Knife Attack Shows India Strife Clouding Singh Investment Appeal

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Police officers look on while a television reporter talks on camera in front of Maruti Suzuki India Ltd's Manesar plant damaged by rioting workers near New Delhi.

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Photographer: Sanjit Das/Bloomberg

Police officers look on while a television reporter talks on camera in front of Maruti Suzuki India Ltd's Manesar plant damaged by rioting workers near New Delhi. Close

Police officers look on while a television reporter talks on camera in front of Maruti Suzuki India Ltd's Manesar... Read More

Photographer: Raveendran/AFP/Getty Images

Sacked workers from Indian carmaker Maruti Suzuki, trade unionists and family members of workers shout slogans and demand that sacked workers be reinstated during a protest in New Delhi on August 21, 2012. Close

Sacked workers from Indian carmaker Maruti Suzuki, trade unionists and family members of workers shout slogans and... Read More

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Manmohan Singh, India's prime minister. Close

Manmohan Singh, India's prime minister.

Photographer: Raveendran/AFP/Getty Images

Workers from Voltas Ltd. sit during a protest in New Delhi on September 29, 2012. Close

Workers from Voltas Ltd. sit during a protest in New Delhi on September 29, 2012.

Nitin Kale spent 12 hours a day machining asbestos sheets to fulfill his dream of saving enough money to get married. Instead, the 25-year-old is in jail charged with stabbing three managers at the factory where he worked, a bloody clash in India’s growing labor wars.

As the latest of 42 meetings between union negotiators and management of Everest Industries Ltd. (EVI) to end a 10-month dispute over pay terms broke up in failure, Kale grabbed a three-inch knife and attacked executives who moments earlier had been seated around the negotiating table in Nashik, Maharashtra.

The confrontation is symptomatic of a breakdown in trust in Indian industrial relations two decades in the making. While a jump in productivity has enabled a twenty-fold surge in average factory profits since the opening of the economy in 1991, inflation has erased wage gains. Worker resentment spurred a 36 percent increase in strikes in the seven months to July, hardening attitudes as Prime Minister Manmohan Singh bids to ease employment restrictions and lure overseas investors.

“Workers don’t feel like they are getting their fair share of the pie and are fighting back,” said Sharit Bhowmik, a professor and chairman of the Center for Labour Studies at the Tata Institute of Social Sciences, a university based in Mumbai. “There is growing militancy,” he said by phone.

As India’s economic growth averaged 6.6 percent in the 20 years since 1991, workers’ wages adjusted for inflation rose just 0.6 percent, according to Reserve Bank of India data. Annual average factory profit rose to 21 million rupees ($397,000) from one million rupees over the same period, while executive salaries tripled. Adding to the pain, inflation averaged about eight percent over the last year.

China Gap

Workers in India’s communist-run northern neighbor, China, fared much better.

China’s gross domestic product grew an average 10.4 percent a year from 1991 to 2011, while annual inflation-adjusted gains in urban workers’ wages averaged 9.6 percent from 1991 to 2010, according to Bloomberg News calculations from government data. Productivity increased more than 100 percent from 1990 to 2010 based on purchasing-power parity, according to the World Bank.

More than 460,000 workers stopped work at 132 factories nationwide up to the end of July, compared with 84,500 who participated in 97 walkouts in the same period of 2011, according to the government’s Labour Bureau.

Nokia, Siemens

Strikes this year have disrupted operations at a local unit owned by Finland’s Nokia Oyj (NOK1V) and Germany’s Siemens AG (SIE), as well as state-owned Air India Ltd.

The disruptions risk undermining efforts to woo overseas retailers such as Wal-Mart Stores Inc. (WMT), foreign airlines and insurance and pension companies. With his legacy as architect of India’s economic surge during a 1990s stint as finance minister in peril, Singh last month began India’s biggest opening to foreign investors in almost a decade.

While the announcements helped make the rupee Asia’s best performing currency against the dollar in the past three months, labor unrest underscores the challenge of luring foreign companies. Those that eventually arrive in India risk facing an emboldened workforce determined to stake its claim to a share of the profits from a record period of economic expansion.

“Incidents of violence paint a negative image of the industrial-relations situation in the country,” said Anoop Kumar Satpathy, a fellow at the V.V. Giri National Labour Institute near New Delhi, which advises the government on labor policy. “It’s easy to announce reforms but tough to ensure investor interest if such incidents continue.”

Worker Rampage

If the strike in Nashik, a city of pilgrimage for India’s Hindus and the center of the country’s tiny wine industry, didn’t make national headlines, an explosion of worker anger a half-hour drive from the capital, New Delhi, did.

After a year of protests to demand higher wages, better working conditions and the right to unionize freely, about a thousand workers July 18 rampaged through a Maruti Suzuki India Ltd. (MSIL) car factory at Manesar. Assaulting senior staff with tools and auto parts, the men set fire to a building in an attack that led to the death of a human-resources manager and shut down production for a month. The immediate spark was a brawl between an employee and supervisor, Maruti said in a statement.

While the standoff spiraled into one of India’s largest and most violent labor protests of the last 30 years, for the workers involved and their union backers, the eventual settlement underscored the legitimacy of their grievances.

‘Wage Theft’

As the factory reopened, Maruti agreed to raise salaries by 75 percent and turn 1,800 contract workers -- or about half the payroll -- into permanent employees. The majority of contract staff at the factory earns about 6,000 rupees a month, according to seven workers interviewed by Bloomberg News in July, less than the statutory minimum wage for unskilled government positions in the capital.

About 100 people remain in custody and more than 500 workers have been dismissed for their roles in the violence, according to a statement issued by Maruti.

“It really boils down to wage theft,” said Rakhi Sehgal, secretary of New Trade Union Initiative, an umbrella group that represents about 15 million workers nationwide, including some at Maruti Suzuki. “The discontent has been brewing under the surface for a long time.”

While strikes across India this year had various triggers, most were fueled by an explosive mix of declining spending power, demands for improved working conditions and union allegations that companies underpay temporary staff.

Inflation Threat

Behind some of that angst is the inflation that erodes workers’ purchasing power. India’s benchmark wholesale-price index jumped 7.81 percent in September from a year before, the most since last November. By comparison, China’s main gauge, the consumer-price index, rose 1.9 percent last month.

Rajeev Dubey, human resources manager at Mumbai-based Mahindra & Mahindra Ltd. (MM), India’s largest maker of sport-utility vehicles and tractors, says that employers are paying the price for neglecting their staff.

“We need to bring the issue of industrial relations onto the radar screens of top management and the boardroom,” Dubey said Sept. 11 at an event organized by an industry body. “Until it gets there and is seen as a vital and integral part of creating profit, of innovation and of productivity, we are not going to solve this problem.”

The fatality during the Maruti protest was the second time this year that a senior executive has been killed in a wage dispute. The president of Regency Ceramics Ltd. (RGC), the country’s largest exporter of decorative tiles, was beaten to death by enraged workers at his home in January after a clash over salaries spiraled out of control.

Production Crippled

The striking workers had earlier tried to storm the factory located in the southern Indian state of Puducherry on Jan. 27 to stop production, according to company spokesman Gopinath, who uses only one name. The incident has crippled production, with the factory operating at a fifth of capacity.

Labor and Employment Minister Mallikarjun Kharge said in a speech last month to his counterparts from the provinces that a disregard for implementing laws protecting workers lay behind much of the recent unrest.

“Failure in this area has led to the recent flaring up of incidents,” Kharge said. “Employers shouldn’t turn a blind eye towards labor statutes” covering minimum wages, contract laws and working conditions in factories, he said.

Some of those regulations grate with employers, including a direction that companies employing more than 100 workers need government permission to fire workers, making it difficult to shut loss-making plants. Prime Minister Singh in a February speech repeated his call for union help in overhauling some of the rules to promote job creation in an economy growing at its slowest pace since the 2009 global recession.

‘Sheer Frustration’

The dispute at Everest Industries, a maker of roofing and cement products, began last year when the company announced that wage increases would be linked to production, not inflation, union negotiators said.

Everest pays salaries that are the highest in the area, the company said in a statement, and changed its pay terms because of problems with staff discipline and low productivity. It blamed the long standoff on union demands that workers dismissed on “disciplinary grounds and for sabotaging company equipment and machinery” must be taken back.

The Nashik representative of the communist-backed Centre for Indian Trade Unions described Kale as a model worker, and said he picked up the knife that cost him his job and landed him in jail out of anger and a sense of defeat.

“No resolution was in sight,” said R.S. Pandey, vice president of CITU’s Maharashtra unit.

“The management kept delaying and workers hadn’t been paid since November,” said Pandey, who is on bail on charges he instigated the violence. “It was an act done out of sheer frustration.”

To contact the reporters on this story: Andrew MacAskill in New Delhi at amacaskill@bloomberg.net; Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net

To contact the editors responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net; Stephanie Phang at sphang@bloomberg.net

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