Multi National Companies & Impact on Labor Scene in India

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MNC’s AND THEIR IMPACT ON LABOR SCENE IN INDIA

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Submitted towards the Partial Fulfillment of the Award of EPGPM under 29th National Management Program, MDI (2016-17)

Submitted to:                                                                   [pic 3]

Dr. J.K. Jain

Professor in HRM & Chairman, NMP

ACKNOWLEDGEMENT

We would like to acknowledge the support and guidance of Chairman, NMP and Professor in Human Resource Management, Dr. Janendra Kumar Jain, at Management Development Institute, Gurgaon for his valuable inputs towards the preparation of report on “MNC’s and their Impact on Labor Scene in India”. 

We would also like to thank Mr Mahipal Singh (Honda Cars India Ltd, Greater Noida) for inputs on labor scene in his organisation.  Lastly, we are thankful the faculty and batchmates at MDI, for shaping our minds to deal with much more complex subjects, without whose support, the completion of this Analysis would not have been possible.

Group-5 (Section B)                                                                       17th June 2016

NMP-29

MDI Gurgaon

TABLE OF CONTENTS

1. BACKGROUND………………………………………………………………………………………3

2. PRE AND POST LIBERALIZATION………………………………………………………….5

3. INDIAN LABOR LAWS……………………………………………………………………………7

4. PRESENT SCENARIO OF LABOR AND MNCs IN INDIA……………………………13

5. IMPACT OF MNC IN INDIA……………………………………………………………………16

6. PERCEPTION OF LABOR ABOUT MNCs………………………………………………...19

7. RECOMMENDATIONS…………………………………………………………………………..21

8. INTERVIEW WITH INDUSTRY EXPERT………………………………………………...23

9. CONCLUSION…..……………………………………………………………………………………25

10. BIBLIOGRAPHY………………………………………………………………………………………26

1. BACKGROUND

India was predominantly an agricultural economy till Independence in 1947. Even after Independence, the First Five-Year Plan (1951 —56) laid emphasis on agriculture. With the Second Five Year Plan (1956 — 61) there was a shift towards heavy industrialization. The share of agriculture in gross domestic product (GDP) declined from about 56 per cent in 1950 — 51 to less than 30 per cent in 1990 — 99 while the share of industry rose from 15.6 per cent to 24.7 per cent and of the services sector, from 29 per cent to 45 per cent during the corresponding period. The industrialization strategies and industrial policies followed in India from Independence to the mid-1980s aimed at development and a faster growth rate, but emphasized regulation rather than development. Instead, the plethora of controls led to the erection of barriers of entry and exit.

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Too much government in business and industry and vice versa eventually proved detrimental and counterproductive to the conduct of state affairs as also to industry and commerce, workers and unions and consumers and the community. In 1991 the economic liberalization took place in India. The aim for bringing liberalization was to improve the life of the poorest section of the society. Legislature, judiciary and executive became soft towards unorganized sector and strict towards organized sector. Family pension and a series of other welfare facilities were introduced in favor of disadvantaged and vulnerable groups. Private sector, foreign direct investment and multinational companies were encouraged. Seeds were sown to liberalize, privatize and globalize the economy. Some unions are very critical about the new policies being anti-labor aimed at de-industrialization and privatization of profits and nationalization of losses. Dismantling of public monopolies in utilities and setting up of regulatory agencies (in electricity, telecom besides stock markets and insurance) began. In the pre-liberalization era labor was protected in labor market and capital in capital market. In the post-liberalization era both labor and capital feel less protected or unprotected. Indian employers feel that after globalization instead of realizing the opportunities in the global markets, they are not able to compete even in domestic markets. In the past consumer interests were neglected. When consumers' rights clash with those of the labor and the capital, the rights of consumers and community seem to prevail over that of labor and capital. Indian legislation has focused on dispute resolution rather than on the maintenance of sound labor-management relations. The stress was on adjudication rather than on collective bargaining. With more companies operating internationally, the impact on various business functions and labor laws in India is becoming more pronounced. Globalization, and the need to attract foreign investment, inevitably leads to an attack on workers’ rights by diluting existing labor standards, as trans-national corporations concede to the demands of multinationals. This dilution of stringent labor standards and strong resistance to any strengthening of workers’ rights (which sometimes become an obstacle to competitiveness in the global economy) is becoming prevalent in India. Since the beginning of the reforms in the early 1990s, there have been demands from industry for liberalization in the stringent labor regulatory framework. The influx of foreign companies has increased the demand for more relaxation in labor laws to make investment conditions more conducive.

1. PRE AND POST LIBERALIZATION

India needs foreign capital and technology resources to make optimal use of its vast natural and human resources and growing market for a variety of products and services. In the past, the policies of self-reliance and import substitution restricted the scope for foreign capital and technology in India. The deregulation of foreign investment in India in 1991 can be considered a watershed. The role of foreign direct investment (FDI) was recognized in India in its Industrial Policy Resolutions of 1948 and 1956 but not in key industries, which are reserved for exclusive growth in the public sector till recently. The Foreign Exchange Regulation Act (FERA), 1973 put, barring certain exceptions, a ceiling of 40 per cent on foreign equity participation in India. Multinational Corporations (MNC's), which did not want to dilute their stake, were asked to leave the country. FERA has been a major deterrent to FDI in India till the New Industrial Policy (NIP). The Monopolies and Restrictive Trade Practices Act was amended to remove the threshold limits with respect to assets in monopolies and dominant undertakings. In high priority industries, automatic permission is given for foreign equity up to 51 per cent as against 40 per cent in the past. In several areas foreign equity is permitted up to 100 per cent.