1

Chapter - I

Introduction

Contents

• Introduction

• Labour downsizing: Conceptual understanding

• Statement of the problem

• Review of literature

• Research gap

• Objectives

• Hypotheses

• Research design and Methodology of the study

• Scope and importance of the study

• Limitations of the study

• Outline of the thesis

2

Chapter - I

AN ANALYSIS OF LABOUR DOWNSIZING IN KARNATAKA: A

STUDY OF PUBLIC SECTOR INDUSTRIES IN MYSORE DISTRICT

INTRODUCTION

After independence, India formulated economic and social policies which

were rooted in its constitution and were derived from a particular resolution that

stated the goal of economic and social policy of India would be the socialistic pattern

of society. These policies resulted into a particular economic structure of the country

in which there was predominance of the public sector, with was highly regulated and

controlled Private sector and there were restrictions on direct investment by foreign

multinationals. In this structure of the economy, a particular pattern of labour

relations emerged in which labour was highly protected by legislations. Public sector

set up standards and model in matters of labour relations, higher emoluments for

workers, and less number of industrial strikes and better working condition and

welfare activities. The private sector was expected to emulate this. It was, however,

felt that for still higher rate of growth there was need for dynamism in the economic

competency and industrial efficiency. The economic crisis in early 90’s has resulted

in the adoption of New Economic Policy (NEP) with radical structural changes and

this adjustment is bound to alter the existing pattern labour relations in our country.

The NEP laid down by the government towards the middle of 1991 aimed at,

inter alia, imparting liberalization to industrial and trading activities and giving the

economy a global linkage. The NEP, which is also termed as “Economic

Restructuring” or Structural Adjustment Programme of the Indian economy, had far-

3

reaching implications for employment and labour market. It was expected to increase

competitive efficiency and better prospects for growth which would, in turn lead to

expansion of employment opportunities. The faster pace of job creation and the rise

in productivity would shift workers from less productive rural jobs to more productive

urban jobs and reduce poverty.

A series of steps have been taken in pursuance of these new policies. Since

then major changes have been effected in trade, credit and industrial policy. The new

trade policy has liberalized imports and exports. Devaluation of Rupee has been

adopted to bring its exchange value in line with the world market. In the sphere of

industrial policy, licensing and bureaucratic controls have been given away. Flow of

foreign capital, multinationals and private sector have been encouraged to invest in

India. Privatization of public enterprises is also effected in some cases even in

moderately profit making enterprises. In this context, on Exit Policy Labour

downsizing has emerged. Though the ‘Exit Policy’ has not been implemented

enthusiastically due to pressure from trade unions, it has created an environment of

job insecurity among workers.

LABOUR DOWNSIZING: CONCEPTUAL UNDERSTANDING

The most common reasons for downsizing the labor force stem from the

effects of the global economic recession. However, certain industries have been into

this cost-cutting measure even before the recent economic crisis. What could have

been their reasons for trimming down their labor force, and why?

It is interesting to know that the concept of “downsizing or “scaling-down”

had its origin in the automotive industry. The reasons for downsizing dates back to

4

the 70’s era when the “oil crisis” was the main issue to contend with, and shrinking

the large family-sized cars seemed to be the best solution. Thus, the term

“downsizing” became the byword as vehicles turned more compact but less

accommodating.

Unfortunately, as succeeding developments would have it, the word

‘Downsizing’ became synonymous with layoffs, as the concept was applied to human

resources. Ironically, the automotive industry was one of the most affected because

the so-called “oil crisis” developed into a large-scale problem, which the world is now

experiencing today as an economic crisis.

Based on its origin, downsizing can be defined as a “managerial strategy to

reduce, streamline, trim down or shrink into size a particular structure by scaling

down its features or by dispensing certain physical elements that are considered as

burdensome and with the least economic value. This was done in order to optimize a

particular structure in the most practical or most beneficial condition in order to

minimize the use of other essential resources1.

Many synonyms for downsizing exist, most of which are euphemisms and

more abstract descriptions of the process, most of which can also be used for more

inclusive processes than that of reducing the number of employees. However, more

precisely Labour Downsizing is the "conscious use of permanent personnel reductions

in an attempt to improve efficiency and/or effectiveness"2. Since the 1980s,

downsizing has gained strategic legitimacy. Indeed, recent research on downsizing in

1 Edwards Ginney., Published Aug 29, 2010. 2 Budros., 1999, pp: 70.

5

the U. S3, UK4, and Japan5,6 suggests that downsizing is being regarded by

management as one of the preferred routes to turning around declining organizations,

cutting costs, and improving organizational performance 7, most often as a cost-

cutting measures are often used to "soften the blow" in the process of firing or being

fired8.

The term "layoff" originally meant a temporary interruption in work (and

usually pays). The term became a euphemism for permanent termination of

employment. Many other euphemisms have been coined for "(permanent) layoff",

including "downsizing", "excess reduction", "Rightsizing", "Delayering",

"Smartsizing", "Redeployment", "workforce reduction", "workforce optimization",

"simplification", "force shaping", "recursion", and "reduction in force" (RIF),

especially in the government sector.

"Mass layoff" implies lying off a large number of workers. "Attrition"

implies that positions will be eliminated as workers quit or retire. "Early retirement"

means workers may quit now yet still remain eligible for their retirement benefits

later. “Layoffs” imply economic forces beyond the employer's control, especially in

the face of a recession such as the one that began in the late 2000’s.

A "layoff" is an action by an employer to terminate employees for lack of

work. The term connotes that the termination is temporary-but it may well become

3 Baumol, W.J. Blinder, A. S. & Wolff, E. N. (2003), Downsizing in America: Reality, Causes and Consequences. New York: Russell Sage Foundation. See also the American Management Association annual surveys since 1990. 4 Sahdev et al., 1999; Chorely., 2002; Mason., 2002; Rogers., 2002. 5 Mroczkowski, T and Hanaoka, M. (1997), ‘Effective downsizing strategies in Japan and America: is there a convergence of employment practices?’ Academy of Management Review, Vol.22, No.1, pp. 226–56. 6 Ahmakjian and Robinson., 2001. 7 Mellahi, K. and Wilkinson, A. (2004) Downsizing and Innovation Output: A Review of Literature and Research Propositions, BAM Paper 2004., British Academy of Management. 8 (Wilkinson., 2005; Redman and Wilkinson., 2006).

6

permanent. A "downsizing" simply means releasing employees because the operation

no longer needs them; reorganization or restructuring of the institution has eliminated

jobs. The euphemistic "right-sizing" is sometimes substituted—to flatter management

and RIF which stands for "reduction in force," is an old and rather straightforward

term, its most likely source being governmental and military changes in employment:

both actually take place from time to time. The newest addition to this lugubrious

terminology (at least from the employees' point of view) is "outsourcing" or "off-

shoring," meaning that the work is being transferred to another organization either

domestically or overseas.

STATEMENT OF THE PROBLEM

Indian economy has been in a bad shape in early 90’s. It has been witnessing

a high rate of inflation, decelerated industrial production, fiscal indiscipline, and a

very high ratio of (internal and external) borrowing to the GNP and a dismally low

level of foreign exchange reserves. In early 1991, the foreign exchange reserves had

become so low that these were barely sufficient to meet about three weeks imports.

Then the government, in fact, had taken the extraordinary step of pledging gold to

meet the country’s foreign exchange requirements.

The successive governments, since 1990, when the economic crisis really

reached its peak, have been highly concerned with the problems, particularly the ones

related to foreign exchange reserves and repayment of loans. Since these two

problems defied short term solutions, the government approached the World Bank and

the IMF for additional loans. The request was acceded but with a major stipulation

that India will opt for a free market economy which meant dismantling its regulated

7

regime. It was left to the government to accept the ‘conditionality’ of the World Bank

and the IMF.

Having given their nod, the government announced a series of economic

policies beginning with the devaluation of rupee. This was followed by the

announcement of new industrial, trade and fiscal policies. The new economic policies

have wide ranging implications for the economy, industry and industrial relations in

the country.

The impact of this structural change on the labour force is substantial,

particularly in the field of employment, wages, industrial relations, working

conditions and welfare, both in the short run and long run period. Under the New

Economic Policy, there is feverish drive towards rationalization, deployment of

labour, reduction of unit labour cost to increase competitiveness and efficiency,

particularly in the public sector.

Liberalization of Indian economy has implications for Union Management

relations. This liberalization programme has led to industrial and labour restructuring

in both public and private sector. It is, however, observed that although the process of

restructuring started a decade ago, only a few scholars have paid much attention to the

questions of industrial restructuring and industrial relations issues in India.

Economic literature, distinguishes technically between stabilization and

structural adjustment. Stabilization policy is essentially considered as a short-term

device to reduce the macro economic imbalances such as fiscal and BOP deficits.

Structural adjustment is designed to improve the productivity of resources in the long

run. Moreover, the Structural Adjustment Programme (SAP) is clearly based on the

flow down or the trickle down or percolation theory of development. Supporters of

8

SAP argue that benefits certainty flow down to poor people in the long run. Labour

restructuring is an important component of SAP, which is of course, facing lot of

opposition from the labour class. To ensure competitive efficiency labour downsizing

was started in the public sector industries, as a component of industrial restructuring

programme.

The evolution of the problem of labour downsizing and its ramifications and

rationale could be approached from the following perspective:

• Fiscal Reforms: - The need for fiscal reform was apparent in 80s due to

deterioration in government finances. Where in government expenditure

increased faster than its revenue, huge fiscal deficit and monetization of

government borrowing from RBI, worsened the financial position of the

government Long term fiscal policy, SAP and the recommendations of Raja

Challaiah committee focused on expenditure management by the government.

This approach, among many other things called for an assessment of the man

power requirements and labour downsizing through VRS, in order to reduce the

financial burden of the government. In this way, labour downsizing came into

force both at the administrative and industry levels.

• Public sector reforms: - Public sector reforms constitute an important component

of SAP and the related economic reforms in the country. The economic crisis on

the eve of SAP, liberal trade and poor performance of public sector, have called

for a complete overhauling of the public sector in various aspects like financial,

managerial, marketing, legal, labour and organizational. As it has already been

stated, over staffed public sector accounted for a very significant increase in wage

9

bill without corresponding rise in labour productivity. And hence, labour

downsizing in public sector, began to receive prominence.

• Productivity Drive: - Most of public sector enterprises have recorded low

productivity, efficiency, poor performance and low capacity utilization. The SAP,

which is designed to increase productivity of resources in the long run called for

not only reducing the excess staff of the public sector but also to increase their

productivity. This would reduce the cost of servicing other inputs and shifts the

resources from less productive to more productive activities. And hence,

unemployment on account of labour restructuring would be temporary in nature

and in the long run this process of labour downsizing would increase the

productivity of all factors, including labour factor. But this does not mean that

productivity can be increased only by reducing number of workers.

• Exit Policy: - NEP in general and New Industrial Policy in particular attracted lot

of criticisms from different sections of the society and then the Government of

India formulated the so called “Exit Policy” in 1991 to reduce the adverse impact

of SAP on labour and to provide them a safety net. Dr. Manmohan Singh

defined Exit Policy as the one ‘which aims at maximizing efficiency gains out of

SAP’. This is a turning point in the history of labour policy in India. This Exit

policy provides, for ‘Downsizing’, ‘Smartsizing’ and ‘Rightsizing’ of labour

force, by focusing on labour redeployment, retraining and if possible even

retrenchment. Thus labour downsizing become the most proclaimed programme

of labour and restructuring.

The government in recent years has formulated various schemes to reduce

hardship and sufferings of workers resulting from structural change and adjustment.

10

These measures include various forms of Voluntary Retirement Scheme, Golden

handshake scheme and setting up of the National Renewal Fund for redeployment of

workers and providing social safety net in case of unemployment among workers.

These measures have not created confidence among the Indian working class and their

trade unions. Unless the governments suitably modifies item policies, launches a

massive employment programme and pursue private and public sector restructuring

vigorously with political will and determination, the country is going to experience

widespread industrial unrest and social tension in the years to come.

Ultimately, the importance of downsizing from a social policy point of view

depends on its long term impact on workers. If they find their way back to

comparable employment quickly, then downsizing is not much of a concern. On the

others hand if downsizing leads to long term unemployment or dimmed career

prospects, then there is more reason to monitor it and consider remedial action. There

are diverse plausible arguments about this, some having to do with the composition of

the workers shed by downsizing, other to do with the special extra impact that has on

one one’s job. However, all these become significant in the analysis of labour

downsizing. It is in this background, the study intends to explore the various

dimensions of labour downsizing in Karnataka focusing on the public sector

industries in Mysore district.

11

REVIEW OF LITERATURE

After stating the problem, the next logical step would be surveying the

literature pertaining to the stated problem. Survey of literature enables an

understanding of various dimensions and ramifications of the proposed research topic.

It helps to identify the research gap and facilitates the formulation of hypotheses and

objectives. Literature review also helps the concretization of the proposed thesis.

The literature base, however, is very deep and wide therefore, in this context an

attempt is made to highlight a few important sample studies, which are closely related

to the proposed issue.

Frank Drzensky and Matthias Heinz (2013), “The Hidden Costs of

Downsizing” revealed that, to analyze whether a principal’s decision to lay off an

agent affects the performance of the surviving agents in a laboratory experiment.

They have found that agents reduce their performance by 37% as a response to the

layoff decision. Heterogeneity in principals´ decisions can largely be explained by

different beliefs about how agents react to layoffs.

Robert Gibbons, Lawrence F. Katz (2013) in their paper on “Layoffs and

Lemons” provide theoretical and empirical analyses of an asymmetric-in-formation

model of layoffs. When firms have discretion with respect to lay off, the market

infers that laid-off workers are of low ability. Assuming that no such negative

inference is warranted if workers are displaced in a plant closing, post displacement

wages should be lower and post displacement unemployment spells should be longer

for those displaced by layoffs than for those displaced by plant closings, but pre

displacement wages should not differ by cause of displacement. Evidence on

12

displaced workers from Current Population Surveys supports all three of the model's

predictions in the study.

Matthew Dolan (2012) in his paper on “A Labor Force Faces the Ultimate

in Downsizing”, as revealed that, The Detroit's disordered government, which, like

the city itself, is shrinking fast. The city of 713,000 now employs 11,000 workers,

down from more than 13,000 when Mayor Dave Bing took office in 2009. Another

1,000 workers are scheduled to lose their jobs in the current year due to budget cuts.

Yet this labor force retains a complex organizational structure, a vestige of a time

when it served a population of nearly two million. Workers are represented by 21

unions and 48 bargaining units, several of which now have fewer than 10 members.

The five police officers in the city's health department have their own labor council.

Vinitha Kumar (2012) in her research article titled “Labour laws- are they

holding back manufacturing sector and employment in India” examines the

controversy pertaining to the problems of labour market flexibility in India. The

author supports the World Bank Report 2008 which argues that most restrictive and

complex labour legislations in India have constrained the growth of manufacturing as

well as employment in the organized sector. Fallon and Lucas have found that

employment growth in the organized sector would have been higher by 17.5% if the

job security provisions had been less rigid. On the other hand the economists like

Roy (1998) T.S Papola (1994), Ghosh (1994) Bhalhotra (1998) and Goldar (2000

and 2004) observed that job security regulations, did not have significant adverse

impact on neither employment growth not productivity.

Indira Hirway, Neha Shah (2011), in their paper “Labour and

Employment under Globalization: The Case of Gujarat”, states that the dynamics

13

of the process of change in the status of labour and employment in the rapidly

globalizing state of Gujarat in India. This study shows that the rapid growth in the

state has not been shared by labour. And it also argues that an unfair deal to labour

need not be a part of neo-liberal economic reforms and that providing a just share to

labour can contributes towards promoting labour-intensive and equitable growth in

the state.

Werner Guth (2011) in his research article “Downsizing the Labor Force

by Low and High Profit Firms- an Experimental Analysis”, argues for appointing

a principal agent to capture the effects of downsizing the labor force. The main

findings are that downsizing is often avoided and its frequency does not depend on its

profitability. The evidence further suggests that the firms spend more when

downsizing is more profitable and what might explain that downsizing frequencies

hardly depend on the profitability.9

To facilitate voluntary retirement, the Government of India, like many other

countries who have taken up similar schemes of privatization, accepted to support

financially the Voluntary Retirement Scheme (VRS) in October 1988. While VRS

has been in operation in India for more than a decade, empirical studies to assess the

impact of the VRS on those who opted for it have not been many. From the

responses of the trade union representatives and the few available studies,10 it appears

that the experience at VRS has not been very encouraging; and there continues to be

confusion on certain aspects of the VRS.

9 Werner Guth (2011) in his “Downsizing the Labor Force by Low and High Profit Firms- An Experimental Analysis” in “Institute of Economic Theory and Statistics (ETS) Karlsruhe Institute of Technology (KIT), Germany”. 10 Maniben Kara Institute, Voluntary Retirement Scheme and Workers’ Response, Friedrich Ebert Stiftung, New Delhi, 1994 and B.P. Guha, Voluntary Retirement: Problems and Prospects of

Rehabilitation.

14

Sebastian Buhai and Hans-Martin Von Gaudecker (2010), in their paper

titled “Firm downsizing, public policy, and the age structure of labour

adjustments” analyze the role of firms and social security institutions in shaping the

early retirement behavior of workers. To this aim, they model a firm’s workforce

adjustment following negative demand shifts. In particular, and interested in how the

age structure of the firms’ employment adjustments reacts to corresponding age-

related institutional arrangements. To develop a parsimonious labour market model,

which has a core prediction that distressed firms will dismiss relatively more workers

from those age groups that are targeted by early retirement policies? Their model is

tested on exhaustive longitudinal linked employer-employee data from Denmark--

where several important reforms to the pension system have been enacted within the

past three decades.

Smith Paul (2009), in their paper, “New labour and the commonsense of

neoliberalism: Trade unionism, collective bargaining and worker’s rights”, revealed

that the assumptions and values of neoliberalism came to dominate the conservative

governments, since 80’s inspiring a range of policies that included industrial relations

and employment law.

Wayne F. Cascio (2009), in his article “If you Must Downsize, Do it Right”

says that, Employment downsizing has become a fact of working life as companies

struggle to cut costs and to adapt to changing market demands. Indeed, given the

speed and depth of the economic crisis that began in 2007, many companies

experienced precipitous drops in sales and revenue. Those drops hit single-line

businesses especially hard, because the drops could not be offset by stable revenues or

even increases in other lines of business that led many such businesses to consider

downsizing their workforces. Consider this simple, fundamental truth expressed by a

15

small-business owner in recent testimony before Congress: “My ability to maintain

employment levels and hire workers depends on whether revenue exceeds costs.”

Suppose it does not? With credit markets frozen, many organizations had little choice

but to downsize their workforces in an effort to save the jobs of those remaining. In

this case, downsizing was a reaction to an emergency situation11.

Chakrabarti Anjan, Dasgupta Byasdeb (2007), in their paper “Disinterring

the Report of National Commission on Labour” uncover the report of the National

Commission on Labour to reveal the ideological basis of the changes sought in the

labour laws. Changes suggested in the labour laws flow from an understanding of

labour that is derived from the perspective of capital.

Rajeev Meenakshi (2006), “Contract labour in Karnataka: emerging

issues and options” reveals that in order to effectively compete in a global market the

industrial sector demands flexibility. To circumvent rigidities imposed by labour

laws, the new form of employment that is being created in the economy is largely

contractual. Based on a field survey, this paper looks at the status of contract labour

in the state of Karnataka.

Subramanian deli (2005), in his study on “Deregulation and labour policies

in a public sector firm mixed result at ITI” explains the impact on the employees.

It concentrates on the initiatives pursued by the company in order to build a workforce

and forge labour policies tailored more closely to the imperatives of competition and

evaluates how far these objectives were achieved. In the field of labour relations,

these revised priorities would take two main divergences: the implementation of a

11 Wayne F.Cascio., (2009), in “IF you Must Downsize, Do it Right” in “Business week” March 11, pp: 104.

16

voluntary retirement scheme (VRS), and the tightening of disciplinary controls

together with cutbacks in welfare benefits.

Bhalla V.K.(2005), in his article, “Globalization Markets for workers and

labour”, states that governments around the world share the goal of having more and

better jobs for their citizens, and argues that the public policies affecting the labour

market play a critical role effecting jobs. Though regulation of labour markets is

usually intended to help workers, it can also be a significant constraint for job

expansion.

Sanghamitra Bhattacharyya and Leena Chatterjee (2005), in

“Organizational Downsizing: From Concepts to Practices” examine that the broad

questions relating to downsizing (why, what, and how) have been studied in fairly

rigorous detail till date. Despite a theoretical understanding of the principles

underlying the process, the negative consequences associated with this exercise on

both organizations and individual employees continue unabated (Labib and

Applebaum, 1993). It is hypothesized that this could be the result of viewing

downsizing as a panacea for organizational problems rather than seeing it as a part of

an overall strategy for organizational renewal. These negative consequences could be

minimized by viewing it as a process of transformation not just through incremental

changes but also by reframing existing mental models, assumptions, policies and

relationships to enhance the adaptive potential of the organisation12.

Zachariah K.C, Prakash B.A, Rajan S Irudaya (2004), in their paper on

“Indian workers in UAE, Employment, wages and working conditions” reveal

12 Sanghamitra Bhattacharyya and Leena Chatterjee, (2005), “Organisational Downsizing: From Concepts to Practices” in “Vikalpa” Volume 30, No 3, July.

17

that the United Arab Emirates was once formed a principal destination for Indian

emigrants in search of jobs. But the fear of a rapid demographic imbalance has

prompted a policy shift – “amortization” – which has led to a decline in number of

unskilled and skilled emigrant labourers of India. This article examines the state of

Indian emigrant labour to the UAE, the structure and conditions of employment.

Punekar S.D, Deodhar S.B, Mrs. Saraswathi sankaran (2003), in their

paper “Labour Market and Employment: an update” reveal that NEP was

introduced during mid-1980’s in terms of some liberalisation measures by way of a

gradual shift in the spheres of industry, Exports-imports, inflow of foreign capital and

foreign collaboration and was accelerated since 1991. The structural changes and

adjustment forming part of NEP raised significant employment and labour market

issues.

Chattopadhyay Paresh (2002), in his paper “Marx on Capital’s

Globalization’ the dialectic of Negativity”, drawing on Hegel, in his Parisian

Manuscripts of 1844 reveals that Marx first attempted to show how capitalism not only

contained within itself conditions for its own negotiation, but also created elements of

the new society that would supersede it. Under capitalism, labour, like other factors,

too is converted to a commodity - ‘surplus labour’ with exchange value; while

production is not bound by limited needs nor needs that limit the production.

Kapila Raj and Kapila Uma (2002), in their joint paper “Reforms of Labour

Laws” argue that one of the factors which is often said to restrain expansion of

employment in the organized sector in India is the rigidity of our labour markets

arising from the nature of our labour laws.

18

Chaudhuri Sudip (2002), in his paper “Economic reforms and industrial

structure in India”, focuses on the impact of India’s economic reforms on industrial

structure and productivity. It reveals a disappointing overall performance in both

output growth and employment.

Chadha G. K and Sahu P.P (2002), in their article, “Post-Reform setbacks

in Rural employment issues that need further scrutiny”, look at the pace and

pattern of employment growth in the 1990s (post- reforms period) and compares it

with the 1980s (pre-reforms period), based on NSS data, and attempts made to figure

out the challenges and threats that lie ahead for rural workers in India.

Sawant S.T’s (2000) paper on “Globalization and Indian Labour”, revealed

that today’s world is continuously undergoing rapid changes. Waves of globalization,

privatizations, integration and liberalisation are sweeping a large number of countries.

Rapid technological advancements including those of space and developments in

transport and communication are breaking all barriers for not only goods, services and

capital but also for labourers and professionals. This paper has examined the need for

restructuring Labour under Globalization.

Vaikunthe L.D. (2000), “Exit Policy: An Economic Analysis”, examined

the major aspects of the structural reforms undertaken by the government to initiative

and provide exist route to non-viable industrial units, and their labour force. Though

the explicit exit policy is yet to be announced, necessary ground is being prepared by

the government, while the employers have been welcoming it on expected lines, trade

unions are quite apprehensive about its adverse impact on labour. The Nature and

structure of industrial labour adjustment to the requirements of globalization are

considered.

19

Saxena A.K and Raj Aparna (2000), “The Exit Policy vis-à-vis Voluntary

Retirement Scheme, A comparative study” explains that labour problems are not

being given their due importance. The nation is not realising the labour problems, nor

recognising their due importance, in the present context, thereby still treating labour

as a commodity which is a great blot on the Indian economy.

Swapan sen and Rezeian Farzin (2000) in their paper on “Downsizing,

Capital intensity, and Labour Productivity”, explain that the recent studies on

corporate downsizing attribute variability in labor employment to business cycle and

the process of technological innovation (Caballero & Hammour, 1996), the

outsourcing decision by corporations (Sen & Zhu, 1996), the lack of flexibility of

workers compensation schemes (Gerhart & Milkovich, 1990), and institutional

factors (Nagao, 1995). This theory presents a simple model to study employment

variability due to fluctuations in labor productivity. The study of a production

function demonstrates that the firm’s use of a factor of production is inversely related

to the productivity of that factor. Further, the variability of employment of a factor

due to its own productivity fluctuations is magnified by the intensity of employment

of the other factor of production13.

Battacherjee Debashish’s (2000) paper on “Globalizing Economy,

localizing labour” discussed evolution of Indian industrial relations in a historical and

structural context. It deals with the post-liberalization period along with the

‘Structural adjustment programme’. The essential theme of this paper is that the

gradual spread of market principles has led to wide inter-regional and inter-sectoral

13 Swapan sen and Rezein Farzin, (2000), in “Downsizing, capital intensity, and labour productivity” in “Journal of Financial and Strategic Decisions”, Volume 13 No. 2.

20

differences in the levels of economic activity resulting in considerable variation in the

nature of labour-management relations.

Shahs and Gandhi’s (1998) paper on, “Industrial Restructuring; Workers

in plastic processing industry”, explores how the newly introduced economic

reforms and in particular industrial restructuring is affecting women at their work

place and in their homes. They have considered the impact of Industrial restructuring

on Women workers who are more vulnerable to industrial restructuring.

Deshpande Sudha and Deshpande Lalit (1998), in their paper on “Impact

of Liberalisation on Labour Market in India: what do facts from NSSO’s 50th

round show?” state that the demand for Labour has increased after liberalisation but

the increase was not shared evenly in rural and urban India between men and women

and regular and casual workers. The structure of employment moved away from the

primary sector for rural men. Liberalisation has affected casual workers, particularly

the women casual workers, more favorably than regular workers.

Gangopadhyay Shubhashis and Wadhea Wilima (1998), in their paper

“Economic reforms and labour”, have analyzed, at the disaggregated level of 2-digit

industries, the changing pattern of labour productivity, labour costs and total factor

productivity in Indian industry over the period 1973-74 to 1993-94. It is expected that

the economy will go through major restructuring in the coming years. For higher

employment growth in this changing scenario, one needs rapid industrial expansion.

Guha B.P. (1996), in his article “Voluntary retirement schemes in Indian

industries” revealed that manpower adjustment is an effective strategy for increasing

the productive efficiency especially when a sizeable labour force becomes redundant

due to restructuring or rationalization of an enterprise.

21

Ghosh (1995), in his study on “Industrial restructuring and labour

relations; Emerging patterns, implications and strategic choices”, says that, not all

industrial-restructuring exercises can be lumped together in one undifferentiated

category. The paper identifies the distinct patterns, which have been shaped as much

by economic environment and market compulsion as by prevailing labour

management relations.

Ratnam C.S. Venkata’s (1995), paper on “Appropriate structural adjustment

policies; the perspective of employer’s organization in select countries”, argued that

instead of straightjacket global approach, country specific programmes are appropriate

for structural adjustment. The author highlights the need to protect workers against

unjustified dismissals and macro-economic risks. He also argues that since structural

and other changes make unions and workers more vulnerable, employers need to show

greater restraint in the transition period.

Papola T.S. (1994), in the paper entitled “Employment growth and social

protection of labour in India” examined the social protection to labour particularly

with reference to growth and structural change in employment on the one hand,

industrial restructuring and structural adjustment on the other. It assesses the possible

impact of institutional framework governing the growth and structure of employment,

as well as the labour market trends.

Krishna Anujahesh and Monappa (1994), “Economic restructuring and

Human resources management” in their paper seek to examine some of the issues

that will need to be addressed to in the light of such integration. Issues like the impact

of economic restructuring on employment generation, on productivity, and product

quality, over manning and exit policy have been discussed. In the interim phase job

22

losses will be quite significant but from a long term point of view a different set of

skills will emanate.

Rao S.L. (1994), in his research paper on “Labour adjustment as part of

industrial restructuring: Human dimensions of liberalization” says that changes

in labour legislation or ‘exit’ policies and compensation to workers through the

National Renewal Fund are only of cosmetic value in bringing about industrial

restructuring and labour adjustment. At the National level what the country needs are

policies towards literacy, education, training retraining of the workforce and making

the workforce and managements accountable for their performance.

Masilamani S. (1993), in his study on “Industrial restructuring and Union

management power dynamics: a case study” indicates that the industrial

restructuring, welcomed by the employers and opposed by the employees and their

unions, has implications for industrial relations in our country.

Singh Ajit Kumar (1993), in his paper on “Social consequences of New

Economic Policies” explained, With particular reference to the levels of living of

working class population, some of the likely consequences of the new economic policy

measures particularly their impact on the living conditions of the working class. The

author reviews the theoretical literature dealing with the distributional effects of

stabilization and structural adjustment programmes. This is followed by a brief survey

of the empirical experience of countries in different parts of the world with respect to

the social consequences of economic reforms.

Sodhi’ J.S. (1993) “New economic policies and their impact on industrial

relations” opines that, the economic measures adopted by the government under the

New economic policy have far reaching implications for, among others, the industrial

23

relations. In India, the three main actors namely the management, Trade unions and

the state have been playing a key role in determining the employment relationships,

the rules governing their relationships and other aspects of industrial relations. The

paper examines the response of the three actors, highlights the challenges and

opportunities, which have come up in view of the policies and suggest measures to

improve industrial relations and achieve growth in industry.

Leelavathi D.S (1992), in her article on “Exit Policy: some major issues”,

has discussed the spectrum of labour exit policy in the background of SAP. Several

leading issues of the policy are exposed and suggested a few measures to reduce the

painful impact of SAP on labour and also to ensure the smooth implementation of

labour exit policy.

A study on “The Impact of Economic Restructuring on Labour” by A.

Prasad and Mohan Prasad (1992) examines the impact of economic restructuring in

India on labour force and identified some corrective measures to reduce the hardships

faced by the working class.

Mathur. N Ajeet (1992) in his work “Employment security and industrial

restructuring in India: Separating facts from Folklore” states that in the concept of

compensating individuals, groups and organizations according to their worth in the

market place is painful but this pain may be mitigated if social partners claim space

and actively participate in the process of restructuring the Indian economy through

institutional change. A continuing dialogue between the actors in the industrial

relations system may lead to discovery of better ways to regulate employment and

organize. Recognizing the linkages between labour institutions and economic

24

development in the context of economic and political reforms would be a good move

in this direction.

Veerashekarappa’s (1992) “Impact on structural adjustment on working

class” states that Structural adjustment is designed to improve the productivity of

resources including labour in the long run. Moreover, the Structural Adjustment

Programme is clearly based on the flow down or the trickle down or percolation theory

of development, and hence, it is expected the benefit also reach the working class.

Datta Meera’s paper (1992), “Labour absorption under new economic

policy” analyzed that the growth of production depends on two factors, viz., growth of

employment and growth of labour productivity. The evolution of technology in the

developed capitalist nations, because of their resource endowment remains oriented to

increasing labour productivity which implied capital intensive technique of

production.

Sivaprasad K. and Sreerama Murthy K, in their joint paper (1992),

“Structural adjustment and its impact on labour: some unforgettable issues”,

explain that in a socialist democracy, labour is a partner in the common task of

economic development. As such whatever policy the government adopts, it should

aim at improving the living conditions of its labour.

Geoffrey Winster M. (1992) “Impact of economic restructuring on labour

in Indian context” said that as a result of economic restructuring and privatization,

the public sector workers will be thrown out of their jobs but without property safety

net system.

25

Birundha Varadarajan Dhulasi (1992), “Export orientation, structural

change and employment: An empirical evidence from the Indian economy”

explained that the employment generation in the economy is not only influenced by

the internal factor viz., structural changes but also the externally dependent factors like

exports and imports.

Kant Jha Ashwini and Nath Jha Bibhuti (1992), “Potential of workers’

co-operatives in restructuring the economy”, said that the question related to

industrial restructuring are not about the direction or its motivation, but more in the

nature of concerns arising from dimensions of the process.

Singh S.N. and Singh Parmanand (1992), “Restructuring of the Indian

economy and its impact on Indian labour” explained that since the assumption of

power at the centre by the government under the leadership of Sri Narasimha Rao

sweeping changes in economic policies have been done. The Nation said good-bye to

a loud thinking of active governmental control and regulation of the economy and now

market-friendly approach has been adopted which invariably demands Labour

restructuring and downsizing of Labour in Production system.

Mishra Umesh’s (1992) paper on “Industrial Exit-its Impact on Labour

and Real Options”, said that the Indian state which claims to be a Democratic

Socialist Sovereign Republic owes, as a matter of duty, to the toiling industrial classes

against the employers militancy. Improved legal framework is necessary but not a

sufficient protection against the retrenchment, lockouts and closures. For this purpose,

the active involvement of the labour ministry at the centre and state levels to ensure

quick and prompt action is needed.

26

D. Heggade Odeyar (1992), in his paper “Impact of privatization on

industrial labour: some issues” stated that Macro-Economic Policy has a direct

adverse impact upon the stability and the future rate of expansion of employment

opportunities for industrial labour in India. The possibility of labour retrenchment on

economy-wide basis has raised the fear psychosis of labour losing jobs both in public

and private sector, and hence labour is opposing the new economic reforms.

Prasad Nrendra (1992), in his paper “Impact of India’s New Economic

Policy on Employment” revealed that the collapse of the system of command

economy, the system of centralized planning and the system of state control and the

turn of the world economy towards a market oriented economy compelled India to

realize that it cannot live in isolation. Both the State and labour have to adjust with the

New Economic Philosophy.

Vijayaranjan A. M (1992) in his paper “Impact of Privatization on

Labour” explained that the Privatization of the public sector units and government

undertakings are the important measures in the newly announced package of economic

policy measures during 1990-91. This has become a worldwide trend now. This

paper makes a modest attempt at examining the various aspects of privatization and its

impact on labour with a focus of attention on trade unions, attitude towards

privatization of labour efficiency and labour exploitation.

The Disinvestment Commissions of the Government of India in all its 12

reports, examined in detail issues relating to disinvestment inclusive of labour

restructuring. In all these reports, protection of the employee interest has been given

due importance while restructuring PSUs. These reports argue in favor of sustaining

long term employment by financial turnaround of loss making PSUs and providing

27

adequate and fair compensation through VRS to surplus labour force, effective labour

participation in management and employee stock option. The commission

recommended a clear cut policy on VRS with long term perspective and make

provision for assured and adequate funds for the purpose.

RESEARCH GAP

The literature review clearly shows that the studies have focused more on

Industrial restructuring and its impact on employment, industrial relations and labour

management. Similarly impact of privatization on labour has been analyzed by a few

studies. However, studies relating to Labour Downsizing or Rightsizing are very

scarce. Therefore, the Present study is an attempt to fill this Research Gap. Also,

studies relating to Labour Downsizing in Public sector industries both at National and

Regional levels are a rare phenomenon. Similarly, the evolution of Labour Exit

Policy, its various dimensions, practical difficulties in executing the Policy as well as

its impact on the working class are not comprehensively researched in a systematic

manner in the above mentioned studies. With regard to the study region Karnataka

and the case study District Mysore, studies on Labour Downsizing particularly in

Public sector industries are hardly found. Comprehensive studies on labour

downsizing involving VRS, retrenchment and layoffs are very rare and therefore the

present study is an attempt to fill this gap.

28

OBJECTIVES

The major objectives of the study are as follows:

• To examine the impact of globalization on organized labour in terms of

employment in organized sector.

• To trace the evolution of Exit policy in India as well as in Karnataka.

• To analyze the different approaches to the problem of labour downsizing.

• To study the pattern and impact of labour downsizing in public sector

industries in Karnataka, with special reference to Mysore district.

• To suggest feasible labour downsizing policy measures based on the

theoretical and empirical foundation.

HYPOTHESES

A typical social science research begins with well formulated hypotheses. The

proposed thesis has set the following hypotheses, which have been tested in the course

of the study:

1. Labour downsizing is a universal phenomenon and is the result of

globalization.

2. VRS is the prominent mechanism of labour Exit Policy in India.

3. There is a positive correlation between economic performance of the case

study units and VRS.

4. Bigger the size of the family higher is the demand for VRS.

5. Lower the pay scale higher is the demand for VRS.

6. Lower the educational level higher is the demand for VRS.

29

METHODOLOGY

The Research methodology included the following:

� Selection of the parameter/variable.

� Data sources and its analysis.

� Selection of the case study area/ region.

� Defining the reference period of the study.

Selection of the Parameters/ Variables

Seventy eight Public sector industries are available to study Labour

Downsizing in Karnataka out of which five are in Mysore District. The Impact of

Globalization on Labour downsizing and Employment generation at Global level,

National and at State level is examined. The Phenomenon of jobless growth and

declining employment elasticity, the Exit Policy in India, its various dimensions at

state and district level are considered.

The study analyses the problem of downsizing and labour restructuring in

public sector industries in Mysore district. The major Public Sector Industries in

Mysore district consists of BEML (Bharath Earth Movers Limited), a Central

government undertaking, KSIC (Karnataka Silk Industries Corporation), KEONICS

(Karnataka State Electronics Development Corporation Limited), KSDL (Karnataka

Soap and Detergent Limited) and MPVL (Mysore Paints and Varnish Limited).

Bharath Earth Movers Limited is a central government enterprise and the other four

industries are governed by the state government. But KEONICS is a Computer

education and training center for training the poor and backward class people.

30

KSIC, KSDL and MPVL are selected for the field study, since they are the

manufacturing industries under the state supervision. The researcher visited KSIC,

KSDL and MPVL to collect the information regarding the proposed study and had

discussions with the managers, workers and collected information on labour

restructuring, retrenchment, VRS etc., from 2001 to 2010 through scheduled interview

questionnaire. Only around 50 per cent of the workers, who have accepted VRS,

could be traced in and around Mysore city and the remaining however could not be

traced due to change of address. The details pertaining to Labour downsizing in

Public sector industries in Mysore District are related to their age, family size,

education, qualification, social class, VRS package, reasons for accepting VRS, post

VRS experience, impact of VRS on economic performance of the industry etc.

Sample size

A total of 276 workers from the two study units have opted for VRS, out of

which 241 are from KSIC and 35 are from KSDL. The optees are from both work

force and the management staff. Out of 276 who have taken VRS, 81 are from KSIC,

9 are from KSDL i.e. a total of 90 are selected randomly. Stratified random sampling

could not be done because of the small size of the sample.

Sources of Data and Data Analysis

The study involves both primary and secondary data. The secondary data is

collected from Kaveri Emporium in Mysore District, Statistical Department,

Department of Labour, Dairy circle, Bannerughatta road, Bangalore, Ministry of

labour Government of Karnataka, ILO reports etc. Data collected from journals like

‘The Indian Journal of Labour Economics’, ‘Indian Journal of Industrial Relation’

31

and ‘Economic Political Weekly’, ‘World Bank Report’, ‘Indian Economic Survey’,

‘Annual Reports’, ‘Karnataka Economic Survey’, ‘Ministry of Industry’, ‘Bureau of

Public Enterprises’, ‘Plan documents’, ‘Published documents’, ‘Published articles’,

‘Periodicals’, and Internet sources.

Interview schedules (pre-tested) were prepared for VRS optees in the two state

owned public sector industries namely KSIC and KSDL. Respondents’ addresses

were collected from the Human Resource department of the industry and the

researchers has met majority of them. A few were contacted over phone and where

about of the small proportion of them could not be traced. Most of them were under

the impression that the survey is sponsored by the government to give them still better

emoluments. The general as well as the HR manager of the two industries responded

to the interview fairly well, which has enabled the researcher to capture the

comprehensive picture of VRS and other downsizing mechanisms. The office bearers

of the INTUC as well as HMS and a few members of these Trade Unions in Mysore

were also interviewed to gather an impression of Trade Unions about VRS.

Period of the study: The study had covered the period of since 2001-2011, is taken

and divided the reference period into two parts.

Part - I

The study included the period since 1991-2011 for the analysis of the research

problem at Global level, National and in State level.

32

Part - II

This included the ten years 2001-2011 period. This is for the obvious reason

that VRS started only during the second generation period.

The researcher has to depend on multiple methods for data collection and

information gathering. Discussions were held formally with the Managers and

labourers and informal discussions were held with bearers of Trade Unions relating to

the research topic. Field observations were made systematically. The information

thus collected was validated by cross checking the same with a different group of

people (Worker/Staff).

Rationale of selecting Mysore district as the study area

Along with the heritage tag, the economy of the city of Mysore is flourishing

with the presence of some of the prominent industries. Mysore city was ranked as the

5th best city in India to conduct business in the successive years and it was ranked first

in terms of best tourist place in India and 4th best tourist attraction in the world. The

city has some of the major industries involved in IT, Electronic hardware, automotive

and manufacturing of agricultural products etc. Mysore is also one of the cities

known for its booming industrial manufacturing computer and software products in

recent years. Mysore district was purposively chosen as case study area for the

following reasons:-

� Companies like IT, Electronic, Hardware, Automotive, Computer software

etc., are growing faster than Public sector industries in Mysore district.

� The impact of Globalization on labour is proved here in Public sector

industries.

33

� Despite increase in employment opportunities in the State, public sector

industries in Mysore district have not accounted for the expansion of

employment opportunities.

� Apart from a limited spread of Public sector industries in Mysore district, the

share of these to State industrial output in Mysore district is declining

rigorously.

� Despite operation VRS, no studies have been made relating to labour

downsizing in the study area.

� No study has attempted to examine the issues relating to redeployment,

retrenchment, layoffs and retraining of workers in the public sector industries

of the study area in the background of exit policy.

SCOPE AND IMPORTANCE OF THE STUDY

A review of literature survey reveals that, many of the traditional studies are

related to the implication of New Economic Policy on employment generation, which

highlights the Phenomenon of jobless growth and declining employment elasticity.

This implies greater reliance on the market forces both within and outside the

economy so that greater efficiency and productivity leading to competitive capability

in the world economy. Industry has, therefore, started restructuring, downsizing and

reducing overhead cost with a view to minimizing cost particularly labour cost. All

these efforts of restructuring and downsizing have resulted in loss of jobs.

Labour Restructuring and downsizing both aim at reducing the labour force to

raise productivity. Industry has been demanding a policy of flexibility which implies

the right to ‘Hire and Fire’. It denotes the right to reduce ‘redundant labour’.

34

Restructuring helps to correct the mistakes of the past and thus reduces excess fat and

make the enterprise leaner and thinner. In other words, productivity is raised by

merely reducing the denominator ‘labour’ i.e., the number of workers.

Thus, even when the enterprises ‘net income’ remain unaltered, productivity

per worker seems to rise. It means that labour restructuring is a negative instrument

to raise productivity. Denominator management (downsizing) is an accountant’s

shortcut to raise asset productivity. C.K. Prahallad (2000), therefore, opines:

“Downsizing can be like corporate anorexia; it can make you learner and thinner but it

won’t necessarily make you healthier. Ultimately, you need to grow and you need to

change”. The present study attempts to trace the effect of Labour downsizing on the

process of labour downsizing and the profitability of Public sector units in the study

district.

The basic problem with all attempts at economic reforms is not to treat labour

as an asset, but as a mere instrument, which can be dispensed with when in the

judgment of the employer, it is no longer useful. This is a very mechanical view of

labour, which is resented by trade unions on the one hand, and judiciary on the other.

For the employer, it is an attempt at cost reduction, but for the employee, it is the

question of survival. In developed countries, where social security systems have been

extensively developed, the pains of restructuring are much less and is also not

deprived of a basic minimum essentials for livelihood. However, in India, this

restructuring and downsizing leading to retrenchment or closure results in depriving

the workers of their livelihood.

‘New Economic Policy’ is quite vast and wider in scope. It would

differentially affect different social groups and classes in the economy. However, the

35

scope of this work is limited to the extent of analyzing the impact of these policy

changes on the labour restructuring in India, in Karnataka, with a case study of

Mysore District. The study area is Mysore district in Karnataka and the study period

ranges since 2000 to 2010.

The importance of the study lies on following facts, in the background of

economic liberalization there is tremendous scope for future policy research. The

paradigm shift in Development Policy has led to a series of elaborate changes in

different sectors of the economy including both industry and labour. The intention is

to increase the competitive efficiency of the economy in order to capture the benefits

of liberalization. The proposed study centers on the problem of labour adjustment in

the organized public sector. The global as well as the Indian experience have clearly

revealed that globalization has adverse impact on labour, especially in terms of

employment in the short-run. The overhauling of labour in the public sector has

created a big opposition from the working class, as well as the champions of social

cause. Their argument is that the axe falls heavily on labour, which is not fair.

However, given the efficiency and number scenario of labour, one could easily say

that there is over staffing in public sector, efficiency of labour is low and they are

overprotected. Also, the mechanism of industrial restructuring has called for labour

restructuring in terms of redeployment, retraining and ultimately retrenchment and

downsizing.

The proposed study intends to probe deeper into the issue of labour

downsizing, which has become a major component of new labour policy which

permits the employers to hire and fire the workers and to trim the Labour number.

Despite, several approaches are available for the purpose: the focus is mainly on

labour downsizing through VRS. This has certain serious ramification which also has

36

led to jobless growth. The evolution of the performance of public sector points more

heavily towards labour factor as responsible for the poor performance. Since 90’s

these issues are gaining lot from attention from different stake holders.

Karnataka has fairly a big public sector and labour restructuring is taking place

in different public sector activities. Including manufacturing the proposed study aims

at exploring the labour downsizing exclusively in manufacturing sector. What type of

mechanisms is being used? What is the extent of VRS? Whether the financial position

of the employers and labourers who have opted for VRS/ who have been retrenched in

the process, has improved or not, what procedure is followed for the purpose? etc.,

will be carefully looked into. Freeze in government jobs, computerization of banks,

slimming the excess workforce in manufacturing sector really demands a thorough

study of various issues involved. The study is a combination of theoretical, secondary

and primary sources of information. This throws light on policy imperatives to

smoothen the transition of labour force. Mysore district is considered as the

geographical framework of revenue division to explore and understand the above

mentioned intricacies. The major public sector industries in Mysore district are the

BEML, KSIC, KEONICS, KSDL and MPVL. The study enables an understanding of

the nature and structure of labour downsizing in the public sector manufacturing

industries in Mysore district. In Karnataka as well as in the study district hardly there

are any studies on these issues although there are 78 Public sector manufacturing

industries in Mysore district. There have been few attempts to trace the impact of

liberalization on the labour force in the Public sector. Therefore, the study is timely,

desirable and fills a major research gap and hence a main stream research area.

37

LIMITATIONS

1. The major limitation of the study is related to the fact that, time series data on

labour downsizing and various components of exit policy are not available. The

obvious reason is initially, only in certain central public sector enterprises the

VRS scheme was introduced under the supervision of NRF. However later the

fund was closed down and the responsibility was transferred to the Department of

Public enterprises DPE, which changed subsequently the VRS mechanisms. The

state governments started VRS all most a decade later including the government

of Karnataka. This has limited the quantification of variables as well as the

application of rigorous econometric tools for analysis.

2. At the field level study, the managerial staff does not have a complete perception

of VRS and its implications either for the industry or for the workers. They say

that they are just executing the orders of the government. Therefore the researcher

could not capture the entire gamut of VRS from the managerial perspective.

3. Majority of those who have opted for VRS could not be traced since they have

settled down in different places with changed addresses. Hence the researcher had

to face lot of problems to collect information from them. Further the researcher

had to spend lot of time listening to their post VRS grievances than eliciting

information on research questions.

4. Another limitation is that the researcher could not meet the office bearers of all

trade unions which are functioning in the district. However only a few trade

union leaders from within the study units, Hind Mazdoor Sabha and INTUC –

Indian National Trade Union Congress, office bearers were interviewed to elicit

38

their opinion about labour downsizing under the assumption that the opinions do

not differ significantly.

OUTLINE OF THE THESIS

• The first chapter of the thesis deals with the introduction, statement of the

problem, objectives, hypotheses, importance of the study, literature survey and

methodology.

• The second chapter examines the Globalization impact on labour, theory and

practical experience across the globe, national and at regional levels.

• Approaches to Exit policy in India, Historical, Theoretical and Analytical

Perspective are discussed in the third chapter.

• Chapter four deals with Labour downsizing in Karnataka, the process and its

mechanisms.

• Chapter five deals with Labour downsizing in public sector industries in

Mysore District and the analysis of results of the case study.

• Inferences, testing of hypotheses and suggestions are covered in the last

chapter, based on secondary and primary data.