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The Evolution of Indian Industrial

Relations: A Comparative

Article in Industrial Relations Journal September 2001

DOI: 10.1111/1468-2338.00196


22 3,745

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Debashish Bhattacherjee
Indian Institute of Management Calcutta


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Industrial Relations Journal 32:3
ISSN 0019-8692

The evolution of Indian

industrial relations: A
comparative perspective
Debashish Bhattacherjee
This article examines the evolution of Indian industrial
relations in an historical and structural context. In India, the
evolution of industrial relations has been incremental and
adaptive and not discontinuous and revolutionary. The
relationship between changing industrialisation strategies
and industrial relations institutions and practices in India is
considerably more subtle than is often supposed in compara-
tive industrial relations narratives, especially when detailed
endogenous political economy considerations are taken into

In an important theoretical paper, Erickson and Kuruvilla (1998) examine the many
meanings of industrial relations system transformation. They discuss the various
definitions and aspects used in the literature to identify and characterise this
transformation. The authors not only distinguish between transformation and non-
fundamental change, but also sharply differentiate between incremental
(evolutionary or adaptive) and discontinuous (revolutionary or punctuated
equilibrium) change. Discontinuous change occurs only when there are fundamental
changes 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 nature
of 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 binding
constraint in Asian industrial relations, primarily as a result of recent globalisation,
has changed from one of maintaining labour peace and stability to one of enhancing
competition through increased labour market flexibility. With reference to India, the

Debashish Bhattacherjee is Professor, Human Resources Group, Indian Institute of Management


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

244 Industrial Relations Journal

authors contend that there has been genuine transformation in industrial relations
according 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 and
complex country like India, where economy, polity and history are inextricably
linked, 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 have
taken place gradually due to endogenous inner contradictions embedded within
Indias political economy. In order to identify these contradictions, this paper under-
takes a historical-structural approach in what I call the four phases of industrial
relations in India. The latter traces the effects of distinct macroeconomic shifts on
the structure of the labour market (productivity, employment, earnings) as well as
on the structure of industrial relations (unions and the political process, collective
bargaining practices, labour legislation, industrial conflict, employer strategies, state
intervention). These effects in turn have consequences on the future growth pattern
of the economy. I show that the relationship between changing industrialisation stra-
tegies and industrial relations institutions and practices in India is considerably more
subtle than is often supposed in comparative industrial relations narratives
(Kuruvilla, 1996).1
There are two important propositions within which this essay is anchored. The first
is that the evolution of labour institutions is determined by the objective interests of
social 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 the
state, keep playing the parts assigned to them. The second proposition is that no
single approach to the study of labor organization is at present adequatewhich is
to say that the study of these matters is usually informed from several points of
view (Williamson, 1985: 241).
The organisation of the paper below is as follows. The next section provides a
comparative framework by examining a few propositions regarding industrial
relations institutions and economic performance. This is followed by an extended
discussion of the four phases of industrial relations in India. Finally, the concluding
section summarises the paper and makes a few comments about theory and reality
in comparative industrial relations discourse in the Indian context.

Economic performance and industrial relations institutions: a

comparative perspective
It is clear that the policy charter of the collective voice view of labour relations is
premised on pluralistic democratic principles, enlightened managerialism, and
responsible unionism (Freeman and Medoff, 1984; Turnbull, 1991). The critical
assumptions/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) a
procedural environment, which implies the existence of unambiguous labour laws
that are fairly implemented, and where there exists some symmetry among adver-
saries bargaining resources, and finally, (e) a trust in neutral third party arbitration
when confronted with labour relations impasses. According to Williamson (1985:
241), the institution of arbitration lies at the core of industrial pluralism. The basic
premise of pluralist bargaining is that interest group conflict, when played out within
such an institutional framework, approximates the public interest. In the next section

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

Blackwell Publishers Ltd. 2001. Indian industrial relations 245

I explore the extent to which these assumptions and beliefs of pluralistic industrial
relations actually evolved in India, and show how pluralism in industrial relations
itself changed as structural transformation took place in the political economy.
It is now but a truism to suggest that economic performance is related to the
nature 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 two
key variables that the literature frequently cites as determining this rate of economic
performance 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 traced
a humpbacked curve between the degree of militancy of union wage demands and
the degree of centralisation of bargaining. That is, economies with decentralised
(enterprise-based unions bargaining at the plant level) and centralised (national-level
agreements with centralised unions) bargaining structures performed better than
those at the middle level of centralisation (industry-wide agreements with industry-
wide unions). Market competition keeps wage demands in check in decentralised
regimes, whereas in the centralised regimes, greater power is balanced against
greater risk that wage gains may trigger price inflation which in turn will erode those
nominal gains. It is at the industry level of bargaining, with its accompanying market-
insulating features, where high degrees of union militancy is generated, which in
turn leads to macroeconomic inefficiency. Given mark-up pricing in concentrated
product markets, higher union-won wage gains are shifted to final consumers with
the rank-and-file protected by generous indexation clauses. Put another way, union
voice effects seem to be large under centralised bargaining structures, whereas
union monopoly effects seem to be the largest at the industry-level. This is the
famous Calmfors-Driffill relationship, with its finding that the extent of labour-
management cooperation is determined significantly by the degree of centralisation
of its bargaining institutions. The industrial relations strategic choice literature also
suggested that economies that had dense activities at the workplace and at the macro
level were considerably more flexible than economies that had concentrated its activi-
ties at the middle level associated with unions, collective bargaining and personnel
policy (Kochan et al., 1984).
Does this curve have any significance for developing countries on the economic
reform traverse? If we map the findings from the Horton et al. (1991) study (of twelve
developing country labour markets during their reform process) on to this curve,
we find that the successful East Asian pattern of adjustment fits closely with the
decentralised extreme, whereas, both the partial adjustment case of Brazil as well
as the frustrated adjustment case of Peronist Argentina fall on the hump, i.e., at
the industry-level of bargaining. Finally, centralised labour market institutions a` la
Scandinavia cannot be easily replicated in most developing nations in part because
the structure of labour markets and the larger economy bear no resemblance to the
usually small industrial democracies in which these arrangements have evolved, and
in part because the arrangements have grown out of historical features quite unlike
those of developing nations (Nelson, 1991: 42).
The situation changed considerably in the 1980s and 1990s. It now seems clear that
initial conditions and the history of labour market institutions vary considerably from
country to country, and even though the two axes of the above curve reflect political
processes, the analysis is static insofar as it assumes that bargaining institutions
remain 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 industrial
relations in developing countries have been theorised in several ways. First, there is
now a consensus that the political repression of organised labour does not in any
way 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 that
impede development (Banerji and Ghanem, 1995).
Second, there have been several attempts to posit stylised models of labour
relations among non-comparable developing countries so as to explain their diver-
gent socio-economic performance. Banuri and Amadeos (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 plant
level usually with enterprise-based unions, with the latter playing an insignificant
role in national politics. In the pluralist model (South Asia), bargaining takes place
at all three levels, with unions being in a somewhat dependent position tied as they
are to political parties. The polarised model (Latin America) connotes a broad-based
labour movement with a long history of organisation but is divided along industry
and skill lines. In this model, unions can impose severe costs on the economy but
are 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 the
state to foster cooperative behaviour among functional groups organised at the
national 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, and
over 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 variation
in the evolution of their labour and bargaining institutions; Kuruvilla and Venkatar-
atnam (1996) posit no less than five stylised models of industrial relations systems
in 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 efficacy
of regulated conflict (harmony of interests) among diverse interest groups to the
promotion 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 relations
itself changes as the economy undergoes structural transformation. In addition, we
will see how several of Banuri and Amadeos (1991) models are represented in the
Indian economy at specific times and in specific sectors.
Third, searching for a correspondence between a developing countrys industrialis-
ation strategy and its industrial relations policies has been a recurring narrative in
comparative research. This discourse is usually cast in terms of mutually exclusive
but 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) finds
distinct linkages between ISI/EOI strategies and industrial relations and human
resource 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 the
search incorporates the entire political economy.

The four phases of industrial relations in India: an

evolutionary 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 union
structures. In the private corporate sector, plant-level bargaining takes place with
enterprise-based unions that may or may not be affiliated to political parties. In the
public sector enterprises, centralised union federations that are affiliated to political
parties bargain with the state (as employer) at the industry-and/or national-level.
Central and state government employees in the service sector (transportation, postal
services, banking and insurance, police and firefighters, etc.) have their (typically)
politically-affiliated unions bargaining at the national and/or regional levels. While
these centralised bargaining and union structures were stable during the period of

Blackwell Publishers Ltd. 2001. Indian industrial relations 247

planned industrialisation, they have come under increasing pressure to decentralise
since the mid-1980s as the economy opened up to greater domestic and international
competition. These pressures have got particularly accentuated in the public sector
with the onset of the liberalisation program since 1991. As in other countries, there
has been a gradual retreat of the state from its earlier role in creating permanent
employment and regulating the union-management bargaining relationship.
I now discuss in detail the evolution of Indian industrial relations.2 The basis for
the 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 industrial
relations arena. The analysis is similar to the French Regulation approach insofar as
I relate macroeconomic change, not just to efficiency, but to institutional and regime
change, the wage relation, and forms of state intervention. The method is historical:
different sets of institutions stabilise economic systems at different levels of economic
activity 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 to
the first three Five-Year Plans (195156, 195661, 196166), a period of national capi-
talism. A state-led industrialisation with an import substitution strategy 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
increased at an average annual rate of 7.7 per cent, and manufacturing output
increased at the rate of 7.6 per cent (Nayyar, 1981). High growth rates were sustained
by public investment in capital and intermediate goods sectors, while growth in the
consumer durable goods industries was forestalled. Effective protection through rigid
import-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 employment
growth 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 of
employment increased rapidly from around 0.4 per cent during the period 1951
56 to around two per cent during the period 196166 (Papola, 1994). Public sector
employment 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 during
this 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 during
this first phase now provided a new terrain for large scale unionisation. It is here
where the Congress Party-controlled Indian National Trade Union Congress
(henceforth, INTUC) made early inroads. Unlike the AITUC that arose from within
the 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 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 (henceforth the ID Act) of 1947, which according to Datta Chaudhuri
(1996:12), is (the) single most important piece of legislation between the worker and
his employer. The provisions in the act allow for no procedures to determine the

For a considerably longer and a more detailed analysis with time series data, see Bhattacherjee
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 on
membership 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, and
as employers were under no legal obligation to bargain with unions, there were no
built-in incentives for either party to engage in collective bargaining. Early writings
consistently pointed to this aspect of the ID Act that impeded collective bargaining
during this period (Kennedy, 1966). Coupled with this was the Indian Trade Union
Act of 1926, which although allowed any seven workers to register their union, had
no provision for union recognition. The opposition unions were for a secret ballot
procedure to determine union strength, but the INTUC was against it, favouring
instead the check-off system of membership receipts, a system that easily led to
manipulation. 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. If
this 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 legislation
promoting 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 solved
for good. Effective dispute resolution through voluntary arbitration was also sug-
gested. Various bills were drafted and debated at several tripartite forums, but none
were enacted (Kennedy, 1966). Further, the executive branch of the government ulti-
mately vetoed the proposed Trade Unions and Labour Relations Bills. These attempts
came to be known as the Giri Approach (after the Labour Minister who resigned
in protest), and many commentators interpret this failed attempt as a major setback
to the development of mature industrial relations in India (Ramaswamy, 1984). In
more contemporary language, it may have been a strategic mistake: one can only
imagine 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 the
norm during the first phase; wages were determined by political and institutional
considerations (Jackson, 1972). Specifically, wages were set by Central and Industrial
Wage 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, but
at the industry-level in some regions and industries. In a few cases in the private
sector, 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 out
as 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 labour
and state intervention of a complex type contributed to a wage lag (Deshpande, 1992).
The labour relations regime was one of promoting responsible unionism subject to
the maintenance of industrial peace. Industrial conflict data indicates that both the
number of strikes, as well as the number of workers involved in those strikes, during
this phase were significantly less than what was to follow during the 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 for-
med their union federation, and the radicals broke away from the Communist Party
of 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 about
workers needs than did the workers themselves. In this way, the state appropriated

Blackwell Publishers Ltd. 2001. Indian industrial relations 249

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 of
employment that was (and still are) in existence,4 it is clear that the government
attempted to execute the idea of a national minimum. However, the freedom to
contract between capital and labour was restricted and mediated/transacted through
the state. In addition, the idea of planned industrialisation excluded from its charter
the basic premise of mature industrial pluralism that regulated conflict can be both
productive 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 analysed
within a conceptual framework called state pluralism. The latter is defined as a
system of interest representation in which there is an unlimited number of multiple
and voluntary, non-hierarchical and self-determined groups not legitimate but toler-
ated, with controlled competitiveness among them with particular groups receiving
legitimacy 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 make
state pluralism imperative (1980: 8).
The state pluralism model allowed the government to minimise its transaction
costs during this first phase. On the other hand, if one believes that mature industrial
pluralism is an efficiency-enhancing system, one could then argue that the elaborate
structure of state pluralism, constructed to govern basically what could have been
a relatively simple transaction between employer and union, would inevitably incur
excessive costs sooner or later. In the light of what transpired during the second
phase in terms of heightened industrial conflict (see below) the argument has
some validity.
During this first phase, few strategic choices were open to either unions or
employers as labour relations outcomes were over-determined by the state. The
institutional structures that facilitate efficient collective bargaining remained
underdeveloped. The governments attempts at developing participatory choices at
the small group level, through its legislated Work Committees (1947) and then later
through Joint Management Councils (1958), received at best lukewarm response from
both management and unions (Venkataratnam, 1996).
Finally, union voice effects were probably larger than its monopoly effects, as
both 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 196769 Annual Plans, the
Fourth (196974) and the Fifth (197479) Five Year Plans. The rate of inflation rose
above the politically sensitive danger-mark of 10 percent in 1966/67 and 1967/68
and 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. This
period is associated with overall industrial stagnation: between 1965 and 1975, the
average annual rate of growth of total industrial production and of manufacturing
output 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-

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

250 Industrial Relations Journal Blackwell Publishers Ltd. 2001.

down: 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 resulting from 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 actual growth rates of industrial production were
far 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 annual
growth rates in employment fell from 2.2 per cent during 196769 to 1.8 per cent for
the period 197479, and unemployment rates nearly doubled (Papola, 1994). Accord-
ing to Ahluwalias (1992) data, comparing the period 1959/60 to 1965/66 with
1965/66 to 1979/80, the following trends in productivity and growth (per cent per
year in manufacturing) occurred: employment fell, labour productivity fell from 4.9
per 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 labour
markets got tighter, the number of disputes (strikes and lockouts), the number of
workers involved in these disputes, as well as the number of mandays lost due to
these disputes, increased phenomenally between 1966 to 1974 (Sengupta, 1992). New
forms of protest, such as the hartal (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, leading to considerable capital flight to
other parts of the country.
Disillusionment with the INTUCs 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 preferences
towards 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 fact
that the leadership of the radical unions (at this time) 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 analysis of
industrial disputes by union-types revealed that the number of disputes involving
multiple unions increased during the earlier part of this phase (196673) compared
to the first phase (Bhattacherjee, 1987a: 57), reflecting the period of intense inter-
union rivalry. These uncertainties within the union movement finally culminated in
the all-India May 1974 railway workers strike that shook the economy and the coun-
try at the time.
During Mrs.Gandhis National Emergency of 197577 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-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, 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 either
from union pressure (unlikely during the Emergency!) and/or as a populist measure,
which led to employment inflexibility: firms employing more than 300 workers had
to get (state) government permission before they could retrench workers. Needless
to say, government permission was seldom forthcoming. However, this apparently
pro-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

Blackwell Publishers Ltd. 2001. Indian industrial relations 251

strikes since 1976 (Sengupta, 1992). During the post-Emergency regime of the Janata
government (197780), there was a change in the political climate but not much
rethinking on industrial relations reform (Sengupta, 1992). An attempt by the govern-
ment to put forward an industrial relations bill, which among other things wanted
to ban strikes and lockouts in essential industries and services, was met with stiff
opposition from most unions and political parties.
The second phase saw significant changes in collective bargaining practices. The
ID Act of 1947 did not provide for the compulsory recognition of a representative
union as the sole bargaining agent, nor did it encourage or compel parties to bargain
in 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 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, 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 (not
after the failure of direct negotiations as in the first phase) after all parties reach an
agreement during the process of coalition bargaining. The terms of the agreement
are now signed in the presence of the conciliation officer, thereby making the contract
legally 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 union
recognition (Mathur, 1992: 48). In Maharashtra, the state passed the Maharashtra
Recognition of Trade Unions and Prevention of Unfair Labour Practices Act that
became effective from 1975. Not to bargain with the (now-defined) representative
union became an unfair labour practice under this act.
In terms of wage dynamics in urban labour markets, the second phase was marked
by significant changes as well. While the evidence suggested declining, or at best
stationary, real wages during the first phase of unionism with unions having little
effect on wage increases (Chatterjee, 1980), Madan (1977) pointed out that the wage
data used in these earlier studies 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 (all workers) he found that real wages of manufac-
turing workers did in fact increase since the early 1970s; in addition, he also showed
that the proportion of low paid workers to all workers had declined during the
second phase. This hypothesis finds further support in the two papers by Tulpule
and Datta (1988; 1989), that found evidence of real wage gains since the late 1970s
even though there were substantial variation across industries.
It could be hypothesised 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 centralised lobbying (rights) vis-
a`-vis decentralised collective bargaining (interests). There are various factors that
conditioned such a shift (and these become apparent during the third phase). Some
of the key factors were: (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) work-
ers and their unions in the profitable sites were aware of their firms financial per-
formance through their informed bargaining practices and/or through managements
willingness to share this information more readily with unions, and (c) workers in
these units realised that the leadership in many of the traditional party-based unions
were 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 sustaining
solidarity across the entire labour movement. A pessimistic variant of neo-
institutional analysis of labour unions and collective action (Olson, 1971) can partly

252 Industrial Relations Journal Blackwell Publishers Ltd. 2001.

explain the above difficulties. According to this logic of collective action, the
assumption of 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:
21). 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 liberalisation process (especially
those sectors facing closure, privatisation, and restructuring), there will be fewer bar-
riers for the union movement in acting as an all encompassing organisation according
to the above logic.

Commentary: The second phase reflected two crises: one, a crisis of accumulation in
industry under the state-led industrialisation regime, and two, a crisis of legitimacy
of the state pluralism model in the industrial relations system. This mode of regu-
lation precipitated the fractionalisation within the union movement as well as within
capital; indeed, the growth of the left unions reflected alternate voices, and in many
cases, 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 from
above a Latin American-type of corporatism in labour-management relations.
Whereas in the growth sectors, the labour-management relationship increasingly
turned to an informed decentralised bargaining mode, in the declining sectors, the
government and the large centralised unions found themselves enmeshed in the web
of the state pluralism mode.
Rudolph and Rudolph (1987) characterised the Indian industrial relations regime
as one of state domination and involuted pluralism, using the term as a metaphor
for a decline or loss of vigor that results from a replication of units whose increase
in number is accompanied by a decline in effectiveness (1987: 269). They refer to
the massive multiplicity of unions in India: in 1950/51 there were 2002 registered
unions, whereas in 1979 there were 10,021 such unions, all this while the average
size of these unions increased only marginally (Bhattacherjee, 1999). According to
them, this debilitating process tends towards entropy, so that even though unions
increase in number, union density keeps falling. Organised labour has not been able
to challenge Indias centrist ideology and politics and to mount or support a left
class party (Rudolph and Rudolph, 1987: 259).
From an neo-institutional perspective, one could argue that changes in collective
bargaining practices in the growth sectors of the economy represented attempts by
both unions and capital to arrive at new governance and institutional structures so
as to minimise transaction costs. The fractionalisation of unions into smaller groups
could then be interpreted as an efficient solution to organisation in a changed econ-
omic environment. In the public sector sites, economic crises created considerable
uncertainties in erstwhile stable internal labour markets. In terms of industrial
relations strategy, employers and unions in the growth sectors maneuvered with
some strategic choices at their disposal.
Towards the end of this phase it became apparent that there were some troubling
union monopoly effects, especially in the public sector. Public sector employees
received considerable fringe benefits that were administered in relatively insulated
internal labour markets, whereas in the private sector, unions had to intensely
bargain over any such benefits in a competitive economic environment. Inflexible
contract provisions, especially those relating to deployment and retraining and to
seniority rules, increased costs substantially in the public sector. Overall, fractured
union voices searched for a collective mode of expression as this second phase
witnessed maximum industrial strife (compared to the other three phases) both in
terms of the number of disputes and the number of workers involved
(Bhattacherjee, 1999).

Blackwell Publishers Ltd. 2001. Indian industrial relations 253

The third phase of industrial relations (19801991)
This phase corresponds to the Sixth (198085) and the Seventh (198590) Five Year
Plans, as well as the two Annual Plans (199092). Whereas the average annual growth
rates during this decade was around 5.7 per cent, employment grew at only around
1.8 per cent (Papola, 1994). Employment elasticities in major sectors, especially in
services, fell drastically during this time (Papola, 1994). In terms of Joshi and Littles
(1994) analysis, this third phase corresponds to two distinct sub-periods: 1979/80 to
1984/85 and 1985/86 to 1990/91.5 During the first part, the economy suffered from
severe internal and external shocks. One of the worst droughts since independence
occurred in 1979, there was trouble in the northeast, the recession in 1980/81, 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 was also turbulent on the political front with Mrs.
Gandhis return to power in 1980 and then her assassination in 1984.
The second part of this phase is associated with Rajiv Gandhis economic liberalis-
ation measures. The economy moved away from an import-substituting inward-
looking growth strategy towards strategies that encouraged both export promotion
and domestic competition. This was bought about by partial industrial and import
deregulation, financial liberalisation, 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 fac-
ing a full-scale macroeconomic crisis. The economic situation was dismal, and the
new 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 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 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 that ultimately went
on to become the longest strike in post-independence labour history. The strike was
essentially about rank-and-file frustration with the 1947 Bombay Industrial Relations
Act, which had imposed an industry-wide bargaining structure with an unrepresent-
ative union (affiliated to the INTUC) as the sole bargaining agent of workers. After
the internal differentiation within the mills 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 whimper in late 1983. 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
decentralised bargaining agreements (Bhattacherjee, 1989). After Samant formed the
Kamgar Aghadi Party and actually won a few seats in parliament in late 1984, many
commentators felt that this was a new and encouraging beginning for the union
movement in India.
A defining feature of this phase is the rise and proliferation of independent unions
operating 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

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). Segmented
and 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 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 affili-
ated unions during the beginning of this phase (Bhattacherjee, 1987b). In a number
of multinationals, workers with their independent unions exerted considerable con-
trol over the labour relations process, often more than their counterparts in the host
country (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 by
unaffiliated unions and the importance of politically affiliated unions declined
(Bhattacherjee, 1987a). The ratio of registered unions that submit returns (about
their membership size) to the total number of registered unions fell sharply from 60
per cent in 1962 to 21 per cent in 1974 to 13 per cent in 1982 (Bhattacherjee and Datta
Chaudhuri, 1994a: 70). 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.6 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 relations.7 In a study of union-management
relations in four Indian cities, Ramaswamy (1988) found significant inter-city
differences in the texture of the labour-management relationship. According to Rama-
swamy (1988: 17), The driving force of the Bombay labour movement are union
leaders 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 and
multinational firms dominate Mumbais urban economy.
In sharp contrast is the case of Calcutta, where a highly politicised industrial
relations regime prevails with the dominant union federation (the CITU) under the
close 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 of
plant and firm-based unions. These inter-city differences, attributable no doubt to
different 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 productivity
increased 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 the
best decade in terms of economic growth but the worst decade in terms of employ-
ment 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 firms and

Trade union membership data in India is notoriously unreliable, as there is a politics to its collection
and presentation. In addition, the only union membership data that are available are from those
unions 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 Datta
Chaudhuri (1994a) estimated trade union growth for the period 196284. Some of their findings were:
increased money wages increased union membership (but not so for real wages), the unemployment
rate negatively affected union membership, and union density (of unions that submit returns) nega-
tively affected membership growth.
For an analysis of labour contracts that uses region as a proxy for union and employer preferences
for the type of bargaining structure, see Bhattacherjee (1992).

Blackwell Publishers Ltd. 2001. Indian industrial relations 255

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 to
secure 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. In the relatively unorganised and in the
less profitable sites, workers and unions lost out. While organised sector employment
as a percentage of total employment in manufacturing fell from 24.5 percent in
1972/73 to 17.4 per cent in 1987/88, real wages of workers and other employees in
organised manufacturing increased at a rate of 5.8 per cent and 4.1 per cent during
198386 respectively, whereas, low-paid workers actually suffered declining real
wages (Ghose, 1992: 97). As the union wage 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 play a
role 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, 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, whereas high paid workers gained as registered
unions not submitting returns (the proxy for plant-specific unions) increased their
dominance. The traditional unions, predominant in the older industries, provided an
overall protection to its membership as 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
political party-based unions. Workers in this segment will find it difficult to form
strong 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 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 characterisation of different
types 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, 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 employment. Others have argued that earnings increased primarily as
a result of an increase in working hours (Nagaraj, 1994).
Labour researchers towards the end of this third phase focused on employment
inflexibilities embedded in the ID Act (Mathur, 1992). The 1982 amendment of the
ID Act provided that a firm employing more than 100 workers (reduced from more
than 300) needed permission from the get state government permission to layoff or
retrench workers. Fallon and Lucas (1991) showed how employment would have
been 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 of
changes were proposed in The Trade Unions and Industrial Disputes (Amendment)
Bill, 1988 (Mathur, 1992). The proposed changes would reduce the fragmentation and
multiplicity of unions, clearly 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. 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 arguments

that they attempt to maximise at the micro level (Bhattacherjee and Datta Chaudhuri,
1994b). Given the level of demand for unionised labour, unions like employers, face
a wage-employment trade-off during contract negotiations. The situation that pre-
vailed during the third phase, and continues to prevail, can be characterised in the
following way. There are two types of unions: those that are altruistic and those
that 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 argument
to be maximised; consequently, their bargaining strength is positively related to their
size. One can think of the large and established national union federations that are
also 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 bill
of only those already employed in the particular enterprise, and confronted with
the 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 market
evidence from this phase seems to suggest that some monopoly effects dominated
over voice effects, and that the proliferation of selfish unions and their micro-
economic success may have created negative spillover effects on unorganised labour
markets. In the private corporate sector, firms attempted efficiency wage strategies,
usually with the cooperation of unions, often changing the nature of plant-level
unions in the process. In public sector internal labour markets, unions often got
involved in unproductive activities. The importance of concepts such as internal
governance structures of unions and their effects on efficiency and fairness acquire
increased relevance during this third phase.
In terms of industrial relations strategy, the actors had more options than before
and one could even suggest that segments within the economy operated with their
own strategy insulated from outside forces. Effective gainsharing resulted from
efficient bargaining in some sectors, whereas in the unorganised sectors, the not-so-
invisible hand of a free market regime prevailed. Once more, attempts at serious
reform of industrial relations laws (i.e., the Ramanujam Committee Report and its
aftermath) came to a predictable grinding halt.

The fourth phase of industrial relations (19922000)

In June 1991, the ruling minority government decided to adopt the World Bank-
IMFs stabilisation 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). This fourth phase corresponds to the Eighth
(199297) and the Ninth (19972002) Five Year Plans.
According to Nagaraj (1997), the Indian economy grew at 5.3 per cent during the
first five years of the reforms (199296). The tertiary sector grew the fastest in the
1990s at about 6.8 per cent 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 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 actually
improved since the reforms, with private corporate businesses emerging as the econ-
omys leading sector since the reforms. Even though public investment witnessed
deep cuts since the reform, public sector output growth and profitability improved

Blackwell Publishers Ltd. 2001. Indian industrial relations 257

suggesting better resource utilisation (1997: 2876). Nagaraj (1997: 2877) concludes: In
sum, 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 terms
of its entry and growth (Chaudhuri, 1995).8
The available data seem to suggest that 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 199394 than in any pre-reform year (Sen, 1996). On the
employment front, Deshpande and Deshpande (1996) found that although the initial
stabilisation years took some toll of organised manufacturing employment, the sub-
sequent structural adjustment process led to employment growth at around 2.3 per
cent between 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 per cent higher at the turn of the century than in 1990/91 (1996: 18). More recent
evidence suggests that employment growth in the organised manufacturing sector
from 199091 to 199798 was on average 2.6 per cent per year, and that this growth
was 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 the
unlikely expansion of employment in the public sector, it is quite evident that a large
majority 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, 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 restruc-
turing 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) 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 modernisation, technological upgradation, industrial restructuring, and possible
closure. 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. More recently, the government has announced
a 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 first
few years after 1992. It opened the negotiation process subsequently and attempted
to decentralise 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 (as they used to be earlier). In other words, the new
policy clearly stated that any additional wage burden will not receive budgetary
support (Venkataratnam, 1996).
The need for tripartite consultation relating to the various issues concerning labour
matters under economic reform was clearly felt during the initial years and many
such meetings were carried out. Mathur (1993) documented the experience of consul-
tation during the early phase of structural adjustment in India (199092), and sug-
gested 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

The gross inflow of foreign direct investment rose from Rs.5.3 billion in 1991 to Rs.141.9 billion in
1994 (Chaudhuri, 1995).

258 Industrial Relations Journal Blackwell Publishers Ltd. 2001.

contract provisions: ban on recruitment, job transfers to non-bargainable category,
introduction of parallel production, mergers, suspension of industrial action for a
period 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 sectional
interest group. Bhaduri and Nayyar (1996: 139) point this out in no uncertain terms:
The government also needs to protect consumers against sectional interests 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 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 1985
to 5.5 per cent in 1995, and union membership as a percentage of formal sector
workers 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 other
country (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 the
commission should suggest rationalisation of existing labour laws in the organised
sector and recommend an umbrella legislation to ensure minimum protection for
unorganised workers. 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 unorganised sector is interpreted by unions as a move to undercut
permanent unionised jobs. More recently, proposed changes in the ID Act will make
it 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 employment
security 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 Industrial
Relations Commission, a high-powered statutory body independent of political
influence, that will be made responsible for conciliation and adjudication of industrial
disputes as well as for granting of bargaining agent status to recognised unions in
different bargaining units. However, cleavages and differences within the centralised
unions, the political parties, and state governments, have indefinitely delayed the
passage 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 unable
to complete their full terms) since 1992, has led to an inertia in the political will
required to carry out these reforms.
A negative fall out of this inability to arrive at a national consensus on labour
market reform are the effects of heightened inter-state competition to attract foreign
and local capital on regional labour markets and labour relations in general. During
the post-reform period, the states have performed at significantly varying rates
(Ahluwalia, 2000) and both national and international capital flows have created new
industrial geographies (Shaw, 1999). In response, the states may attempt the leveling
down of their labour market institutions by offering several incentives to employers.
As these divergent trends will make it increasingly difficult for the centralised union
federations to act on a national level, it is in their immediate interest to press for
industrial relations reform.

Commentary: In terms of labour market and industrial relations reforms, continuing

economic liberalisation will lead to greater employment flexibility, a movement
towards greater decentralisation in bargaining (especially in the public sector
enterprises) and lesser governmental intervention in the bargaining process, fewer
strikes, and a possible halt to the cleavages within the union movement. From the
positive side, all this could imply more employment, and a more efficient union

Blackwell Publishers Ltd. 2001. Indian industrial relations 259

voice developing both at the micro and macro-level with industrial pluralism being
strengthened. On the negative side, the proposed reforms could lead to an increase
in managerial power and accelerate the growth of the non-union sector both leading
to a decline in the power of organised labour. While at the micro-level, unions of all
political 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.

Indias experience with the setting up of labour institutions that are compatible with
pluralistic industrial relations has been mixed. Though the government kept extolling
the virtues of industrial pluralism and bilateral bargaining during the early years,
the institutions within which all this was to take place were largely controlled by
the state. This state-dominated pluralism, coupled with ambiguous labour laws
regarding 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, centralised
unions had considerable bargaining power. Though unions could impose severe costs
to the economy in key sectors, the labour movement was not strong enough to
impose a cooperative solution at the national level. The latter continues to be true
With the opening up of the economy, competitive forces affected the structure of
the union movement. In several enterprises in the private sector, independent
rank-and-file led unions came into existence and engaged in informed and militant
bargaining with employers, securing substantial wage and non-wage gains in the
process. As these unions traded off increased wages at the cost of employment
growth, and as employers shifted to outsourcing to non-union sites, the traditional
party-based unions found their potential recruitment terrain both challenged and
curtailed. More recently, since the liberalisation process officially began in 1992, many
of these centralised party-based unions have frequently united under a common front
to resist governments attempt at both privatisation and decentralisation in the pub-
lic sector.
In terms of the monopoly versus voice framework, the years after independence
witnessed the state acting as the collective voice of workers for the purpose of rapid
industrialisation with minimum industrial strife. Potential monopoly effects were
minimised, especially in the growing public sector enterprises where wage and work-
ing condition outcomes were administered rather than collectively negotiated. An
implicit incomes policy kept the union wage markup in check. With time, as both
inter and intra industry differentiation began to take place, especially in private sector
firms, more radical union voices emerged and effectively challenged the states hold
over 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 over
time led to rigid and inflexible contract provisions, and with pay increases being
unrelated 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 cost
of workplace flexibility and efficiency. The above historical analysis suggests that
while this characterisation possibly describes the first two phases of industrial
relations, it does not capture the complexities and nuances of the latter two phases.
I have taken up Erickson and Kuruvillas (1998: 19) invitation to research the extent
and determinants of incremental versus discontinuous change in national indus-
trial relations in the Indian case. My findings suggest that the evolution of industrial
relations institutions in India has been incremental and adaptive. Change has been
driven more by the endogenous forces of party politics, government policy, class
segmentation, 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 to
compare India with China (or Mexico or Brazil), rather than with the small and very
different economies of East and Southeast Asia.

Some of the ideas in this paper were earlier presented in various forms at the 11th
and 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 thank
Sarosh Kuruvilla, A. V. Jose, and P. K. Sett for discussions.

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