MIR Lecture Notes

8/20/2019 MIR Lecture Notes

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UNIT-1

INDUSTRIAL RELATIONS MANAGEMENT

Concept Objectives

Participants

Background

Evolution and Growth of Industrial Relations in India

Problems and Issues

Industrial Relations Machinery

Influencing factors of IR in enterprise and the consequences

Globalization

New Economic Policy

Changing profile of stakeholders to industrial relations in India


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Concept

Industrial relations has become one of the most delicate and complex problems of

modern industrial society. Industrial progress is impossible without cooperation of labors and

harmonious relationships. Therefore, it is in the interest of all to create and maintain good

relations between employees (labor) and employers (management). The term ‘Industrial Relations’ comprises of two terms: ‘Industry’ and ‘Relations’.

“Industry” refers to “any productive activity in which an individual (or a group of individuals) is

(are) engaged”. By “relations” we mean “the relationships that exist within the industry

between the employer and his workmen.” The term industrial relations explain the relationship

between employees and management which stem directly or indirectly from union-employer

relationship.

Industrial relations are the relationships between employees and employers within the

organizational settings. The field of industrial relations looks at the relationship between

management and workers, particularly groups of workers represented by a union. Industrial

relations are basically the interactions between employers, employees and the government,

and the institutions and associations through which such interactions are mediated.

The term industrial relations have a broad as well as a narrow outlook. Originally,

industrial relations were broadly defined to include the relationships and interactions between

employers and employees. From this perspective, industrial relations cover all aspects of the

employment relationship, including human resource management, employee relations, and

union-management (or labor) relations. Now its meaning has become more specific and

restricted. Accordingly, industrial relations pertains to the study and practice of collective

bargaining, trade unionism, and labor-management relations, while human resource

management is a separate, largely distinct field that deals with nonunion employment

relationships and the personnel practices and policies of employers.

The relationships which arise at and out of the workplace generally include the

relationships between individual workers, the relationships between workers and their

employer, the relationships between employers, the relationships employers and workers have

with the organizations formed to promote their respective interests, and the relations between

those organizations, at all levels. Industrial relations also includes the processes through which

these relationships are expressed (such as, collective bargaining, workers’ participation in

decision-making, and grievance and dispute settlement), and the management of conflict

between employers, workers and trade unions, when it arises.


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Glossary of Industrial Relations

Industry

Industrial Disputes Act 1947 defines an industry as any systematic activity carried on by co-

operation between an employer and his workmen for the production, supply or distribution of

goods or services with a view to satisfy human wants or wishes whether or not any capital has

been invested for the purpose of carrying on such activity; or such activity is carried on with a

motive to make any gain or profit. Thus, an industry is a whole gamut of activities that are

carried on by an employer with the help of his employees and labors for production and

distribution of goods to earn profits.

Employer

An employer can be defined from different perspectives as:

A person or business that pays a wage or fixed payment to other person(s) in exchange for the

services of such persons. A person who directly engages a worker/employee in employment.

Any person who employs, whether directly or through another person or agency, one or

more employees in any scheduled employment in respect of which minimum rates of

wages have been fixed.

As per Industrial Disputes Act 1947 an employer means:

In relation to an industry carried on by or under the authority of any department of [the

Central Government or a State Government], the authority prescribed in this behalf, or

where no authority is prescribed, the head of the department;

In relation to an industry carried on by or on behalf of a local authority, the chief

executive officer of that authority;

Employee

Employee is a person who is hired by another person or business for a wage or fixed

payment in exchange for personal services and who does not provide the services as

part of an independent business.

An employee is any individual employed by an employer.

A person who works for a public or private employer and receives remuneration in

wages or salary by his employer while working on a commission basis, piece-rates or

time rate.

Employee, as per Employee State Insurance Act 1948, is any person employed for wages

in or in connection with work of a factory or establishment to which the act applies.


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In order to qualify to be an employee, under ESI Act, a person should belong to any of the

categories:

Those who are directly employed for wages by the principal employer within the

premises or outside in connection with work of the factory or establishment.

Those employed for wages by or through an immediate employer in the premises of the

factory or establishment in connection with the work thereof

Those employed for wages by or through an immediate employer in connection with the

factory or establishment outside the premises of such factory or establishment under

the supervision and control of the principal employer or his agent.

Employees whose services are temporarily lent or let on hire to the principal employer

by an immediate employer under a contract of service (employees of security

contractors, labor contractors, housekeeping contractors etc. come under this

category).Employment

The state of being employed or having a job.


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Labour Market

The market in which workers compete for jobs and employers compete for workers. It acts as

the external source from which organizations attract employees. These markets occur because

different conditions characterize different geographical areas, industries, occupations, and

professions at any given time.

Objectives

Protect management and labor interests by securing mutual relations between the two

groups.

Avoid disputes between management and labor, and create a harmonizing relationship

between the groups so productivity can be increased.

Ensure full employment and reduce absenteeism, hence, increasing productivity and

profits.

Emphasize labor employer partnership to establish and maintain industrial democracy.

This is done to ensure the sharing of profit gains, and personal developmental of all

employees.

Provide better wages and living conditions to labor, so misunderstandings between

management and labor are reduced to a minimum.

To bring about government control over plants where losses are running high, or where

products are produced in the public interest.

To bridge a gap between various public factions and reshape the complex social

relationships emerging out of technological advances by controlling and disciplining

members, and adjusting their conflicts of interests.


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Participants

Employees: There are about 268.19 lakh employees working in the organized sector in our country.

The figure will be a staggering one if the number of the employees in the unorganized is added. It is,

therefore, useful to certain observation about the Indian workers:

(a) Commitment to Industry- Labour is committed to industrial setting, thus contributing to

stable workforce. True, the worker might have his or her mooring in the villages. But is it

unlikely that he or she would go back to his or her village. He or she is settled in the industrial

city, his or her children are put in school in the city, and except himself or herself, and no one

else in his or her family has any nostalgic feelings to the village. Besides the present generation

of young workers is mostly born and brought up in the urban areas and has accepted industrial

employment as a way of life. But, commitment is only to industrial jobs, and not to work.

Hence, low productivity of labour.

(b) Protective Legislation- From time to time, the government has enacted a variety of labour

Acts, Perhaps, ours is the only country in world which has so many Acts to protect workers

interests. Thanks to the enormous protective legislation, wages, benefits, and working

conditions, safety and health of workers have improved considerable.

(c) Status of the worker-The economic and social status of today's workers is vastly improved.

Industrial employment is no longer the undesirable alternative left for those drive out from

villages. Improved skill contents of the jobs and increased emoluments have made industrial

employment the first attraction among young job aspirants. Industrial is not restricted now to

the socially low castes. The dynamic changes in the industrial sphere have, as the National

Commission on Labour has observed, brought about a "social amalgam". The status of the

industrial worker of today is enhanced as a result of the readjustment in the value system in

favour of industrial employment which is, in turn, the aggregated effect of his or her improved

skills and his or her enlarged pay packet. The stigma once attached to factory life has

disappeared.


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(d) Employment pattern

Another feature noticed in the industrial labour is the change that has come about in the

employment pattern owing to changes in industrial activity, which has tremendously expanded

and diversified and has undergone a technical transformation. In the early days unskilled

workers predominated in industrial employment, so long as traditional industries like textilesand mining were in the forefront. In the process of expansion and diversification, new avenues

of industrial enterprises in engineering, chemical, pharmaceuticals, and so forth assumed

importance and changed the composition of industrial employment.

The improved technology of these new industries created new jobs with greater content,

raising the minimum standard of education required. Industrial employment, in spite of being

blue collared in nature, is no more looked down upon as an inferior mode of earning a living.

The employment pattern has further changed in the service industries and electronic wherein

the employment has become more and more white collared and sophisticated.

Now the employees perceive industrial relations in term of the opportunity to:

1. Improved their conditions of employment

2. Voice any grievance

3. Exchange views and ideas with management

4. Share in decision making

The tendency of managers is to blame the worker whenever a dispute occurs. While it is true

that workers are a party to a conflict, but to hold them responsible for stocking the fire may not

be correct. The role of managers in igniting a conflict to serve their selfish interests cannot beoverlooked.


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TRADE UNIONS

Unions have a crucial role to play in IR. Unions have broad objectives which are:

1. To redress the bargaining advantage of the individual worker vis-à-vis the individual

employer, by substituting joint or collective action for individual action.

2. To secure improved terms and conditions of employment for their member and the

maximum degree of security to enjoy these terms and conditions.

3. To obtained status for the worker in his work.

4. To increase the extent to which unions can exercise democratic control over decisions that

affect their interests by power sharing at the national, corporate, and plant levels.

The union power is exerted primarily at two levels at the industrial level, to establish joint

regulation on basic wages and hours with an employers’ associations or its equivalent; and at

the plant level, where the shop stewards organizations exercise joint control over some aspect

of the organization of the work and localized terms and conditions of employment. Unions are

a party to national, local and plant procedure agreements which govern their actions to a

greater or lesser extent, depending on their power, and on local circumstances.

EMPLOYERS

Employers too, are directly involved in any dispute between the employers and the employees.

Employers are endowed with certain inalienable rights vis-à-vis labour. The management has

the right to hire and fire any worker, notwithstanding union restrictions. It is not just firing a

worker here of there, but the management's ability to control the economic destiny of the

workers that matters. The management has the right to relocate, close, merge, takeover or sellparticular plant - these actions affect workers interests. The management has another powerful

weapon - introducing or threatening to use technological change. Technological change can

displace labour or reduce skills. Armed with these rights, the management resorts to several

tactics to break a strike, some of them even unethical. The management is known to adopt

dubious mean to forego a strike, all of a strike, or tone down union demands. The management

often breaks a powerful union, sets one faction against another, and favours the most satisfied

and the less militant workers. Loyal workers from sister concern are brought in, on the pretext

of a factory visit, and are induced into a plant and advised to break the strike. Another tactic

employed by the management is to gain the loyalty of employees. The aim of this tactic is to

convince the worker that the management has his or her interests at heart and can provide him

or her with much the same benefit as the union. In part, this tactic is a revival of the “welfare

capitalism" of the 1920s. High wages, pension plans, profit sharing plans, programs of stock

ownership by workers - all these schemes have been revived, though often in modernized form,

and with considerable effect in the resistance of the new industries to unionization can be


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taken as evidence. Employees‟ loyalty is sought to be gained through another method, a

positive one. The management seeds to find out the sources of dissatisfaction and eliminates

those irritants. Workers are encouraged to form informal small groups, psycho-therapy is

conducted on a plant-wide scale, and interaction between the management and employees

and among the employees are structured and practiced. A militant but incorruptible union isco-opted in routine functions of the organization. For instance, the union may be used as a

channel of information to the employees. It may be used for meeting certain production

problem. In some plants, the management has even brought union leaders into process of

decision making.

In general, managers tend to see employee relations in term of the following activities:

Creating and maintaining employee motivation

2. Obtaining commitment from the workforce

3. Establishing mutually beneficial channels of communication throughout the organization

4. Achieving of high level of efficiency

5. Negotiating terms and conditions of employment with employee representatives

6. Sharing decisions making with employees

7. Engaging in a power structure with trade union


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EMPLOYERS' ASSOCIATIONS

Employers' associations operate at local, industry and all India levels. The Confederation of

Indian Industries (CII) is a powerful body at the national level which is doing an admirable fob in

protecting and promoting the legitimate interests owners of industries.

The major objectives of employers' associations include:

1. Representing employers in collective bargaining

2. Developing machinery for the avoidance of disputes

3. Providing information on employee relations and to give advice

4. Representing members on national issue

The specific objectives of CII are:

1. Identifying and strengthening industry role in the economic development of the country.

2. Acting as a catalyst in bringing about growth and development of the Indian industry.3. Reinforcing industries commitment to society.

4. Working towards globalization of Indian industry and its integration into world economy.

5. Providing up to date information and data to industry and government.

6. Creating awareness and support industry efforts on quality, environment and consumer

protection.

7. Identifying and addressing special needs of the small scale sector.

8. Promoting cooperation with counterpart organizations.

The other major all India employers’ associations are ASSOCHAM, FICCI, AIMO, WASME, FASSI,

and FIEO.

GOVERNMENT

In a sense, government intervention in IR is as old as the industry itself. However, till the 19th

century, governments everywhere followed the laissez faire policy - they left IR to the managers

and workers who were required to solve the problems themselves. Towards the end of the

19th century, the attitude of the governments changed. And intervention became a reality. The

state, as of today, regulates the relationship between the management and the labour and

seeks to protect the interest of both the groups. The government has setup wage boards,labour courts, tribunals, and enacted laws to lay down norms and to enforce their compliance.


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JUDICIARY

The powers of the judiciary are of a dual type:

1. The authority of the Courts to settle legal disputes;

2. Judicial review - the authority of the Court to rule on the constitutionality of legislation.

As far as second is concerned, the judiciary gets activated when the legislator passes laws

repugnant to the constitution and when the government implements the enactment improved

by the legislature in a manner opposed to the provision of the legislation. In other word, the

courts of justice protect the citizen from unlawful Acts passed by the legislature and arbitrary

Acts done by the executives.

It is the power of the judiciary to settle the legal disputes, referred to them, that affect IR

considerably. The judicial pronouncements will have a far reaching impact because:

i. Judicial errors do occur, though infrequent,

ii. Possibility of wrong assessment of penalty, "judges notoriously vary in the severity of

punishment inflicted",

iii. Judges are known for pronouncing conflicting verdicts on the same or similar disputes, and

confusion in turn.

iv. The role of judiciary in IR has not been always positive.

The result is that indiscipline in the industry has spread like wild fire and sapped the national

production and productivity. The classic case is the textile industry which has been wrecked by

indiscipline. The conflagration is continuing to engulf various industries one by one.

Background-Industrial Relations

Industrial relations play a crucial role in establishing and maintaining industrial democracy. In

India, it has passed through several stages. A number of factors-social, economic and political-

have influenced industrial relations in India.

In the pre-independence days, workers were ‘hired and fired’, as the principle of demand and

supply governed industrial relations. The employer was in a commanding position, and the

conditions of employment and wages were very poor. When these conditions continued

despite the efforts of leaders, it paved the way for revolutionary movements. However, even till

the end of the First World War, the trade union movement had not emerged. There werehardly any laws to protect the interests of workers except the Employers and Workmen

(Disputes) Act, 1860, which was used to settle wage disputes. After the First World War, the

industrial relations concept assumed a new dimension in the sense that workers now resorted

to violence, and employers to lockouts. There were numerous strikes and disturbances, during

1928-29. As a result, the government enacted the Trade Disputes Act, 1929 to enhance the


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early settlement of industrial disputes. This was based on the British Industrial Courts (BIC) Act,

1919. The Trade Disputes Act, 1929 differed from the BIC Act in that it did not provide for any

standing machinery for the settlement of disputes. However, it was found that neither the

central government nor the State governments made adequate use of this law.

In 1938, in order to meet the acuter industrial unrest prevailing then, the Bombay governmentenacted the Bombay Industrial Relations (BIR) Act. For the first time permanent machinery,

called the Industrial Court, was established for settling disputes. This was replaced by the BIR

Act, 1946, which was amended in 1948, 1949, 1953 and 1956. Soon after the Second World

War, India faced many problems, such as rise in the cost of living, scarcity of essential

commodities, high population growth rates, massive unemployment, increasingly turbulent

industrial relations situation etc.

Industrial Relations-Pre-Independence Period

The structure of the colonial economy, the labour policies of colonial government, the

ideological composition of the political leadership, the dynamics of political struggle for

independence, all these shaped the colonial model of industrial relations in pre-independent

India”. Then even union movement was an important part of the independence movement.

However, the colonial dynamics of the union movement along with the aggressiveness of alien

capital, the ambivalence of the native capital and the experience of the outside political

leadership frustrated the process of building up of industrial relations institutions. Other factors

like the ideology of Gandhian class harmony, late entry of leftists and the bourgeois character

of congress also weakened the class approach to the Indian society and industrial conflict”.

Till the Second World War, the attitude of the colonial government toward industrial relations

was a passive regulator only Because, it could provide, that too only after due pressure, the —

um of protective and regulative legal framework for industrial relations Trade Union Act 1926

(TL A) Trade Disputes Act 1929 (TDA). It was the economic emergence of the Second World War

that altered the colonial government’s attitude on industrial relations.

The state intervention began in the form of introduction of several war time measures, viz. the

Defense of India Rules (Rule 81- A), National Service (Technical Personnel) Ordinance, and the

Essential Service (Maintenance) Ordinance As such in a marked contrast to its earlier stance,

the colonial government imposed extensive and pervasive controls on industrial relations bythe closing years of its era-. Statutory regulation of industrial relations was on plank of its

labour policy. The joint consultative institutions were established primarily to arrive at uniform

and agreeable labour policy.


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The salient features of the colonial model of IR can be summarized as close association

between political and trade union movement, dominance of ‘outsiders’ in the union

movement, state intervention and federal and tripartite consultations.

The eve of Independence witnessed several instances that served as threshold plank for IR

during post Independence era. The prominent instances to mention are passing of Indian TradeUnions (Amendment) Act, 1947, Industrial Employment (Standing Orders) Act 1946, Bombay

Industrial Relations Act, 1946, and Industrial Disputes Act, 1947 and split in AITUC and

formation of INTUC.

Industrial Relations-Post-Independence Period

Though Independent India got an opportunity to restructure the industrial relations system the

colonial model of IR remained in practice for sometimes due to various reasons like the social,

political and economic implications of partition, social tension, continuing industrial unrest,

communist insurgency, conflict, and competition in the trade union movement. In the process

of consultation and confrontation, gradually the structure of the industrial relations system

(IRS) evolved.

State intervention in the IRS was a part of the interventionist approach to the management of

industrial economy. Several considerations like unequal distribution of power in the labour

market, neutrality of the state, incompatibility of free collective bargaining institution with

economic planning etc. provided moral justification for retaining state intervention in the IRS.

State intervention in the IRS is logical also when the state holds large stakes in the industrial

sector of the economy.

However state intervention does not mean suppression of trade unions and collective

bargaining institution. In fact, state intervention and collective bargaining were considered as

complementary to each other. Gradually, various tripartite and bipartite institutions were

introduced to supplement the state intervention in the IRS.

The tripartite process was considered as an important instrument of involving participation of

pressure groups in the state managed system. Non formal ways were evolved to do what the

formal system did not legislate, for one reason or other.

The political and economic forces in the mid 1960s aggravated industrial conflict and rendered

non-formal system ineffective. In the process of reviewing the system, National Commission onLabour (NCL) was appointed in 1966.

Now the focus of restructuring shifted from political to intellectual. However, yet another

opportunity was lost when there was an impasse on the NCL recommendations in 1972. The

Janta Government in 1978 made, of course, a half-hearted attempt to reform industrial


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relations. Unfortunately, the attempt met with strong opposition from all unions. The BMS, for

example, termed it as “a piece of anti-labour, authoritarian and dangerous legislation””.

Several committees were appointed to suggest measures for reforming die IRS. In the process,

tripartism was revived in 1980s. Government passed the Trade unions and the Industrial

Disputes (Amendment) Bill, 1988. But, it also proved yet another legislative disaster. The billwas severely criticized by the left parties. It was even viewed by some as a deliberate attempt

to destroy “autonomous; organized or militant trade union movement”.


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In consequence, the tripartite deliberations held at the ILC in 1990 decided three measures to

reform IR in India:

(i) To constitute a bipartite committee of employers and unions to formulate proposals for a

comprehensive legislation;

(ii) To withdraw the Trade Union and the Industrial Disputes (Amendment) Bill, 1988

(iii) To consider the possibility of formulating a bill on workers’ participation in manage ment,

1990. In the 33rd

session of ILC, another bipartite committee was constituted to recommend

changes in the TU and ID Acts. The government introduced a Bill on Workers, Participation in

Management in Parliament in 1990

Thus, the striking feature of the history of IR in India has been that it is dynamic in nature.

Particularly since 1991 i.e., the inauguration of liberalization process, die IR in India is marked

by new challenges like emergence of a new breed of employees (popularly termed as

‘knowledge workers’), failure of trade union leadership, economic impact, and employers’insufficient response”.

Evolution and Growth of Industrial Relations in India

In the USA, in the early 1900s, President William Taft appointed an investigative committee

which went by the name ‘Commission on Industrial Relations’. This commission was asked to

investigate the cause of violent and widespread labor conflict and give recommendations on

methods which could be used to bring about cooperation and harmony between employers

and employees. This was when the term ‘Industrial Relations’ came into being.

IR has undergone a wide change in Indian scenario; during the end of British period in India an

awakening in working class was seen. The world wars forced the employers to become more

friendly with the workers; to see un interrupted production is ensured during war time. Out of

their self interest they have to become benevolent, at the same time leaders also came up, Mr.

Roy Tilak Mahatma Gandhi and others were instrumental to organize workers union, and also

force government to frame labour laws, to improve the lot of workers. In 1929 Industrial

dispute Act was enacted later in 1947 it became industrial dispute, act where in machineries to

solve industrial dispute were indicated.

(1) The Directive principles of state policy, as enshrined in our constitution stipulate that the

state should endeavor to improve the workers conditions, working conditions, and also

productivity of industries which will improve wealth of nations.

(2) Several acts are enacted by parliament both before and after independence which were

focusing on workers interests, welfare health etc. The ‘Tric Act’ Factory, Act. Industrial Dispute

Act; Trade union Act gives major direction to achieve the constitutional directives.


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(3) Besides this, wages Act 1948, Bonus Act 1965, Gratuity Act 1972, Equal remuneration Act

1975, are some of the acts in the above direction.

(4) In 1972 National commission on labour, recommended setting up a permanent industrial

Relations commission this was not well received by government.

(5) National conference in 1982 made several recommendations

a) Emphasis on formation of permanent industrial Relations commission

b) Stringent action on contravention of a mutually agreed code of conduct

c) A check off system was prescribed where in by ballot election, how many are real

members of a union how many, dual, bogus etc could come to light. This did not find

well with unions but some unions have arranged for deduction of their subscription

through employers pay counter to some extent the check of system is working.

Problems and Issues

Causes of industrial unrest in India can be classified mainly under four heads they are

1) Financial Aspects

a) Demand for increase of wages, salaries and other perks. Workers demand goes on

increasing with the increase in cost of living

b) Demand for more perks, and fringe benefits. Issue of bonus also has become a

contentious one, even though Bonus Act has come fixing minimum rate payable as

81/3% of their total salary in spite of profit or loss incurred by the industry.

c) Incentives festivals allowances, concessions etc requires a hike every now and then,

workers compare these benefits with other industries and demand them –without

comparing the capacity of the industry where they are working.


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2) Non financial aspects

a) Working hours, rest hours, traveling hours are source of disputes. If houses are

provided some section of workers want to include travel time also as working hours.

b) Introduction of machines, computers modernization, and automation – In effect any

act of management which may result in economy in man power is resisted

c) More facilities like free meals free group travel etc are sought every now and then

3) Administrators Causes

a) Non implementation of agreements awards and other local settlements – with full

sprit

b) Stifling with recognition of labour unions though registered,

c) Attempt to weaken existing trade unions and trying to foist fake unions

d) Unhealthy working conditions

e) Lack of skill on the part of leaders supervisors

f) Disproportionate works loads, favoritism

g) Victimization, nepotism attitude of management in recruitment, promotion, transfer

etc

h) Instead of re deployment or skill improvement easier way of retrenchment forced

Voluntary retirement schemes (C.R.S) are adopted.

4) Government and political pressures

a) Industrial unions affiliating with political unions which are in power, resulting in

frequent shift of loyalty and resultant unrest

b) Politician influencing workers group closes examples is the Nalco – taken over by

Sterile, the state government supported (propped up) strike at Chhattisgarh state

against Nalco, for months together resulting in total stoppage of the industry for some

time.

c) Some time unions, workers strike against mergers, acquisition, taken over,

disinvestments policies, of government and private sectors.

5) Other causes of strained relations

a) Refusal to have workers participation in the running of the industry.

b) Non adherence to laid out ‘standing orders’ grievances procedures

c) Refusal to have free frank, and transparent collective bargaining.


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d) Sympathetic strike – a show of readership to workers of neighboring industries, and

conducting a token strike when they are in full strike. This may cause internal bitterness.

Consequences of strained Industrial relations

1. May result in go slow tactics, Strike, lock out etc.

2. Industrial production and productivity may be affected; growth of industries will be stunted

3. May result in recited atmosphere, law and order situation will deteriorate

4. Employer, Management, labour relations will be affected mutual faith and team spirit will

vanish.

5. Absence of mutual co operation affects participation forums and Bargaining Plot forms.

6. Government also will lose revenue, and may need to spend more to keep law and order

around the industry

7. National income, per capital income will go order

8. Will result in loss in earnings of workers with added suffering.

9. The industries also will suffer loss, and it is a loss to common consumers also.

Industrial Relations Machinery

1. Work Committee: There is a Works Committee in factories employing 100 or more workers.

[Section 3]. The committee will consist of equal number of representatives of employer and

employees. Representatives of employees will be selected in consultation with Registered

Trade Union. The Works Committee will first try to settle disputes.

2. Conciliation: Conciliation refers to the process by which representatives of employees andemployers are brought together before a third party with a view to discuss, reconcile their

differences and arrive at an agreement through mutual consent. The third party acts as a

facilitator in this process. Conciliation is a type of state intervention in settling the Industrial

Disputes. The Industrial Disputes Act empowers the Central & State governments to appoint

conciliation officers and a Board of Conciliation as and when the situation demands.

Consolation Officer: If dispute is not solved, it will be referred to Conciliation Officer‘. He is

appointed by Government. [Section 4]. The duties of a conciliation officer are:

To hold conciliation proceedings with a view to arrive at amicable settlement between

the parties concerned.

To investigate the dispute in order to bring about the settlement between the parties

concerned.

To send a report and memorandum of settlement to the appropriate government.


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To send a report to the government stating forth the steps taken by him in case no

settlement has been reached at.

Board of conciliation. The matter may also be referred to Board of Conciliation‘. [Section 4].

The Board of Conciliation consists of a chairman who must be an independent person

and 3/4 members. Unsolved matters may be referred to labour tribunal / industrial tribunal /labour court (sec. 12 (5))

2. Adjudication: Adjudication is the ultimate legal remedy for settlement of Industrial Dispute.

Adjudication means intervention of a legal authority appointed by the government to make a

settlement which is binding on both the parties. In other words adjudication means a

mandatory settlement of an Industrial dispute by a labour court or a tribunal. For the purpose

of adjudication, the Industrial Disputes Act provides 3-tier machinery:

1. Labour court

2. Industrial Tribunal 3. National Tribunal

Labour Court: The appropriate government may, by notification in the official gazette

constitute one or more labour courts for adjudication of Industrial disputes relating to any

matters specified in the second schedule of Industrial Disputes Act. They are:

Dismissal or discharge or grant of relief to workmen wrongfully dismissed.

Illegality or otherwise of a strike or lockout.

Withdrawal of any customary concession or privileges.

Where an Industrial dispute has been referred to a labour court for adjudication, it shall

hold its proceedings expeditiously and shall, within the period specified in the order referring

such a dispute, submit its report to the appropriate government.

Industrial Tribunal: The appropriate government may, by notification in the official gazette,

constitute one or more Industrial Tribunals for the adjudication of Industrial disputes relating to

the following matters:

Wages

Compensatory and other allowances

Hours of work and rest intervals

Leave with wages and holidays

Bonus, profit-sharing, PF etc.

Rules of discipline


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Retrenchment of workmen

Working shifts other than in accordance with standing orders

It is the duty of the Industrial Tribunal to hold its proceedings expeditiously and to submit its

report to the appropriate government within the specified time.

National Tribunal: The central government may, by notification in the official gazette,

constitute one or more National Tribunals for the adjudication of Industrial Disputes in

Matters of National importance

Matters which are of a nature such that industries in more than one state are likely to be

interested in, or are affected by the outcome of the dispute.

It is the duty of the National Tribunal to hold its proceedings expeditiously and to submit its

report to the central government within the stipulated time.

4. Arbitration: A process in which a neutral third party listens to the disputing parties, gathers

information about the dispute, and then takes a decision which is binding on both the parties.

The conciliator simply assists the parties to come to a settlement, whereas the arbitrator

listens to both the parties and then gives his judgment. There are two types of arbitration:

1. Voluntary Arbitration: In voluntary arbitration the arbitrator is appointed by

both the parties through mutual consent and the arbitrator acts only when the dispute

is referred to him.

2. Compulsory Arbitration: Implies that the parties are required to refer the

dispute to the arbitrator whether they like him or not. Usually, when the parties fail to

arrive at a settlement voluntarily, or when there is some other strong reason, the

appropriate government can force the parties to refer the dispute to an arbitrator.

Influencing factors of IR in enterprise and the consequences

Two sets of factors, internal as well as external influence an IR strategy. The internal factors

are:

1. The attitude of management to employees and unions.

2. The attitude of employees to management.

3. The attitudes of employees to unions.

4. The inevitability of the differences of opinion between management and union.


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5. The extent to which the management can or wants to exercise absolute authority to enforce

decision affecting the interests of employees.

6. The present and likely future strength of the union.

7. The extent to which there is one dominating union or the existence of multiple unions

leading to inter-union rivalry.

8. The extent to which effective and agreed procedures for discussing and resolving grievances

or handling disputes exists within the company.

9. The effectiveness of managers and supervisors in dealing with problems and disputes related

to IR.

10. The prosperity of the company, the degree to which is expanding, stagnating or running

down and the extent to which technological changes are likely to affect employment conditions

and opportunities.

The external factors affecting IR strategy are:

1. The militancy of unions - nationally or locally.

2. The effectiveness of the union and its officials and the extent to which the officials can and

do control the activities of supervisors within the company.

3. The authority and effectiveness of the employers association.

4. The extent to which bargaining is carried out at national, local or plant level.

5. The effectiveness of any national or local procedures, agreements that may exist.

6. The employment and pay situation - nationally or locally.

7. The legal framework within which the IR exists.

Globalization

The human society around the world, over a period of time, has established greater contact,

but the pace has increased rapidly since the mid 1980’s.The term globalization means

international integration. It includes an array of social, political and economic changes.

Unimaginable progress in modes of communications, transportation and computer technology

have given the process a new lease of life. The world is more interdependent now than ever

before .Multinational companies manufacture products across many countries and sell to

consumers across the globe. Money, technology and raw materials have broken the

International barriers. Not only products and finances, but also ideas and cultures have

breached the national boundaries. Laws, economies and social movements have become

international in nature and not only the Globalization of the Economy but also the Globalization

of Politics, Culture and Law is the order of the day. The formation of General Agreement on


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Tariffs and Trade (GATT), International Monetary Fund and the concept of free trade has

boosted globalization.


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In early 1990s the Indian economy had witnessed dramatic policy changes. The idea behind the

new economic model known as Liberalization, Privatization and Globalization in India (LPG),

was to make the Indian economy one of the fastest growing economies in the world. An array

of reforms was initiated with regard to industrial, trade and social sector to make the economy

more competitive. The economic changes initiated have had a dramatic effect on the overallgrowth of the economy. It also heralded the integration of the Indian economy into the global

economy. The Indian economy was in major crisis in 1991 when foreign currency reserves went

down to $1 billion and inflation was as high as 17%. Fiscal deficit was also high and NRI's were

not interested in investing in India. Then the following measures were taken to liberalize and

globalize the economy.

Steps Taken to Globalize Indian Economy

Some of the steps taken to liberalize and globalize our economy were:

1. Devaluation: To solve the balance of payment problem Indian currency were devaluated by

18 to 19%.

2. Disinvestment: To make the LPG model smooth many of the public sectors were sold to the

private sector.

3. Allowing Foreign Direct Investment (FDI): FDI was allowed in a wide range of sectors such as

Insurance (26%), defense industries (26%) etc.

4. NRI Scheme: The facilities which were available to foreign investors were also given to NRI's.

Merits and Demerits of Globalization

The Merits of Globalization are as follows:

There is an International market for companies and for consumers there is a wider

range of products to choose from.

Increase in flow of investments from developed countries to developing countries,

which can be used for economic reconstruction.

Greater and faster flow of information between countries and greater cultural

interaction has helped to overcome cultural barriers.

Technological development has resulted in reverse brain drain in developing countries.

The Demerits of Globalization are as follows:

The outsourcing of jobs to developing countries has resulted in loss of jobs in developed

countries.

There is a greater threat of spread of communicable diseases.


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There is an underlying threat of multinational corporations with immense power ruling

the globe.

For smaller developing nations at the receiving end, it could indirectly lead to a subtle

form of colonization

New Economic Policy

The main characteristics of new Economic Policy 1991 are:

1. Delicencing. Only six industries were kept under licencing scheme.

2. Entry to Private Sector. The role of public sector was limited only to four industries; rest all

the industries were opened for private sector also.

3. Disinvestment. Disinvestment was carried out in many public sector enterprises.

4. Liberalization of Foreign Policy. The limit of foreign equity was raised to 100% in many

activities, i.e., NRI and foreign investors were permitted to invest in Indian companies.

5. Liberalization in Technical Area. Automatic permission was given to Indian companies for

signing technology agreements with foreign companies.

6. Setting up of Foreign Investment Promotion Board (FIPB). This board was set up to promote

and bring foreign investment in India.

7. Setting up of Small Scale Industries. Various benefits were offered to small scale industries.

Three Major Components or Elements of New Economic Policy:

There are three major components or elements of new economic policy- Liberalization,

Privatization, Globalization.

1. Liberalization:

Liberalization refers to end of license, quota and many more restrictions and controls which

were put on industries before 1991. Indian companies got liberalization in the following way:

(a) Abolition of license except in few.

(b) No restriction on expansion or contraction of business activities.

(c) Freedom in fixing prices.

(d) Liberalization in import and export.

(e) Easy and simplifying the procedure to attract foreign capital in India.

(f) Freedom in movement of goods and services

(g) Freedom in fixing the prices of goods and services.

2. Privatization:

Privatization refers to giving greater role to private sector and reducing the role of public

sector. To execute policy of privatization government took the following steps:


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(a) Disinvestment of public sector, i.e., transfer of public sector enterprise to private sector

(b) Setting up of Board of Industrial and Financial Reconstruction (BIFR). This board was set up

to revive sick units in public sector enterprises suffering loss.

(c) Dilution of Stake of the Government. If in the process of disinvestments private sector

acquires more than 51% shares then it results in transfer of ownership and management to the

private sector.

3. Globalization:

It refers to integration of various economies of world. Till 1991 Indian government was

following strict policy in regard to import and foreign investment in regard to licensing of

imports, tariff, restrictions, etc. but after new policy government adopted policy of globalization

by taking following measures:

(i) Import Liberalization. Government removed many restrictions from import of capital goods.

(ii) Foreign Exchange Regulation Act (FERA) was replaced by Foreign Exchange Management Act

(FEMA)

(iii) Rationalization of Tariff structure

(iv) Abolition of Export duty.

(v) Reduction of Import duty.

As a result of globalization physical boundaries and political boundaries remained no barriers

for business enterprise. Whole world becomes a global village.

Globalization involves greater interaction and interdependence among the various nations of

global economy.

Impact of Changes in Economic Policy on the Business or Effects of Liberalization and

Globalization:

The factors and forces of business environment have lot of influence over the business. The

common influence and impact of such changes in business and industry are explained below:

1. Increasing Competition:

After the new policy, Indian companies had to face all round competition which means

competition from the internal market and the competition from the MNCs. The companies

which could adopt latest technology and which were having large number of resources could

only survive and face the competition. Many companies could not face the competition and had

to leave the market.

For example, Weston Company which was a leader in Т. V. market with more than 38% share in

T.V. market lost its control over the market because of all round competition from MNCs. By

1995-96, the company almost became unknown in the T.V market.


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2. More Demanding Customers:

Prior to new economic policy there were very few industries or production units. As a result

there was shortage of product in every sector. Because of this shortage the market was

producer-oriented, i.e., producers became key persons in the market. But after new economic

policy many more businessmen joined the production line and various foreign companies alsoestablished their production units in India.

As a result there was surplus of products in every sector. This shift from shortage to surplus

brought another shift in the market, i.e., producer market to buyer market. The market became

customer- oriented and many new schemes were made by companies to attract the customer.

Nowadays products are produced/manufactured keeping in mind the demands of the

customer.

3. Rapidly Changing Technological Environment:

Before or prior to new economic policy there was a small internal competition only. But afterthe new economic policy the world class competition started and to stand this global

competition the companies need to adopt the world class technology.

To adopt and implement the world class technology the investment in R & D department has to

increase. Many pharmaceutical companies increased their investment in R and D department

from 2% to 12% and companies started spending a large amount for training the employees.

4. Necessity for Change:

Prior to 1991 business enterprises could follow stable policies for a long period of time but after

1991 the business enterprises have to modify their policies and operations from time to time.

5. Need for Developing Human Resources:

Before 1991 Indian enterprises were managed by inadequately trained personnel’s. New

market conditions require people with higher competence skill and training. Hence Indian

companies felt the need to develop their human skills.

6. Market Orientation:

Earlier firms were following selling concept, i.e., produce first and then go to market but now

companies follow marketing concept, i.e., planning production on the basis of market research,

need and want of customer.

7. Loss of Budgetary Support to Public Sector:

Prior to 1991 all the losses of Public sector were used to be made good by government by

sanctioning special funds from budgets. But today the public sectors have to survive and grow

by utilizing their resources efficiently otherwise these enterprises have to face disinvestment.

On the whole the policies of Liberalization, Globalization and Privatization have brought


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positive impacts on Indian business and industry. They have become more customer focus and

have started giving importance to customer satisfaction.

8. Export a Matter of Survival:

The Indian businessman was facing global competition and the new trade policy made the

external trade very liberal. As a result to earn more foreign exchange many Indian companies

joined the export business and got lot of success in that. Many companies increased their

turnover more than double by starting export division. For example, the Reliance Company,

Videocon, MRF, Ceat Tires, etc. got a great hold in the export market.

Changing profile of stakeholders to industrial relations in India- B.D. Singh- Industrial

Relations –Emerging Paradigms (2nd

Edition)-Chapter III


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UNIT-2

ECONOMIC, SOCIAL AND POLITICAL ENVIRONMENTS

Employment Structure Social Partnership

Wider approaches to industrial relations

Labour Market Bipartism

Tripartism

Social Dialogue


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Employment Structure

Introduction

Employment has grown at an average annual rate of two per cent in India during the past four

decades since 1972-73 when comprehensive information on employment and unemployment

started becoming available from the NSSO quinquinnial surveys. In itself this could be regarded

as a significant record, as such an employment growth has not been recorded by many

countries historically or in recent periods. In fact, most countries in general and developed

countries in particular, have had very low employment growth in recent years. According to ILO

data, most of them saw an increase of less than one per cent per annum in their employment

during the 1990s. It was 0.45 per cent in United States, 0.18 per cent in United Kingdom, 0.32

per cent in France, 0.41 per cent in Germany and -0.15 per cent in Japan. In the case of

developing countries strictly comparable data are not available, but broad assessment places

their average employment growth at around 1.5 per cent per annum during that period (ILO,

KILM, 2007 and Goose et al, 2008). During the past decade, 2001- 2010, employment is

estimated to have grown globally at about 1.5 per cent per annum: the developed countries

registering a growth rate of barely one per cent during 2001-08, which also seems to have been

more than negated by a large decline during the next two years. The developing countries in

East and South East Asia, and transition economies of Eastern Europe also saw very little

growth in employment. But Latin America and Africa performed better. South Asia maintained

a steady growth of employment of 2.4 per cent in which India had a major contribution (ILO,

KILM, 2011). India’s significant record on employment growth has, however, not been adequate

in view of a faster growth of labour force. Further, there are a few disconcerting features ofemployment growth in recent years. First, employment growth has decelerated. Second,

employment content of growth has shown a decline. Third, sectors with higher employment

potential have registered relatively slower growth. Fourth, agriculture, despite a sharp decline

in its importance in gross domestic product, continues to be the largest employer as the non-

agricultural sectors have not generated enough employment to affect a shift of workforce.

Fifth, most of the employment growth has been contributed by the unorganized, informal

sector which is characterized by poor incomes and conditions of work. And, sixth, employment

growth in the organized sector which seems to have picked up in recent years has been mostly

in the categories of casual and contract labour.

Employment Growth

Long-term employment growth over the period of about four decades, as noted earlier, has

been around 2 per cent per annum. It has, however, seen a declining trend from one decade to

another: it was 2.44 per cent during 1972- 73/1983, 2.02 per cent during the next ten year

period and 1.84 per cent during 1993-94/2004-05 (Table 1). In between, these decadal periods,


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some fluctuations were noted in shorter periods of five years. Of these, a sharp rise in

employment growth during 2000-2005 to 2.81 per cent over 1.00 per cent during 1993-

94/2004- 05, is most striking. The most favorable interpretation of this upturn in employment

growth in post-2000 period is that the teething troubles of the economic reforms

Which led to slow growth of employment initially were over by 2000 and globalization startedhaving its beneficial effect on employment with the start of the millennium. The facts that GDP

growth was no better—was, in fact lower—during 2000-2005 than during 1994-2000, that most

employment growth recorded during the later period was in the informal sector of which a

large part was as self-employment in agriculture, and, organized sector employment, in fact,

saw an absolute decline, however, raise doubts about the high employment growth during

2000-05 being demand-led and productive. A virtual stagnation in employment during 2004-

05/2009-10 as revealed by the latest round of NSSO survey casts further doubt on the veracity

of the 2004-05 estimates. We will turn to this aspect later while dealing in some detail with the

issue of employment growth in the post-reform period.

Employment Growth in Major Economic Activity Sectors

Employment growth in the secondary sector, consisting of mining, manufacturing, electricity,

water and gas, and construction, has been relatively high, in fact the highest among the three

sectors, during the period under study, 1972-73 to 2009-10. It has declined over the longer

period with some fluctuations over the shorter periods, but has shown a significant increase

during 1994-2005. Even during 2004-05/2009-10, when overall employment has virtually

stagnated, it has grown at around 3.5 per cent in the secondary sector. Employment growth in

the tertiary or services sector has also been relatively high but has consistently declined overthe three periods of 10 years each since 1972-73. Growth of employment in the primary sector,

as expected, has been the lowest and seen the sharpest decline. It has, in fact, turned negative

in recent years. Slow and declining growth of employment in agriculture is a result both of slow

and declining rate of GDP growth and a decline in employment electricity. In the secondary

sector, a high employment growth despite moderate rates of GDP growth has been possible

due to relatively high and rising employment elasticity. But in the tertiary sector, even a high

GDP growth has not been able to maintain a high growth in employment due to a steep decline

in employment elasticity. Let us look at the employment performance of different activities

within the secondary and tertiary sectors. Within the secondary or industry sector,

construction experienced a relatively high and increasing rate of employment growth; it was as

high as over seven per cent during 1994-2005, almost similar to its GDP growth. It has

maintained 11 per cent employment growth during the 2004-05/2009-10, when total

employment has virtually stagnated. Employment growth in manufacturing has also been

moderately high, and after declining during 1983/1993-94 over the earlier ten year period, it


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registered an increase in the next period, 1994-2005. But it experienced a decline in

employment during 2004- 05/2009-10. Employment elasticity in manufacturing has been

relatively high except in the last period (Table 3). Mining and utilities (electricity, water and

gas), the minor activities contributing 0.56% and 0.26% to total employment, have each

experienced a decline in employment during 1994-2005, after registering a high growth inearlier periods. Both registered a small positive growth in employment during 2004- 05/2009-

10, with relatively low GDP growth. In the services sector, trade and transport have shown the

best employment performance, both registering a growth of over 5 per cent during 1994-2005,

after having seen a decline in growth rate, sharper in transport than in trade, during 1983-94,

over 1973-83. These trends are in line with respective GDP growth rates in the two activities,

though the dip in employment growth is deeper than in GDP growth, while the jump in

employment growth is lower than in GDP growth. Thus in transport, for example, while GDP

growth declined from 6.5 to 6 per cent, employment growth declined from 5.8 to 3.5 per cent;

but when in the next period GDP growth rose sharply from 6 to 10.5 per cent, employment

growth increased from 3.5 to 5.3 per cent. Financial services, however, have recorded the

highest increase in employment over the longer period 1983-2005 except during 1983/1993-94.

Even during 2004-05/2009-10, this sub-sector of services has registered an employment growth

of about 6 per cent, while trade and transport sub-sectors experienced only about 1 to 2 per

cent growth in employment. Thus it appears that all sub-sectors of the tertiary sector with the

possible exception of community, social and personal services have shown reasonably high

potential for employment generation. It must, however, be noted that in most sub-sectors of

services, while GDP has seen a high and increasing growth rate; employment growth has been

on a declining rate. Employment elasticity has, therefore, declined sharply from 0.81 during

1972-73/1983 to 0.30 during 1999-2000/2009-10 in trade, from 0.91 to 0.25 in transport, from

0.71 to 0.28 in community, social and personal, services, although in financial services it

increased during 1993-94/2009-10.

Employment Growth in Rural and Urban Areas

It is interesting to note that while in aggregate urban areas have experienced a much faster

growth than the rural areas; employment has seen significantly high growth in rural areas in

most non-agricultural activities. But since agriculture accounts for an overwhelmingly major

share in rural economy and growth in employment in agriculture has been small, overall

employment growth turns out to be low in rural areas. Aggregate employment in rural areas

grew at a rate of 2.1 per cent during 1972-73/83, but saw a decline to 1.7 and 1.4 per cent in

the two subsequent periods (Table 4). It has declined in absolute terms during 2004-05/2009-

10 at a rate of 1.65 per cent per annum. Urban employment growth has been higher in all

periods, but saw decline in growth rate from 4.1 during 1972-73/83 to 3.2 per cent during


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1983/93-94 recovering slightly to 3.3 per cent during the next period. In the quenquinnium

2005-10, urban areas recorded an employment growth of 1.8 per cent per annum.

As mentioned above, employment performance of the rural areas has been better than that of

the urban areas in so far as the non-agricultural activities are concerned. Employment in all

non-agricultural activities together grew at 4.58 per cent per annum in rural areas and 4.08 percent per annum in urban areas during 1972-73/1983; growth rates for rural and urban areas

were similar at 3.65 during 1994-2005. Only during 1983/93-94 urban growth rate was higher at

3.5 as compared to 3.2 for rural areas. Again, during 2005-10, rural areas did better than the

urban areas in growth of non-agricultural employment. In general, the pattern of employment

growth in terms of rates of employment growth in different activities is found to be similar in

rural and urban areas. Construction registered the fastest growth and the growth rate has

increased over the years in both rural and urban areas. During 1993-94/2004-05, employment

growth in construction has been much higher at 8.3 per cent per annum in rural than in urban

areas at 5.6 per cent. Transport ranks second and trade third in employment growth in rural

areas. In urban areas trade has performed better than transport, but both have registered high

employment growth. Financial services had an employment growth of 6.30 percent in rural and

7.54 per cent per annum in urban areas. Other services have had the lowest growth in

employment in both areas; it has been particularly low, 0.64 percent in urban and 0.25 per cent

in rural areas, during the period, 1994-2005. The two minor activities mining and utilities saw a

decline in employment in urban areas and utilities in rural areas during 1994-2005 after

growing fast in the earlier two decades, in both areas. Despite a decline in aggregate

employment, construction employment grew at 13.6 per cent per annum in rural areas during

2004-05/2010. In urban areas construction and financial services were the best performers with

an employment growth rate of 6.6 per cent each during this period. The fact that the non-farm

employment has registered a fast growth in employment in rural areas, even faster than in

urban areas, for most of the period under consideration, has significant implications for growth

of rural employment in future. It is, therefore, interesting and useful to probe the status and

dynamics of the rural non-farm activities in some detail.

Employment in Rural Non-Farm Sector

It needs to be noted that with about one-third contribution to employment and over 60 per

cent in GDP, the non-farm sector is now an important segment of the rural economy of India.

And it has shown significant dynamism, in so far as its growth, both in terms of employment

and output has been not only faster than in agriculture but also faster than in urban areas. As a

result, its share in rural employment increased from 15 per cent in 1972-73 to 27 per cent in

2004-05. It further increased to 32 per cent in 2009-10. In rural NDP the share of non-farm

sector increased from 28 per cent in 1970-71 to 49 per cent in 1999-2000 and 62 percent in


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2004-05 (Table 6). There have been large changes in the structure of NDP and employment.

Share of manufacturing in total rural NDP increased from 5.9 per cent in 1970-71 to over 8 per

cent in 1993-94 and about 12 per cent in 2004-05. The share of construction in rural NDP

increased from 3.5 per cent in 1970-71 to 7.9 per cent in 2004-05. The share of transport that

was just 1.3 per cent in 1970-71, rose to 5.8 per cent in 2004-05. Share of trade increased from2.7 to 15 per cent; make it the largest non-agricultural activity in rural areas and of community,

social and personal services from 6.4 to 8.3 per cent. According to the NSSO estimates rural

non-farm activities employed 28.51 million workers in 1972-73; the number went up to 56.11

million by 1987-88 and to 93.53 million in 2004-05. According to the NSSO survey of 2009-10,

the number stood at 107.51 million in that year. While the growth rate of employment in the

total economy and rural areas as a whole declined in the period 1994-2005 over the earlier 10-

year period, in the rural non-farm sector, it showed an increase. And when during 2004-

05/2009-10, total employment stagnated and rural employment declined, rural non-agricultural

employment showed a significant growth of 2.8 per cent per annum. It may be argued that a

high growth of employment in non-farm activities could have been induced by declining

employment opportunities in agriculture, which grew at slow rate, slower (at 0.87 per cent

during 1994-2005 as compared to 1.39 per cent) during preceding 10-year period. And in this

sense, the growth of employment in non-farm sector may be seen as driven by ‘distresses in

agriculture. A significantly higher productivity per worker in the non-farm activities than in

agriculture (the ratio was 4.4:1 in 2004-05, according to the sectoral distribution of NDP and

workers), however, casts serious doubt on such a hypothesis and suggests that employment

increase in rural non-farm activities was driven by productive employment opportunity arising

in them. Let us briefly look at the pattern of employment in the rural non-farm sector in terms

of shares of major activities and how they have changed in recent years. First, it appears that

the non-farm segment of the rural economy was more or less equally distributed between the

secondary (industry) and tertiary (services) sectors in terms of shares of employment, the

former accounting for 49.5 and the latter 50.5 per cent in 2004-05 (Table 7). There has been an

increase in the share of secondary and decline in the share of tertiary activities during 2004-

05/2009-10, with former now accounting for 54 and latter 46 per cent. Manufacturing

constitutes, by far, the largest segment of the rural non-farm sector, but its share in

employment has declined from 32 per cent in 1993-94 to 29 per cent in 2004-05, and further to22 per cent in 2009-10. Construction gained significantly raising its share from 11 percent in

1993-94 to 18 per cent in 2004-05. In 2009-10, it has jumped to 29 per cent, making the largest

non-farm activity in the rural areas. Among services, trade constitutes the largest, and among

all divisions, the second largest, activity accounting for 20 per cent of non-farm employment in

2009-10, down from 23 per cent in 2004-05, back to the same share as in 1993-94. Transport

has gained substantially from 7 per cent in 1993-94 to 9 per cent in 2009-10. Community, social


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and personnel services have seen a steep decline in their share in employment from 25 per cent

in 1993-94 to 17 per cent in 2004-05 and to 15 per cent in 2009-10. Construction as noted

above has emerged as the largest rural non-farm activity in terms of employment, now

accounting for over 29 per cent of total nonfarm employment in 2009-10. It has registered a

fast increase, raising its share from 11 per cent in 1993-94 and 18 per cent in 2004-05. It is notclear how much of it is in terms of housing and how much in infrastructure. But it is likely that a

large part of it may be in public programmes of infrastructure building including under

Mahatma Gandhi National Rural Employment Guarantee Act (MGNREA). That a good part of it

must have taken place in building road connectivity is also reflected in relatively sharp increase

in employment in transport: from 6.7 per cent to over 9 per cent during 1993-94/2009-10.

Trade, however, is the largest non-farm activity in rural areas in terms of contribution to rural

GNP, with a 15 per cent share, having increased from 8 per cent in 1993-94 and 9 per cent in

1999-2000. Its share in rural employment, has, however, not increased. Manufacturing is the

second largest segment of the rural non-farm sector accounting for 22 per cent of employment.

In terms of NDP also, it is the second largest segment: it accounted for over about 20 per cent

for rural non-farm NDP. Even though employment growth in manufacturing has been lower

than overall employment growth in rural non-farm sector during 1994-2010 and has thus lost

its position of largest non-farm sector, it is noteworthy that its share in rural NDP has

significantly increased over the years. It is, therefore, reasonable to see the rural manufacturing

as an important source of productive employment in rural areas. It must, however, be seen to

consist not only of ‘village industries’, but to include such modern industries which have

comparative advantage in terms of raw material and labour in rural areas. It is estimated that

industries based on agricultural raw material or rural skills account for 83 per cent of all rural

industrial enterprises and 78 per cent of all rural manufacturing employment (Sarkar and Karan,

2005) and they should obviously become the focus for a strategy of employment expansion in

rural manufacturing activities.

Employment Growth in Emerging Services

The services sector is now the dominant part of the Indian economy accounting for about 59

per cent of Gross National Product. Its performance in employment generation has not been as

spectacular as in its contribution to GDP. Employment in this sector has grown at an average of

about 3.5 per cent per annum over a longer period of about 40 years, thus raising its share in

total employment from around 15 per cent in 1972-73 to 26 per cent in 2009-10. In the latest

ten years period for which data are available, i.e. 2000-2010, employment in the services sector

grew at a rate of 3.6 per cent per annum, as against the aggregate employment growth of 1.5

per cent. As already noted, all activities in the sector, trade, transport and finance except

community social and personal services, registered over 2.5 per cent growth rate of


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employment. Two service activities, namely Information Technology (IT) and Tourism have

attracted special attention of policy makers as source of rapid expansion of employment

opportunities. The former, though still a small contributor to total employment, has been

growing at exponential rate. It is not possible to have an independent estimate of employment

in the IT sector as it does not feature as an item in official data on employment. Tourism alsodoes not constitute a sector as it is made up of various activities which are parts of different

sectors in the classification of economic activity. In view of their emerging importance, we

attempt here some estimation and assessment of employment generation in these sectors,

utilizing limited data that are available or can be derived. Information Technology Sector

consists of two main segments: information technology services (ITS) known as the software

services and information technology enabled services (ITeS) also often referred to as business

process outsourcing (BPO) As mentioned above, the official data collection system does not

distinctly and fully capture the employment situation in the various facets of IT activity.

Employment statistics from Directorate General of Employment and Training (DGET) of Ministry

of Labour and Employment (MoLE) reports employment under the NIC Code 892: computer and

related sector, but its coverage is limited to the organized sector. In 1997-98, for example,

employment under this category was reported to be 36071, constituting 0.3 per cent all

employment in the sectors covered by DGET. It must be noted, however, that it had more than

doubled in a short period of three years, from a figure of 17686 and from a share of 0.06 per

cent in 1994-95. Thus though miniscule in size, it was growing very fast. NSSO estimate which

includes both organized and unorganized segment of the ITS sector was 2, 29,000 workers for

the year 1999-2000 representing 0.3 per cent of total urban employment. Employment in the

ITeS is likely to be included in the sectors in which these services are provided e.g., banking,

education, trade etc. Thus even the NSSO estimates do not fully account for employment in IT.

The National Association of Software and Service Companies (NASSCOM), the sector’s

promotional body, has been collecting information on different aspects, including employment,

of the sector, on the basis of survey among all software companies listed by them. Their

estimate of the IT software and services professionals employed in 1999-2000 was 2, 42,000,

with another 42,000 estimated for the ITeS sector. NASSCOM estimates of employment for the

recent years for which they are available are given in (Table 12). As can be seen from the figures

in the table 12, employment in IT sector has been growing very fast. It may also be noted thatthe growth has been particularly fast in the export segment of IT and within that in the

information technology enabled services (ITeS), often referred to as BPO. Employment

coefficient derived on the basis of data on revenue and employment from IT companies was

computed to be 29.90 employees per million US Dollar, (and higher at 69.83 employees in the

ITeS segment) for 2003-04. Applying these coefficients on the projection of output,

employment in IT is estimated to become 36.89 lakhs in 2012. About three-fourths of


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employment in the IT sector is likely to be in the ITeS export segment alone. An alternative to

this NASSCOM estimate places IT employment at 32.8 lakhs in 2015. (Pais et al, 2006). In either

estimate, growth of employment is projected to be very fast. A set back in exports during 2009-

10 resulting in a 42.7 per cent decline in exports of software services (though exports of non-

software services grew at 40.1 per cent in that year), may weaken the strength of theseoptimistic estimates. It should also be noted that the exports of software services recovered

quickly and grew at 64.5 per cent during of April – September 2010-11, over the same period in

2009-10 (Economic Survey, 2010-11, Table 7.14, p. 173). Growth of IT sector, particularly of its

exports and, therefore, generation of employment in this sector would, however, be dependent

on various factors. Most important of these factors are availability of sufficient number of

appropriately skilled workers to meet the emerging global demand, ability of the Indian IT

service providers to meet competition from others particularly China in exports of services in

general and of low skill intensive services, in particular; capacity to continue competing in BPO

exports to English language area, and to compete in the newly emerging markets in non-English

language areas; linkages of IT services with rest of the economy particularly with hardware

industry, which are weak, particularly when compared with China and availability of Mode 4

export of services, namely, “temporary movement of natural persons”, which is threatened by

increasing visa restrictions by the developed countries (Pais et al, 2006). Tourism is another

activity which is seen as having large potential for growth and also with high employment

potential. There are, however, no separate data available from official sources either on income

or employment generated in tourism because it does not feature as a sector in the classificatory

scheme of economic activities. Income and employment generated by tourism are accounted

for in such different activities as hotels and other accommodation units, restaurants, travel

agents and tour operators, transport services, tourist resorts and complexes, entertainment

facilities, shopping facilities including sales outlets for curios, handicrafts, souvenirs etc.,

conference and convention facilities, adventure and recreational sports facilities and guide

services, which feature as sectors and subsectors in National Accounts Statistics. It must be

noted that only a part of income and employment is generated due to tourism in several of

these activities. There is no basis on which the contribution of tourism could be directly

separated from the total output and employment in these cases. It is possible to estimate such

contribution indirectly on the basis of pattern of expenditure by tourists: total expenditure bytourists on an item is taken as income arising out of tourism and using employment coefficient

(number of persons employed per given volume of output (income)) employment generated

due to tourism in the production of that item is estimated. Some surveys have generated such

estimates in the case of foreign tourists (e.g. MoT, 2006). Since the pattern of expenditure of

domestic tourists may vary from that of the foreign tourists, estimates have generally been

made only of employment generated due to foreign tourism. Also while Ministry of Tourism


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maintains data on foreign tourists on a regular basis, no such data base exists for domestic

tourists.

Employment Growth in Different Sectors

Let us note a few other features of employment growth during the post-reform period. First, as

expected, fastest employment growth has taken place in the secondary sector, at an annual

average rate of about 3.5 per cent over the entire period 1993-94/2009-10. Even during 2005-

10 when there has hardly been any growth in employment in aggregate, secondary sector

employment grew at 3.5 per cent per annum. Agriculture, understandably, did not experience

any significant increase in employment; during recent years; it has in fact seen a decline in

employment. Services sector registered relatively high employment growth, averaging at about

3 per cent per annum over the entire post-reform period, though it was not commensurate

with its GDP growth which has been over 10 per cent per annum. As a result, employment

elasticity in this sector has been relatively low and has sharply declined particularly since 2004-

05. Most divisions of economic activities have registered a decline in the rate of their

employment growth in the post-reform period, but construction has seen acceleration in the

rate of employment growth. Trade, transport and financial services also saw acceleration in

employment growth during 1993-94/2004-05, but the rate declined during 2004-05/2009-10. It

is also interesting to note that the deceleration in the rate of employment growth in the post-

reform period can primarily be attributed to a decline in employment growth in rural areas

where employment grew at 1.4 per cent during 1993-94/2004-05 and actually declined during

2004-05/2009-10, against a growth of about 2 per cent per annum in earlier 20 year period. In

urban areas employment growth rate was higher in the first post-reform decade, 1993-94/2004-05 and declined to 2005-10, but was still positive and significant at 1.80 per cent per

annum. All divisions of activity in the secondary and tertiary sectors except, mining and

community, social and personal services, recorded reasonably high employment growth in the

post-reform period in urban areas. In rural areas, construction was the biggest contributor to

employment growth, followed by transport. Overall employment growth has been low and at a

declining rate in rural areas primarily because of the low and declining, and recently a negative,

growth in employment of agriculture

Sectoral Employment Shares

As it is well known, majority of Indian workers are engaged in agriculture and allied activities.

With economic development, agriculture is expected to decline in importance in terms of its

share in employment and output. Proportion of agriculture in total employment has declined

over the years: from 74 per cent in 1972-73 to 68 per cent in 1983, 60 per cent in 1993-94 and

to 57 per cent in 2004-05. It has declined further to 51 per cent in 2009-11 (Table 16). It is

particularly important to note that the decline in the employment share of agriculture has been


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much slower than the share of gross domestic product (GDP) from agriculture. Thus, while

share of agriculture in GDP declined from 41 per cent in 1972-73 to 15 per cent in 2009-10

(Table 17), that in employment declined from 74 per cent to 51 per cent. And rate of decline in

GDP share has been faster during 1993-94 to 2009-10, from 30 to 15 per cent; while the rate of

decline in employment share has been rela

Documents

MIR Lecture Notes