It Will Be Business As Usual

There's a joke doing the rounds in the capital that captures both sides of the labour debate in India. Who engineered the Honda agitation and police high-handedness? The CPI(M), because it wants all the Japanese factories and call centres in Gurgaon to shift to Rajarhat in West Bengal! Even as the socialist fears refuse to ebb, the reality of massive unemployment and need for upward mobility are forcing a steady change in how state governments, including Bengal, the haven of militant labour, are looking at foreign investment and labour issues.

Delhi's satellite town Gurgaon has prospered remarkably in the last five years with the state government, hard put to find resources, going all out to woo industry. "Gurgaon has been a preferred base for its overall industrial harmony," said the cii. Last week's crisis began innocuously with AITUC's (CPI's labour arm) effort to register a new union at the Indian subsidiary of Honda, which tried to enforce a different work culture that didn't match some of the workers' expectations. Almost half the staff at the factory—and in many others in the region chock-a-block with BPO firms, automobile and ancillary units—are on contract.

The incident has raised fears of the return of militant trade unionism, now that the Left is a force to reckon with in the UPA government. Says AITUC general secretary Gurudas Dasgupta: "Even in the UPA rule, retrenchment, layoffs, closures, outsourcing and contracting are going on blatantly. We're very disappointed. We'd brought the Honda affair to the PM's notice long ago. We petitioned him (on June 4) on the workers' rights being violated by several private and public sector managements." Clearly, despite the CPI(M)'s clear distance from the affair so far, Left unions are going to pursue this issue. "We'll definitely continue this agitation," thunders Dasgupta.

Can this augur well for FDI? Commerce and industry minister Kamal Nath was clear on Wednesday that the "isolated and local incident" wouldn't hit investor confidence. Especially at a time when the number of strikes and lockouts were coming down significantly and mandays lost last year were half of that in 2003.

Even FDI is going through a boom with AT Kearney's FDI Confidence Index 2004 rating India as the third most attractive. At $912 million, inflows (equity) in April and May were more than double that of the corresponding period last year. The year could end with $6-7 billion; there is no threat to this, since the proposals are already channelled. But a proposal favouring FDI in retail looks temporarily stymied.

A third of this $6 billion is from the Japanese, the third largest investor. Their biggest—Rs 2,000 crore—is in a Mitsubishi pta project in Bengal and four more projects are in the pipeline. Yet, at the Centre, the Left and the socialist sections of the government are resisting all efforts to change archaic labour laws like the Industrial Disputes Act that not only constrain Indian and foreign companies from operating to their full potential but prevents generation of jobs for a larger section of Indians outside the organised sector.

A recent World Bank study on economic freedom found India having the most rigid labour laws with a score of 48 (China has 30 and Singapore 0). But in a country with no social security or unemployment insurance, "hire and fire" remains a dirty word. Post-budget, a top North Block bureaucrat clearly indicated that we should forget about labour reforms for the entire term of this government. Even sources in the PM's economic council admit that though the Honda issue is a CPI affair, the recent Left recalcitrance is worrying and the government might be forced to give way at least on the CMP commitments. Right now, the red star over labour bedevils other crucial reforms.