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Chapter: 1
INTRODUCTION
1.1 The Meaning And Concept Of Industrial Relations
1.2 Industrial Relations In India
1.3 Industrial Relations Climate
1
INTRODUCTION
OVERVIEW
The chapter studies the concept of Industrial Relations with respect to
the Indian scenario. It also puts forward the different phases of Indian
Industrial Relations and explains about its growth and development.
The different external and internal factors that influence and dominate
the Indian IR is also reflected. The final section deals with the
introductory concept of Industrial Relations Climate.
1.1 THE MEANING AND CONCEPT OF INDUSTRIAL RELATIONS
The concept of Industrial Relations (IR) means the relationship that
exists between employees and management in the day-to-day working
of industry.
The Indian IR scenario has been rapidly changing with the opening up
of the economy and the subsequent inflow of the Multinational
Corporations (MNCs). This has brought a shift in the attitude towards
the relationship. This entry of MNCs has shifted the focus from a
labour economy to a human economy.
An extensive linkage between economy, politics and history has
always characterized Indian IR. The changes that are taking place are
primarily due to endogenous forces embedded within India's political
economy. There has been a major effect on the macro economic
aspect on the structure of the labour market (productivity, employment
2
and wages), also on the structure of IR (number of unions, collective
bargaining, labour legislation, industrial conflict and state intervention).
These transformations have brought in changes on the growth pattern
of the economy.
The concepts of workers' participation, quality circle, shop floor forum,
focus on training, profit sharing and others are now' being used
practically. Familiarity with a wide range of employer-employee
relationships and its implications while doing business abroad is a key
factor for successful conduct of IR.
The changes in IR took place in the post independence era primarily
due to government's industrial policy resolution of 1948 and with the
adoption of national labour policy of government.
Labour unions differ in each country. They are organized differently
and also differ in philosophy regarding employer-employee
relationship. The Indian constitution guarantees freedom of association
to all citizens. They are free to join or form trade unions without any
interference from the government. The Indian legislations also protect
the right to organize and bargain collectively and also seek affiliation
with the central bodies to function more effectively.
Labour regulations, which are affecting the economy and employee
employer relations in India, are enforced only in the formal sector
where as the informal sector is largely without any legal protection.
Labour law reforms as a part of the economic structural adjustment
process currently underway, continues to remain politically infeasible
and hence has been protected.
Bhavl1Jgar University LiIJrary. 3
India has ratified neither International Labour Organization convention
number 87(Freedom of association and protection of the right to
organize. 1948) nor number 98 (right to organize and collective
bargaining. 1949).
Indian IR scenario IS overall characterized by multiplicity of trade
unions, high degree of politicalisation of trade unions and inter-union
rivalry. These features are more prominent in the government
undertakings (PSU's). In 1991 only 5.4% Non-agricultural labour force
was unionized. As per the latest information published by the Ministry
of Labour in September 2000, there were 56,872 registered unions
accounting for a membership of 4,094, 000 of which 6277 unions were
submitting returns.
Most of the trade union federations are aligned with political parties.
UNION FEDERA TlONS AFFILIA TIONS WITH POLITICAL
PARTIES
Indian National Trade Union Indian Congress party
Congress (INTUC)
Bharatiya Mazdoor Sangh (BMS) Bharatiya Janata party
Hind Maha Sabha (HMS) Socialist Janata Dal party
All India Trade Union Congress Communist party of India
(AITUC)
The Industrial Disputes Act, 1947 with its successive amendments
intended to regulate relations between workers and employers for
resolving the disputes. Thereby simultaneously other acts were
4
enacted like the Factories Act, 1948 and Minimum Wages Act, 1948
for the welfare of workers.
In the five year plans that the government undertook they were
provided various measures for the promotion of healthy industrial
relations between labour and management for securing industrial
peace for the development and prosperity of industry, for the growth of
a strong and healthy Trade Unionism in the country for the promotion
of collective bargaining and raising of productivity through labour
management cooperation and later on realizing that there should be
progressive industrialization and expansion of Indian economy. The
stress was on the urgency of evolving adequate consultative
machinery and grievance procedures to be made effective to render
strikes and lock outs permanently.
Lastly in 1981, the government of India issued an ordinance to ban
strike. A new act called the Essential Services Maintenance Act
(ESMA) was enacted to intervene in IR; where by the act empowers
the government to ban strikes, lay offs and lockouts in "essential
services".
According to Prof.John T. Dunlop (1958) "An industrial relations
system at anyone time in its development is regarded as comprised of
certain actors, certain context and ideology which binds the IR system
together and a body of rules created to govern the actors at the work
place and work community. Flanders (1970) has said that IR is
oriented to the entertainment of conflict through the mechanisms of
institutionalization and regulation.
5
Hyman (1975) has put forwarded IR as a rule making or job regulating
process not only does it gives due significance to the human aspect of
IR but also gives adequate importance to the reality of the dynamic of
power and conflicts.
According to the International Labour Organization (ILO) "IR deals with
either the relationship between the state and employers and workers
organizations or the relation between the occupational organization
themselves".
The actors in given context establish the rules for work place and work
community. These rules consist of procedures for establishing rules,
the sUbstantive rules and the procedures for deciding their application
to particular situations. The procedures are themselves rules. (Dunlop,
1958)
The following diagram represents the industrial relations processes
functioning within the organizations
6
INDUSTRIAL RELATIONS PROCESS
Management of IR in an organization is constrained by several environmental
forces like the changing economic, legal, political, and social scenario,
organizational factors like owner dependency, size, technology, the workforce
characteristics and the IR factors like bargaining structure, trade unionism, and
others. A strategic understanding of these IR factors would activate the IR
structures and systems and in the process not only challenge the existing skill
levels
7
but also the prevailing shared values of the organization. This would
also help the manager to develop a multiple interest perspective for
firm level decision process on an assumption that there is an inherent
conflict of interest between employers and employees.
The macro economic framework has drastically changed since the
introduction of the New Economic Policy in 1991; initiated by the
central government and have led to major reforrns in some sectors of
the economy and has promoted efficiency and competitiveness. These
policies have had a perceptible impact on the structure, processes and
output of the IR system in India and thus there arises a need for having
a much better understanding on the IR framework.
1.2 INDUSTRIAL RELATIONS IN INDIA
The First Phase of Industrial Relations (1950 to 1965)
The first phase of the Indian union movement after independence
deals with the first three five-year plans of 1951-56,1956-61,1961-66.
This was a period of national capitalism. The state-led industrialization
with an import SUbstitution strategy, which resulted in the formation of
large, employment-intensive public sector enterprises, mostly in the
capital and intermediate goods sectors, between 1951 and 1965,
industrial production had increased at an average annual rate of 7.7
percent and manufacturing output increased at the rate of 7.6 percent
(Nayyar, 1981). These high growth rates were sustained by public
investment in capital and intermediate goods sectors, while growth in
the consumer durable goods industries was precluded. There was
effective protection through rigid import-substitution policies, but
8
guaranteed a captive domestic market and hence provided a stimulus
to private sector investment.
The development of the large public sector enterprises led to
employment growth in the organized economy. The same was also
observed in the latter and also in different sectors like the private,
corporate, service, transport and educational sectors. The average
annual growth rates of employment increased rapidly from around 0.4
percent during the period 1951-56 to around two percent during the
period 1961-66 (Papola, 1994). Public sector employment has led to
the formation of public sector unionism. The number of registered
unions increased rapidly from 4,623 in 1951/52 to 11,614 in 1961/62
the membership of registered unions that submitted returns more than
tripled during this period (Venkataratnam, 1996).
The communist led All Indian Trade Union Congress known as AITUC
continued to strengthen its position over the union movement from its
pre-independence days in the textile and engineering industries. The
growing public sector during this first phase provided a new ground
for large scale unionization. From here onwards the Congress party
controlled Indian National Trade Union Congress later on known as
INTUC. AITUC arose from within the rank and file, while the INTUC
was exogenously imposed on to the labour movement. There were no
ambiguities in the chain of command that clearly flowed from party to
union (Chatterjee, 1980).
The above relationship between the government and its affiliated
union federation during this phase seems to have tied in neatly with
the provisions of the Industrial Disputes Act (the 10 Act) of 1947,
9
which according to Datta Chaudhuri (1996) is the most important
piece of legislation between the worker and his employer. The
provisions in the act allow for no procedures to determine the
representative union within what would normally be a single
bargaining unit and as employers were under no legal obligation to
bargain with unions, there were also no build-in incentives for either
party to engage in collective bargaining. Early studies indicate to this
aspect of the 10 Act that impeded collective bargaining during this
period (Kennedy, 1966). Along with this there was Indian Trade Union
Act of 1926, which although allowed any seven workers to register
their union but without any provision for union recognition. The
opposition unions were for a secret ballot procedure to determine
union strength, but the INTUC was against it, favoring instead the
check-off system of membership receipts, a system that had easily
led to manipulation. The 10 Act also made it difficult for the unions to
call a legal strike. Most disputes were first referred to conciliation,
then to the labour commissioner. If this solution failed, the dispute
was usually settled in an industrial or labour court or through binding
arbitration (Kennedy, 1966).
During the late 1950s there were, attempts made to introduce labour
legislation promoting collective bargaining through voluntary
arrangements, such as the Code of Discipline and the inter-union
Code of Conduct (Venkataratnam, 1996). If this arrangements were
made legally binding on the parties, the determination of the
representative union in a single bargaining unit may have been solved
for good results. The dispute resolution machinery consisted of four
levels: bipartite negotiations, conciliation, arbitration and adjudication.
10
But post independence few trade unions supported adjudication more
than collective bargaining because they felt themselves weaker in
relation to the employers and adjudication would be an effective
dispute resolution mechanism to restore power (Venkataratnam,
1996). Various bills were drafted and debated at several tripartite
forums, but none of those were enacted (Kennedy, 1966). Further the
executive branch of the government ultimately vetoed the proposed
Trade Unions and Labour Relations Bills. These attempts came to be
known as the Giri Approach (named after the Labour Minister who
resigned in its protest) and many commentators interpret this failed
attempt as a major setback to the development of matured industrial
relations in India (Ramaswamy, 1984).
The norm during the first phase in the determination of wages and
working conditions was through state intervention, and was
determined by political and institutional considerations (Jackson,
1972). Central and industrial wage boards set wages, by adjudicators
when wage demands were in dispute, by adhoc industrial awards and
by the bureau of public enterprises for public sector enterprises. The
structure of bargaining was thus centralized, usually at the national
level, but at the industry-level in some regions and industries and for
few cases in the private sector, bargaining was at the enterprise-level.
The Indian experience of wage determination during this phase was
referred to as tripartism. During this phase many schemes were
formulated to provide employee participation/consultation at different
levels. In 1958 it was proposed that there should be a joint
consultation between workers and technicians and so Joint
Management Councils was introduced which will be responsible for
11
the welfare, safety, vocational training, preparation of holiday
schedules and others.
Considering the movement of real wages of industrial workers, India
was held out as an example of the Lewis model of growth at work,
with both product and consumption wage growing slower than labour
productivity (Jackson, 1972), low unionization, inter union rivalries
sharpened by political affiliation excess supply of labour and state
intervention of a complex type contributed to a wage lag (Deshpande,
1992). The labour relations regime was of promoting responsible
unionism to maintain industrial harmony and peace. Industrial conflict
date indicates that both the number of strikes, as well as the number
of workers involved in those strikes, during this phase were
significantly less compared to the following second phase and beyond
(Sengupta, 1992). By the end of this phase, further splits took place
within the labour movement: the Socialists broke away from the
congress and formed their own union federation, and the radicals
broke away form the communist party of India and formed their own
party, and its own union federation, the Center of Indian Trade Unions
(CITU).
The Second Phase of Industrial Relations (1965 to 1979)
The second phase of unionism corresponds with the 1967-69 annual
Plans and the fourth and the fifth five year plans in 1969-74 and 1974-
79 respectively. The rate of inflation rose tremendously above the
sensitive mark of 10 percent in 1966-67 and 1967-68 and specially
the food price inflation was as high as 20 percent (Joshi and Little,
1994). Inflation worsened in 1973-74 and there were food riots in
various states. This period is associated with overall industrial
12
stagnation: between 1965 and 1975 the average annual growth rate
of total industrial production and of manufacturing output increased at
only 3.6 percent and 3.1 percent respectively (Nayyar, 1981). The
labour productivity reduced to 1.4 percent from 1965 to 1980 while
capital productivity reduced to -1.9 percent during the same period
(Venkataratnam, 1996). Political economists posited various
explanations for this period of industrial showdown: the deceleration
in public investment, the unequal terms of trade between agriculture
and industry. The inefficiencies of state regulation in the public sector
and changes in the structure of demand results from the growing
income inequalities (Nayyar, 1981). In addition, the economy suffered
two oil price shocks, in 1973 and in 1978. It is during this phase that
the actual growth rates of industrial production were far below the
planned targets (Ahluwalia, 1991).
These explanations were probably all partly true while, it is clear that
the deceleration adversely affected the level of employment in the
economy. Average annual growth rates in employment fell from 2.2
per cent during 1967-69 to 1.8 percent for the period 1974-79 and
unemployment rates nearly doubled (Papola, 1994). According to
Ahluwalia (1992) data, comparing the period 1959-60 to 1965-66 with
1965-66 to 1979-80 the following trends in productivity and growth
occurred: employment fell, labour productivity fell from 4.9 percent to
1.4 percent, as did both value added and total factor productivity.
These structural changes in the economy affected union activity,
collective bargaining practices, and labour markets. The amendments
of the 10 Act, 1947 formulated in the emergency in 1976 mandated
prior permissions from the government for lay-off, retrenchment and
'\' "new '1',10," 1I",vGrsity \ - " , .• , y \
13
PHI, \" :.'GAR. j L-_---.. .
closure. These legal provisions, court judgements and collective
agreements between employers and trade unions created rigidities in
the labour market (Venkataratnam, 1996). However the number of
registered unions and unions submitting retums had increased during
this period.
As employment elasticities fell and labour markets got higher, the
number of disputes (strikes and lockouts) the number of workers
involved in these disputes, as well as the number of man days lost
due to these disputes, increased phenomenally between 1966 to
1974 (Sengupta, 1992). New forms of protest, such as the hartal
(Strikes) (the go slow), emerged during this second phase often
resulting in considerable violence. In certain regions such as in West
Bengal, these were used frequently and effectively.
Disappointed with the INTUC's internal practices and its
ineffectiveness in representing union voice at the enterprise level led
to the proliferation of unions affiliated to more radical political
organizations during the first part of this second phase. Workers
sought more skilled politicians and negotiators to lead their union
struggles. Two demographic factors may be associated with the
change in worker preferences towards different "Union-Types", One,
a growing proportion of workers were post 1950 labour market
entrants. They were unlikely to have participated in the pre
independence labour struggles. Two, was the fact that the leadership
of the radical unions were mostly committed lawyers and student
activists well versed in the bureaucratic rites of the Indian industrial
relations system (Chatterjee, 1980) rather than political party-men. An
14
analysis of industrial disputes by union-types revealed that the
number of disputes involving 'multiple unions' increased during the
earlier part of this phase (1966-73) compared to the first phase
(Bhattacherjee, 1987a), reflecting the period of intense interning
rivalry. These uncertainties within the union movement finally
culminated in the all-India May 1974 railway worker's strike that shook
the economy and the country at the time.
During Mrs. Gandhi's National Emergency of 1975-77 the right to
strike was suspended and the regime brought in restrictions. These
included forestalling bargaining on key issues, froze in wage
increases, reduction in the minimum annual bonus, and transferred
increments in the cost of living allowance to a compulsory savings
scheme (Rudolph and Rudolph, 1987). Two important interventions
took place in the industrial relations arena during this regime. The first
was the attempt by the government to establish the National Apex
Body, comprising of twelve union federations and eleven employer
representatives, in order to encourage a bipartite approach to
industrial relations. This seemed more responsive to union
preferences for voluntary collective bargaining, but such appearances
were illusory (Rudolph and Rudolph 1987).
The Second intervention was the 1976 amendment to the 10 Act,
which arose either from union pressure and I or as populist measure
has led to employment inflexibility: firms employing more than 300
workers had to get state government permission before retrenching
workers. As usual the government permission was seldom
forthcoming. This apparently pro-union measure had an unexpected
15
effect: for the first time since independence, the number of man days
lost due to lockouts exceeded the number of days lost due to strikes,
since 1976 (Sengupta, 1992). During the post-Emergency regime of
the Janta government (1977-80), there was a change in the political
climate but not on industrial relations reform (Sengupta, 1992). The
government attempted during this regime an industrial relations bill,
which among other things wanted to ban strikes and lockouts in
essential industries and services. This was met with stiff opposition
from most unions and political parties.
The second phase saw significant changes in collective bargaining
practices. The 1965 amendment to the ID Act placed agreements
arrived at through conciliation and adjudication at a higher legal
footing. Patil (1982) describes how employers and unions used the
1965 amendment to transform the agreements into legal documents
first and then coalition bargaining between multiple unions and
employer takes place so as to arrive at a satisfactory settlement. In
order to convert the agreement into a legally binding document,
conciliation is sought after all parties reach an agreement during the
process of coalition bargaining. The terms of the agreement are then
signed in the presence of the conciliation's officer, thereby making the
contract legally binding to all parties. The government began
appointing the labour representatives to the boards of several public
enterprises who had no link with the enterprise in organizing the union
at local level and were drawn from among the national leadership
where there was no clarity of the role and their functions.
Simultaneously in 1975 the Constitution was amended and section
43A was inserted in the Directive Principles of the Constitution which
16
stated that the state shall take steps by suitable legislation or in any
other way to secure the participation of workers in the management of
undertakings, establishments, or other organizations engaged in any
industry which was in manufacturing or mining and employing more
than 500 workers. Similarly another scheme introduced in 1977,
"Scheme for Workers' Participation in Management", also evoked
some enthusiasm in the beginning but both these schemes withered
very soon after the lifting of the Emergency and the change in
government in 1977. A special Tripartite committee on workers
participation in management recommended a three-tier participation
at the levels of the board, plant and shop floor which could not be
implemented as the government did not last long enough.
The state can add their labour legislation to the central labour statues
and in the early 1970s, Maharashtra, Gujarat, Rajasthan and Madhya
Pradesh enacted their own laws regarding union recognition (Mathur,
1992). In Maharashtra, the state passed the Maharashtra Recognition
of Trade Unions and Prevention of Unfair Labour Practices Act that
became effective from 1975. This act defined not bargaining with the
representative union as an unfair labour practice under this act.
The wage dynamics in urban labour markets, for the second phase
was marked by significant changes as well. The real wages
«Chatterjee 19aO), Madan (1977) suffered from a serious downward -
bias as it referred to a restricted category of 'low paid' workers. Using
the wage data from the Annual Survey of Industries he found that real
wages of manufacturing workers did in fact increase since the early
1970s; in addition, he also showed that the proportion of 'low paid'
17
workers to 'all workers' had declined during the second phase. This
hypothesis finds further in the two papers by Tulpule and Datta (1988,
1989) that found evidence of real wage gains since the last 1970s
even though there was substantial variation across industries.
It could be hypothesized that since the mid-1970s segments within
the union movement shifted their goals from those of right to those of
interest. This distinction roughly corresponds with the value unions
place on centralized lobbying (rights) visa-vis decentralized collective
bargaining (interests). There are various factors that were responsible
for such a shift. Few included the key factors like (a) uneven
development of firms within an industry, as well as spreading inter
industry differentiation, led to some sites being more profitable than
others. Unions in these sectors exploited the increased "capacity to
pay" during bargaining, while unions in the declining sectors had no
such opportunity, (b) workers and their unions in the profitable sites
were aware of their firm's financial performance through their
informed bargaining practices and or through management's
willingness to share this information more readily with unions and (c)
workers in these units realized that the leadership in many of the
traditional party -based unions were averse to intense decentralized
bargaining, due in part to their party commitments and their more
national concerns.
These fractures within the union movement had serious implications
for sustaining solidarity across the entire labour movement. A
pessimistic variant of neo-institutional analysis of labour unions and
collective action (Olson, 1971) can explain the above difficulties.
According to this "logic of collective action" the assumption of
18
rationality and self-interested behaviour on the part of individuals do
not always lead to groups acting in their collective interest. This is
because of the "public goods" nature of this collective interest: "
though all of the members of the group therefore have a common
interest in obtaining this collective benefit, they have no common
interest in paying the cost of providing that collective good" (Olson,
1971). In our context, this 'cost' of obtaining collective benefits has
become different for the various segments within the union
movement. To the extent these costs become similar across certain
sectors with the onset of the liberalization process especially those
sectors facing closure, privatization and restructuring, there will be
fewer barriers for the union movement in acting as an all
encompassing organization.
The Third Phase of Industrial Relations (1980-1991)
This phase corresponds to the sixth (1980-85) and the Seventh
(1985-90) five year plans, as well as the two annual plans (1990-92).
The average annual growth rate during this decade was around 5.7
percent and employment at only around 1.8 percent (Papola, 1994).
Employment elasticities in major sectors, especially in services, fell
drastically during this period (Papola, 1994). In terms of Joshi and
Little's (1994) analysis, this third phase corresponds to two distinct
sub-periods: 1979-80 to 1984-85 and 1985-86 to 1990-95. During the
first part, the economy suffered from severe conditions. One of the
worst droughts since independence occurred in 1979, there was
trouble in the northeast, the recession in 1980-91 rising inflation and
increasing oil import bills. All this led to a balance of payments crisis
and then to the massive IMF loan. In May 1984, India terminated the
program (Joshi and little, 1994). This period had also been turbulent
19
on the political front with Mrs. Gandhi's return to power in 1980 and
later her assassination in 1984.
The second part of this phase is associated with Rajiv Gandhi's
economic liberalization measures, an emerging revolutionary era of
major economic reforms. The economy moved away from an import
substituting inward looking growth strategy towards strategies that
encouraged both export promotion and domestic competition. This
was brought about by partial industrial and import deregulation,
financial liberalization, exchange rate policy, taxation and through
export incentives (Joshi and Little, 1994). After 1988, the country
experienced severe unrest and political instability as several
governments collapsed. India was now facing a full-scale
macroeconomic crisis. The economic situation was dismal, and the
new government moved swiftly and announced a program of
macroeconomic stabilization and structural adjustment (Joshi and
Little 1944).
The macroeconomic changes during this phase had profound effects
on the political economy of trade unionism, labour markets and on the
structure of industrial relations. On the union front, this phase starts
off with the massive public sector strike in Bangalore during 1980-81,
which involved giants of Indian public sector enterprises
(Bhattacherjee, 1999). The more significant event that marked the first
part of this phase was the much documented Bombay textile strike
(the longest ever strike after post independence in labour history of
India) of 1982 (Pendse, 1981; Bhattacherjee, 1988-1989). What
started as a wage and bonus issue in a few mills in late-1981, soon
developed into an industry-wide strike. The strike was essentially
20
about rank and file frustration with the 1947 Bombay Industrial
Relations Act, which had imposed an industry-wide bargaining
structure with an unrepresentative union (affiliated to the INTUC) as
the sole bargaining agent of workers. After the internal differentiation
within the mills, which happened during the mid 1970s, workers
wanted greater voice and control in determining their labour market
and industrial relations outcomes at the level of the individual mills.
Workers approached Datta Samant to lead their struggle: his main
project was to form and lead an independent union movement in
western India.
The textile strike ended in a cry after a year in late 1983 (it has till
September 2000 not been officially called off). Many workers returned
to their villages, many lives were destroyed, employers restructured
their mills in the advanced textile sector, and the credibility of the
government-installed union in the industry declined to levels from
which it could never recover (Bhattacherjee, 1988). Evidence from the
immediate post-strike period seemed to suggest that workers and
unions, at least in the better-off and profitable mills, negotiated their
own decentralized bargaining agreements (Bhattacherjee, 1989).
After Sam ant formed the Kamgar Aghadi Party and won a few seats
in parliament in late 1984, many commentators felt that this was a
new and encouraging step for the union movement in India.
During this phase there was the rise and proliferation of independent
unions operating in the major industrial centers and competing with
the traditional political party affiliated unions. In Mumbai for example,
the decline of the left unions is partly due to their general opposition
to decentralized bargaining (Pendse, 1981). Segmented and uneven
21
developments in the industrial sector tied workers' eamings to the
fortunes of the plant in which they were employed. An analysis of
plant-level contracts from the Greater Bombay-Thane industrial
corridor revealed that, ceteris paribus, the independent unions
delivered a higher wage and fringe package than did the affiliated
unions during the beginning of this phase (Bhattacherjee, 1987). In a
number of multinationals, workers with their independent unions
exerted considerable control over the labour relations process, often
more than their counterparts in the host country (Banaji and
Hensman, 1990).
In the late 1970s there was a phenomenal rise in the number of
dispute led by unaffiliated unions and the importance of politically
affiliated unions declined (Bhattacherjee, 1987a) The ratio of
registered unions that submit returns (their membership) to the total
number of registered unions fell sharply from 60 percent in 1962 to 21
percent in 1974 and to 13 percent in 1982 (Bhattacherjee, Datta
Chaudhuri, 1996). This would support the hypothesiS of the rise of
independent unionism if the total number of registered unions that
submit returns' proxies the traditional party affiliated unions by 1989,
the labour ministry listed nine major union federations and a number
of small independent unions in their registry (Datta Chaudhuri, 1992).
Finally, this phase is marked with increasing inter-state and inter-city
variations in the nature of labour-management relationship. In a study
of union-management relations in four Indian cities, Ramaswamy
(1988) has found significant inter-city differences in the texture of the
labour-management relationship. According to Ramaswamy (1988)
22
the driving force of the Bombay labour movement are union leaders
who disclaim allegiance to political parties and their trade union
federations. We find here the most evolved Indian version of business
trade unionism and the city has witnessed the steady decline, of
ideological trade unionism. This clearly has something to do with the
fact that private and multinational firms dominate Mumbai's urban
economy. In sharp contrast is the case of Calcutta, where a highly
politicized industrial relations regime prevails with the dominant union
federation (CITU) under the close watch of its parent communist
party. This has created considerable inflexibilities for management
and has partly inhibited the growth of independent unionism.
Bangalore, a city where both private and public sector enterprises
thrive, especially those in the information technology industry, has
witnessed the rise of plant and firm-based unions. These inter-city
differences, is certainly attributable to different political, social, and
urban histories, emphatically suggesting the inherent difficulties in
trying to generalize about an Indian labour relations system.
Charges In union structure together with macroeconomic
developments considerably affected both employment and the wage
structure. Between 1980-81 to 1988-89 while employment growth
declined, the capital-labour ratio and labour productivity increased at
8 percent and 7.5 percent per year respectively (Ahluwalia, 1992).
According to Ghose (1992), the most striking fact is that the 80s have
been the best decade in terms of economic growth but the worst
decade in terms of employment generation. Moreover, employment
growth decelerated in all sectors of the economy and open
unemployment increased in the 1980s (Ghose, 1992). The search for
labour market flexibility in Indian manufacturing led labour intensive
23
firms and those engaged in the production of consumer non-durables
to subcontract and out source their production to the unorganized
sectors (Ramaswamy, 1999).
Unions in the more profitable sectors (often independent' unions)
succeeded in securing a part of these productivity increases through
militant bargaining and / or by signing generous productivity bargains
that contained effective incentive structures. This resulted in slower
employment growth. While organized sector employment as a
percentage of total employment in manufacturing fell from 24.5
percent in 1972-73 to 17.4 percent in 1987-88, real wages of workers
and other employees' in organized manufacturing increased at a rate
of 5.8 percent and 4.1 percent during 1983-86 respectively, whereas,
low-paid workers actually suffered declining real wages (Ghose,
1992). As the union wages effect increased in the profitable sites
during this phase, employers, cut back on further hiring and started
retrenchment, increasing the capital-labour ratio that in turn increased
labour productivity. Thus, according to this scenario, the faster growth
of real wages in the 1980s did playa role in slowing employment
creation (Ahluwalia, 1992.)
Bhattacherjee and Dutta- Chaudhri (1994b) found that in the high paid
sector, real wages increased since, the late -1970s and there were
wage returns from striking, whereas in the low paid sector, real wages
declined since the early 1982s and employers could lower wages by
imposing lockouts. In terms of union structure, low paid workers
gained as unions submitting returns (the proxy for traditional unions)
increased their dominance. The traditional unions, predominant in the
older industries, provided an overall protection to its membership as
24
long as these industries grew. As they declined, and as plant-specific
unions reaped their returns in the high paid sector, workers in the low
paid sector became more vulnerable to competitive forces and could
no longer count on the traditional wage-welfare functions provided by
the politically party-based unions. Workers in this segment found it
difficult to form strong plant-specific unions due to the increasing
instability in their product markets (Bhattacherjee and Outta Chaudhri,
1994b).
Jose (1992) found that the 1980s was associated with deceleration in
employment growth with rising productivity levels, especially in the
high wage sectors and it was this productivity that brought about the
modest increase in real earnings in the high wage sectors. These
findings seem to fit with the characterization of different types of union
dominating these two labour markets since the early 1980s. Jose
(1992) maintains that technological charges led to the rise in wages
and productivity, in sharp contrast to other analysts who inverted the
hypothesis to argue that union militancy and higher wages resulted in
technological changes that subsequently led a decline in an
employment. Others have argued that earnings increased primarily as
a result of an increase in working house (Nagaraj, 1994).
Labour researchers towards the end of this third phase focused on
employment inflexibilities embedded in the 10 Act (Mathur, 1992).
Another 1982 amendment of the 10 Act provided that a firm
employing more than 100 workers (reduced from more than 300)
needed permission from the state government premising to layoff or
retrench workers. Fallon and Lucas (1991) showed how employment
would have been higher in several sectors without the 1976 and 1982
--------------------------------- --- ---
25
amendments. Mathur (1992) recommended that the sections
pertaining to prior permission for layoff retrenchment or closure be
deleted.
Many changes were proposed to remedy the limitations of the 10 Act
and the Trade Union Act, leading to a number of changes in The
Trade Unions and Industrial Disputes (Amendment) Bill, 1988
(Mathur, 1992). The proposed changes would reduce the
fragmentation and multiplicity of unions, define the bargaining agent
by providing for the secret ballot provision, promote internal
leadership, set up state-level industrial relations tribunals, force
employers to set up all-encompassing bargaining councils so as to
facilitate internal grievance settlement, and so on. Consequently after
the debate, the bill was rejected because of the controversy over the
definition of Industry (Mathur, 1992).
The Fourth Phase of Industrial Relations (1991-2000)
In June 1991, the ruling minority government decided to adopt the
World Bank IMF's stabilization and structural adjustment program.
The rupee was devalued twice, import quotas were reduced, tariffs
were lowered, state monopoly on exports and imports ended and a
statement on industrial policy aimed at lowering the fiscal deficit was
presented (Mathur, 1993). Industrial licensing was abolished except
for 18 industries related to the security and environmental concerns of
the country. Private sector competition was introduced selectively for
few, no further plans for nationalization, system of capital issues
control was abolished, the export-import regime drastically simplified,
foreign holding allowed for those selected, rupee convertibility
introduced on trade account, budgetary support to public sector firms
26
withdrawn and others. This fourth phase corresponds to the Eighth
(1992-97) and the Ninth (1997-2002) five year plans.
According to Nagaraj (1997) the Indian economy grew at 5.3 percent
during the first five years of the reforms (1992-96). The tertiary sector
grew the fastest in the 1990s at about 6.8 percent per year. The
economy become considerably more open than ever before. There
was some apprehension that government expenditure on the social
sector would decline significantly, but Nagaraj (1997) found that social
spending did not suffer; most of the cuts took place in defense and
economic services. Again, investment performance in India actually
improved since the reforms, with private corporate businesses
emerging as the economy's leading sector. Even though public
investment witnessed deep cuts since the reform, public sector output
growth and profitability improved suggesting better resource utilization
(1997)(probably the result of the stiff competition faced from the
private sector). Nagraj (1997) concludes: In sum, the good news is
that there is no major, bad news for the economy. Finally,
transnational corporations reacted favorably to the new economic
policy in terms of its entry and growth (Chaudhuri, 1995) resulting in
an overwhelming response.
The initial impact of economic reform has led to an increase in rural
poverty and a decline in urban poverty. In fact, urban poverty was
lower in 1993-94 than in any pre-reform year (Sen, 1996). On the
employment front, Oeshpande and Oeshpande (1996) found that
although the initial stabilization years took some toll of organized
manufacturing employment, the subsequent structural adjustment
process led to employment growth at around 2.3 percent between
27
1992/93 and 1994/95. If this rate continues for the next few years, the
latter authors are of the view that employment in the factory sector
would be about 12 percent higher at the turn of the century than in
1990-91. More employment opportunities in private sector resulting
into a more union membership across the country. More recent
evidence suggests that employment growth in the organized
manufacturing sector from 1990-91 to 1997-98 was average 2.6
percent per year, and that this growth was due to two factors: (I) the
growth of small and medium firms and (II) the slowdown in the growth
of real wages (Goldar, 2000).
Even under the most optimistic employment growth scenario in the
private sector, given declining employment elasticities in organized
manufacturing and given the expansion of employment in the public
sector, it is quite evident that a large majority of the nearly 80 million
persons will join the labour force during 1999- 2000 will have to find
work as self-employed or casual workers (Visaria and Minhas,
1991 :1978). In terms of the impact of economic reforms on female
employment, both Deshpande and Deshpande (1992) and Banerjee
(1997) are of the view that female unemployment may reduce but the
quality of jobs on offer will be low-wage jobs in secondary labour
markets. All these post-reform labour market outcomes point to
difficult times for the union movement in India.
One of the primary objectives of the economic reform package has
been the restructuring or closing down of public sector enterprises
that are unprofitable and are large drains on the public exchequer.
These enterprises were given the freedom to reduce their excess
human resources through Voluntary Retirement schemes (VRS)
28
assisted through the National Renewal Fund (NRF) that was instituted
by the government. The objectives of the NRF was to serve as a
generous safety net by providing assistance to cover the costs of
retraining and redeployment of employees resulting from
modernization, technological upgradation, industrial restructuring and
possible closure (possible reforms). The present government
dissolved the NRF and entrusted the corpus to the industry ministry.
The money under the fund will now be given to the public sector
enterprises directly by the ministry. Recently, the government has
announced a golden handshake scheme for both profitable and loss
marking enterprises.
While recruitment was all but stalled especially at lower levels, in the
public sector the government also froze the centralized wage
bargaining process for the first few years after 1992. It opened the
negotiation process subsequently and attempted to decentralize the
bargaining process by announcing that any wage increase will have
to be absorbed by the specific enterprise, as these increases now
cannot be passed on to final output prices. In othar words, the new
policy clearly stated that my additional wage burden would not receive
budgetary support (Venkataratnam, 1996). Decentialization also
helped in taking decisions of those sick units, which even after the
reform process could not show any progress. So only those with
better performance will survive.
The need for tripartite consultation relating to the various issues
concerning labour matters under economic reform was clearly felt
during the initial year and many such meetings were carried out.
Mathur (1993) documented the experience of consultation during the
29
early phase of structural adjustment in India (1990-92), and
suggested that unions had serious misgivings about the adequacy of
consultation at (the) industrial or enterprise level. In the private sector,
economic restructuring arrangements led to an increase in managerial
flexibility through all sorts of new contract provisions: ban on
recruitment, job transfers to non-bargainable changed introduction of
parallel production, merges, suspension of industrial active for a
period of five years and concession bargaining (Venkataratnam,
1996). Reforms in the private sector were noticed due to the
liberalization steps taken by the government even without any major
legal reforms (amendment in the 10 Act).
It is only during this phase that the public becomes aware that unions
in India today represent a declining sectional interest group. With
outside competition and awards for those with high merits making
stringent rules. Bhaduri and Nayyar (1996) point out in no uncertain
terms, "The government also needs to protect consumers against
sectional interest of many unrepresentative trade unions. While the
trade union rights of workers must also be respected in any
democracy, the government must also ensure, perhaps through the
ret ballot, that no unrepresentative union harasses ordinary
consumers'. Union Membership as a percentage of non-agricultural
labour dropped from 6.6 percent in 1985 to 5.5 percent in 1995 and
union membership as a percentage of formal sector workers declined
from 26.5 percent to 22.8 percent. At the same time however India
looses more days annually as a result of strikes and lockouts than any
other country (ILO, 1997-98).
30
On October 1999 the government set up the second National Labour
Commission (NLC). Primarily formed to lay down that the commission
should suggest rationalization of existing labour laws in the organized
sector and recommend and umbrella legislation to ensure minimum
protection for unorganized workers (labour reforms). The commission
will have a two-year term and will comprise of representatives from
government, unions, and industry. Unions feel that there is little in the
existing laws to protect workers from the whims of errant
management and that any tinkering of these laws would only add to
managerial power. For example, the proposal to relax contract labour
laws so as to generate more jobs on contract for the unorganized
sector is interpreted by unions as a move to undercut permanent
unionized jobs. More recently, proposed changes in the 10 Act would
make it difficult for unions to call wildcat strikes and to include
outsiders into their executive bodies. While the initial working of this
NLC is now under critical scrutiny (Venkataratnam, 2000), there is no
doubt that labour laws that govern employment security and collective
bargaining need to be urgently rationalized. According to Sengupta
and Sett (2000) the only real hope lies in the formation of an Industrial
Relations Commission, high-powered statutory body independent of
political influence, that will be made responsible for conciliation and
adjudication of industrial disputes as well as for graining of bargaining
agent status to recognized unions in different bargaining units.
However, cleavages and difference within the centralized unions, the
political parties, and state govemments, have indefinitely delayed the
passage of these much-required labour law reforms. A lack of
consensus and political instability at the center (in terms of several
coalition governments being unable to complete their full terms) since
1992, has led to inertia in the political scenario and will require to
carry out these reforms.
31
The inability to arrive at a national consensus on labour market
reforms are the effects of heightened inter-state competition to attract
foreign and local capital or regional labour markets and labour
relations in general. During the post-reform period, the states,
performed at significantly varying rates (Ahluwalia, 2000) and both
national and international capital flows have created new industrial
geographies (Shaw, 1999). This results that the states may attempt
the leveling down of their labour market institutions by offering several
incentives to employers. These divergent trends will make it
increasingly difficult for the centralized union federation to act on a
national level and moreover it is in their immediate interest to press
for industrial relations reform.
1.3 INDUSTRIAL RELATIONS CLIMATE
The cOining of the term "Industrial Relations Climate", its concept
development and developing a testing tool to measure it, all of these
are very recent in origin in the literature of Industrial relations
management theory.
According to Dastmalchian, Blyton and Adamson (1989), Industrial
relations climate is defined as a subset of organizational climate that
pertains to the norms and attitudes reflecting union-management
relationships in an organization.
To understand the entire concept of IR climate it is most essential to
first understand the concept of climate and then about the
organizational climate, Human Resource Development Climate and
lastly the IRC. This study will help us draw inferences about how IRe is
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32
the subset of HRD climate and how HRD climate is a subset of
Organizational climate.
The concept of Climate
ORGANIZATIONAL CLIMATE
Structure
Technology
Legends
• HRD-Human Resource Development
• IRe-Industrial Relations Climate
Organizational Climate refers to a variable, or a set of variables, that
represent the norms, feelings, attitudes and a set of attributes which
can be perceived about a particular organization and its subsystems
which can be induced from the way that organization and its
subsystem deal with their members and environment. (Beer, 1971;
Campbell, 1970; Payne & Pugh, 1976; Hellriegel and Slocum, 1974).
This is the concept that has the ability to describe the psychological
atmosphere of an organization and consequently can influence the
satisfaction, motivation and behaviour patterns of individuals in the
workplace (Litwin & Stringer, 1968;Payne, 1971). Organizational
climate is affected by a set of causal variables and can potentially
33
influence or get influenced by the end-result variables. (Dastmalchian,
et al. 1989). Moreover it has always been perceived as either the
attributes of organizations or attributes of people and has often been
used interchangeably. However few state that it is the intervening
variable between the structure and the outcomes. This is the result of
the various policies/procedures and structure adopted by the
organization, which consequently leads to the enhancement or
deterioration of the organizational performance.
The studies so far have been conducted upon the attitudes of different
groups while studying IR, but very little attention has been paid to
general attitudinal context or atmosphere in which IR takes place. The
climate therefore refers to a situation and its link to norms, attitudes,
thoughts, feelings and behaviors of organizational members. However
the 'climate' and 'culture' terms have been interchangeably used by
enquirers into aspects of culture often neglecting the existing body of
research on climate. But in a very recent article Denison (1996)
concluded that climate and culture, research should be viewed as
differences in interpretation rather than differences in the phenomenon.
As such the concept of organization culture generally refers to a set of
beliefs, norms, expectations and ways of working that is usually
generated over a long period by a combination of factors and are
relatively not so affected by the short term fluctuations. Where as the
prevailing attitudes of employees is one of the contributing factors to
the culture. The climate instruments therefore allege to describe work
environments.
The Human Resource Development Climate basically refers to the
values like openness, authenticity, trust, collaboration, proactivity,
34
autonomy and confrontation as well as practices like top management
commitment, appraisals, job-rotation, supportive personnel policies,
training, appraisals, career planning, feedback and counseling (Rao
and Abraham, 1985). This also refers to the tendency and environment
where development of individuals and teams is given the highest
priority and where human resources are considered the most important
resources (Rao, 1999).
Industrial relations climate means taking in to consideration the
concept of climate, which is, associated with the organizations IR
practices which thereby generate a characteristic atmosphere in the
organization. This characteristic atmosphere as perceived by the
members within the organization, is regarded as the industrial relations
climate. (Dastmalchian et aI., 1989).
The oe refers to the overall climate prevailing at the organizational
level, HRD climate talks about the climate existing within the
individuals employed in organizations regarding the prevailing values
and practices and since IR is a subsystem of the HRD system, the
overall climate of HR will certainly have an impact on the IRe.
Following the analysis of the organizational climate, HRD climate IRe
concerns the attitudes and beliefs held by management and
employees their representatives towards IR and the dimensions of IRe
are intended to reflect the perceptions of organizational members of
the kinds of norms and atmospheres surroundings the practice of
union-management relations with in the enterprise.