A report on the subcontracting in the garment industry in gurgaon, SLD - February 2013

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A Study of Subcontracting in the

Garment Industry in Gurgaon

Society for Labour and Development

New Delhi, February 2013

Supported by: Rosa Luxembourg Stiftung

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Table of Contents

1. Introduction ………………………………………………………………………………...............3

2. Methodology………………………………………………………………………………………….3

3. Subcontracting in the Indian Manufacturing Industries……………………………………..4

4. An Overview of the Subcontractors (Fabricators) in the Garment Industry in Gurgaon…………………………………………………………………………………………………4

4.1 Organisation of Production…………………………………………………………............4 4.2 Distribution of Subcontractors………………………………………………………………6 4.3 Workforce and the Legal Framework………………………………………………………7 4.4 Seasonal Nature of Work and Working Hours……………………………………..........9

5. Brief Profiles of some Tier 1 Factories Studied………………………………………………10

6. Comparison of General Working Conditions in the Tier 1 Factories and Subcontractors…………………………………………………………………………………………13

7. Reasoning of Tier 1 Companies in Subcontracting Production……………………………16

7.1 Flexibility in Production……………………………………………………….……….16 7.2 Reduced Overhead Cost……………………………………………………………...…16 7.3 Reduced Workforce and Reduced Responsibility…………………………………..16 7.4 Freedom of Association…………………………………………………………………17

8. Why workers want to work at the Subcontractors when they can easily get jobs in the factories? ……………………………………………………………………………………………….17

8.1 Wages………………………………………………………………………………………17 8.2 Relative Ease in Accessing Leaves……………………………………………………19 8.3 The Fear of Contractors………………………………………………………………..21 8.4 Working Hours and Breaks……………………………………………………...........21 8.5 Compulsory Overtime …………………………………………………………………..21 8.6 Target Pressure and Subsequent Violence…………………………………………..22 8.7 Highly Skilled Workers’ Preference to Make Complete Garments……...………22

9. Conclusion…………………………………………………………………………………………..22

10. Recommendations……………………………………………………………………..…24

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1. Introduction: It is common knowledge that labour intensive industries engage in

subcontracting or outsourcing of production, though in varying degrees, depending on the

nature of the industry. From our interaction with workers in the garment industry, it has been

learned that in the last half a decade, the subcontracting in the garment industry in Gurgaon

has been maturing as a common practice. Subcontractors have become an integral part of the

export oriented garment industry in Gurgaon and they contribute significantly to sustain the

business cycle the Indian suppliers face by providing the extra shop floor space required to

produce more during the peak seasons, and by absolving the Tier 1 companies from the legal

liability of keeping a regular workforce and by assisting the Tier 1 companies to adhere to the

lean manufacturing principles. Subcontracting is taking place in the garment industry in a

discreet manner (the agencies or entities which are getting the subcontracted work are not

registered as factories, or micro/small/medium enterprise, or contractor/ subcontractor under

any of the Laws) and thus making this invisible in the eyes of law.

The objective of this research has been to understand the general trends practiced by major

garment manufacturing companies in Gurgaon with regard to ‘subcontracting’ and the

reasons and implications of these practices on the working conditions and freedom of

association of workers.

2. Methodology: In order to understand the above mentioned objective, an extensive

mapping of subcontracted firms/workshops in Kapashera- Dundahera belt is conducted.

During the mapping period, (July – September 2012) 60 functioning subcontracted

workshops were found in the region. The actual number of workshops- functioning and

temporarily closed- is estimated to be between 90 and 95. Though the total number of

workers employed in the functioning subcontractors during the time of the mapping is

estimated to be anywhere between 3000 and 4000, workers estimate that there are about

7000- 8000 workers employed by the subcontractors on an average. 63 workers from 14

subcontracted units and 21 workers from 7 Tier 1 factories were interviewed to get primary

information on the subcontractors and the Tier 1 companies. Right to Information Act, 2005

has also been used to get information pertaining to the Tier 1 companies.

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3. Subcontracting in the Indian Manufacturing Industries

Subcontracting is defined as a type of inter firm relationship where large firms procure

manufactured components sub-assemblies and products from a number of small firms1. In the

garment industry, subcontracting takes place in the form of ‘product subcontracting’2 where

the subcontractors produce the complete product and the parent firm essentially markets the

product. This is significantly different from the subcontracting taking place in the automobile

industry in Gurgaon, where it is mainly component subcontracting. The variation extensively

practiced from the product subcontracting in the garment industry in Gurgaon is that the

parent firms supply the ‘cut’ fabric and other essential raw materials to the subcontractor and

the subcontractor produces the product as per the parent firm’s specification. This is

popularly known as ‘job work’ in the garment industry in India and these subcontractors are

popularly called as ‘fabricators’ in Gurgaon. The subcontracting practiced in the garment

industry in Gurgaon is more of a permanent nature than a temporary set up. An analysis of

this is done in the following sessions.

4. An Overview of the Subcontractors (Fabricators) in the Garment Industry in

Gurgaon:

4.1 Organisation of Production:

Tier 1companies and other smaller companies which get contracts for production from the

Tier 1 subcontract work to the ‘fabricators’ in the Kapashera- Dundahera belt. The companies

provide the cut fabric along with other raw materials and sample garment with the prescribed

measurements to the subcontractors. In most cases, a reporter (a recorder) from the Tier 1

company brings the raw materials to the subcontractor. Upon receiving them, the proprietor

of the subcontractor signs a ‘contract’ and he brings the finished products to the company

after the production. Small trucks are used for transportation. After receiving the raw

materials, it is on the subcontractor to decide how the production in the shopfloor to be 1 R Nagaraj: Subcontracting in Indian Manufacturing Industries: Analyses, Evidence and Issues

http://www.igidr.ac.in/faculty/nag/Sub-‐Contracting%20in%20Indian%20Manufacturing%20Industries.pdf

2 This definition is adopted from R Nagaraj: Subcontracting in Indian Manufacturing Industries: Analyses,

Evidence and Issues

http://www.igidr.ac.in/faculty/nag/Sub-‐Contracting%20in%20Indian%20Manufacturing%20Industries.pdf

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organised. Most of the subcontractors in the belt are owned by locals from Haryana and all

workers are migrants from UP and Bihar. These workers have the same background as the

migrant workers in the Tier 1 companies.

According to workers, almost all companies in Gurgaon use the help of subcontractors

though the degree of help varies. Some companies use subcontractors to produce more than

half of the total production on a regular basis and some uses them occasionally to deal with

emergency situations. Subcontractors benefit by not having to have any independent

relationship with the brands since that require more knowledge of the industry and market

situations. Moreover, these subcontractors do not have the infrastructure required by major

clothing brands to undertake production. For example, some of the brands like Inditex for

which production is found to have happened in the subcontractors in the Kapashera-

Dundahera belt require safe and hygienic working conditions in the supply chain3. However,

most of the subcontractors in the belt violate even the provisions of hygiene, safety and health

in the Factories Act, 1948 let alone the codes of the brands.

However, there is a symbiotic relationship existing among the big companies in Gurgaon and

the subcontractors in Kapashera- Dundahera belt. Some of the subcontractors in Kapashera-

Dundahera belt get production order from as far as Khandsa (10 km) and Manesar (20km to

30km) regularly.

In the subcontractors, workers have a greater say in the organizing of production than in the

bigger companies where the production process is determined by the production engineers. In

the subcontractors, masters provide the sample and raw materials to workers and in most

cases workers organize production. For example, in some fabricators, even though there is

enough number of machines to set up assembly line production workers decide to produce

full garment and they are allowed to follow production in the way want to. In some cases, 2

to 4 workers make a workstation and produce the garment together. This flexibility is

allowed since productivity-linked wages ensures that workers will not have to be paid in case

they produce less by adopting a method they want to rather than the one master determines.

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http://www.inditex.com/en/corporate_responsibility/social_dimension/code_of_conduct_for_manufacturers

_and_suppliers

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Most of these subcontracting are undertaken by the Tier 1 companies by violating the

supplier code of brands. For example, Marks and Spencer clearly mentions in their supplier

code that ‘suppliers must agree with them about production sites and no subcontracting of

their order is allowed’4 However, in the past, suppliers of Marks and Spencer in Gurgaon

used subcontracting as a means of punishing workers for exercising their freedom of

association.

4.2 Distribution of Subcontractors

Garment workers who are working in Gurgaon report that the subcontractors or what they

popularly call as ‘Fabricators’ are on growth in the last one decade. They describe this growth

as ‘from less than 5 fabricators in Kapashera- Dundahera area in 2000 to over 90 in 2012’.

That is, in terms of the number of fabricators, they grew 18 times in 12 years. Workers say

that it is not difficult to find at least 2 ‘fabricators’ in each alley in the residential area where

migrant workers live.

The actual number of fabricators – currently functioning and temporarily closed5- is

estimated to be between 90 and 95. Some are temporarily closed due to inadequate work

during the low season in the garment industry. However, workers report that from September

till May, the peak season of production starts and most of them restores production. Most of

the closed-down fabricators still keep the premises occupied and pay rent for it during the

low season. Though the total number of workers employed in the functioning subcontractors

during the time of the mapping is estimated to be anywhere between 3000 and 4000, workers

estimate that there are about 7000- 8000 workers employed by all subcontractors functioning

in this belt on an average.

Why are these subcontractors functioning from the residential areas where workers are

living? The rent for floor space in the residential areas in Kapashera- Dundahera region is

much lower than the rent in Udyog Vihar, where garment industries in Gurgaon tends to

concentrate6. And this lower rent in the residential area ensures lower overhead cost per 4 Marks and Spencer: Global Sourcing Principles

http://corporate.marksandspencer.com/documents/how_we_do_business/global_sourcing_principles.pdf 5 The closure of the fabricators is temporary since these will be reopened in a few weeks to restart production

when the season picks up. 6 There have been various media reports in 2011 and 2012 about the increasing price and rent of real estate in

the industrial area in Gurgaon. Some of the reports claim that the rent per square feet of floor space in Udyog

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product produced in the fabricators. Workers have also reported that ‘power theft’ by the

subcontractors may also be contributing to the lower overhead cost of production in the

subcontractor. Another factor is the proximity of subcontractors to workers’ living areas

makes the availability of labour easier7.

4.3 Workforce and the Legal Framework

The 14 subcontractors studied employs approximately 372 workers during lean season of the

year and as per workers’ estimate this goes up to 830 workers during the peak season of

production. The average number of workers employed by these subcontractors is 27 during

the lean season when the interviews were conducted. However, workers have estimated that

during the peak season, this increases to 59 on an average. However, the size of these

subcontractors varies significantly. The smallest subcontractor employed 10 workers during

lean season and had employed up to 20 workers in the previous one year period. The largest

of the subcontractors, had employed 50 workers during lean season and up to 130 workers

during peak season. Some subcontractors find enough work to employ a relatively steady (in

terms of numbers) workforce throughout the year, though most subcontractors experience

significant variation in the ability to employ a steady number of workers throughout the year.

The following table explains the distribution of workforce in these selected subcontractors.

Vihar area is between Rs 30 and Rs 50 and real estate price has shown upto 50 times increment in price in the

last 15 years. http://www.fridaygurgaon.com/news/1658-‐now-‐cyber-‐vihar-‐s.html

7 Though other cities in India like Ludhiana, Amritsar, Kolkata, Ahmedabad, Surat and Bangalore have been

reportedly facing labour shortage in the garment industry , Gurgaon has been successfully luring skilled

workers to its factories from Uttar Pradesh and Bihar.

http://www.thehindu.com/business/Industry/textile-‐industry-‐facing-‐labour-‐shortage-‐

assocham/article2139390.ece

http://www.thehindubusinessline.com/industry-‐and-‐economy/economy/article2159113.ece

Though labour shortage has never been the issue in Gurgaon, the industry faces high turnover rate. The trade

unions working in the area accuses the skewed human resource management of the companies where

workers are denied their statutory labour rights and right to freedom of association for this high turnover.

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Table 1: Distribution of Workforce in the 14 subcontractors studied

Particulars

No. of workers

reported to be

working during

the time of

interview

Maximum

number of

workers

reported to have

worked

in the last one

year

Subcontractor 1 50 50














Total Workers 372 830

Average no. of

workers 26.57142857 59.28571429

The above table describes that all the subcontractors who were studied have employed more

than twenty workers in the last one year. Therefore the Factories Act, 1948 is enforceable in

these subcontractors.

Under section 2(m) of the Factories Act, 1948 a factory is defined as any premises

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a) Whereon ten or more workers are working, or were working on any day of the

preceding twelve months, and in any part of which a manufacturing process is being

carried on with the aid of power

b) Whereon twenty or more workers are working, or were working on any day of the

preceding twelve months, and in any part of which a manufacturing process is being

carried on without the aid of power.

And section 2(k) defines manufacturing as ‘making, altering, repairing, ornamenting,

finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating

or adapting any article or substance with a view to its use, sale, transport, deliver or disposal.

All these subcontractors ‘factories8’ use electric sewing machines- in most cases, the most

modern machines of JUKI brand- for production and thus must be covered under the

Factories Act, 1948 even if only 10 workers are employed. However, none of these

factories/subcontractors are registered under the Factories Act, 1948 either in Delhi or in

Gurgaon as per the data available from the labour departments9.

Therefore, the existence of these subcontractors without being registered under the Factories

Act, 1948 in the first place is illegal.

4.4 Seasonal Nature of Work and Working Hours

According to workers, September to May is the peak season of production in the garment

industry in Gurgaon and this is also the season when the subcontractors work with full

capacity of production. All subcontractors which are studied except one operate from rented

premises in the residential areas in Kapashera- Dundahera.

Average working hours during the peak season in a week in the subcontractors is 78 hours.

The pattern workers have reported is that on weekdays they work from 9am to 9 pm and on

Sunday from 10am to 4pm. During lean season, some subcontractors manage to provide 8

hours of work on weekdays to workers and some unable to provide any work and close down

their operation. Even if we assume that most of the subcontractors close down during the lean

8 The term factories are used to refer to these production units deliberately since they are legally factories. 9http://hrylabour.gov.in/docs/tenders/

http://delhi.gov.in/wps/wcm/connect/doit_labour/Labour/Home/Factories+Inspectorate/

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season, workers working in these subcontractors work 3100 hours and 30 minutes10 in a year.

This is well over the 2544 hours11 of maximum work a worker will have to do in a factory in

a year and equivalent to 8 hours of work on weekdays and an average 1.78 hours12 of

overtime on weekdays.

That is, if production is restructured in these subcontractors, the layoff practiced during the

three months from June-August by the subcontractors could be avoided.

5. Brief Profiles of some Tier 1 Factories Studied:

• CREW BOS Products Limited

As per data available from the Labour Department through RTI, the company operates from

its premises in Plot 199, Udyog Vihar Phase 1, Gurgaon and employed 188 workers in

2011. The workers who were interviewed for this study also confirmed that the company

employs less than 200 workers in this particular premise. However, the company

subcontracts on a regular basis to one of the subcontractors in Gurgaon. The company

specializes in manufacturing leather garment and accessories. As per the statement of

audited financial results for 2011/2012, the profits from operations before other income and

financial costs are reported to be 4974.43 lakhs for the year ended on 31st March 201213.

The income the company earned from operations is 43204.04 lacs and this includes income

to the tune of Rs 11475.46 lacs from international merchant trading.

Workers who are working in the Company are paid salary, well over minimum wages since

that is the industry standard in the leather garment and accessories manufacturing. Major

brands which source from this Company is Next, Gap, American Eagle and Zara. The

subcontractor of Crew BOS employs around 40 workers during the peak season and during

the time of interview there were 23 workers working in the subcontractor. This

subcontractor acts as dedicated subcontractor of CREW BOS and throughout the year

10 ( 78 hours a week* 39.75 weeks of the peak season) 11 (48 hours* 53 weeks). This is after assuming that the worker had not availed any leave or holiday. 12 (3100 ½-‐2544)/312 working days. The assumption here is that the worker works on all weekdays and do not

take any leave from work throughout the year. 13 http://www.crewbos.com/docs/2011-‐12/Audited_Results_31032012.pdf

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production is taking place for CREW BOS. In terms of distribution of production, little over

21% of the production14 is taking place in the subcontractor.

Workers are provided with 1 and a half days of earned leave in 30 days. The company does

not provide any other casual or sick leave benefit to any workers. The working hours in the

company is extended to 7pm to 8pm on a regular basis without any additional payment.

That is, workers are expected to work 2 to 3 hours of overtime without any additional

overtime payment. No weekly off is provided to any of the workers and working on

Sunday is compulsory. Workers are paid a days’ wage for working on weekly off day.

Company provides Provident fund and ESI facilities to all workers.

• Ambika Overseas

Ambika Overseas is a garment manufacturing and exporting company with head office in

Plot 677, Udyog Vihar Phase 5, Gurgaon, The Company employs around 200 workers in this

premise. However, most of the production is taking place through 5 different subcontractors

of the company operating from Kapashera and Dundahera. Production is organized based on

salary and piece rate system. About 20 women workers employed by the company get

transportation facility to the company. Around 50 salaried workers in the company are

provided with provident fund and ESI facilities. However, the piece rate workers are not

provided any social security by the company.

Most of the production is managed through the subcontractors. These 5 subcontractors of

Ambika Overseas employ around 102 workers during the low season and around 315 workers

during the peak season. That is about 50% of the production is managed from the

subcontractor during the low seasons and about 61% of the production is managed by

subcontractors during the peak season15.

• Evergreen International

Evergreen International is another leather garment manufacturing company operating from

Plot No: 775, Phase 5, Udyog Vihar, Gurgaon. The Annual returns filed by the company

under the Factories Act, 1948 shows that the company employs 100 workers on an average.

However, workers report that there are about 300 workers working in the company and 14 This is by merely comparing the workforce in the parent firm and in the subcontractor. 15 This comparison is based on the workforce, not on the output.

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around 60% of them are employed through a contractor. Moreover, the company employs

four subcontractors for additional production. One of them is in Dundahera region and the

other two are operating from three residential areas in Delhi like Khanpur, Nangloi and

Sangam Vihar. The company produces leather garments, mainly leather jackets. The workers

in the company are employed on the basis of salary and workers in one of the subcontractors

are employed on the basis of piece rate system.

The subcontractors of Evergreen International are in operation since 2007 and since then the

company regularly produces through the subcontractors.

• Richa Group

It is one of the biggest companies in Gurgaon in terms of workforce, output and reputation in

the industry. Richa Group has over 17 units in Gurgaon in the name of Richa Global, Gaurav

International and ABC Leathers. Gap, Next, Zara, Armani etc. are some of the major brands

sourcing from the Company. However, this company is also not free from the vice of

subcontracting. The fabric to the subcontractors is sent out regularly from one of the units of

the company. That is, the group keeps the connection to subcontractor out from all

manufacturing units, rather it engages with the subcontractors from one particular

manufacturing unit. Workers who work in this unit is recruited on the basis of piece rate

system unlike the salaried workers in all other units. All different manufacturing units of the

Group are dependent on this particular unit to the get work done through subcontractors

whenever necessary. However, according to workers, Richa Group engages with

subcontractors only when it is urgent. However, the involvement of one particular unit with

subcontractors and keeping all other units guardedly out of any connection with the

subcontractors is very systematic. The major units of Richa Group employs more than 1000

workers each in the units and provides most workers minimum wages, provident fund, ESI,

minimum bonus etc.

• Knitscraft

The Company employs around 1000 workers in Plot No 490, Phase 3, Udyog Vihar,

Gurgaon. More than 80% of the workers are recruited through a few contractors. Most

contract workers are faced with rampant wage theft and non-enrollment with social security

facilities and non-payment of bonus by the company and the contractor. Zara is one of the

major buyers sourcing from the company. However, this company also gets production done

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through subcontractors in Kapashera - Dundahera area. One of the subcontractors studied is a

regular supplier of Knitscraft and produces throughout the peak season for Knitscraft. There

have been reported wage violations in Knitscraft in the last one year where contract workers

are not paid their wages according to the Minimum Wages Act, 1948.

6. Comparison of General Working Conditions in the Tier 1 Factories and

Subcontractors

Conditions of: Tier 1 Companies Subcontractors

Wages

Most workers are provided

minimum wages. However, there

is general violation of wages

according to grade and experience

of workers. Overtime is paid at

single rate in most of the

companies. That is, there is

general tendency and practice of

wage theft in these factories.

Wages are paid on monthly basis.

Though workers do not get

guaranteed minimum wages in the

subcontractors, during peak

season, they earn more than the

minimum wages. Wages are paid

on a fortnightly basis.

Social Security

Some companies enroll workers

with PF and ESI. However, the

benefits of social security are, in

most cases, limited to the workers

employed directly by the

company.

No workers in the subcontractors

are enrolled with social security

facilities such as PF and ESI. None

of the workers are provided with

any bonus.

Leaves

Though various labour laws make

provisions of earned, festival,

casual and sick leaves, most

workers working in the Tier 1

factories are deprived of leaves.

Only a handful of workers are

provided with earned leaves. Only

those workers who are enrolled at

ESI department enjoy the benefit

No workers are provided with any

paid leave in the subcontractors;

be it earned, casual, sick or festival

holidays. However, accessing

unpaid leave is reported to be easy

in the subcontractors

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of sick leave. Even accessing

unpaid leaves during emergency

situation is difficult in the

factories.

Contract Labour

Many companies in Gurgaon are

increasingly recruiting workers

through contractors and keeping

them under insecurity of casual

employment. Moreover, wherever

contractors are involved workers

face more violence and

oppression.

No contractors are involved in the

recruitment of workers in the

subcontractors.

Safety and Health

Accidents are on rise in the

companies in Gurgaon. One of the

Tier 1 companies studied in the

report had two deaths in the

shopfloor in 2012 during early

hours of Sunday morning. These

companies have adopted modern

architecture etc. in the building,

however, workers’ safety is not

their major concern16.

Subcontractors in this belt are

functioning from rundown

buildings, even some of them with

asbestos roofing like sweatshops.

All health and safety provisions as

prescribed under various acts are

compromised in these production

facilities.

Freedom of

Association

The general trend in Gurgaon is to

deprive workers of their right to

freedom of association and

collective bargaining. Workers

who are vocal about their rights

get easily terminated from the

service. In order to keep workers

out of the trade union activities,

these companies involve local

Workers in the subcontractors

have no freedom of association at

all. Since the complete set up of

production in the subcontractors is

informal, it is easy to be thrown

out. There are no unionised

workers in the subcontractors in

this belt at all.

16 Workers have said during a few occasions that impressing buyers with massive buildings is more important to companies than providing safe workplace for workers.

15

thugs and practice violence.

Described below are some of the major problems faced by workers of subcontractors

a) Insecurity in the Job and Seasonal Layoff: Insecure job is in fact the major concern

workers of the subcontractors have. From May to August, most subcontractors in the

belt slow down the production or closes down. This is due to the lowered demand for

production from subcontractors from the Tier 1 companies. Workers reported that

during this slow season, some of them visit their villages in UP and Bihar. But for

many workers, especially married workers who have families and school going

children, this is a difficult time. Some of them find jobs in the big factories in these

months and joins the ‘fabricators’ when the season starts.

b) Fluctuating Piece Rate: Workers report that the rate paid to them for piece varies

significantly depending on the season. Due to the high demand for subcontracting

from the Tier 1 companies in the peak season, the pieces fetch a higher rate. However,

the same or similar pieces fetch much lower rates during low season and significantly

reduce the earnings of workers. The negotiating power workers have with regard to

the piece rate is much lower during the low season and that has serious impacts on

their earnings and life.

c) Substandard Physical Conditions: Most of the subcontractors operating from the

housing colonies do not adequately follow the safety and health provisions provided

in the Factories Act, 1948. Some even have only one common toilet for over hundred

male and female workers. At the same time, most of the Tier 1 factories in Gurgaon

operates from highly modern buildings. In some fabricators, the drinking water

provided to workers is not potable as per workers. The floor space provided to

workers in all the subcontractors is less than the prescribed 3.38 square metre per

worker according to the Factories Act, 194817. In a nutshell, most of them operate like

sweatshops from the housing areas.

17 Section 16(2) of the Factories Act, 1948 prescribes that there shall be in every workroom of a factory at least 14.2 cubic metres of space for every worker employed there in with a condition that no height of more than 4.2 metres is counted to this effect. This necessitates that each worker in the factory must be provided a floor space of 3.38 square metre.

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7. Reasoning of Tier 1 Companies in Subcontracting Production

7.1 Flexibility in Production

The growing contract labour in the garment industry in Gurgaon and the way in which the

contractors are functioning provides a huge flexibility to the companies in Gurgaon in terms

of workforce. It is fairly easy to hire when workers are required and fire when they are not

and thus follow lean principles of production18. However, without having to arrange for

anything else by the Tier 1 Companies, except providing the sample garment with

measurement and the cut fabric, the subcontractors deliver the finished product ready for

shipping to the Company. Though contract labour provides a lot of flexibility, it is more

flexible with complete subcontracting of production to a separate entity altogether. Most

Companies in Gurgaon procure order beyond the normal shopfloor capacity during the peak

season and that necessitates unreasonable hours of overtime. For some companies, even with

the excessive overtime hours of production, shipping on time becomes difficult and there the

subcontractors come as a boon. Out of the 7 Tier companies studied, four of them (Ambika

Overseas, CREW BOS Private Limited, Evergreen International and Knitscraft) have more

than one regular and exclusive subcontractors and one of these companies has up to 5

subcontractors. 3 Tier 1 companies have subcontracting in each peak season almost regularly.

7.2 Reduced Overhead Cost

When the rent per square feet floor space in UdyogVihar region where garment companies

are operating from is upto Rs 50 in 2012, the per square feet rent in the Kapashera-

Dundahera region is little over 12 Rupees19. Workers have also reported that there is rampant

power theft practiced by subcontractors in the region which further brings the cost of

production down at the subcontractors. This lower per unit cost is another advantage of

subcontracting.

7.3 Reduced Workforce and Reduced Responsibility

Having to employ lesser workers without compromising production is quite advantageous to

the tier 1 factories. Legally, there is greater responsibility associated with greater number of

workers and this is quite low when it comes to subcontractors. If workers are employed in the 18 This has been discussed in detail in a previous report published by Society for Labour and Development “ A Study of the Contract Labour System in the Garment Industry in Gurgaon” 19 This calculation based on of the subcontractor paying Rs 16000 for the area of 1300 square feet in Kapashera.

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same premises of the Tier 1 Company through contractors, the Tier companies, who are the

principal employers, cannot legally get away from the liability of wages, social security and

other benefits to contract workers. However, almost no involvement of the Tier 1 companies

in the production process happening in the subcontractors dissolves them of all liabilities

towards workers. Moreover, sometimes the subcontractor himself gets the contract for

producing for the Tier 1 Company through some middlemen and in this case the

subcontractor himself will have little knowledge of the Tier 1 Company.

7.4 Freedom of Association

Another major reason cited by workers for Tier 1 companies subcontracting production is to

regulate workers’ freedom of association. There has been incidence of subcontractors coming

to the help of Tier 1 Companies producing for global brands during the time of a partial

illegal lockout in Gurgaon in 2010. This Tier 1 Company had sustained production a few

months with the help of subcontractors working in the Kapashera-Dundahera region.

Subcontractors come to the help of companies when former needs help to bring down the

little negotiating powers workers and their organizations have.

Due to the presence of subcontractors and their ability to produce same or sometimes even

better (due to the presence of experienced tailors they have) quality products, a temporary

halt in the production by workers/ unions does not affect the Tier 1 companies much.

8. Why workers want to work at the Subcontractors when they can easily get jobs in the

factories?

It has been revealed during our investigation that workers who are working in the

subcontractors prefer working at subcontractors than to work in factories. Though these

subcontractors are functioning illegally, all workers interviewed except two leather workers,

said that they prefer to work in the subcontractors than in the companies. The reasons for this

preference by workers are summarized below.

8.1 Wages

As discussed before, most of the subcontractors operating in Kapashera- Dundahera area are

based on piece rate or part rate. A look at the below table shows some examples of the piece

rates/part rates existed in the subcontractors during June – October 2012 and the wages

workers earned for 8 hours of work under the respective piece rate system.

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Table 2: Piece/part rates in subcontractors of Tier 1 garment companies in Gurgaon.

Items

Piece/Part

Rate (in

Rs)

No of

pieces

produced

in 8 hours

Total Wage

Earned (in

Rs)

Full sleeve cotton ladies shirt 25 10 250

Gents T shirt ( Hosiery) 8 32 256

ladies shirt 45 6.4 288

Stitching of sleeve of cotton

shirt of gents 1.6 300 480

Denim shirt with 30 operations

for gents 62 8 496

Denim Shirt 75 4 300

Ladies Top 20 17.5 350

Shirt 20 12 240

Night Gown for Ladies 15 40 600

Gents Shirt 25 20 500

Skirt 35 8 280

Average

Wage

Earned 367.2727273

The average wage of Rs 367 leaves workers with about Rs 4620 per hour they work. There is

variance in the hourly wage from Rs 31.25 to Rs 75 according to the style of garment, type of

fabric etc. The piece rate per hosiery garment is sometimes as low as Rs 8 per stitching a

gents T shirt. The highest piece rate reported in the above table is for denim shirt for gents

which fetched workers Rs 75 per piece and the productivity of labour is as low as 0.521 in an

hour. However, all these workers earn more than the notified minimum wages payable to

manufacturing workers in Gurgaon. The hourly wage payable to the highly skilled

manufacturing workers in the garment industry according to the Minimum Wages Act, 1948 20 Rs 367/8 hours 21 Productivity of labour is measured as the output produced per labour time. The assumption here is that no other factors like technology, work environment etc. change during the time of measurement.

19

is Rs 27. However, the hourly wage prevailing in the labour market for garment workers in

Gurgaon is between Rs 23.9 and Rs 27. This is 14 % to 24% less than the average wage they

earn in the fabricators under the piece rate system.

This is one of the major reasons why workers those who are working in the subcontractors

prefer to work in the subcontractors.

A previous study by Society for Labour and Development has revealed that most labour

contractors engaged by the garment companies in Gurgaon engage in stealing significant

amount of money from the wages of workers. All subcontractors hire workers directly and

there is no contractor involved at any stage of the hiring. Most of the hiring is informal as

new workers are brought by ‘masters’ or colleagues and the environment in the shopfloor is

of very informal nature. The non-involvement of labour contractors by the subcontractors

leaves less possibility of wage theft.

Workers report that quite often they need to take loans to finance some or the other of

household needs. Workers also report that in the factories the possibility of a wage advance

is very limited. However, the subcontractors advance wages to workers on request and

workers find that as an added advantage in working at the subcontractors.

8.2 Relative Ease in Accessing Leaves

As explained in one of the previous sessions, most companies in Gurgaon violate the

provisions of leave. The Punjab Industrial Establishment (National and Festival Holidays

Casual and Sick Leave) Act, 1965 mandates that workers must be provided with three

gazetted holidays of national importance, 5 festival holidays, 7 casual leaves and 14 sick

leaves. In addition to this, the Factories Act, 1948 mandates annual leave of 1 day for every

20 days of work. However, most of the companies in Gurgaon do not provide all these leaves

to its workers. Among the 7 Tier 1 companies studied only 4 of them provide the earned

leaves. Casual as mandated by the Act is not provided to any of the Tier 1 company workers.

Paid festival leaves are not provided to any of the workers.

The data from the Chief Inspector of Factories regarding the compliance of Tier 1 companies

towards the earned wages show that wherever data is available, not all workers worked in the

companies have been provided with the earned wages as per the Act. For example, the

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Annual returns filed by one of the main units of Richa Global22 claims that out of the 3654

workers who were employed by the factory in the year 2009, 572 workers had applied not to

avail the earned leaves and the company had provided earned leave for 1008 workers and

1791 workers who left the service (termination or resignation or by any other means) were

paid wages in lieu of earned leaves. That still leaves a minimum of 283 workers that is almost

8% of the workforce without the earned leaves in 2009. Gaurav International, another

subsidiary company of Richa Group, employed 2584 workers during 2009 and claimed that

937 workers applied not to avail the earned leaves and the company paid earned leaves to

1257 workers and also to 924 workers who have left the job. And the total number of workers

who the company claimed to have provided leaves seems to exceed 534 than the actual

number of 2584 workers the company claimed to have employed! This suggests that the

numbers shown in the returns have been faked.

In most companies workers are not only denied paid leaves but also unpaid leaves during

emergency. In the feudal family setup prevailing in the areas these migrant workers come

from, a few days of leaves to look after family emergencies, to participate in marriages, births

and deaths are very inevitable. And denial of that from the factory’s side and having to search

for alternate jobs after returning from the villages is conceived as an unnecessary annoyance.

The subcontractors do not provide any paid leaves to workers at all. Since their wages is

linked to productivity, on the day of leave, the day they produce nothing, they are not paid

any wages. However, all workers reported that it is easy to get unpaid leave sanctioned in the

subcontractors. They can take leaves for as many days as needed and still come back to the

same job. Workers have also reported that if the Tier 1 companies are willing to provide 18

earned leaves as mandated by the Factories Act, 1948 and festival leaves, national holidays

and casual leaves as prescribed by Punjab Industrial Establishment (National and Festival

Holidays Casual and Sick Leave) Act, 1965 and sick leaves prescribed by either Punjab

Industrial Establishment (National and Festival Holidays Casual and Sick Leave) Act, 1965

or Employee State Insurance Act, 1948, they would not need any additional leaves under

normal circumstances.

In the Tier 1 factories, accessing leave is also reported to be difficult with permissions from

supervisors, line in charges and managers of different levels. However, the relationship

workers have with masters and the informal environment in the shopfloor in the

22 Plot No 232, Phase 1, Udyog Vihar, Gurgaon

21

subcontractors makes accessing unpaid leave easy. Not having to search for new job while

returning from villages is one of the major advantages identified by workers as working in

the subcontractors.

8.3 The Fear of Contractors

The growth of contract labour in the garment industry in Gurgaon is another major reason for

workers preferring to work in the subcontractors. Most of the companies in Gurgaon employ

workers through contractors who engage in various illegal practices and violate various

labour rights of workers including wage theft, non-enrollment with social security facilities,

engaging in physical violence etc. The subcontractors operating in Kapashera- Dundahera

area hire workers directly. Workers get the information regarding hiring through masters or

their friends working in a particular subcontractors. The social capital workers build in the

workplace with masters and coworkers gives them the feeling of safety from physical

violence and wage theft.

8.4 Working Hours and Breaks

Most workers working in subcontractors have identified the ability to take sufficient and

frequent breaks from work as another advantage. Workers report that the one hour break- half

hour lunch break and fifteen minutes tea break in the morning and post lunch- available to

Tier 1 Factory workers is not sufficient. Workers report that the manual work they do in the

shopfloor require more breaks to restore energy. All piece rate workers interviewed for the

study reported that they take sometimes up to 5 short breaks23 excluding the lunch break in 8

hours of work. In the subcontractors, workers have the freedom to go out during their breaks.

8.5 Compulsory Overtime

Though overtime work and the extra earning from that is very crucial for survival of workers

and their families in Gurgaon given the meagre income they earn from the 8 hours work,

workers do not like to be compelled indiscriminately for overtime work every day. And the

production process in the garment industry is so organized that it cannot meet the

requirements of buyers without unreasonable hours of compulsory overtime. Therefore, the

companies require that all workers do overtime during the peak season regardless of their

23 Workers say that they use these breaks normally to smoke or chew pan and drink tea.

22

physical conditions and familial situations. However, at the subcontractors, workers have the

freedom to refuse overtime work.

8.6 Target Pressure and Subsequent Violence

The target pressure workers report in the factories is not existent in the subcontractors.

Workers report that all salaried workers working in the factories in Gurgaon are pressurised

to meet production target. Supervisors and line in charges are responsible for meeting the

target. They attempt to achieve the production target by restricting workers’ toilet breaks, and

by exerting pressure through verbal abuse. Physical violence is also another means exercised

by the supervisors and in charges to extract more production. This target pressure and the

subsequent verbal abuse and physical violence are limited in the subcontractors.

8.7 Highly Skilled Workers’ Preference to Make Complete Garments

Almost all of the garment factories in Gurgaon are working in the assembly line where their

role is to perform a repetitive and monotonous task. If the capitalist organization of

production alienates producers from the product, the assembly line organization of production

completes that alienation by alienating workers from the necessary and complete skill they

need to produce the complete product. The highly skilled workers who can produce the

complete garment feel more and more alienated by the assembly line production

organization. The possibility of producing complete garment is better in the subcontractors

and the highly skilled workers prefer to work under that system than under the assembly line

production. Even when piece rate work is preferred in some of the factories in Gurgaon, it is

based on assembly line which is popularly called as ‘part rate’ system by workers. The

employment of highly skilled workers in the Tier 1 and other factories is limited in the role of

sampling masters. These companies employ only a minimum number of sampling tailors

since they are more expensive than the assembly line tailors. Therefore, the highly skilled

workers prefer to work in the subcontractors.

9. Conclusion

The symbiotic relationship between Tier 1 companies and the subcontractors are

promoting forced labour and indecent work in the garment industry in Gurgaon.

If the poverty level wages in the garment industry can be raised to living wages and the issue

of wage theft can be addressed effectively through organized workers’ struggles and

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consistent legal struggles, working at Tier 1 companies will become financially attractive for

workers. At this point, most of the workers in the garment industry are working there since

that is the only employment option available to them other than construction work. This

economic coercion on workers to work at a wage which is well below a decent living wage

combined with substandard working conditions is ‘forced labour’. The coercion which leads

them to work in sweatshops at subcontractors for a mere 20% increased earnings than that of

in the Tier 1 companies is nothing other than forced labour. If the Tier 1 factories pay

workers the ‘notified minimum wages’ along with the legally mandatory double overtime,

this 20% increment in the earning workers get at the subcontractors would not arise. The

global brands which have been found to be benefiting from the presence of the subcontractors

in the belt are morally responsible for pushing workers to accept such indecent and illegal

working conditions. The failure of the labour department in Gurgaon in ensuring employers’

compliance to labour laws and the failure of the global brands in ensuring compliance of

labour laws and international labour standards from the suppliers are the catalysts of this

forced labour in this global industry.

Personal dignity, one of the major components of decent work as defined by ILO, is being

compromised significantly by the Tier 1 Companies by indulging in verbal and physical

abuses in order to meet unreasonably set targets. Furthermore, recruitment of workers

through contractors who act as thugs to keep workers out of exercising their freedom of

association and forcing workers to work at sweatshops of subcontractors is a major means

depriving workers of their personal dignity. Another major component of ILO decent work,

family stability, is highly compromised by the employers by indulging in wage theft and

leaving workers with meagre real income to lead a dignified life. The refusal of legally

mandatory weekly off day and other earned and casual leaves to workers is also another

factor contributing to undermine the family stability of garment workers. Fundamentally, the

garment industry is violating the concept of decent work by pushing workers to accept illegal

and inhuman working conditions.

The legal invisibility of the subcontracting in the garment industry and the subsequent

undocumented workforce leads to the creation of inefficient industrial and labour policies by

the government. From the point of view of effective governance, it is important that these

subcontractors get registered and legally be part of the system.

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10. Recommendations

1. The global brands should take responsibility in tracing down their supply chain and

ensuring compliance to the labour laws and international labour standards.

2. Clear provision should be made in the Contract Labour (Regulation and Abolition)

Act, 1970 to include subcontractors even though they are not using contract labour for

production.

3. Disclosure of subcontracting by the Tier 1 Companies should be made mandatory to

the labour department and the global brands.

4. Government of Haryana must conduct a thorough mapping of the subcontractors and

smaller production houses in and around Gurgaon and take necessary measures to

bring legal accountability of these subcontractors to the Government.

5. Subcontracting of work by Tier 1 companies as a response to the trade union activities

must be included in the unfair labour practices defined by 5th schedule of the

Industrial Disputes Act. 1948

Government & Nonprofit

A report on the subcontracting in the garment industry in gurgaon, SLD - February 2013