Chapter: 1

INTRODUCTION

1.1 The Meaning And Concept Of Industrial Relations

1.2 Industrial Relations In India

1.3 Industrial Relations Climate

1

INTRODUCTION

OVERVIEW

The chapter studies the concept of Industrial Relations with respect to

the Indian scenario. It also puts forward the different phases of Indian

Industrial Relations and explains about its growth and development.

The different external and internal factors that influence and dominate

the Indian IR is also reflected. The final section deals with the

introductory concept of Industrial Relations Climate.

1.1 THE MEANING AND CONCEPT OF INDUSTRIAL RELATIONS

The concept of Industrial Relations (IR) means the relationship that

exists between employees and management in the day-to-day working

of industry.

The Indian IR scenario has been rapidly changing with the opening up

of the economy and the subsequent inflow of the Multinational

Corporations (MNCs). This has brought a shift in the attitude towards

the relationship. This entry of MNCs has shifted the focus from a

labour economy to a human economy.

An extensive linkage between economy, politics and history has

always characterized Indian IR. The changes that are taking place are

primarily due to endogenous forces embedded within India's political

economy. There has been a major effect on the macro economic

aspect on the structure of the labour market (productivity, employment

2

and wages), also on the structure of IR (number of unions, collective

bargaining, labour legislation, industrial conflict and state intervention).

These transformations have brought in changes on the growth pattern

of the economy.

The concepts of workers' participation, quality circle, shop floor forum,

focus on training, profit sharing and others are now' being used

practically. Familiarity with a wide range of employer-employee

relationships and its implications while doing business abroad is a key

factor for successful conduct of IR.

The changes in IR took place in the post independence era primarily

due to government's industrial policy resolution of 1948 and with the

adoption of national labour policy of government.

Labour unions differ in each country. They are organized differently

and also differ in philosophy regarding employer-employee

relationship. The Indian constitution guarantees freedom of association

to all citizens. They are free to join or form trade unions without any

interference from the government. The Indian legislations also protect

the right to organize and bargain collectively and also seek affiliation

with the central bodies to function more effectively.

Labour regulations, which are affecting the economy and employee­

employer relations in India, are enforced only in the formal sector

where as the informal sector is largely without any legal protection.

Labour law reforms as a part of the economic structural adjustment

process currently underway, continues to remain politically infeasible

and hence has been protected.

Bhavl1Jgar University LiIJrary. 3

India has ratified neither International Labour Organization convention

number 87(Freedom of association and protection of the right to

organize. 1948) nor number 98 (right to organize and collective

bargaining. 1949).

Indian IR scenario IS overall characterized by multiplicity of trade

unions, high degree of politicalisation of trade unions and inter-union

rivalry. These features are more prominent in the government

undertakings (PSU's). In 1991 only 5.4% Non-agricultural labour force

was unionized. As per the latest information published by the Ministry

of Labour in September 2000, there were 56,872 registered unions

accounting for a membership of 4,094, 000 of which 6277 unions were

submitting returns.

Most of the trade union federations are aligned with political parties.

UNION FEDERA TlONS AFFILIA TIONS WITH POLITICAL

PARTIES

Indian National Trade Union Indian Congress party

Congress (INTUC)

Bharatiya Mazdoor Sangh (BMS) Bharatiya Janata party

Hind Maha Sabha (HMS) Socialist Janata Dal party

All India Trade Union Congress Communist party of India

(AITUC)

The Industrial Disputes Act, 1947 with its successive amendments

intended to regulate relations between workers and employers for

resolving the disputes. Thereby simultaneously other acts were

4

enacted like the Factories Act, 1948 and Minimum Wages Act, 1948

for the welfare of workers.

In the five year plans that the government undertook they were

provided various measures for the promotion of healthy industrial

relations between labour and management for securing industrial

peace for the development and prosperity of industry, for the growth of

a strong and healthy Trade Unionism in the country for the promotion

of collective bargaining and raising of productivity through labour­

management cooperation and later on realizing that there should be

progressive industrialization and expansion of Indian economy. The

stress was on the urgency of evolving adequate consultative

machinery and grievance procedures to be made effective to render

strikes and lock outs permanently.

Lastly in 1981, the government of India issued an ordinance to ban

strike. A new act called the Essential Services Maintenance Act

(ESMA) was enacted to intervene in IR; where by the act empowers

the government to ban strikes, lay offs and lockouts in "essential

services".

According to Prof.John T. Dunlop (1958) "An industrial relations

system at anyone time in its development is regarded as comprised of

certain actors, certain context and ideology which binds the IR system

together and a body of rules created to govern the actors at the work

place and work community. Flanders (1970) has said that IR is

oriented to the entertainment of conflict through the mechanisms of

institutionalization and regulation.

5

Hyman (1975) has put forwarded IR as a rule making or job regulating

process not only does it gives due significance to the human aspect of

IR but also gives adequate importance to the reality of the dynamic of

power and conflicts.

According to the International Labour Organization (ILO) "IR deals with

either the relationship between the state and employers and workers

organizations or the relation between the occupational organization

themselves".

The actors in given context establish the rules for work place and work

community. These rules consist of procedures for establishing rules,

the sUbstantive rules and the procedures for deciding their application

to particular situations. The procedures are themselves rules. (Dunlop,

1958)

The following diagram represents the industrial relations processes

functioning within the organizations

6

INDUSTRIAL RELATIONS PROCESS

Management of IR in an organization is constrained by several environmental

forces like the changing economic, legal, political, and social scenario,

organizational factors like owner dependency, size, technology, the workforce

characteristics and the IR factors like bargaining structure, trade unionism, and

others. A strategic understanding of these IR factors would activate the IR

structures and systems and in the process not only challenge the existing skill

levels

7

but also the prevailing shared values of the organization. This would

also help the manager to develop a multiple interest perspective for

firm level decision process on an assumption that there is an inherent

conflict of interest between employers and employees.

The macro economic framework has drastically changed since the

introduction of the New Economic Policy in 1991; initiated by the

central government and have led to major reforrns in some sectors of

the economy and has promoted efficiency and competitiveness. These

policies have had a perceptible impact on the structure, processes and

output of the IR system in India and thus there arises a need for having

a much better understanding on the IR framework.

1.2 INDUSTRIAL RELATIONS IN INDIA

The First Phase of Industrial Relations (1950 to 1965)

The first phase of the Indian union movement after independence

deals with the first three five-year plans of 1951-56,1956-61,1961-66.

This was a period of national capitalism. The state-led industrialization

with an import SUbstitution strategy, which resulted in the formation of

large, employment-intensive public sector enterprises, mostly in the

capital and intermediate goods sectors, between 1951 and 1965,

industrial production had increased at an average annual rate of 7.7

percent and manufacturing output increased at the rate of 7.6 percent

(Nayyar, 1981). These high growth rates were sustained by public

investment in capital and intermediate goods sectors, while growth in

the consumer durable goods industries was precluded. There was

effective protection through rigid import-substitution policies, but

8

guaranteed a captive domestic market and hence provided a stimulus

to private sector investment.

The development of the large public sector enterprises led to

employment growth in the organized economy. The same was also

observed in the latter and also in different sectors like the private,

corporate, service, transport and educational sectors. The average

annual growth rates of employment increased rapidly from around 0.4

percent during the period 1951-56 to around two percent during the

period 1961-66 (Papola, 1994). Public sector employment has led to

the formation of public sector unionism. The number of registered

unions increased rapidly from 4,623 in 1951/52 to 11,614 in 1961/62

the membership of registered unions that submitted returns more than

tripled during this period (Venkataratnam, 1996).

The communist led All Indian Trade Union Congress known as AITUC

continued to strengthen its position over the union movement from its

pre-independence days in the textile and engineering industries. The

growing public sector during this first phase provided a new ground

for large scale unionization. From here onwards the Congress party­

controlled Indian National Trade Union Congress later on known as

INTUC. AITUC arose from within the rank and file, while the INTUC

was exogenously imposed on to the labour movement. There were no

ambiguities in the chain of command that clearly flowed from party to

union (Chatterjee, 1980).

The above relationship between the government and its affiliated

union federation during this phase seems to have tied in neatly with

the provisions of the Industrial Disputes Act (the 10 Act) of 1947,

9

which according to Datta Chaudhuri (1996) is the most important

piece of legislation between the worker and his employer. The

provisions in the act allow for no procedures to determine the

representative union within what would normally be a single

bargaining unit and as employers were under no legal obligation to

bargain with unions, there were also no build-in incentives for either

party to engage in collective bargaining. Early studies indicate to this

aspect of the 10 Act that impeded collective bargaining during this

period (Kennedy, 1966). Along with this there was Indian Trade Union

Act of 1926, which although allowed any seven workers to register

their union but without any provision for union recognition. The

opposition unions were for a secret ballot procedure to determine

union strength, but the INTUC was against it, favoring instead the

check-off system of membership receipts, a system that had easily

led to manipulation. The 10 Act also made it difficult for the unions to

call a legal strike. Most disputes were first referred to conciliation,

then to the labour commissioner. If this solution failed, the dispute

was usually settled in an industrial or labour court or through binding

arbitration (Kennedy, 1966).

During the late 1950s there were, attempts made to introduce labour

legislation promoting collective bargaining through voluntary

arrangements, such as the Code of Discipline and the inter-union

Code of Conduct (Venkataratnam, 1996). If this arrangements were

made legally binding on the parties, the determination of the

representative union in a single bargaining unit may have been solved

for good results. The dispute resolution machinery consisted of four

levels: bipartite negotiations, conciliation, arbitration and adjudication.

10

But post independence few trade unions supported adjudication more

than collective bargaining because they felt themselves weaker in

relation to the employers and adjudication would be an effective

dispute resolution mechanism to restore power (Venkataratnam,

1996). Various bills were drafted and debated at several tripartite

forums, but none of those were enacted (Kennedy, 1966). Further the

executive branch of the government ultimately vetoed the proposed

Trade Unions and Labour Relations Bills. These attempts came to be

known as the Giri Approach (named after the Labour Minister who

resigned in its protest) and many commentators interpret this failed

attempt as a major setback to the development of matured industrial

relations in India (Ramaswamy, 1984).

The norm during the first phase in the determination of wages and

working conditions was through state intervention, and was

determined by political and institutional considerations (Jackson,

1972). Central and industrial wage boards set wages, by adjudicators

when wage demands were in dispute, by adhoc industrial awards and

by the bureau of public enterprises for public sector enterprises. The

structure of bargaining was thus centralized, usually at the national

level, but at the industry-level in some regions and industries and for

few cases in the private sector, bargaining was at the enterprise-level.

The Indian experience of wage determination during this phase was

referred to as tripartism. During this phase many schemes were

formulated to provide employee participation/consultation at different

levels. In 1958 it was proposed that there should be a joint

consultation between workers and technicians and so Joint

Management Councils was introduced which will be responsible for

11

the welfare, safety, vocational training, preparation of holiday

schedules and others.

Considering the movement of real wages of industrial workers, India

was held out as an example of the Lewis model of growth at work,

with both product and consumption wage growing slower than labour

productivity (Jackson, 1972), low unionization, inter union rivalries

sharpened by political affiliation excess supply of labour and state

intervention of a complex type contributed to a wage lag (Deshpande,

1992). The labour relations regime was of promoting responsible

unionism to maintain industrial harmony and peace. Industrial conflict

date indicates that both the number of strikes, as well as the number

of workers involved in those strikes, during this phase were

significantly less compared to the following second phase and beyond

(Sengupta, 1992). By the end of this phase, further splits took place

within the labour movement: the Socialists broke away from the

congress and formed their own union federation, and the radicals

broke away form the communist party of India and formed their own

party, and its own union federation, the Center of Indian Trade Unions

(CITU).

The Second Phase of Industrial Relations (1965 to 1979)

The second phase of unionism corresponds with the 1967-69 annual

Plans and the fourth and the fifth five year plans in 1969-74 and 1974-

79 respectively. The rate of inflation rose tremendously above the

sensitive mark of 10 percent in 1966-67 and 1967-68 and specially

the food price inflation was as high as 20 percent (Joshi and Little,

1994). Inflation worsened in 1973-74 and there were food riots in

various states. This period is associated with overall industrial

12

stagnation: between 1965 and 1975 the average annual growth rate

of total industrial production and of manufacturing output increased at

only 3.6 percent and 3.1 percent respectively (Nayyar, 1981). The

labour productivity reduced to 1.4 percent from 1965 to 1980 while

capital productivity reduced to -1.9 percent during the same period

(Venkataratnam, 1996). Political economists posited various

explanations for this period of industrial showdown: the deceleration

in public investment, the unequal terms of trade between agriculture

and industry. The inefficiencies of state regulation in the public sector

and changes in the structure of demand results from the growing

income inequalities (Nayyar, 1981). In addition, the economy suffered

two oil price shocks, in 1973 and in 1978. It is during this phase that

the actual growth rates of industrial production were far below the

planned targets (Ahluwalia, 1991).

These explanations were probably all partly true while, it is clear that

the deceleration adversely affected the level of employment in the

economy. Average annual growth rates in employment fell from 2.2

per cent during 1967-69 to 1.8 percent for the period 1974-79 and

unemployment rates nearly doubled (Papola, 1994). According to

Ahluwalia (1992) data, comparing the period 1959-60 to 1965-66 with

1965-66 to 1979-80 the following trends in productivity and growth

occurred: employment fell, labour productivity fell from 4.9 percent to

1.4 percent, as did both value added and total factor productivity.

These structural changes in the economy affected union activity,

collective bargaining practices, and labour markets. The amendments

of the 10 Act, 1947 formulated in the emergency in 1976 mandated

prior permissions from the government for lay-off, retrenchment and

'\' "new '1',10," 1I",vGrsity \ - " , .• , y \

13

PHI, \" :.'GAR. j L-_---.. .

closure. These legal provisions, court judgements and collective

agreements between employers and trade unions created rigidities in

the labour market (Venkataratnam, 1996). However the number of

registered unions and unions submitting retums had increased during

this period.

As employment elasticities fell and labour markets got higher, the

number of disputes (strikes and lockouts) the number of workers

involved in these disputes, as well as the number of man days lost

due to these disputes, increased phenomenally between 1966 to

1974 (Sengupta, 1992). New forms of protest, such as the hartal

(Strikes) (the go slow), emerged during this second phase often

resulting in considerable violence. In certain regions such as in West

Bengal, these were used frequently and effectively.

Disappointed with the INTUC's internal practices and its

ineffectiveness in representing union voice at the enterprise level led

to the proliferation of unions affiliated to more radical political

organizations during the first part of this second phase. Workers

sought more skilled politicians and negotiators to lead their union

struggles. Two demographic factors may be associated with the

change in worker preferences towards different "Union-Types", One,

a growing proportion of workers were post 1950 labour market

entrants. They were unlikely to have participated in the pre­

independence labour struggles. Two, was the fact that the leadership

of the radical unions were mostly committed lawyers and student

activists well versed in the bureaucratic rites of the Indian industrial

relations system (Chatterjee, 1980) rather than political party-men. An

14

analysis of industrial disputes by union-types revealed that the

number of disputes involving 'multiple unions' increased during the

earlier part of this phase (1966-73) compared to the first phase

(Bhattacherjee, 1987a), reflecting the period of intense interning

rivalry. These uncertainties within the union movement finally

culminated in the all-India May 1974 railway worker's strike that shook

the economy and the country at the time.

During Mrs. Gandhi's National Emergency of 1975-77 the right to

strike was suspended and the regime brought in restrictions. These

included forestalling bargaining on key issues, froze in wage

increases, reduction in the minimum annual bonus, and transferred

increments in the cost of living allowance to a compulsory savings

scheme (Rudolph and Rudolph, 1987). Two important interventions

took place in the industrial relations arena during this regime. The first

was the attempt by the government to establish the National Apex

Body, comprising of twelve union federations and eleven employer

representatives, in order to encourage a bipartite approach to

industrial relations. This seemed more responsive to union

preferences for voluntary collective bargaining, but such appearances

were illusory (Rudolph and Rudolph 1987).

The Second intervention was the 1976 amendment to the 10 Act,

which arose either from union pressure and I or as populist measure

has led to employment inflexibility: firms employing more than 300

workers had to get state government permission before retrenching

workers. As usual the government permission was seldom

forthcoming. This apparently pro-union measure had an unexpected

15

effect: for the first time since independence, the number of man days

lost due to lockouts exceeded the number of days lost due to strikes,

since 1976 (Sengupta, 1992). During the post-Emergency regime of

the Janta government (1977-80), there was a change in the political

climate but not on industrial relations reform (Sengupta, 1992). The

government attempted during this regime an industrial relations bill,

which among other things wanted to ban strikes and lockouts in

essential industries and services. This was met with stiff opposition

from most unions and political parties.

The second phase saw significant changes in collective bargaining

practices. The 1965 amendment to the ID Act placed agreements

arrived at through conciliation and adjudication at a higher legal

footing. Patil (1982) describes how employers and unions used the

1965 amendment to transform the agreements into legal documents

first and then coalition bargaining between multiple unions and

employer takes place so as to arrive at a satisfactory settlement. In

order to convert the agreement into a legally binding document,

conciliation is sought after all parties reach an agreement during the

process of coalition bargaining. The terms of the agreement are then

signed in the presence of the conciliation's officer, thereby making the

contract legally binding to all parties. The government began

appointing the labour representatives to the boards of several public

enterprises who had no link with the enterprise in organizing the union

at local level and were drawn from among the national leadership

where there was no clarity of the role and their functions.

Simultaneously in 1975 the Constitution was amended and section

43A was inserted in the Directive Principles of the Constitution which

16

stated that the state shall take steps by suitable legislation or in any

other way to secure the participation of workers in the management of

undertakings, establishments, or other organizations engaged in any

industry which was in manufacturing or mining and employing more

than 500 workers. Similarly another scheme introduced in 1977,

"Scheme for Workers' Participation in Management", also evoked

some enthusiasm in the beginning but both these schemes withered

very soon after the lifting of the Emergency and the change in

government in 1977. A special Tripartite committee on workers

participation in management recommended a three-tier participation

at the levels of the board, plant and shop floor which could not be

implemented as the government did not last long enough.

The state can add their labour legislation to the central labour statues

and in the early 1970s, Maharashtra, Gujarat, Rajasthan and Madhya

Pradesh enacted their own laws regarding union recognition (Mathur,

1992). In Maharashtra, the state passed the Maharashtra Recognition

of Trade Unions and Prevention of Unfair Labour Practices Act that

became effective from 1975. This act defined not bargaining with the

representative union as an unfair labour practice under this act.

The wage dynamics in urban labour markets, for the second phase

was marked by significant changes as well. The real wages

«Chatterjee 19aO), Madan (1977) suffered from a serious downward -

bias as it referred to a restricted category of 'low paid' workers. Using

the wage data from the Annual Survey of Industries he found that real

wages of manufacturing workers did in fact increase since the early

1970s; in addition, he also showed that the proportion of 'low paid'

17

workers to 'all workers' had declined during the second phase. This

hypothesis finds further in the two papers by Tulpule and Datta (1988,

1989) that found evidence of real wage gains since the last 1970s

even though there was substantial variation across industries.

It could be hypothesized that since the mid-1970s segments within

the union movement shifted their goals from those of right to those of

interest. This distinction roughly corresponds with the value unions

place on centralized lobbying (rights) visa-vis decentralized collective

bargaining (interests). There are various factors that were responsible

for such a shift. Few included the key factors like (a) uneven

development of firms within an industry, as well as spreading inter­

industry differentiation, led to some sites being more profitable than

others. Unions in these sectors exploited the increased "capacity to

pay" during bargaining, while unions in the declining sectors had no

such opportunity, (b) workers and their unions in the profitable sites

were aware of their firm's financial performance through their

informed bargaining practices and or through management's

willingness to share this information more readily with unions and (c)

workers in these units realized that the leadership in many of the

traditional party -based unions were averse to intense decentralized

bargaining, due in part to their party commitments and their more

national concerns.

These fractures within the union movement had serious implications

for sustaining solidarity across the entire labour movement. A

pessimistic variant of neo-institutional analysis of labour unions and

collective action (Olson, 1971) can explain the above difficulties.

According to this "logic of collective action" the assumption of

18

rationality and self-interested behaviour on the part of individuals do

not always lead to groups acting in their collective interest. This is

because of the "public goods" nature of this collective interest: "

though all of the members of the group therefore have a common

interest in obtaining this collective benefit, they have no common

interest in paying the cost of providing that collective good" (Olson,

1971). In our context, this 'cost' of obtaining collective benefits has

become different for the various segments within the union

movement. To the extent these costs become similar across certain

sectors with the onset of the liberalization process especially those

sectors facing closure, privatization and restructuring, there will be

fewer barriers for the union movement in acting as an all

encompassing organization.

The Third Phase of Industrial Relations (1980-1991)

This phase corresponds to the sixth (1980-85) and the Seventh

(1985-90) five year plans, as well as the two annual plans (1990-92).

The average annual growth rate during this decade was around 5.7

percent and employment at only around 1.8 percent (Papola, 1994).

Employment elasticities in major sectors, especially in services, fell

drastically during this period (Papola, 1994). In terms of Joshi and

Little's (1994) analysis, this third phase corresponds to two distinct

sub-periods: 1979-80 to 1984-85 and 1985-86 to 1990-95. During the

first part, the economy suffered from severe conditions. One of the

worst droughts since independence occurred in 1979, there was

trouble in the northeast, the recession in 1980-91 rising inflation and

increasing oil import bills. All this led to a balance of payments crisis

and then to the massive IMF loan. In May 1984, India terminated the

program (Joshi and little, 1994). This period had also been turbulent

19

on the political front with Mrs. Gandhi's return to power in 1980 and

later her assassination in 1984.

The second part of this phase is associated with Rajiv Gandhi's

economic liberalization measures, an emerging revolutionary era of

major economic reforms. The economy moved away from an import­

substituting inward looking growth strategy towards strategies that

encouraged both export promotion and domestic competition. This

was brought about by partial industrial and import deregulation,

financial liberalization, exchange rate policy, taxation and through

export incentives (Joshi and Little, 1994). After 1988, the country

experienced severe unrest and political instability as several

governments collapsed. India was now facing a full-scale

macroeconomic crisis. The economic situation was dismal, and the

new government moved swiftly and announced a program of

macroeconomic stabilization and structural adjustment (Joshi and

Little 1944).

The macroeconomic changes during this phase had profound effects

on the political economy of trade unionism, labour markets and on the

structure of industrial relations. On the union front, this phase starts

off with the massive public sector strike in Bangalore during 1980-81,

which involved giants of Indian public sector enterprises

(Bhattacherjee, 1999). The more significant event that marked the first

part of this phase was the much documented Bombay textile strike

(the longest ever strike after post independence in labour history of

India) of 1982 (Pendse, 1981; Bhattacherjee, 1988-1989). What

started as a wage and bonus issue in a few mills in late-1981, soon

developed into an industry-wide strike. The strike was essentially

20

about rank and file frustration with the 1947 Bombay Industrial

Relations Act, which had imposed an industry-wide bargaining

structure with an unrepresentative union (affiliated to the INTUC) as

the sole bargaining agent of workers. After the internal differentiation

within the mills, which happened during the mid 1970s, workers

wanted greater voice and control in determining their labour market

and industrial relations outcomes at the level of the individual mills.

Workers approached Datta Samant to lead their struggle: his main

project was to form and lead an independent union movement in

western India.

The textile strike ended in a cry after a year in late 1983 (it has till

September 2000 not been officially called off). Many workers returned

to their villages, many lives were destroyed, employers restructured

their mills in the advanced textile sector, and the credibility of the

government-installed union in the industry declined to levels from

which it could never recover (Bhattacherjee, 1988). Evidence from the

immediate post-strike period seemed to suggest that workers and

unions, at least in the better-off and profitable mills, negotiated their

own decentralized bargaining agreements (Bhattacherjee, 1989).

After Sam ant formed the Kamgar Aghadi Party and won a few seats

in parliament in late 1984, many commentators felt that this was a

new and encouraging step for the union movement in India.

During this phase there was the rise and proliferation of independent

unions operating in the major industrial centers and competing with

the traditional political party affiliated unions. In Mumbai for example,

the decline of the left unions is partly due to their general opposition

to decentralized bargaining (Pendse, 1981). Segmented and uneven

21

developments in the industrial sector tied workers' eamings to the

fortunes of the plant in which they were employed. An analysis of

plant-level contracts from the Greater Bombay-Thane industrial

corridor revealed that, ceteris paribus, the independent unions

delivered a higher wage and fringe package than did the affiliated

unions during the beginning of this phase (Bhattacherjee, 1987). In a

number of multinationals, workers with their independent unions

exerted considerable control over the labour relations process, often

more than their counterparts in the host country (Banaji and

Hensman, 1990).

In the late 1970s there was a phenomenal rise in the number of

dispute led by unaffiliated unions and the importance of politically

affiliated unions declined (Bhattacherjee, 1987a) The ratio of

registered unions that submit returns (their membership) to the total

number of registered unions fell sharply from 60 percent in 1962 to 21

percent in 1974 and to 13 percent in 1982 (Bhattacherjee, Datta

Chaudhuri, 1996). This would support the hypothesiS of the rise of

independent unionism if the total number of registered unions that

submit returns' proxies the traditional party affiliated unions by 1989,

the labour ministry listed nine major union federations and a number

of small independent unions in their registry (Datta Chaudhuri, 1992).

Finally, this phase is marked with increasing inter-state and inter-city

variations in the nature of labour-management relationship. In a study

of union-management relations in four Indian cities, Ramaswamy

(1988) has found significant inter-city differences in the texture of the

labour-management relationship. According to Ramaswamy (1988)

22

the driving force of the Bombay labour movement are union leaders

who disclaim allegiance to political parties and their trade union

federations. We find here the most evolved Indian version of business

trade unionism and the city has witnessed the steady decline, of

ideological trade unionism. This clearly has something to do with the

fact that private and multinational firms dominate Mumbai's urban

economy. In sharp contrast is the case of Calcutta, where a highly

politicized industrial relations regime prevails with the dominant union

federation (CITU) under the close watch of its parent communist

party. This has created considerable inflexibilities for management

and has partly inhibited the growth of independent unionism.

Bangalore, a city where both private and public sector enterprises

thrive, especially those in the information technology industry, has

witnessed the rise of plant and firm-based unions. These inter-city

differences, is certainly attributable to different political, social, and

urban histories, emphatically suggesting the inherent difficulties in

trying to generalize about an Indian labour relations system.

Charges In union structure together with macroeconomic

developments considerably affected both employment and the wage

structure. Between 1980-81 to 1988-89 while employment growth

declined, the capital-labour ratio and labour productivity increased at

8 percent and 7.5 percent per year respectively (Ahluwalia, 1992).

According to Ghose (1992), the most striking fact is that the 80s have

been the best decade in terms of economic growth but the worst

decade in terms of employment generation. Moreover, employment

growth decelerated in all sectors of the economy and open

unemployment increased in the 1980s (Ghose, 1992). The search for

labour market flexibility in Indian manufacturing led labour intensive

23

firms and those engaged in the production of consumer non-durables

to subcontract and out source their production to the unorganized

sectors (Ramaswamy, 1999).

Unions in the more profitable sectors (often independent' unions)

succeeded in securing a part of these productivity increases through

militant bargaining and / or by signing generous productivity bargains

that contained effective incentive structures. This resulted in slower

employment growth. While organized sector employment as a

percentage of total employment in manufacturing fell from 24.5

percent in 1972-73 to 17.4 percent in 1987-88, real wages of workers

and other employees' in organized manufacturing increased at a rate

of 5.8 percent and 4.1 percent during 1983-86 respectively, whereas,

low-paid workers actually suffered declining real wages (Ghose,

1992). As the union wages effect increased in the profitable sites

during this phase, employers, cut back on further hiring and started

retrenchment, increasing the capital-labour ratio that in turn increased

labour productivity. Thus, according to this scenario, the faster growth

of real wages in the 1980s did playa role in slowing employment

creation (Ahluwalia, 1992.)

Bhattacherjee and Dutta- Chaudhri (1994b) found that in the high paid

sector, real wages increased since, the late -1970s and there were

wage returns from striking, whereas in the low paid sector, real wages

declined since the early 1982s and employers could lower wages by

imposing lockouts. In terms of union structure, low paid workers

gained as unions submitting returns (the proxy for traditional unions)

increased their dominance. The traditional unions, predominant in the

older industries, provided an overall protection to its membership as

24

long as these industries grew. As they declined, and as plant-specific

unions reaped their returns in the high paid sector, workers in the low

paid sector became more vulnerable to competitive forces and could

no longer count on the traditional wage-welfare functions provided by

the politically party-based unions. Workers in this segment found it

difficult to form strong plant-specific unions due to the increasing

instability in their product markets (Bhattacherjee and Outta Chaudhri,

1994b).

Jose (1992) found that the 1980s was associated with deceleration in

employment growth with rising productivity levels, especially in the

high wage sectors and it was this productivity that brought about the

modest increase in real earnings in the high wage sectors. These

findings seem to fit with the characterization of different types of union

dominating these two labour markets since the early 1980s. Jose

(1992) maintains that technological charges led to the rise in wages

and productivity, in sharp contrast to other analysts who inverted the

hypothesis to argue that union militancy and higher wages resulted in

technological changes that subsequently led a decline in an

employment. Others have argued that earnings increased primarily as

a result of an increase in working house (Nagaraj, 1994).

Labour researchers towards the end of this third phase focused on

employment inflexibilities embedded in the 10 Act (Mathur, 1992).

Another 1982 amendment of the 10 Act provided that a firm

employing more than 100 workers (reduced from more than 300)

needed permission from the state government premising to layoff or

retrench workers. Fallon and Lucas (1991) showed how employment

would have been higher in several sectors without the 1976 and 1982

--------------------------------- --- ---

25

amendments. Mathur (1992) recommended that the sections

pertaining to prior permission for layoff retrenchment or closure be

deleted.

Many changes were proposed to remedy the limitations of the 10 Act

and the Trade Union Act, leading to a number of changes in The

Trade Unions and Industrial Disputes (Amendment) Bill, 1988

(Mathur, 1992). The proposed changes would reduce the

fragmentation and multiplicity of unions, define the bargaining agent

by providing for the secret ballot provision, promote internal

leadership, set up state-level industrial relations tribunals, force

employers to set up all-encompassing bargaining councils so as to

facilitate internal grievance settlement, and so on. Consequently after

the debate, the bill was rejected because of the controversy over the

definition of Industry (Mathur, 1992).

The Fourth Phase of Industrial Relations (1991-2000)

In June 1991, the ruling minority government decided to adopt the

World Bank IMF's stabilization and structural adjustment program.

The rupee was devalued twice, import quotas were reduced, tariffs

were lowered, state monopoly on exports and imports ended and a

statement on industrial policy aimed at lowering the fiscal deficit was

presented (Mathur, 1993). Industrial licensing was abolished except

for 18 industries related to the security and environmental concerns of

the country. Private sector competition was introduced selectively for

few, no further plans for nationalization, system of capital issues

control was abolished, the export-import regime drastically simplified,

foreign holding allowed for those selected, rupee convertibility

introduced on trade account, budgetary support to public sector firms

26

withdrawn and others. This fourth phase corresponds to the Eighth

(1992-97) and the Ninth (1997-2002) five year plans.

According to Nagaraj (1997) the Indian economy grew at 5.3 percent

during the first five years of the reforms (1992-96). The tertiary sector

grew the fastest in the 1990s at about 6.8 percent per year. The

economy become considerably more open than ever before. There

was some apprehension that government expenditure on the social

sector would decline significantly, but Nagaraj (1997) found that social

spending did not suffer; most of the cuts took place in defense and

economic services. Again, investment performance in India actually

improved since the reforms, with private corporate businesses

emerging as the economy's leading sector. Even though public

investment witnessed deep cuts since the reform, public sector output

growth and profitability improved suggesting better resource utilization

(1997)(probably the result of the stiff competition faced from the

private sector). Nagraj (1997) concludes: In sum, the good news is

that there is no major, bad news for the economy. Finally,

transnational corporations reacted favorably to the new economic

policy in terms of its entry and growth (Chaudhuri, 1995) resulting in

an overwhelming response.

The initial impact of economic reform has led to an increase in rural

poverty and a decline in urban poverty. In fact, urban poverty was

lower in 1993-94 than in any pre-reform year (Sen, 1996). On the

employment front, Oeshpande and Oeshpande (1996) found that

although the initial stabilization years took some toll of organized

manufacturing employment, the subsequent structural adjustment

process led to employment growth at around 2.3 percent between

27

1992/93 and 1994/95. If this rate continues for the next few years, the

latter authors are of the view that employment in the factory sector

would be about 12 percent higher at the turn of the century than in

1990-91. More employment opportunities in private sector resulting

into a more union membership across the country. More recent

evidence suggests that employment growth in the organized

manufacturing sector from 1990-91 to 1997-98 was average 2.6

percent per year, and that this growth was due to two factors: (I) the

growth of small and medium firms and (II) the slowdown in the growth

of real wages (Goldar, 2000).

Even under the most optimistic employment growth scenario in the

private sector, given declining employment elasticities in organized

manufacturing and given the expansion of employment in the public

sector, it is quite evident that a large majority of the nearly 80 million

persons will join the labour force during 1999- 2000 will have to find

work as self-employed or casual workers (Visaria and Minhas,

1991 :1978). In terms of the impact of economic reforms on female

employment, both Deshpande and Deshpande (1992) and Banerjee

(1997) are of the view that female unemployment may reduce but the

quality of jobs on offer will be low-wage jobs in secondary labour

markets. All these post-reform labour market outcomes point to

difficult times for the union movement in India.

One of the primary objectives of the economic reform package has

been the restructuring or closing down of public sector enterprises

that are unprofitable and are large drains on the public exchequer.

These enterprises were given the freedom to reduce their excess

human resources through Voluntary Retirement schemes (VRS)

28

assisted through the National Renewal Fund (NRF) that was instituted

by the government. The objectives of the NRF was to serve as a

generous safety net by providing assistance to cover the costs of

retraining and redeployment of employees resulting from

modernization, technological upgradation, industrial restructuring and

possible closure (possible reforms). The present government

dissolved the NRF and entrusted the corpus to the industry ministry.

The money under the fund will now be given to the public sector

enterprises directly by the ministry. Recently, the government has

announced a golden handshake scheme for both profitable and loss­

marking enterprises.

While recruitment was all but stalled especially at lower levels, in the

public sector the government also froze the centralized wage

bargaining process for the first few years after 1992. It opened the

negotiation process subsequently and attempted to decentralize the

bargaining process by announcing that any wage increase will have

to be absorbed by the specific enterprise, as these increases now

cannot be passed on to final output prices. In othar words, the new

policy clearly stated that my additional wage burden would not receive

budgetary support (Venkataratnam, 1996). Decentialization also

helped in taking decisions of those sick units, which even after the

reform process could not show any progress. So only those with

better performance will survive.

The need for tripartite consultation relating to the various issues

concerning labour matters under economic reform was clearly felt

during the initial year and many such meetings were carried out.

Mathur (1993) documented the experience of consultation during the

29

early phase of structural adjustment in India (1990-92), and

suggested that unions had serious misgivings about the adequacy of

consultation at (the) industrial or enterprise level. In the private sector,

economic restructuring arrangements led to an increase in managerial

flexibility through all sorts of new contract provisions: ban on

recruitment, job transfers to non-bargainable changed introduction of

parallel production, merges, suspension of industrial active for a

period of five years and concession bargaining (Venkataratnam,

1996). Reforms in the private sector were noticed due to the

liberalization steps taken by the government even without any major

legal reforms (amendment in the 10 Act).

It is only during this phase that the public becomes aware that unions

in India today represent a declining sectional interest group. With

outside competition and awards for those with high merits making

stringent rules. Bhaduri and Nayyar (1996) point out in no uncertain

terms, "The government also needs to protect consumers against

sectional interest of many unrepresentative trade unions. While the

trade union rights of workers must also be respected in any

democracy, the government must also ensure, perhaps through the

ret ballot, that no unrepresentative union harasses ordinary

consumers'. Union Membership as a percentage of non-agricultural

labour dropped from 6.6 percent in 1985 to 5.5 percent in 1995 and

union membership as a percentage of formal sector workers declined

from 26.5 percent to 22.8 percent. At the same time however India

looses more days annually as a result of strikes and lockouts than any

other country (ILO, 1997-98).

30

On October 1999 the government set up the second National Labour

Commission (NLC). Primarily formed to lay down that the commission

should suggest rationalization of existing labour laws in the organized

sector and recommend and umbrella legislation to ensure minimum

protection for unorganized workers (labour reforms). The commission

will have a two-year term and will comprise of representatives from

government, unions, and industry. Unions feel that there is little in the

existing laws to protect workers from the whims of errant

management and that any tinkering of these laws would only add to

managerial power. For example, the proposal to relax contract labour

laws so as to generate more jobs on contract for the unorganized

sector is interpreted by unions as a move to undercut permanent

unionized jobs. More recently, proposed changes in the 10 Act would

make it difficult for unions to call wildcat strikes and to include

outsiders into their executive bodies. While the initial working of this

NLC is now under critical scrutiny (Venkataratnam, 2000), there is no

doubt that labour laws that govern employment security and collective

bargaining need to be urgently rationalized. According to Sengupta

and Sett (2000) the only real hope lies in the formation of an Industrial

Relations Commission, high-powered statutory body independent of

political influence, that will be made responsible for conciliation and

adjudication of industrial disputes as well as for graining of bargaining

agent status to recognized unions in different bargaining units.

However, cleavages and difference within the centralized unions, the

political parties, and state govemments, have indefinitely delayed the

passage of these much-required labour law reforms. A lack of

consensus and political instability at the center (in terms of several

coalition governments being unable to complete their full terms) since

1992, has led to inertia in the political scenario and will require to

carry out these reforms.

31

The inability to arrive at a national consensus on labour market

reforms are the effects of heightened inter-state competition to attract

foreign and local capital or regional labour markets and labour

relations in general. During the post-reform period, the states,

performed at significantly varying rates (Ahluwalia, 2000) and both

national and international capital flows have created new industrial

geographies (Shaw, 1999). This results that the states may attempt

the leveling down of their labour market institutions by offering several

incentives to employers. These divergent trends will make it

increasingly difficult for the centralized union federation to act on a

national level and moreover it is in their immediate interest to press

for industrial relations reform.

1.3 INDUSTRIAL RELATIONS CLIMATE

The cOining of the term "Industrial Relations Climate", its concept

development and developing a testing tool to measure it, all of these

are very recent in origin in the literature of Industrial relations

management theory.

According to Dastmalchian, Blyton and Adamson (1989), Industrial

relations climate is defined as a subset of organizational climate that

pertains to the norms and attitudes reflecting union-management

relationships in an organization.

To understand the entire concept of IR climate it is most essential to

first understand the concept of climate and then about the

organizational climate, Human Resource Development Climate and

lastly the IRC. This study will help us draw inferences about how IRe is

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32

the subset of HRD climate and how HRD climate is a subset of

Organizational climate.

The concept of Climate

ORGANIZATIONAL CLIMATE

Structure

Technology

Legends

• HRD-Human Resource Development

• IRe-Industrial Relations Climate

Organizational Climate refers to a variable, or a set of variables, that

represent the norms, feelings, attitudes and a set of attributes which

can be perceived about a particular organization and its subsystems

which can be induced from the way that organization and its

subsystem deal with their members and environment. (Beer, 1971;

Campbell, 1970; Payne & Pugh, 1976; Hellriegel and Slocum, 1974).

This is the concept that has the ability to describe the psychological

atmosphere of an organization and consequently can influence the

satisfaction, motivation and behaviour patterns of individuals in the

workplace (Litwin & Stringer, 1968;Payne, 1971). Organizational

climate is affected by a set of causal variables and can potentially

33

influence or get influenced by the end-result variables. (Dastmalchian,

et al. 1989). Moreover it has always been perceived as either the

attributes of organizations or attributes of people and has often been

used interchangeably. However few state that it is the intervening

variable between the structure and the outcomes. This is the result of

the various policies/procedures and structure adopted by the

organization, which consequently leads to the enhancement or

deterioration of the organizational performance.

The studies so far have been conducted upon the attitudes of different

groups while studying IR, but very little attention has been paid to

general attitudinal context or atmosphere in which IR takes place. The

climate therefore refers to a situation and its link to norms, attitudes,

thoughts, feelings and behaviors of organizational members. However

the 'climate' and 'culture' terms have been interchangeably used by

enquirers into aspects of culture often neglecting the existing body of

research on climate. But in a very recent article Denison (1996)

concluded that climate and culture, research should be viewed as

differences in interpretation rather than differences in the phenomenon.

As such the concept of organization culture generally refers to a set of

beliefs, norms, expectations and ways of working that is usually

generated over a long period by a combination of factors and are

relatively not so affected by the short term fluctuations. Where as the

prevailing attitudes of employees is one of the contributing factors to

the culture. The climate instruments therefore allege to describe work

environments.

The Human Resource Development Climate basically refers to the

values like openness, authenticity, trust, collaboration, proactivity,

34

autonomy and confrontation as well as practices like top management

commitment, appraisals, job-rotation, supportive personnel policies,

training, appraisals, career planning, feedback and counseling (Rao

and Abraham, 1985). This also refers to the tendency and environment

where development of individuals and teams is given the highest

priority and where human resources are considered the most important

resources (Rao, 1999).

Industrial relations climate means taking in to consideration the

concept of climate, which is, associated with the organizations IR

practices which thereby generate a characteristic atmosphere in the

organization. This characteristic atmosphere as perceived by the

members within the organization, is regarded as the industrial relations

climate. (Dastmalchian et aI., 1989).

The oe refers to the overall climate prevailing at the organizational

level, HRD climate talks about the climate existing within the

individuals employed in organizations regarding the prevailing values

and practices and since IR is a subsystem of the HRD system, the

overall climate of HR will certainly have an impact on the IRe.

Following the analysis of the organizational climate, HRD climate IRe

concerns the attitudes and beliefs held by management and

employees their representatives towards IR and the dimensions of IRe

are intended to reflect the perceptions of organizational members of

the kinds of norms and atmospheres surroundings the practice of

union-management relations with in the enterprise.