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Why India Inc prefers contract labour?
Mon, 20 Jun Pre-Open

The recent labour strike at Maruti's Manesar factory had grabbed extensive media attention. After a stalemate between the 2,000 labourers and the company's management for 13 long days, the strike came to an end when the latter relented. In the meanwhile the company incurred a production loss of 12,600 cars which in turn caused a revenue loss of Rs 4.2 bn. Now, the strike is over and workers have said that they would work overtime to compensate for the time lost.

However, the issue does force you to look at the larger landscape and the changing dynamics of labour in India. To give you some ground facts, the number of labour strikes have actually been on a declining trend. If you rewind back to 2005, the year had witnessed as many as 227 labour strikes. Compare that with just 79 in 2010. The contrasting fact is that though the number of strikes have been on a decline, the ones that occur are usually more intense and include a large mass of workers. While about 1.38 lakh workers went on strike in 2001, the number shot up to 3.06 lakh in 2008.

What has caused the number of strikes to go down? Though there are several reasons for this, one important factor has been the hiring of contract labour as against permanent labour. You would be surprised to know that 85% of Maruti's workforce comprises contract labour. You may very well know that contract workers are actually indirect workers who are hired by a company for a specific work for a given duration. They are paid wages by the labour contractor and not the company itself. The company keeps the number of permanent workers to a minimum.

What has led companies to resort to such contractual hiring? Apart from the aim to curb unionisation of labour, the other major factor is the stickiness of labour laws in India. For instance, under the Industrial Dispute Act, a firm which employs over 100 workers cannot retrench a permanent worker without government permission. No wonder the companies are far more comfortable hiring contractual workers. In times of an economic slowdown, it gives them the freedom and the flexibility to downsize the workforce if the situation calls for such a step.

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