When Indian pharmaceutical maker Biddle Sawyer Group was taken over by Britain's Glaxo Wellcome PLC last January, Glaxo wanted to cut staff by a third at one of Biddle's factories. But the laws forbid layoffs. So Glaxo offered an attractive voluntary retirement scheme. To Glaxo's surprise, the factory hands refused the buyout--they wanted their jobs. Now, the legal merger between the two companies is on hold, and the factory is running at much reduced levels.
It's a common tale in India: Labor laws protect workers but hobble legitimate attempts to restructure businesses. Owners often refuse to reinvest in troubled factories, letting them languish while the workers drift away. Alternately, militant unions extort huge sums from companies through overgenerous voluntary retirement schemes. "It's an Orwellian nightmare," says Bombay labor lawyer Chander Uday Singh. "Existing jobs aren't saved, nor are new ones generated." Now, India's ruling Bharatiya Janata Party wants new laws to fix this mess. If the bid is successful, it could be a major turning point for India. If not, the country will stay stuck in its unproductive ways.
To pare the budget deficit, the BJP wants to raise nearly $2 billion from the divestment and privatization of India's mammoth public-sector companies, which include hotelier ITDC and aluminun maker Balco. But to attract buyers to these inefficient companies, India needs to remove restraints on the hiring and firing of labor. These companies are so overstaffed that in India's formal economy, the government employs almost 70% of the workforce.
A new labor law would accelerate a restructuring process already under way, albeit surreptitiously. Hiring temporary, contract workers who cannot legally unionize is now common practice in factories. Some companies will agree to very costly retirement schemes to slough off employees. Parke-Davis India Ltd., a subsidiary of drugmaker Warner-Lambert Co., spent $6.6 million last year to retire 300 employees, about four times the usual rate. At SmithKline Beecham PLC, employees actually requested a voluntary retirement package. Also, some manufacturers move their factories as a way to shed labor without legal hassles, since Indians rarely move from their hometowns.
Even government-owned companies are getting into the act. Air-India Ltd. recently offered its 19,500 employees a three-day workweek at 60% of salary. More ingenious is the move by General Insurance Corp. of India, the monopoly nonlife insurer. GIC has announced it will promote 40,000 clerks in the next five years to officer levels. "This is a way to make our employees more productive," says S.K. Mahapatra, GIC's assistant general manager. But analysts note the move puts the employees outside the purview of staff unions, which makes it easier to lay them off.
"DEFORMS," NOT REFORMS. Yet layoffs remain politically explosive, and it's hard to see how the BJP can face down The unions. Vivek Monteiro, general secretary of the Centre of Indian Trade Unions, says the BJP has sold out to "policies made in Washington. These are not reforms, but deforms." The BJP counters that in the past 10 years, India's public-sector companies have lost $50 billion. Mohan Guruswamy, adviser to Finance Minister Yashwant Sinha, says the BJP wants divestment and privatization--and the consequent labor law Amendments--to be the party's legacy. Already, the government has exempted India's software workers from the existing labor laws and has recommended that before a union can form, it needs at least 100 members, up from the current seven.
But earlier governments have tried unsuccessfully to loosen up the labor markets. To make reform palatable, the Congress government set up a $150 million retraining fund for laid-off workers in 1992. The money disappeared into a government corporation that was supposed to revive sick companies--with no impact at all. Unless the BJP proves miraculously adept at taming the unions, the result will probably be reform that helps a little but not enough.