India, explained.
Workers build the foundation for a new electronics factory in Noida, India, 22 March 2024 (Prashanth Vishwanathan/Bloomberg via Getty Images)
A crippling strike exposes the outdated laws that may frustrate India’s industrial potential.
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Managing India’s labour troublesManaging India’s labour troubles
A recent workers’ strike at Samsung Electronics’ southern Indian manufacturing facility has brought to light the country’s looming crisis of resurgent labour politics, which could derail the nation’s nascent industrialisation journey. Protesting workers demanded a hike in wages and the right to unionise. Meanwhile, the South Korean conglomerate claims to have lost around US$100 million during the 38-day strike. Managing these competitive and often contradictory interests lies at the heart of a successful industrial policy.
After decades of lacklustre performance in the manufacturing sector, India seems to have turned a corner. Following years of failed policy experiments, the central government has finally introduced production-linked incentives and other capital expenditure-centric subsides – especially targeting exports. India’s electronics production has doubled to US$101 billion from $48 billion in 2017. The country’s share of global Apple iPhone production is rapidly expanding, and at least five semi-conductor facilities are currently under construction in the country.
Historically, as a country industrialises (mostly through exports), it tends to become richer, with workers demanding their fair share.
However, the recent protest at Samsung’s facility in Tamil Nadu, one of India’s leading industrialised states, is a sign of what lies ahead. The geography of this protest matters. The majority of India’s manufacturing is concentrated in a handful of southern and western Indian states that includes Tamil Nadu, Karnataka, Telangana, Maharashtra and Gujarat. The only exception to this concentration is the Delhi Capital Region in north India. It is in these regions that we should expect future labour protests, strikes and extensive management-worker bargaining to take place.
Historically, as a country industrialises (mostly through exports), it tends to become richer, with workers demanding their fair share. But raising wages upsets the underlying economic model by making exports relatively more expensive than before. To remain globally competitive, some form of labour subordination needs to be undertaken to suppress those demands. Over the past 300 years, every successful case of industrialisation has involved some degree of labour subordination – from outright incarceration in Soviet Russia to more subtle forms during Japan’s post-war recovery.
India has a large informal workforce (Aboodi Vesakaran/Unsplash)
However, in India, for the past three decades, the lack of a robust manufacturing sector has been exacerbated by a different labour issue – many economists, businesses and experts consider the country’s labour laws too restrictive, which has made the workforce less mobile and flexible. Moreover, businesses face a disproportionate rise in compliance burdens as they begin to scale their operations, which in turn disincentivises scaling. In practice, to avoid such compliance burdens, manufacturing firms have shifted to using contract labour as opposed to having the workers on their payrolls. This makes up the bulk of the country’s workforce, which drives the informal sector.
These conditions have wedged India’s manufacturing sector into a low-equilibrium trap, whereby firms are not incentivised to expand – making them uncompetitive globally. Consequently, over the past few decades, the organised manufacturing sector and organised labour politics have faded, especially in the form of unions.
Now as India begins to industrialise in earnest, the much-forgotten history of labour politics has resurfaced.
This was not always the case. Throughout the 1960s and ‘70s, the country’s political discourse was aflush with fraught labour-business relations, which were often labour-state relationships in a quasi-socialist economy. Some of the most popular Hindi movies (Bollywood) of that era were based on this very template, where the angry young trade union leader orchestrated revolts against corrupt business owners, winning the much-needed worker rights for his tribe. This wasn’t how business-labour relations actually unfolded, but it channelled the frustrations of a poor state-led economy.
The evolution of India’s restrictive labour laws is a function of the country’s colonial past. During British rule, the country had some significant industrial bases – the textile mills of Bombay and Kanpur, and the jute industry of Calcutta, among others. These were also sites of labour protests, and the British introduced restrictive laws to curb the unrest.
Now as India begins to industrialise in earnest, the much-forgotten history of labour politics has resurfaced. Over the past century and a half, the informal artisan economy has existed in parallel with the large factories, creating a shared consciousness and shaping the future nature of labour politics. For India’s political class – across the federal and state governments – this presents a unique challenge. An entire generation of politicians has essentially no experience of effectively managing the competing demands between industry and workers. Moreover, the presence of a robust democracy in India essentially rules out excessive state coercion and labour subordination.
The only option for India is to take a leaf from some of East and Southeast Asia’s successful industrial policies, where the focus has been on improving the human development of workers, especially through education and skills. This would serve both the workers and the firms well. Although this might not be sufficient, it would ease some burdens of contentious labour politics in times to come. In the long term, India will have to develop significant capacity to manage these complex and dynamic relations.
About the author
Srijan Shukla
Srijan Shukla is an Associate Fellow with the Security Studies Program at the Observer Research Foundation, India.
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