Tweak laws for labour welfare
December 30, 2020
Harmonious industrial relations are sine qua non for high rate of growth in manufacturing.We must not become blind to the fact in quest for being part of GVCs. — KK Srivastava
Earlier this month violence broke out at Wistron bringing to fore discrepancies in the way Taiwanese company handled the employees. Apple, for which the contract manufacturing is done there, ruled that it will not assign more work to the company until it addressed the issue. The incident highlights ancillary regulations that India needs to put in place, such as specific labour laws that seek to protect workers at these plants, specifically contract workers, in terms of working hours, wages, and others work conditions. This will be key to India’s goal of having the electronics manufacturing sector contribute up to 20% of India’s economy by 2025, and help prevent fiasco such as the Wistron vandalisation by violent workers.
Taking advantage, Global Times, the Chinese daily immediately said, “This is a potential risk when manufacturers consider moving their production lines out of China where they have most stable labour market supporting the nation to become the largest manufacturing hub.” A reporter tweeted, “At a time when India’s economy is besieged, the idea of absorbing China’s industrial transfer seems …. like a fantasy.” To be sure, however, Foxconn’s China record has its own set of problems, including deaths by suicides over low pay and working conditions.
What is the genesis of the Indian labour problem?
Apple’s iPhones are among the most expensive in the world. However, manufacturing costs are estimated to be just 2-3% of its total price, as against profits of more than 50%. Wages, out of these manufacturing costs, would be an even smaller fraction. Indeed, in virtually all global value China’s (GVCs) workers earn disproportionately a very low percentage as wages. Moreover, particularly in India, incomes have been shiting away from factory workers to others for a very long time anyway. In 1980s the share of wages to workers in net value added at 30.3 was higher than the share of profits at 23.4. This started changing in the 1990s, incidentally the time when reforms were brought to Indian economy. In 2017-18, wages accounted for 15.7, while profits reined at 46.9. Workers have lost to capital on one hand, but also to white and grey collar (managerial and supervisory) staff on the other hand. As a result the gap between wage per worker and emoluments per employee has been rising steadily in India since the late 90s. Whereas the index of real wage rate and index of real emoluments rate both stood at 1 in 1981-82, the index for the former rose to only 1.495 in 2017-18 but that for real emoluments has gone up to 2.08. This growing gap is due to two factors. The share of contract workers supplied by contractors has been constantly on the rise. They are paid a fraction of what permanent workers are paid for the same work. Second, the production linked wages have increased far more slowly than salaries and bonuses of the supervisory and managerial staff. No wonder, India’s industrial history is replete with strikes and occasional violence.
iPhone Revenue Break up
Head Cost/Profit ($)
Major components (cost) 207
Other costs 89
Manufacturing costs 15
Many of the disputes are due to contract labour wages issues. In Indian manufacturing 70% contractual workforce is quite common. This is partly because they can be engaged at much lower wages, but also because in India it is extremely difficult to fire a permanent worker, even if, say, in Wistron’s case, Apple were to start cancelling the orders. The permanent workeforce, an organised lot, successfully negotiates better pays and facilities periodically. Contract workers, without collective bargaining power, enjoy no such luxury of course. Then, since the tenure of contractual employees is temporary, they show no commitment to a company’s cause, rather they are perennially discontented. The solution is to allow companies to offer fixed term employment where in a company will directly hire an employee on a fixed, but limited, period but giving the contract workers all the benefits that is given to permanent employees. A good practice could be to offer a salary that is closest to the entry level pay cheque of a permanent workman.
Another problem, albeit limited as of now, that has emerged in recent times is on account of first generation workers from landed class, who are relatively well off, who do not come to work for subsistence, but to have ‘fun’ and kill boredom. Thirdly, it is the political interference, from especially the opposition parties in workers’ disputes with the sole view to embarrass the incumbent government. In brief, unless workers realize that their well being is tied to the fortunes of the company and they see both growing in tandem, the industrial relations would not be in harmony. One way, for example, could be to have production linked incentives.
The problem also arises because the MNCs are from a different culture. In Japan, for example, incentives or bonus schemes based on volume are unheard of. The Japanese firms wish to appraise performance of even the workmen. These things are anathema to Indian workers. While the official lunch break is for 30 minutes, in India it easily stretches to 45-60 minutes. When the supervisors become firm about implementing the set norms there are protests. We Indians also have a culture of not saying No to our superiors, even if something is unimplementable. So an Indian manager would commit to a foreign boss something despite all odds. The expats naturally want to push their work culture. An employee needs to build community relations too. The community, including the worker’s family, from which a workersis hired, must also feel that the company is generous and caring not only to the worker but also the community in general. You can’t do well without doing good. This way there will be a balance between production targets and industrial environment.
But in reality due to constant pressure of cutting costs, improving margins and producing large volumes, big brands locate themselves, in the global value chains, at places where they could cut corners in terms of paying low wages. In their own countries either the union may be strong or wages may be high, or the regulations might be very stringent. Apple is ofcourse one prime example from USA, which does no manufacturing of its own. When such brands, are churning out large volumes at increasing pace and tighter deadlines, the workers are squeezed to the hilt, forcing them to work under inhuman conditions, working beyond an eight hour shift, very limited breaks in between and with rigid supervision. While the work practices become regimented, due to contractual employment payment are very low with no social security. All this in the background of weak legal regulatory labour architecture and capacities. This makes monitoring and control of a large exploitative enterprise virtually impossible. In any case, the Indian government wants to invite foreign capital and has a phobia of its flight. Shut your eyes benignly unless matters escalate and things move out of control, like at Wistron. Look what Wistron has to say! It said, “As the Narasapur facility is a new unit and the shipment quantity is still small, the incident will not cause significant impact….. The programmes that have been initiated before the incident remain.” To be fair, however, to the company it did admit to lapses in payment of wages to employees and assured full compensation to them. Things got compounded because Wistron’s HR department was not professionally set up with personnel of sound knowledge of labour laws. The factory adopted a 12 hour shift, without commensurate compersation.
The government needs to bring about a change in contract labour employment and payment practices, develop a ‘code of conduct’ for all stakeholders – employers, suppliers, and all other in supply chain, but most importantly ensure adequate monitoring and auditing of compliance of labour standards and safeguards. It should work towards providing workers avenues to channelize their grievances and social dialogues to mitigate unrest.
However, in the present dispensation in a labour surplus economy which is harping on being a significant player in the global value chains this surely seems to be a tall order, a bridge too far to reach.
The author is Associate Professor, PDGAV Collage, University of Delhi.