The Telegraph
Tuesday , June 3 , 2014
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Exit policy

The voluntary retirement scheme (VRS) is moving out of the closet. Thanks to the trade unions, VRS has never really been an acceptable term in India’s corporate lexicon. But times are a-changing.

The auto industry has been crippled by a long slowdown in demand. Tata Motors has decided to offer VRS to a section of employees in its efforts to rationalise costs.

At the Nokia plant at Sriperumbudur near Chennai, most of the 6,600 permanent employees have opted for a VRS. They don’t want to. Nokia sold its handset assets to Microsoft and, the world over, Nokia employees were thrilled at becoming Microsoft employees. It wasn’t to be in India because a tax demand on Nokia saw the Indian unit being left out of the global deal. In a way, it is a throwback to the seventies and the eighties when MNC alliances abroad saw the Indian subsidiaries left out of the deal because of the red-tape involved.

At Coal India, a VRS has been flagged off for women workers. This comes from a curious custom: women are sometimes given jobs in Coal India on compassionate grounds. They report for work but the actual labour is done by a son or a close relative. Now, the latter are being absorbed and a VRS is being rolled out for the women.

At the public sector MTNL and BSNL, the managements have asked the government to shell out for a VRS. The plan is to reduce the workforce by 120,000 plus at a cost of Rs 17,500 crore.

Asian Paints has offered its workers at its Bhandup (Mumbai) plant a choice of relocating to some other Asian Paints unit or accepting a VRS.

And if you thought VRS was only for the blue collars, take a look at the Reserve Bank of India: executive director G. Gopalakrishna has recently opted for VRS to join as director of the Centre for Advanced Financial Research and Learning.

One of the top priorities for the new government will be tackling the labour laws. It is not going to be easy. Trade unions and labour leaders have demonised workforce rationalisation measures as hire-and-fire. Besides, in India, it is a subject on the concurrent list, which means both the state and the central governments have jurisdiction. All these VRS developments have been the subject of news items over the past few weeks. Is it a coincidence? Probably yes. But we will see much more of VRS soon. Gujarat’s industrialisation is in part due to its labour laws, of which VRS is a key component. The all-India norms, as set out by the centre, are based on this Gujarat model. It’s not just new PM Narendra Modi who will catalyse VRS. According to a study by Delhi-based HR consultancy Mancer, current business cycles are almost certain to take more companies down the VRS route.

But why does VRS, a very sensible management strategy, raise so many hackles in India? First, too many people still believe that a job is for life. Secondly, it is taken for granted that our workers can’t handle money. Give him a lump-sum and the neighbourhood bar will acquire another regular. With no work, this seems an obvious diversion.


Voluntary Retirement Schemes

In the present globalised scenario, right sizing of the manpower employed in an organisation has become an important management strategy in order to meet increased competition. The voluntary retirement scheme (VRS) is the most humane technique to provide overall reduction in the existing strength of the employees. It is a generous, tax-free severance payment to persuade the employees to voluntarily retire from the company.

In India, the Industrial Disputes Act,1947 puts restrictions on employers in the matter of reducing excess staff by retrenchment. VRS was introduced as an alternative legal solution for this problem.

A business may opt for VRS under the following circumstances:


Intense competition; the establishment becomes unviable unless downsizing is resorted to.

Joint ventures with foreign collaborations.

Takeovers and mergers.

Obsolescence of product/technology.

Source: Edited from Managing a Business,