the world.

[pic 6]

Rigid labor laws in India have been criticized as the cause of low employment growth, large unorganized sector and underground economy, use of casual labor and low per capita income. These have led many to demand reforms for labor flexibility in India. The main issue has been slow employment growth despite increasing GDP growth termed as ‘jobless growth’ the arguments for which are that the existing labor laws are less employment friendly and biased towards the organized labor force, they protect employment and do not encourage employment or employability, they give scope for illegitimate demands of the Trade Unions and are a major cause for greater acceptance of capital-intensive methods in the organized sector and affect the sector’s long run demand for labor. . It has been argued that due to inflexibility in the labor laws the opportunity to expand employment in the organized manufacturing sector has been denied since there is a lack of consensus between the employer’s side and the worker’s side.

The employer’s view flexibility in labor markets as a pre-requisite for promoting economic growth and generating jobs, whereas, the trade unionists view flexibility in labor markets as a strategy for profit maximizing of the firms and reducing their bargaining power without generating sufficient employment opportunities as has been said. As we have seen above, bringing in flexibility in the labor market and hence flexibility in labor laws is therefore, an important matter in any agenda on structural reforms. The main accusation against the labor laws is that in the absence of flexible labor markets in the organized sector growth in output is not leading to a proportionate growth in employment hence the employers are going for more capital intensive production processes because of labor becoming a fixed input. Hence though the labor laws are meant to protect the jobs of the workers, the scope for creation of more job opportunities in future is being lost. There is a lack of consensus amongst the employers and workers which is being an impediment to any proposed changes in the labor laws.

The Industrial Disputes Act, 1947

It provides for machinery and procedure for investigation and settlement of industrial disputes and applies to all industries irrespective of size. Apart from this it has conditions for layoffs, retrenchment and closure of an industry. The main amendments were as follows:

- 1972- Any industrial establishment employing more than 50 persons would have to give 60 days’ notice to the appropriate government before the closure of the industry stating reasons for the closure.

- 1976- a special chapter (Chapter V-B) was introduced which made compulsory prior approval of the appropriate government necessary in the case of layoffs, retrenchment and closure in industrial establishments employing more than 300 workers.

3. 1982- Lowered the limit of the employment size to 100 for mandatory permission before closure and increased the number of days of notice to 90 days.

4. In 1984, this amendment was again redrafted and layoffs, retrenchments and closures in establishments having more than 100 employees had to follow the same procedures for seeking permission from the government.

...