The Unions' Iron Grip On India

These days, Otis Elevator Co. and its employees in India aren't getting on too well. Otis, which manufactures manually-operated lifts for Indian buildings, last year tried to link wages to productivity. Some workers opposed the move, and since May, Otis has locked out about 500 of them. In return, Otis offices around Bombay have been attacked and vandalized. Even so, it's virtually impossible under Indian law for Otis to fire any of the workers. That has made Otis more intransigent. "A compromise would create a work environment fraught with industrial unrest," says an Otis spokesman.

Otis is one of many companies bearing the brunt of Nehru-era socialist labor legislation. Despite three years of Prime Minister P.V. Narasimha Rao's efforts to liberalize the Indian economy, a jumble of 45 different labor laws remain on the books, preventing companies from laying off workers or closing money-losing factories. And the politically strong unions have been galvanized by Rao's plans to privatize state-run companies. On Aug. 17, the government averted a telecommunications strike by assuring workers they would keep their jobs despite privatization efforts.

The stakes are high, since Rao's free-market reforms have attracted the likes of General Electric, Unilever, and Texas Instruments to set up operations in India. But with other Asian nations plugging management-friendly policies, India's archaic laws are proving a hindrance. "To protect one job, we could end up losing a thousand jobs," says V. Raghuraman, secretary-general of India's chamber of commerce.

HANDS-OFF. Nevertheless, politicians won't change those laws. Rao's Congress Party clings to power with a slim majority and is loath to alienate unions. The Congress-affiliated Indian National Trade Union Congress (INTUC) has 5.5 million members, making it the largest such group in the country. Not surprisingly, INTUC is "against any attempts to give companies a free hand to fire and hire at will," says Union Secretary S.N. Rao (no relation to the Prime Minister).

Therefore, Indian companies have resorted to expensive--and sometimes unsavory--methods to trim their workforces. One option used by midsize companies: stop paying the suppliers' bills. That has the effect of halting production at unwanted factories. Other companies pay workers to leave, offering as much as $10,000, or several years' wages. But buyouts don't always work the way companies intend: Employers cannot dictate which workers will take the package. "The best workers leave, and you're left with the ones you were hoping to get rid of," says Vikram M. Thapar, joint managing director of Ballarpur Industries Ltd., a paper manufacturer in New Delhi. It used this method last year to trim its payroll by nearly 1,000 workers.

In some places, Indians are trying to alter the labor climate at the state level, where governments are trying to attract investment. Changes have even spread to former leftist strongholds such as Kerala, 750 kilometers southwest of Bombay. In the past two years, Kerala has passed laws prohibiting sabotage or work slowdowns. That has helped it sell 10 state-owned businesses.

BALKANIZATION. Union attitudes are showing some signs of change, too. Unions say they want the government more removed from labor-management relations. Moreover, unions would prefer to have disputes settled by an independent committee of arbitrators--instead of the glacially paced Indian courts. Some would also like to see a change in the law that allows a mere seven people to create a union. That law has left labor so balkanized that some companies must deal with 50 different organizations. "It is the bane of the unions that we are so fragmented," says S.N. Rao of the INTUC.

In the meantime, analysts say labor laws are detrimental not just to industry but also to workers. "Labor legislation does not help labor at all," says Bibek Debroy, professor at National Law School of India University. That's because laws regarding firings and closings apply only to the 8% of the workforce that's employed at large companies. Workers at companies with fewer than 20 employees--and without the bully pulpit of a union--are left out in the cold.

For now, though, the unions are enjoying their political clout. Workers in the public sector--from airlines to steel--are becoming more aggressive in their opposition to privatization. Labor unrest is sure to slow the pace of state-sector sell-offs. For both public and private sector alike, labor problems show no sign of easing.

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