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TheEvolutionofIndianIndustrialRelations:AComparativePerspective

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Industrial Relations Journal 32:3ISSN 0019-8692

The evolution of Indianindustrial relations: A

comparative perspective

Debashish Bhattacherjee

This article examines the evolution of Indian industrialrelations in an historical and structural context. In India, theevolution of industrial relations has been ‘incremental’ and‘adaptive’ and not ‘discontinuous’ and ‘revolutionary’. Therelationship between changing industrialisation strategiesand industrial relations institutions and practices in India isconsiderably more subtle than is often supposed in compara-tive industrial relations narratives, especially when detailedendogenous political economy considerations are taken intoaccount.

IntroductionIn an important theoretical paper, Erickson and Kuruvilla (1998) examine the manymeanings of industrial relations system ‘transformation’. They discuss the variousdefinitions and aspects used in the literature to identify and characterise thistransformation. The authors not only distinguish between transformation and non-fundamental change, but also sharply differentiate between incremental(evolutionary or adaptive) and discontinuous (revolutionary or punctuatedequilibrium) change. Discontinuous change occurs only when there are fundamentalchanges in what they call the ‘deep structure’, with the latter partly constituting‘attitudes towards and definitions of property rights in the workplace,employer/employee relative status, individualism versus collectivism, and the natureof exchange in the labor market’ (1998: 18).

Using the above framework in a subsequent paper on industrial relations trans-formation in Asian countries, Kuruvilla and Erickson (1999) argue that the bindingconstraint in Asian industrial relations, primarily as a result of recent globalisation,has changed from one of maintaining labour peace and stability to one of enhancingcompetition through increased labour market flexibility. With reference to India, the

❒ Debashish Bhattacherjee is Professor, Human Resources Group, Indian Institute of ManagementCalcutta.

Blackwell Publishers Ltd. 2001, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main St., Malden, MA 02148, USA.

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authors contend that there has been genuine transformation in industrial relationsaccording to their criterion of ‘deep structure’, and that the transformation has been‘discontinuous’ largely due to the forces of globalisation.

Taking the above as my point of entry, I intend to show that for a large andcomplex country like India, where economy, polity and history are inextricablylinked, the evolution of industrial relations has in fact been incremental and adaptive.Changes have occurred not primarily because of the exogenous forces of recent glo-balisation (although this process has clearly hastened the change), but instead havetaken place gradually due to endogenous ‘inner contradictions’ embedded withinIndia’s political economy. In order to identify these contradictions, this paper under-takes a historical-structural approach in what I call the ‘four phases of industrialrelations’ in India. The latter traces the effects of distinct macroeconomic shifts onthe structure of the labour market (productivity, employment, earnings) as well ason the structure of industrial relations (unions and the political process, collectivebargaining practices, labour legislation, industrial conflict, employer strategies, stateintervention). These effects in turn have consequences on the future growth patternof the economy. I show that the relationship between changing industrialisation stra-tegies and industrial relations institutions and practices in India is considerably moresubtle than is often supposed in comparative industrial relations narratives(Kuruvilla, 1996).1

There are two important propositions within which this essay is anchored. The firstis ‘that the evolution of labour institutions is determined by the objective interests ofsocial groups inherent in the logic of a modern industrial society’ (Zeitlin, 1987: 163),and that these interests are inevitably ‘ambiguous and context dependent’. Conse-quently, it is difficult to ensure that labour institutions, especially unions and thestate, keep playing the parts assigned to them. The second proposition is that ‘nosingle approach to the study of labor organization is at present adequate—which isto say that the study of these matters is usually informed from several points ofview’ (Williamson, 1985: 241).

The organisation of the paper below is as follows. The next section provides acomparative framework by examining a few propositions regarding industrialrelations institutions and economic performance. This is followed by an extendeddiscussion of ‘the four phases of industrial relations’ in India. Finally, the concludingsection summarises the paper and makes a few comments about theory and realityin comparative industrial relations discourse in the Indian context.

Economic performance and industrial relations institutions: acomparative perspective

It is clear that the policy charter of the ‘collective voice’ view of labour relations ispremised on pluralistic democratic principles, enlightened managerialism, andresponsible unionism (Freeman and Medoff, 1984; Turnbull, 1991). The criticalassumptions/beliefs that underlie ‘voice’ (or, more generally, institutional)approaches to the study of unions and labour relations are the following: (a) indus-trial pluralism, (b) interest group politics being played out under a democratic multi-party regime, (c) a belief in the efficiency and fairness of ‘regulated conflict’, (d) aprocedural environment, which implies the existence of unambiguous labour lawsthat are fairly implemented, and where there exists some symmetry among adver-saries’ bargaining resources, and finally, (e) a trust in neutral third party arbitrationwhen confronted with labour relations impasses. According to Williamson (1985:241), ‘the institution of arbitration lies at the core of industrial pluralism’. The basicpremise of pluralist bargaining is that interest group conflict, when played out withinsuch an institutional framework, approximates the public interest. In the next section

1 See the exchange in this journal between Gall (1998) and Kuruvilla (1998) on the political economyof industrialization and industrial relations.

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I explore the extent to which these assumptions and beliefs of pluralistic industrialrelations actually evolved in India, and show how pluralism in industrial relationsitself changed as structural transformation took place in the political economy.

It is now but a truism to suggest that economic performance is related to thenature of labour market institutions (Horton et al., 1991; Nelson, 1991; Freeman, 1992).Economic performance here means controlling inflation and generating both employ-ment and productivity growth. In terms of industrial relations institutions, the twokey variables that the literature frequently cites as determining this rate of economicperformance are: the level of collective bargaining and the structure of trade union-ism. Evidence from the late 1970s to the early 1980s for developed countries traceda humpbacked curve between the degree of militancy of union wage demands andthe degree of centralisation of bargaining. That is, economies with decentralised(enterprise-based unions bargaining at the plant level) and centralised (national-levelagreements with centralised unions) bargaining structures ‘performed’ better thanthose at the middle level of centralisation (industry-wide agreements with industry-wide unions). Market competition keeps wage demands in check in decentralisedregimes, whereas in the centralised regimes, greater power is balanced againstgreater risk that wage gains may trigger price inflation which in turn will erode thosenominal gains. It is at the industry level of bargaining, with its accompanying market-insulating features, where high degrees of union militancy is generated, which inturn leads to macroeconomic inefficiency. Given mark-up pricing in concentratedproduct markets, higher union-won wage gains are shifted to final consumers withthe rank-and-file protected by generous indexation clauses. Put another way, union‘voice’ effects seem to be large under centralised bargaining structures, whereasunion ‘monopoly’ effects seem to be the largest at the industry-level. This is thefamous ‘Calmfors-Driffill’ relationship, with its finding that the extent of labour-management cooperation is determined significantly by the degree of centralisationof its bargaining institutions. The industrial relations strategic choice literature alsosuggested that economies that had dense activities at the workplace and at the macrolevel were considerably more flexible than economies that had concentrated its activi-ties at the middle level associated with unions, collective bargaining and personnelpolicy (Kochan et al., 1984).

Does this curve have any significance for developing countries on the economicreform traverse? If we map the findings from the Horton et al. (1991) study (of twelvedeveloping country labour markets during their reform process) on to this curve,we find that the successful ‘East Asian’ pattern of adjustment fits closely with thedecentralised extreme, whereas, both the ‘partial’ adjustment case of Brazil as wellas the ‘frustrated’ adjustment case of Peronist Argentina fall on the hump, i.e., atthe industry-level of bargaining. Finally, centralised labour market institutions a laScandinavia cannot be easily replicated in most developing nations ‘in part becausethe structure of labour markets and the larger economy bear no resemblance to theusually small industrial democracies in which these arrangements have evolved, andin part because the arrangements have grown out of historical features quite unlikethose of developing nations’ (Nelson, 1991: 42).

The situation changed considerably in the 1980s and 1990s. It now seems clear thatinitial conditions and the history of labour market institutions vary considerably fromcountry to country, and even though the two axes of the above curve reflect politicalprocesses, the analysis is static insofar as it assumes that bargaining institutionsremain frozen. Consequently, it becomes difficult to interpret the changing relation-ship between institutional structure and economic outcomes in an era of rapid glo-balisation (Flanagan, 1999).

The relationship between economic performance and the structure of industrialrelations in developing countries have been theorised in several ways. First, there isnow a consensus that the political repression of organised labour does not in anyway accelerate economic development in developing countries (Alesina and Perotti,1994). A cross-country study showed that authoritarian systems that repress unions

246 Industrial Relations Journal Blackwell Publishers Ltd. 2001.

are more likely than democratic systems to adopt inefficient labour policies thatimpede development (Banerji and Ghanem, 1995).

Second, there have been several attempts to posit stylised models of labourrelations among non-comparable developing countries so as to explain their diver-gent socio-economic performance. Banuri and Amadeo’s (1991) ‘qualitative tax-onomy’ places countries into one of four models in increasing order of centralisation.In the ‘decentralised’ model (the East Asian case), wage bargaining is at the plantlevel usually with enterprise-based unions, with the latter playing an insignificantrole in national politics. In the ‘pluralist’ model (South Asia), bargaining takes placeat all three levels, with unions being in a somewhat dependent position tied as theyare to political parties. The ‘polarised’ model (Latin America) connotes a broad-basedlabour movement with a long history of organisation but is divided along industryand skill lines. In this model, unions can impose severe costs on the economy butare not strong enough to impose a cooperative solution at the national level. Finally,they posit the ‘social corporatist’ model that garners the institutional resources of thestate to foster cooperative behaviour among functional groups organised at thenational level. According to Banuri and Amadeo (1991: 173), their taxonomy endo-genises the analysis of policy and institutions: ‘outcomes are determined by social,political, cultural, and historical factors which underlie wage-setting institutions, andover which the government has little control’.

A major problem with the above classification is in its generalisations. For example,the countries that fall into their ‘decentralised’ model exhibit considerable variationin the evolution of their labour and bargaining institutions; Kuruvilla and Venkatar-atnam (1996) posit no less than five ‘stylised’ models of industrial relations systemsin order to differentiate between just South and Southeast Asian countries. Secondly,‘pluralism’ in both industrial relations discourse and practice has undergone con-siderable transformation; for example, from the focus on the efficiency and efficacyof regulated conflict (‘harmony of interests’) among diverse interest groups to thepromotion of ‘common values’ and ‘culture’ at the organisational level (Provis, 1996).In the Indian case, as I will show below, the nature of pluralism in industrial relationsitself changes as the economy undergoes structural transformation. In addition, wewill see how several of Banuri and Amadeo’s (1991) ‘models’ are represented in theIndian economy at specific times and in specific sectors.

Third, searching for a correspondence between a developing country’s industrialis-ation strategy and its industrial relations policies has been a recurring narrative incomparative research. This discourse is usually cast in terms of mutually exclusivebut totally exhaustive categories, such as, import-substitution industrialisation (ISI)with worker-inclusion, and export-oriented industrialisation (EOI) with worker sup-pression (Deyo, 1989). Recently revived in a different form, Kuruvilla (1996) findsdistinct linkages between ISI/EOI strategies and industrial relations and humanresource policies in his study of four Asian countries. In the Indian case however,such neat categorisations and one-to-one correspondences are difficult to find if thesearch incorporates the entire political economy.

The four phases of industrial relations in India: anevolutionary view

Where does India fit into this comparative framework? The Indian economy is inter-esting because it represents a mix of all three bargaining levels and a variety of unionstructures. In the private corporate sector, plant-level bargaining takes place withenterprise-based unions that may or may not be affiliated to political parties. In thepublic sector enterprises, centralised union federations that are affiliated to politicalparties bargain with the state (as employer) at the industry-and/or national-level.Central and state government employees in the service sector (transportation, postalservices, banking and insurance, police and firefighters, etc.) have their (typically)politically-affiliated unions bargaining at the national and/or regional levels. Whilethese centralised bargaining and union structures were stable during the period of

Indian industrial relations 247 Blackwell Publishers Ltd. 2001.

planned industrialisation, they have come under increasing pressure to decentralisesince the mid-1980s as the economy opened up to greater domestic and internationalcompetition. These pressures have got particularly accentuated in the public sectorwith the onset of the liberalisation program since 1991. As in other countries, therehas been a gradual retreat of the state from its earlier role in creating permanentemployment and regulating the union-management bargaining relationship.

I now discuss in detail the evolution of Indian industrial relations.2 The basis forthe periodisation lies in the distinct structural breaks that occurred in the economy,which in turn affected events and outcomes in the labour market and the industrialrelations arena. The analysis is similar to the French Regulation approach insofar asI relate macroeconomic change, not just to efficiency, but to institutional and regimechange, the wage relation, and forms of state intervention. The method is historical:different sets of institutions stabilise economic systems at different levels of economicactivity which in turn generate specific power configurations (Jessop, 1994).

The first phase of industrial relations (1950 to mid-1960s)The first phase of the (post-independence) Indian union movement corresponds tothe first three Five-Year Plans (1951–56, 1956–61, 1961–66), a period of ‘national capi-talism’. A state-led industrialisation with an import substitution strategy resulted inthe formation of large, employment-intensive public sector enterprises, mostly in thecapital and intermediate goods sectors. Between 1951 and 1965, industrial productionincreased at an average annual rate of 7.7 per cent, and manufacturing outputincreased at the rate of 7.6 per cent (Nayyar, 1981). High growth rates were sustainedby public investment in capital and intermediate goods sectors, while growth in theconsumer durable goods industries was forestalled. Effective protection through rigidimport-substitution policies guaranteed a captive domestic market and hence pro-vided a stimulus to private sector investment.

The development of these large public sector enterprises led to employmentgrowth in the organised economy, mainly in the latter, but also in the private corpor-ate, service, transport, and educational sectors. The average annual growth rates ofemployment increased rapidly from around 0.4 per cent during the period 1951–56 to around two per cent during the period 1961–66 (Papola, 1994). Public sectoremployment quite naturally led to the formation of public sector unionism. The num-ber 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 duringthis period (Venkataratnam, 1996).3

While the communist led All India Trade Union Congress (henceforth, AITUC)continued to consolidate its position over the union movement from its pre-indepen-dence days in the textile and engineering industries, the growing public sector duringthis first phase now provided a new terrain for large scale unionisation. It is herewhere the Congress Party-controlled Indian National Trade Union Congress(henceforth, INTUC) made early inroads. Unlike the AITUC that arose from withinthe rank and file, the INTUC was exogenously imposed on to the labour movement.There were no ambiguities in the chain of command that clearly flowed from partyto union (Chatterjee, 1980).

The above relationship between the government and its affiliated union federationduring this phase seems to have tied in neatly with the provisions of the IndustrialDisputes Act (henceforth the ID Act) of 1947, which according to Datta Chaudhuri(1996:12), is ‘(the) single most important piece of legislation between the worker andhis employer’. The provisions in the act allow for no procedures to determine the

2 For a considerably longer and a more detailed analysis with time series data, see Bhattacherjee(1999).3 Statistically, there are three types of trade union in India: those that do not register and are statisti-cally invisible, those that register but do not submit returns to the Registrar of Trade Unions onmembership size, and those that register and submit returns on membership figures.

248 Industrial Relations Journal Blackwell Publishers Ltd. 2001.

representative union within what would normally be a single bargaining unit, andas employers were under no legal obligation to bargain with unions, there were nobuilt-in incentives for either party to engage in collective bargaining. Early writingsconsistently pointed to this aspect of the ID Act that impeded collective bargainingduring this period (Kennedy, 1966). Coupled with this was the Indian Trade UnionAct of 1926, which although allowed any seven workers to register their union, hadno provision for union recognition. The opposition unions were for a ‘secret ballot’procedure to determine union strength, but the INTUC was against it, favouringinstead the ‘check-off’ system of membership receipts, a system that easily led tomanipulation. The ID 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. Ifthis solution failed, the dispute was usually settled in an industrial or labour court,or occasionally through binding arbitration (Kennedy, 1966).

During the late 1950s however, attempts were made to introduce labour legislationpromoting genuine collective bargaining through various voluntary arrangements,such as the Code of Discipline and the inter-union Code of Conduct (Venkataratnam,1996). If these arrangements were made legally binding on the parties, the determi-nation of the representative union in a single bargaining unit may have been solvedfor good. Effective dispute resolution through voluntary arbitration was also sug-gested. Various bills were drafted and debated at several tripartite forums, but nonewere enacted (Kennedy, 1966). Further, the executive branch of the government ulti-mately vetoed the proposed Trade Unions and Labour Relations Bills. These attemptscame to be known as the ‘Giri Approach’ (after the Labour Minister who resignedin protest), and many commentators interpret this failed attempt as a major setbackto the development of ‘mature’ industrial relations in India (Ramaswamy, 1984). Inmore contemporary language, it may have been a strategic mistake: one can onlyimagine how events in the industrial relations system would have developed if the‘Giri Approach’ had been adopted.

State intervention in the determination of wages and working conditions was thenorm during the first phase; wages were determined by political and institutionalconsiderations (Jackson, 1972). Specifically, wages were set by Central and IndustrialWage Boards, by adjudicators when wage demands were in dispute, by ad hoc Indus-trial Awards, and by the Bureau of Public Enterprises for public sector enterprises.The structure of bargaining was thus centralised, usually at the national level, butat the industry-level in some regions and industries. In a few cases in the privatesector, bargaining was at the enterprise-level. The Indian experience of wage determi-nation during this phase was referred to as ‘tripartism’.

In terms of the movement of real wages of industrial workers, India was held outas an example of the Lewis model of growth at work, with both product and con-sumption wage growing slower than labour productivity (Jackson, 1972). Low union-isation, inter-union rivalries sharpened by political affiliation, excess supply of labourand state intervention of a complex type contributed to a wage lag (Deshpande, 1992).The labour relations regime was one of promoting ‘responsible unionism’ subject tothe maintenance of industrial peace. Industrial conflict data indicates that both thenumber of strikes, as well as the number of workers involved in those strikes, duringthis phase were significantly less than what was to follow during the second phaseand beyond (Sengupta, 1992). By the end of this phase, further splits took placewithin the labour movement: the Socialists broke away from the Congress and for-med their union federation, and the radicals broke away from the Communist Partyof India and formed their own party, which in turn generated its own union feder-ation, the Centre of Indian Trade Unions (henceforth, CITU).

Commentary: The first phase represented the period of a state-driven industrialis-ation regime that had the government guide and often control the labour movement.The paradigm that dominated the capital-labour relationship was a paternalistic lab-our relations system that was premised on the belief that the ‘state knew’ more aboutworkers’ needs than did the workers themselves. In this way, the state appropriated

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and aggregated the various ‘union voices’ for the ‘collective’ purpose of rapid indus-trialisation with minimum industrial strife. In the public sector enterprises and ser-vices, internal labour markets generated social harmony if not economic efficiency.

Given the large number of statutes governing terms and general conditions ofemployment that was (and still are) in existence,4 it is clear that the governmentattempted to execute the ‘idea of a national minimum’. However, the ‘freedom tocontract’ between capital and labour was restricted and mediated/transacted throughthe state. In addition, the idea of planned industrialisation excluded from its charterthe basic premise of mature industrial pluralism that ‘regulated conflict’ can be bothproductive to the economy and fair to the involved parties.

The text in Indian labour discourse that best exemplifies this phase is that of Chat-terjee (1980), where the interaction between unions, politics and the state is analysedwithin a conceptual framework called ‘state pluralism’. The latter is defined as ‘asystem of interest representation in which there is an unlimited number of multipleand voluntary, non-hierarchical and self-determined groups not legitimate but toler-ated, with controlled competitiveness among them with particular groups receivinglegitimacy in an ad hoc manner’ (1980: 8). Pluralism was not a realistic possibility,and the Indian industrial relations system had to contend with what Chatterjee (1980)calls ‘partial resolution’ and ‘limited pluralism’, since the ‘contingencies of under-development rather than the authoritarian nature of the regime per se might makestate pluralism imperative’ (1980: 8).

The ‘state pluralism’ model allowed the government to minimise its ‘transactioncosts’ during this first phase. On the other hand, if one believes that mature industrialpluralism is an efficiency-enhancing system, one could then argue that the elaboratestructure of ‘state pluralism’, constructed to govern basically what could have beena relatively simple transaction between employer and union, would inevitably incurexcessive costs sooner or later. In the light of what transpired during the secondphase in terms of heightened industrial conflict (see below) the argument hassome validity.

During this first phase, few strategic choices were open to either unions oremployers as labour relations outcomes were over-determined by the state. Theinstitutional structures that facilitate efficient collective bargaining remainedunderdeveloped. The government’s attempts at developing participatory choices atthe small group level, through its legislated Work Committees (1947) and then laterthrough Joint Management Councils (1958), received at best lukewarm response fromboth management and unions (Venkataratnam, 1996).

Finally, union ‘voice’ effects were probably larger than its ‘monopoly’ effects, asboth unionisation and employment in the organised sector increased significantly(Bhattacherjee, 1999). In addition, given the phenomenal rise in the number of ‘regis-tered’ unions during this phase, one could argue that there were positive union spill-over effects on non-unionised labour markets.

The second phase of industrial relations (mid-1960s to 1979)The second phase of unionism corresponds with the 1967–69 Annual Plans, theFourth (1969–74) and the Fifth (1974–79) Five Year Plans. ‘The rate of inflation roseabove the politically sensitive danger-mark of 10 percent in 1966/67 and 1967/68and food price inflation was even higher (around 20 per cent)’ (Joshi and Little, 1994:48). Inflation worsened in 1973/74 and there were food riots in various states. Thisperiod is associated with overall industrial stagnation: between 1965 and 1975, theaverage annual rate of growth of total industrial production and of manufacturingoutput increased at only 3.6 per cent and 3.1 per cent respectively (Nayyar, 1981).Political economists posited various explanations for this period of industrial slow-

4 For a complete listing of all these statutes governing employment and employment security, seeAnnexure 1 in Mathur (1992).

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down: the deceleration in public investment, the unequal terms of trade betweenagriculture and industry, the inefficiencies of state regulation in the public sector,and changes in the structure of demand resulting from growing income inequalities(Nayyar, 1981). In addition, the economy suffered two oil price shocks, in 1973 andin 1978. It is during this phase that actual growth rates of industrial production werefar below plan targets (Ahluwalia, 1991).

While these explanations were probably all partly true, it is clear that the deceler-ation adversely affected the level of employment in the economy. Average annualgrowth rates in employment fell from 2.2 per cent during 1967–69 to 1.8 per cent forthe period 1974–79, and unemployment rates nearly doubled (Papola, 1994). Accord-ing to Ahluwalia’s (1992) data, comparing the period 1959/60 to 1965/66 with1965/66 to 1979/80, the following trends in productivity and growth (per cent peryear in manufacturing) occurred: employment fell, labour productivity fell from 4.9per cent to 1.4 per cent, as did both value added and total factor productivity.

These structural changes in the economy affected union activity, collective bar-gaining practices, and labour markets. As employment elasticities fell and labourmarkets got tighter, the number of disputes (strikes and lockouts), the number ofworkers involved in these disputes, as well as the number of mandays lost due tothese disputes, increased phenomenally between 1966 to 1974 (Sengupta, 1992). Newforms of protest, such as the ‘hartal’ (the go-slow), emerged during this second phaseoften resulting in considerable violence. In certain regions such as in West Bengal,these were used frequently and effectively, leading to considerable capital flight toother parts of the country.

Disillusionment with the INTUC’s internal practices and its ineffectiveness in rep-resenting union voice at the enterprise level led to the proliferation of unions affili-ated to more radical political organisations 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 this change in worker preferencestowards different ‘union-types’. One, a growing proportion of workers were post-1950 labour market entrants who were unlikely to have participated in the pre-independence labour struggles. Two (and probably more important), was the factthat the leadership of the radical unions (at this time) were mostly committed lawyersand student activists well-versed in the bureaucratic rites of the Indian industrialrelations system (Chatterjee, 1980) rather than political party-men. An analysis ofindustrial disputes by ‘union-types’ revealed that the number of disputes involving‘multiple unions’ increased during the earlier part of this phase (1966–73) comparedto the first phase (Bhattacherjee, 1987a: 57), reflecting the period of intense inter-union rivalry. These uncertainties within the union movement finally culminated inthe all-India May 1974 railway workers’ strike that shook the economy and the coun-try at the time.

During Mrs.Gandhi’s National Emergency of 1975–77 the right to strike was sus-pended, and the regime preempted bargaining on key issues, froze wage increases,reduced the minimum annual bonus, and transferred increments in the cost-of-livingallowance to a compulsory savings scheme (Rudolph and Rudolph, 1987). Twoimportant interventions took place in the industrial relations arena during thisregime. The first was the attempt by the government to establish the National ApexBody, composed of twelve union federations and eleven employer representatives,in order to encourage a bipartite approach to industrial relations. While on the sur-face this seemed more responsive to union preferences for voluntary collective bar-gaining, such appearances were illusory (Rudolph and Rudolph, 1987).

The second intervention was the 1976 amendment to the ID Act, that arose eitherfrom union pressure (unlikely during the Emergency!) and/or as a populist measure,which led to employment inflexibility: firms employing more than 300 workers hadto get (state) government permission before they could retrench workers. Needlessto say, government permission was seldom forthcoming. However, this apparentlypro-union measure had an unexpected effect: for the first time since independence,the number of mandays lost due to lockouts exceeded the number of days lost due to

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strikes since 1976 (Sengupta, 1992). During the post-Emergency regime of the Janatagovernment (1977–80), there was a change in the political climate but not muchrethinking on industrial relations reform (Sengupta, 1992). An attempt by the govern-ment to put forward an industrial relations bill, which among other things wantedto ban strikes and lockouts in essential industries and services, was met with stiffopposition from most unions and political parties.

The second phase saw significant changes in collective bargaining practices. TheID Act of 1947 did not provide for the compulsory recognition of a representativeunion as the sole bargaining agent, nor did it encourage or compel parties to bargainin good faith; more importantly, it did not provide a legal status to collective bar-gaining agreements. However, the 1965 amendment to the ID Act placed agreementsarrived at through conciliation and adjudication at a ‘higher legal footing’. Patil(1982) describes how employers and unions used the 1965 amendment to transformthe agreements into legal documents. First, coalition bargaining between multipleunions and employer takes place so as to arrive at a satisfactory settlement. In orderto convert the agreement into a legally binding document, conciliation is sought (notafter the failure of direct negotiations as in the first phase) after all parties reach anagreement during the process of coalition bargaining. The terms of the agreementare now signed in the presence of the conciliation officer, thereby making the contractlegally binding to all parties.

The states can add their own labour legislation to the central labour statutes(‘labour is a concurrent subject in India’), and in the early 1970s, Maharashtra,Gujerat, Rajasthan and Madhya Pradesh enacted their own laws regarding unionrecognition (Mathur, 1992: 48). In Maharashtra, the state passed the MaharashtraRecognition of Trade Unions and Prevention of Unfair Labour Practices Act thatbecame effective from 1975. Not to bargain with the (now-defined) representativeunion became an unfair labour practice under this act.

In terms of wage dynamics in urban labour markets, the second phase was markedby significant changes as well. While the evidence suggested declining, or at beststationary, real wages during the first phase of unionism with unions having littleeffect on wage increases (Chatterjee, 1980), Madan (1977) pointed out that the wagedata used in these earlier studies suffered from a serious downward-bias as itreferred to a restricted category of ‘low paid’ workers. Using the wage data fromthe Annual Survey of Industries (‘all workers’) he found that real wages of manufac-turing workers did in fact increase since the early 1970s; in addition, he also showedthat the proportion of ‘low paid’ workers to ‘all workers’ had declined during thesecond phase. This hypothesis finds further support in the two papers by Tulpuleand Datta (1988; 1989), that found evidence of real wage gains since the late 1970seven though there were substantial variation across industries.

It could be hypothesised that since the mid-1970s, segments within the unionmovement shifted their goals from those of right to those of interest. This distinctionroughly corresponds with the value unions place on centralised lobbying (rights) vis-a-vis decentralised collective bargaining (interests). There are various factors thatconditioned such a shift (and these become apparent during the third phase). Someof the key factors were: (a) uneven development of firms within an industry, as wellas spreading inter-industry differentiation, led to some sites being more profitablethan others. Unions in these sectors exploited the increased ‘capacity to pay’ duringbargaining, while unions in the declining sectors had no such opportunity; (b) work-ers and their unions in the profitable sites were aware of their firm’s financial per-formance through their informed bargaining practices and/or through management’swillingness to share this information more readily with unions, and (c) workers inthese units realised that the leadership in many of the traditional party-based unionswere averse to intense decentralised bargaining, due in part to their party commit-ments and their more national concerns.

These fractures within the union movement had serious implications for sustainingsolidarity across the entire labour movement. A pessimistic variant of neo-institutional analysis of labour unions and collective action (Olson, 1971) can partly

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explain the above difficulties. According to this ‘logic of collective action’, theassumption of rationality and self-interested behaviour on the part of individuals donot 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 thegroup therefore have a common interest in obtaining this collective benefit, they haveno common interest in paying the cost of providing that collective good’ (Olson, 1971:21). In our context, this ‘cost’ of obtaining collective benefits has become different forthe various segments within the union movement. To the extent these ‘costs’ becomesimilar across certain sectors with the onset of the liberalisation process (especiallythose sectors facing closure, privatisation, and restructuring), there will be fewer bar-riers for the union movement in acting as an all encompassing organisation accordingto the above logic.

Commentary: The second phase reflected two crises: one, a crisis of accumulation inindustry under the state-led industrialisation regime, and two, a crisis of legitimacyof the ‘state pluralism’ model in the industrial relations system. This mode of regu-lation precipitated the fractionalisation within the union movement as well as withincapital; indeed, the growth of the left unions reflected alternate voices, and in manycases, employers found them easier to deal with in spite of their greater militancy.The Emergency Regime represented a failed attempt by the state to impose fromabove a Latin American-type of corporatism in labour-management relations.Whereas in the growth sectors, the labour-management relationship increasinglyturned to an informed decentralised bargaining mode, in the declining sectors, thegovernment and the large centralised unions found themselves enmeshed in the webof the ‘state pluralism’ mode.

Rudolph and Rudolph (1987) characterised the Indian industrial relations regimeas one of state domination and ‘involuted pluralism’, using the term ‘as a metaphorfor a decline or loss of vigor that results from a replication of units whose increasein number is accompanied by a decline in effectiveness’ (1987: 269). They refer tothe massive multiplicity of unions in India: in 1950/51 there were 2002 registeredunions, whereas in 1979 there were 10,021 such unions, all this while the averagesize of these unions increased only marginally (Bhattacherjee, 1999). According tothem, this ‘debilitating process’ tends towards entropy, so that even though unionsincrease in number, union density keeps falling. Organised labour has not been ableto challenge India’s centrist ideology and politics and to mount or support a leftclass party (Rudolph and Rudolph, 1987: 259).

From an neo-institutional perspective, one could argue that changes in collectivebargaining practices in the growth sectors of the economy represented attempts byboth unions and capital to arrive at new governance and institutional structures soas to minimise transaction costs. The fractionalisation of unions into smaller groupscould then be interpreted as an efficient solution to organisation in a changed econ-omic environment. In the public sector sites, economic crises created considerableuncertainties in erstwhile stable internal labour markets. In terms of industrialrelations strategy, employers and unions in the growth sectors maneuvered withsome strategic choices at their disposal.

Towards the end of this phase it became apparent that there were some troublingunion ‘monopoly’ effects, especially in the public sector. Public sector employeesreceived considerable fringe benefits that were administered in relatively insulatedinternal labour markets, whereas in the private sector, unions had to intenselybargain over any such benefits in a competitive economic environment. Inflexiblecontract provisions, especially those relating to deployment and retraining and toseniority rules, increased costs substantially in the public sector. Overall, fracturedunion ‘voices’ searched for a collective mode of expression as this second phasewitnessed maximum industrial strife (compared to the other three phases) both interms of the number of disputes and the number of workers involved(Bhattacherjee, 1999).

Indian industrial relations 253 Blackwell Publishers Ltd. 2001.

The third phase of industrial relations (1980–1991)

This phase corresponds to the Sixth (1980–85) and the Seventh (1985–90) Five YearPlans, as well as the two Annual Plans (1990–92). Whereas the average annual growthrates during this decade was around 5.7 per cent, employment grew at only around1.8 per cent (Papola, 1994). Employment elasticities in major sectors, especially inservices, fell drastically during this time (Papola, 1994). In terms of Joshi and Little’s(1994) analysis, this third phase corresponds to two distinct sub-periods: 1979/80 to1984/85 and 1985/86 to 1990/91.5 During the first part, the economy suffered fromsevere internal and external shocks. One of the worst droughts since independenceoccurred in 1979, there was trouble in the northeast, the recession in 1980/81, risinginflation, and increasing oil import bills. All this led to a balance of payments crisisand then to the massive IMF loan. In May 1984, India terminated the program (Joshiand Little, 1994). This period was also turbulent on the political front with Mrs.Gandhi’s return to power in 1980 and then her assassination in 1984.

The second part of this phase is associated with Rajiv Gandhi’s economic liberalis-ation measures. The economy moved away from an import-substituting inward-looking growth strategy towards strategies that encouraged both export promotionand domestic competition. This was bought about by partial industrial and importderegulation, financial liberalisation, exchange rate policy, taxation, and throughexport incentives (Joshi and Little, 1994). After 1988, the country experienced severeunrest and political instability as several governments collapsed. India was now fac-ing a full-scale macroeconomic crisis. The economic situation was dismal, and ‘thenew government moved swiftly and announced a program of macroeconomic stabil-ization and structural adjustment’ (Joshi and Little, 1994: 67).

The macroeconomic changes during this phase had profound effects on the polit-ical economy of trade unionism, labour markets, and on the structure of industrialrelations. On the union front, this phase starts off with the massive public sectorstrike in Bangalore during 1980/81 which involved giants of Indian public sectorenterprises (Bhattacherjee, 1999). The more significant event that marked the firstpart of this phase was the much-documented Bombay textile strike of 1982 (Pendse,1981; Bhattacherjee, 1988; 1989). What started as a wage and bonus issue in a fewmills in late-1981, soon developed into an industry-wide strike that ultimately wenton to become the longest strike in post-independence labour history. The strike wasessentially about rank-and-file frustration with the 1947 Bombay Industrial RelationsAct, which had imposed an industry-wide bargaining structure with an unrepresent-ative union (affiliated to the INTUC) as the sole bargaining agent of workers. Afterthe internal differentiation within the mills during the mid-1970s, workers wantedgreater voice and control in determining their labour market and industrial relationsoutcomes at the level of the individual mills. Workers approached Datta Samant tolead their struggle: his main project was to form and lead an ‘independent’ unionmovement in Western India.

The textile strike ended in a whimper in late 1983. Many workers returned totheir villages, many lives were destroyed, employers restructured their mills in theadvanced textile sector, and the credibility of the government-installed union in theindustry declined to levels from which it could never recover (Bhattacherjee, 1988).Evidence from the immediate post-strike period seemed to suggest that workers andunions, at least in the better-off and profitable mills, negotiated their owndecentralised bargaining agreements (Bhattacherjee, 1989). After Samant formed theKamgar Aghadi Party and actually won a few seats in parliament in late 1984, manycommentators felt that this was a new and encouraging beginning for the unionmovement in India.

A defining feature of this phase is the rise and proliferation of ‘independent’ unionsoperating in the major industrial centres and competing with the traditional party-affiliated unions. In Bombay for example, the decline of the left unions is partly due

5 The discussion of macroeconomic trends for this phase relies heavily on Joshi and Little (1994).

254 Industrial Relations Journal Blackwell Publishers Ltd. 2001.

to their general opposition to decentralised bargaining (Pendse, 1981). Segmentedand uneven developments in the industrial sector tied workers’ earnings to the for-tunes of the plant in which they were employed. An analysis of plant-level contractsfrom the Greater Bombay-Thane industrial corridor revealed that, ceteris paribus, the‘independent’ unions delivered a higher wage and fringe package than did the affili-ated unions during the beginning of this phase (Bhattacherjee, 1987b). In a numberof multinationals, workers with their ‘independent’ unions exerted considerable con-trol over the labour relations process, often more than their counterparts in the hostcountry (see the example of Phillips in Banaji and Hensman, 1990).

In the late 1970s there was a phenomenal rise in the number of disputes led byunaffiliated unions and the importance of politically affiliated unions declined(Bhattacherjee, 1987a). The ratio of registered unions that ‘submit returns’ (abouttheir membership size) to the total number of registered unions fell sharply from 60per cent in 1962 to 21 per cent in 1974 to 13 per cent in 1982 (Bhattacherjee and DattaChaudhuri, 1994a: 70). This would support the hypothesis of the rise of ‘independent’unionism if the total number of registered unions that ‘submit returns’ proxies thetraditional party-affiliated unions.6 By 1989, the Labour Ministry listed nine majorunion federations and a number of small independent unions in their registry (DattaChaudhuri, 1992).

Finally, this phase is marked with increasing inter-state and inter-city variationsin the nature of labour-management relations.7 In a study of union-managementrelations in four Indian cities, Ramaswamy (1988) found significant inter-citydifferences in the texture of the labour-management relationship. According to Rama-swamy (1988: 17), ‘The driving force of the Bombay labour movement are unionleaders who disclaim allegiance to political parties and their trade union federations.What we find here is the most evolved Indian version of business trade unionism’,and ‘the city has witnessed the steady decline, if not eclipse into oblivion, of ideologi-cal trade unionism’. This clearly has something to do with the fact that private andmultinational firms dominate Mumbai’s urban economy.

In sharp contrast is the case of Calcutta, where a highly politicised industrialrelations regime prevails with the dominant union federation (the CITU) under theclose watch of its parent communist party. This has created considerable inflexi-bilities for management, and has partly inhibited the growth of independent union-ism. Bangalore, a city where both private and public sector enterprises thrive,especially those in the information technology industry, has witnessed the rise ofplant and firm-based unions. These inter-city differences, attributable no doubt todifferent political, social, and urban histories, emphatically suggests the inherent dif-ficulties in trying to generalise about an ‘Indian’ labour relations system.

Changes in union structure together with macroeconomic developments consider-ably affected both employment and the wage structure. Between 1980/81 to 1988/89,while employment growth declined, the capital-labour ratio and labour productivityincreased at 8 per cent and 7.5 per cent per year respectively (Ahluwalia, 1992).According to Ghose (1992: 95), ‘(the) most striking fact is that the 80s have been thebest decade in terms of economic growth but the worst decade in terms of employ-ment generation’. Moreover, employment growth decelerated in all sectors of theeconomy and open unemployment increased in the 1980s (Ghose, 1992). The searchfor labour market flexibility in Indian manufacturing led labour-intensive firms and

6 Trade union membership data in India is notoriously unreliable, as there is a politics to its collectionand presentation. In addition, the only union membership data that are available are from thoseunions that submit returns. Assuming that these are the large, centralised, politically-affiliated unions,and assuming that the biases do not change significantly over the years, Bhattacherjee and DattaChaudhuri (1994a) estimated trade union growth for the period 1962–84. Some of their findings were:increased money wages increased union membership (but not so for real wages), the unemploymentrate negatively affected union membership, and union density (of unions that submit returns) nega-tively affected membership growth.7 For an analysis of labour contracts that uses ‘region’ as a proxy for union and employer preferencesfor the type of bargaining structure, see Bhattacherjee (1992).

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those engaged in the production of consumer non-durables to subcontract and out-source their production to the unorganised sectors (Ramaswamy, 1999).

Unions in the more profitable sectors (often ‘independent’ unions) managed tosecure a part of these productivity increases through militant bargaining and/or bysigning generous productivity bargains that contained effective incentive structures.This resulted in slower employment growth. In the relatively unorganised and in theless profitable sites, workers and unions lost out. While organised sector employmentas a percentage of total employment in manufacturing fell from 24.5 percent in1972/73 to 17.4 per cent in 1987/88, real wages of workers and ‘other employees’ inorganised manufacturing increased at a rate of 5.8 per cent and 4.1 per cent during1983–86 respectively, whereas, ‘low-paid’ workers actually suffered declining realwages (Ghose, 1992: 97). As the union wage effect increased in the profitable sitesduring 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 play arole in slowing employment creation (Ahluwalia, 1992).

Bhattacherjee and Datta-Chaudhuri (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 1980s, andemployers could lower wages by imposing lockouts. In terms of union structure,‘low paid’ workers gained as unions submitting returns (the proxy for traditionalunions) increased their dominance, whereas ‘high paid’ workers gained as registeredunions not submitting returns (the proxy for plant-specific unions) increased theirdominance. The traditional unions, predominant in the older industries, provided anoverall protection to its membership as long as these industries grew. As theydeclined, 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 andcould no longer count on the traditional ‘wage-welfare’ functions provided by thepolitical party-based unions. Workers in this segment will find it difficult to formstrong plant-specific unions due to the increasing instability in their product markets’(Bhattacherjee and Datta Chaudhuri, 1994b: 459).

Jose (1992) found that the 1980s was associated with deceleration in employmentgrowth with rising productivity levels, especially in the high wage sectors, and itwas this productivity that brought about the modest increase in real earnings in thehigh wage sectors. These findings seem to fit with the characterisation of differenttypes of union dominating these two labour markets since the early 1980s. Jose (1992)maintains that technological change led to the rise in wages and productivity, insharp contrast to other analysts who inverted the hypothesis to argue that unionmilitancy and higher wages resulted in technological changes that subsequently leda decline in employment. Others have argued that earnings increased primarily asa result of an increase in working hours (Nagaraj, 1994).

Labour researchers towards the end of this third phase focused on employmentinflexibilities embedded in the ID Act (Mathur, 1992). The 1982 amendment of theID Act provided that a firm employing more than 100 workers (reduced from morethan 300) needed permission from the get state government permission to layoff orretrench workers. Fallon and Lucas (1991) showed how employment would havebeen higher in several sectors without the 1976 and 1982 amendments. Mathur (1992)recommended that the sections pertaining to prior permission for layoff, retrench-ment or closure be deleted.

To remedy the limitations of the ID Act and the Trade Union Act a number ofchanges were proposed in The Trade Unions and Industrial Disputes (Amendment)Bill, 1988 (Mathur, 1992). The proposed changes would reduce the fragmentation andmultiplicity of unions, clearly define the bargaining agent by providing for the secretballot provision, promote internal leadership, set up state-level industrial relationstribunals, force employers to set up all-encompassing bargaining councils so as tofacilitate internal grievance settlement, and so on. After considerable debate however

256 Industrial Relations Journal Blackwell Publishers Ltd. 2001.

the bill was rejected because of the controversy over the definition of ‘industry’(Mathur, 1992: 50).

Commentary: One way to distinguish between unions is to look at the argumentsthat they attempt to maximise at the micro level (Bhattacherjee and Datta Chaudhuri,1994b). Given the level of demand for unionised labour, unions like employers, facea wage-employment trade-off during contract negotiations. The situation that pre-vailed during the third phase, and continues to prevail, can be characterised in thefollowing way. There are two types of unions: those that are ‘altruistic’ and thosethat are ‘selfish’. Given a choice between wage increases and an increase in employ-ment, the ‘altruistic’ unions choose the latter, as membership is the crucial argumentto be maximised; consequently, their bargaining strength is positively related to theirsize. One can think of the large and established national union federations that arealso typically affiliated to political parties, as approximating this type of union behav-iour. On the other hand, ‘selfish’ unions are interested in maximising the wage billof only those already employed in the particular enterprise, and confronted withthe trade-off, opt for wage increases. In this case, small is powerful. The so-called‘independent’ unions seem to approximate the latter. It is clear why the ‘selfish’unions would have a higher propensity to sign ‘productivity bargains’ than the ‘altru-istic’ unions; for the latter, ‘productivity bargains’ cut at their very source of strength,i.e., growing union membership.

In terms of the ‘monopoly’ versus ‘collective voice’ framework, the labour marketevidence from this phase seems to suggest that some monopoly effects dominatedover voice effects, and that the proliferation of ‘selfish’ unions and their micro-economic success may have created negative spillover effects on unorganised labourmarkets. In the private corporate sector, firms attempted ‘efficiency wage’ strategies,usually with the cooperation of unions, often changing the nature of plant-levelunions in the process. In public sector internal labour markets, unions often gotinvolved in unproductive activities. The importance of concepts such as internalgovernance structures of unions and their effects on efficiency and fairness acquireincreased relevance during this third phase.

In terms of industrial relations strategy, the actors had more options than beforeand one could even suggest that segments within the economy operated with theirown strategy insulated from outside forces. Effective ‘gainsharing’ resulted fromefficient bargaining in some sectors, whereas in the unorganised sectors, the not-so-invisible hand of a free market regime prevailed. Once more, attempts at seriousreform of industrial relations laws (i.e., the Ramanujam Committee Report and itsaftermath) came to a predictable grinding halt.

The fourth phase of industrial relations (1992–2000)In June 1991, the ruling minority government decided to adopt the World Bank-IMF’s stabilisation and structural adjustment program. The rupee was devaluedtwice, import quotas were reduced, tariffs were lowered, state monopoly on exportsand imports ended and a statement on industrial policy aimed at lowering the fiscaldeficit was presented (Mathur, 1993). 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 per cent during thefirst five years of the reforms (1992–96). The tertiary sector grew the fastest in the1990s at about 6.8 per cent per year. The economy become considerably more openthan ever before. There was some apprehension that government expenditure on thesocial sector would decline significantly, but Nagaraj (1997) found that social spend-ing did not suffer; most of the cuts took place in defense and economic services.Again, contrary to earlier expectations, investment performance in India actuallyimproved since the reforms, with private corporate businesses emerging as the econ-omy’s ‘leading sector’ since the reforms. Even though public investment witnesseddeep cuts since the reform, ‘public sector output growth and profitability improved’

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suggesting better resource utilisation (1997: 2876). Nagaraj (1997: 2877) concludes: ‘Insum, the good news (so far) is that there is no major, unqualified, bad news’. Finally,transnational corporations reacted favourably to the new economic policy in termsof its entry and growth (Chaudhuri, 1995).8

The available data seem to suggest that the initial impact of economic reform hasled to an increase in rural poverty and a decline in urban poverty; in fact, urbanpoverty was lower in 1993–94 than in any pre-reform year (Sen, 1996). On theemployment front, Deshpande and Deshpande (1996) found that although the initialstabilisation years took some toll of organised manufacturing employment, the sub-sequent structural adjustment process led to employment growth at around 2.3 percent between 1992/93 and 1994/95. If this rate continues for the next few years, thelatter authors are of the view that ‘employment in the factory sector would be about12 per cent higher at the turn of the century than in 1990/91’ (1996: 18). More recentevidence suggests that employment growth in the organised manufacturing sectorfrom 1990–91 to 1997–98 was on average 2.6 per cent per year, and that this growthwas due to two factors: (i) the growth of small and medium firms, and (ii) the slow-down 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 organised manufacturing and given theunlikely expansion of employment in the public sector, it is quite evident that a ’largemajority of the nearly 80 million persons who will join the labour force during 1999–2000 will have to find work as self-employed or casual workers’ (Visaria and Minhas,1991: 978). In terms of the impact of economic reforms on female employment, bothDeshpande and Deshpande (1992) and Banerjee (1997) are of the view that femaleunemployment may reduce but the quality of jobs on offer will be low-wage jobs insecondary labour markets. All these post-reform labour market outcomes point todifficult times for the union movement in India.

One of the primary objectives of the economic reform package has been the restruc-turing or closing down of public sector enterprises that are unprofitable and are largedrains on the public exchequer. These enterprises were given the freedom to reducetheir excess human resources through Voluntary Retirement Schemes (VRS) assistedthrough 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 providingassistance to cover the costs of retraining and redeployment of employees resultingfrom modernisation, technological upgradation, industrial restructuring, and possibleclosure. The present government dissolved the NRF and entrusted the corpus to theindustry ministry. The money under the fund will now be given to the public sectorenterprises directly by the ministry. More recently, the government has announceda ‘golden handshake scheme’ for both profitable and loss-making enterprises.

While recruitment was all but stalled (especially at lower levels) in the public sec-tor, the government also froze the centralised wage bargaining process for the firstfew years after 1992. It opened the negotiation process subsequently and attemptedto decentralise the bargaining process by announcing that any wage increase willhave to be absorbed by the specific enterprise as these increases now cannot bepassed on to final output prices (as they used to be earlier). In other words, the newpolicy clearly stated that any additional wage burden will not receive budgetarysupport (Venkataratnam, 1996).

The need for tripartite consultation relating to the various issues concerning labourmatters under economic reform was clearly felt during the initial years and manysuch meetings were carried out. Mathur (1993) documented the experience of consul-tation during the early phase of structural adjustment in India (1990–92), and sug-gested that unions had ‘serious misgivings about the adequacy of consultation at(the) industrial or enterprise level’. In the private sector, economic restructuringarrangements led to an increase in managerial flexibility through all sorts of new

8 The gross inflow of foreign direct investment rose from Rs.5.3 billion in 1991 to Rs.141.9 billion in1994 (Chaudhuri, 1995).

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contract provisions: ban on recruitment, job transfers to non-bargainable category,introduction of parallel production, mergers, suspension of industrial action for aperiod of five years, concession bargaining (Venkataratnam, 1996).

On the other hand, it is during this phase that the public becomes acutely aware(thanks to the media) that unions in India today represent a declining ‘sectionalinterest group’. Bhaduri and Nayyar (1996: 139) point this out in no uncertain terms:‘The government also needs to protect consumers against sectional interests of manyunrepresentative trade unions. While the trade union rights of workers must also berespected in any democracy, the government must also ensure, perhaps through sec-ret ballot, that no unrepresentative union harasses ordinary consumers’. Union mem-bership as a percentage of non-agricultural labour dropped from 6.6 per cent in 1985to 5.5 per cent in 1995, and union membership as a percentage of formal sectorworkers declined from 26.5 per cent to 22.8 per cent. At the same time however,India looses more days annually as a result of strikes and lockouts than any othercountry (ILO, 1997/98).

On October 1999 the government set up the second National Labour Commission(the first NLC was set up 30 years ago). The terms of reference lay down that thecommission should suggest rationalisation of existing labour laws in the organisedsector and recommend an ‘umbrella’ legislation to ensure minimum protection forunorganised workers. The commission will have a two-year term and will compriseof representatives from government, unions, and industry. Unions feel that there islittle 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. Forexample, the proposal to relax contract labour laws so as to generate more jobs oncontract for the unorganised sector is interpreted by unions as a move to undercutpermanent unionised jobs. More recently, proposed changes in the ID Act will makeit difficult for unions to call wildcat strikes and to include ‘outsiders’ into their execu-tive bodies. While the initial workings of this NLC is now under critical scrutiny(Venkataratnam, 2000), there is no doubt that labour laws that govern employmentsecurity and collective bargaining need to be urgently rationalised. According to Sen-gupta and Sett (2000: 152), the only real hope lies in the formation of an IndustrialRelations Commission, a high-powered statutory body independent of politicalinfluence, that will be made responsible for conciliation and adjudication of industrialdisputes as well as for granting of bargaining agent status to recognised unions indifferent bargaining units. However, cleavages and differences within the centralisedunions, the political parties, and state governments, have indefinitely delayed thepassage of these much-required labour law reforms. A lack of consensus, and polit-ical instability at the centre (in terms of several coalition governments being unableto complete their full terms) since 1992, has led to an inertia in the political willrequired to carry out these reforms.

A negative fall out of this inability to arrive at a national consensus on labourmarket reform are the effects of heightened inter-state competition to attract foreignand local capital on regional labour markets and labour relations in general. Duringthe post-reform period, the states have performed at significantly varying rates(Ahluwalia, 2000) and both national and international capital flows have created newindustrial geographies (Shaw, 1999). In response, the states may attempt the ‘levelingdown’ of their labour market institutions by offering several incentives to employers.As these divergent trends will make it increasingly difficult for the centralised unionfederations to act on a national level, it is in their immediate interest to press forindustrial relations reform.

Commentary: In terms of labour market and industrial relations reforms, continuingeconomic liberalisation will lead to greater employment flexibility, a movementtowards greater decentralisation in bargaining (especially in the public sectorenterprises) and lesser governmental intervention in the bargaining process, fewerstrikes, and a possible halt to the cleavages within the union movement. From thepositive side, all this could imply more employment, and a more efficient union

Indian industrial relations 259 Blackwell Publishers Ltd. 2001.

voice developing both at the micro and macro-level with industrial pluralism beingstrengthened. On the negative side, the proposed reforms could lead to an increasein managerial power and accelerate the growth of the non-union sector both leadingto a decline in the power of organised labour. While at the micro-level, unions of allpolitical hues are cooperating with management in the economic restructuring pro-cess (often, because they have no other choice), at the macro-level, the labour move-ment has been critical of the globalisation and reform process.

ConclusionsIndia’s experience with the setting up of labour institutions that are compatible withpluralistic industrial relations has been mixed. Though the government kept extollingthe virtues of industrial pluralism and bilateral bargaining during the early years,the institutions within which all this was to take place were largely controlled bythe state. This ‘state-dominated’ pluralism, coupled with ambiguous labour lawsregarding union recognition and ‘industrial disputes’, eventually led to the multi-plicity of party-based unions that weakened the political power of the labour move-ment as a whole, although in some strategic sites in the public sector, centralisedunions had considerable bargaining power. Though unions could impose severe coststo the economy in key sectors, the labour movement was not strong enough toimpose a cooperative solution at the national level. The latter continues to be truetoday.

With the opening up of the economy, competitive forces affected the structure ofthe union movement. In several enterprises in the private sector, ‘independent’rank-and-file led unions came into existence and engaged in informed and militantbargaining with employers, securing substantial wage and non-wage gains in theprocess. As these unions ‘traded off’ increased wages at the cost of employmentgrowth, and as employers shifted to ‘outsourcing’ to non-union sites, the traditionalparty-based unions found their potential recruitment terrain both challenged andcurtailed. More recently, since the liberalisation process officially began in 1992, manyof these centralised party-based unions have frequently united under a common frontto resist government’s attempt at both privatisation and decentralisation in the pub-lic sector.

In terms of the ‘monopoly’ versus ‘voice’ framework, the years after independencewitnessed the state acting as the ‘collective voice’ of workers for the purpose of rapidindustrialisation with minimum industrial strife. Potential ‘monopoly’ effects wereminimised, especially in the growing public sector enterprises where wage and work-ing condition outcomes were administered rather than collectively negotiated. Animplicit ‘incomes policy’ kept the ‘union wage markup’ in check. With time, as bothinter and intra industry differentiation began to take place, especially in private sectorfirms, more radical union ‘voices’ emerged and effectively challenged the state’s holdover the labour movement. In the private sector, efficient ‘productivity bargaining’with informed unions kept ‘monopoly’ effects within the firm in check while ‘voice’effects increased. In the public sector enterprises and service sites, union ‘voice’ overtime led to rigid and inflexible contract provisions, and with pay increases beingunrelated to increases in productivity, union ‘monopoly’ effects increased.

Kuruvilla and Venkataratnam (1996) characterise Indian industrial relations as a‘politicised multi-union model’, where organised workers are protected at the costof workplace flexibility and efficiency. The above historical analysis suggests thatwhile this characterisation possibly describes the first two phases of industrialrelations, it does not capture the complexities and nuances of the latter two phases.I have taken up Erickson and Kuruvilla’s (1998: 19) invitation to “research the extentand determinants of ‘incremental’ versus ‘discontinuous change’ in national indus-trial relations” in the Indian case. My findings suggest that the evolution of industrialrelations institutions in India has been incremental and adaptive. Change has beendriven more by the endogenous forces of party politics, government policy, classsegmentation, demography and geography, rather than simply by the exogenous

260 Industrial Relations Journal Blackwell Publishers Ltd. 2001.

forces of globalisation or by the functional requirements of a particular industrialis-ation strategy. Comparative industrial relations discourse needs to pay more atten-tion to the historical-specificities within the nation state in order to achieve an accept-able alignment between theory and reality. One concrete corrective could be tocompare India with China (or Mexico or Brazil), rather than with the small and verydifferent economies of East and Southeast Asia.

Acknowledgements

Some of the ideas in this paper were earlier presented in various forms at the 11thand 12th World Congresses of the IIRA at Bologna (1998) and Tokyo (2000) respect-ively, and in a seminar at the School of Industrial and Labor Relations, Cornell Uni-versity (1999) while I was a Visiting Fulbright Fellow. I am grateful to two anony-mous referees, Annapurna Shaw and Pam Arksey for comments, and also thankSarosh Kuruvilla, A. V. Jose, and P. K. Sett for discussions.

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