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Policy lessons from the Bangalore garment workers' unrest

By Chiranjib Sen
  • Published 13.05.16

The recent industrial protests by garment industry workers in Bangalore over new provident fund withdrawal rules turned violent. The scale, suddenness, unorganized nature and intensity of the protests surprised everyone. The agitation spread to different industrial clusters. Most of the affected workers are women employed in small and medium-sized enterprises. They are typically not prone to violent protests. Biocon (a high-tech enterprise unconnected to the apparel industry) was also attacked by a mob. The arsonists were males who do not work in local garment factories. They seem to have taken advantage of the opportunity to vent their fury. This incident is a warning that the social sustainability of our economic system is under strain. The simmering tension has boiled over. Economic insecurity is a key concern and the provident fund issue is a spark. If this can happen in a dynamic, pro-business and peace-loving city like Bangalore, it can happen anywhere. The city's real GDP is estimated to be growing faster than 8 per cent.

According to economic theory, export industries gain economically from international trade, while import-substitutes suffer. Why did the protests emanate from a leading export industry? The International Labour Organization sponsored a survey of working conditions in India's garment industry in 2012-13. The survey provides useful insights. There are significant differences between south (Bangalore) and north India (greater Delhi). Women workers numerically dominate in the south. They are predominantly a young workforce. Interestingly, a majority of them are migrants from rural areas. Most are indebted, with outstanding debts ranging from Rs 50,000 to above Rs 1 lakh. They borrow mainly for medical expenses. Over 80 per cent of the workers said that they cannot move to better jobs for the lack of adequate skills, or because other jobs are unavailable.

More than half the sample indicated that they have considered leaving their factory or the garment industry altogether. The reasons are low wages (around Rs 8,000 per month), high production targets, poor working conditions and difficult relationships with the management. Ninety percent do not want their offspring to work in this industry. Overtime work, often involuntary, and penalties for not meeting production targets are very common. The Apparel Export Promotion Council in its Vision 2015 sought, through an amendment in the laws, an "increase in the weekly working hours limit from 48 to 60 hours and the daily working hours limit from 8 to 12 hours, subject to adequate compensation, in order to cater to peak season requirements of customers as well as to compensate for lower labour productivity".

The AEPC seeks permission for the employment of contract workers on fixed tenure. Such reforms would make working conditions even more difficult. Workers are typically not unionized, and have no collective bargaining with employers. It is common for them to be discharged after four years to enable employers avoid gratuity commitments that start after five years. Thus their economic position is vulnerable. Thus the social security schemes such as employees' provident fund and the employees' state insurance are crucial for them to withstand fluctuations of income and health status. In fact, nearly 80 per cent of the sampled workers had accessed the EPF.

Thus all is not well with India's industrialization model. The apparel industry is not an isolated case. Macroeconomic trends portend a dark scenario for low-skilled workers and small manufacturing enterprises. Growth hardly generates employment.The employment elasticity of output has been falling, implying weak demand growth for labour. Elasticity was 0.44 during 1999-2000 to 2004-05, but fell to 0.01 during 2004-05 to 2009-10. Also, labour productivity varies greatly between different production sectors. This implies a very huge disparity in wages. In 2009-10, the productivity of workers in agriculture and allied activity, which employs over half the labour force, was 29 per cent of the national average. Workers in the modern services sub-sector had a productivity 7.25 times the average (that is, 25 times that in agriculture, but accounting for three per cent of employment). Unregistered manufacturing had a labour productivity that was only eight percent of that in the modern services sub-sector. The share of manufacturing in employment has remained stagnant over decades and remains at around 12 per cent. Labour productivity growth has slowed in manufacturing. Construction (with a migrant workforce and insecure employment) is the fastest growing absorber of industrial workers.

While policymakers are looking to attract foreign direct investment, very little FDI is coming to the apparel industry. To the contrary, Indian entrepreneurs are increasingly investing in manufacturing abroad. In the garment sector itself, several large Indian export firms have invested in Bangladesh and other Asian countries. They are looking to expand production in countries where the overall business ecosystem is better suited to global competition. Industrial policy in India needs urgent reorientation. Business associations have pressed for action on multiple fronts. This is fine, but the nation needs also to have a strategic vision for its labour force.

The following elements should get serious policy attention. First, a system based on a perpetual pool of unskilled cheap labour will keep us poor indefinitely. Raising labour productivity through continuous skill-building is therefore essential - not only for new entrants but also for those who are employed. People should be able to envision a gradual path for improvement in economic status, find alternative jobs if necessary, instead of facing dead ends. Second, an alienated workforce is the breeding ground of social unrest. Employers need to be incentivized to engage workers beyond five years. Third, financial inclusion, credit access and social security planning mechanisms for workers should be strengthened. Fourth, the impact of deteriorating urban infrastructure on workers needs to be addressed by local and state governments - housing, transport, water and power availability all matter. Fifth, worker representation mechanisms should be strengthened. Finally, policy decisions (unlike in the present instance) that have a large potential impact on workers should be taken only after due process of consultation with the stakeholders.

The author is a Professor at the Azim Premji University, Bangalore