Economic Scenario Pre 1991

Post economic liberalization Indian policy makers were greatly influenced by Soviet-style
policies .Pre 1991, India almost became a communist regime. . Policies were geared towards
protectionism, import substitution, state monitoring & intervention, business regulation and
central planning.

The policies imposed by the government was strict which led to restrictions such as
approaching several agencies to obtain licenses to set up industries or preventing firms from
laying off workers or closing factories.

There had been a Licence Raj in India. Only four or five licences would be given for steel,
electrical power and communications and this would help the licence owners built up huge
powerful empires. Licence Raj established the "irresponsible, self-perpetuating bureaucracy
that still exists throughout much of the country" and corruption flourished under this system. In
1980s, while steps were taken to promote the private sector’s growth, public sector monopoly
led to inefficiencies in state departments.

By 1991, India which faced balance of payments problems since 1985 was close to default.
Economic crisis of ‘91 was so severe that the government was left with only one week of
foreign exchange reserves to pay country’s import bills.

To escape the situation India approached the International Bank for Reconstruction and
Development (IBRD) popularly known as the “World Bank” and the International Monetary
Fund (IMF). . The proponents of these reforms argued that the reforms would lead to all-round
development and finally, Indian workers would get their due share.
Government Action

The various reforms taken by the government was beneficial for the Indian economy. The major
step taken was the restructuring of the unprofitable public-sector companies. After the
reforms the companies were free to cut down workforce through voluntary retirement
schemes (VRS) with assistance from National Renewal Fund (NRF) instituted by the
government, and by the amendments to the Sick Industrial Companies Act 1985. Strengthening
of the board for Industrial and Financial Reconstruction considerably facilitated the process.

The main objective NRF was to provide assistance for covering the costs of retraining and
redeployment. The major changes was made in modernization, technological upgrading,
industrial restructuring, and possible closure.

In 1993-94, Rupees 7 billion were allocated to the VRS in the central public-sector companies
with nearly Rupees 4.9 billion was allocated to the textile sector alone. Though, NRF was later
abolished in 2000 as most of the payments under it were made for VRS and it did not serve
adequately the purpose of retraining and rehabilitation. Also, the listed beneficiaries of NRF
also included the private sector but it was felt that this fund should only deal with the public
sector enterprises

After 1992, while the recruitment especially at the lower levels was all but frozen, the
government also froze the centralized wage bargaining process. It later opened the negotiation
process and tried to decentralize bargaining by announcing that any wage increases would have
to be absorbed by the specific company as these could no longer be passed on to the final
price. Therefore it was understood that any additional wage burden is not going to receive any
kind of wage benefit from the government.

The fact that the centralized and traditional union structures fell short of the worker
expectations was easily understood by the Labor commentators, and in many instances, they
were giving way to independent and decentralized union structures. However, this phase after
liberalization witnessed the growth of the Bharatiya Mazdoor Sangh, affiliated to the Bharatiya
Janata Party. In the state of Maharashtra, the trade union movement became quite unstable
since the locally based Shiv Sena party and its affiliated union, the Bharatiya Mazdoor Sena,
made deep inroads.

Bhartiya Mazdoor Sangh claims to have more than 10 million members and according to the
provisional statistics of from the Ministry of Labor, BMS had a membership of 6.2 million in
2002. It is affiliated to the labor wing of RSS and BJP.
On 10 January 1999 the government announced the second National Labour Commission 30
years after the first NLC. The terms of reference laid down that the commission suggest
rationalization of existing labor laws in the organized sector and recommend umbrella
legislation to ensure minimum protection for workers in the unorganized sector. The
commission had a two-year term and was made up of representatives from government, trade
unions and industry. Trade unions felt that workers had little protection from the whims of
errant management, and that any alteration in the law would only add to managerial power.
For example, the proposal to relax the law on contract labor in order to generate more jobs on
contract for the unorganized sector was interpreted by the unions as a move to undercut
permanent unionized jobs. More recently, proposed changes in the Industrial Disputes Act
would make it difficult for trade unions to call strikes and the amendments will dilute the need
for employers to have government approval for a lockout. On the other hand, they gave
tribunals more power to penalize errant employers.