7

Human Resource Management in India

Debi S. Saini and Pawan S. Budhwar

This chapter presents an overview of the current scenario of human resource management (HRM) in India, the national institutions that support the HRM framework, the challenges that the HR profession and companies in India face, and a short case reflecting the type of HR issues that usually arise in India. To provide the required context, next relevant demographic details of the Indian economy and society are presented.

India is a republic in South Asia and the largest democracy in the world. It has the second highest population in the world (after China), which as per the 2011 census reached 1.21 billion people living in 640 districts of 28 states and seven union territories (Budhwar and Varma, 2011a). The literacy rate for seven years and above for the country stands at 74 percent; the corresponding figures separated for males and females are 82.12 percent and 65.46 percent respectively. The density of population (per sq. km) is 382 and the sex ratio (females per 1,000 males) is 940.

India attained independence from the British on 15 August 1947 and is governed by a constitution that came into force on 26 January 1950. The country has 179 languages and 544 dialects (Saini, 2011). The constitution recognises twenty-two languages, ‘Hindi’ and English being the two official languages. India has one of the largest English-speaking populations in the Asia-Pacific region (Budhwar, 2003), which is a major advantage in the globalised world.

The National Commission for Enterprises in the Unorganized Sector (NCEUS) has estimated that total employment in the country in 2004–05 was 457.5 million. Of these, 394.9 million were in the informal/unorganised sector, and 62.6 million were in the formal/organised sector (Government of India, 2009). In 2011, the total workforce in the country was believed to be about 500 million. As per the data available, in 2004–5, the percentage of those employed in wage employment was about 15 percent. About 60 percent of the workforce is engaged in agriculture with the remaining engaged in the non-agriculture sector. The second National Commission on Labour (NCL) estimated that only 5 percent of the workforce in the age group of 20–24 years had acquired some kind of a formal vocational training (Government of India, 2002). This percentage in the case of most developed countries ranges from 60 to 80 percent.

India is rich in both natural and human resources, even as it faces tremendous challenges in its efforts to enhance economic growth and development. It is estimated that about 160 million people (comprising of about 31.40 million households) are in the middle class, which is becoming larger with the liberalisation of the Indian economy. This class is also viewed in the developed countries as an important market for exporting their goods from a long-term point of view. The country has multiplied its foreign direct investment (FDI) several times since adopting the New Economic Policy (NEP) in 1991, but it is still far behind China and a few other countries. It is estimated that there are now more than 20,000 multinational firms operating in India and that this number is increasing rapidly (Budhwar and Varma, 2011a). The country started liberalising its economy in July 1991 when its foreign exchange reserves reached a dangerously low level; the new model has saved the country from any worry on that count. In December 2011 these reserves stood at $296 billion. The new model also led to an exponential rise in its annual GDP growth, which in the past decade has ranged from 6 to more than 9 percent. This along with other changes in the economic environment has made India an FDI destination for global firms. India is now projected to become the world’s third-largest economy in dollar terms (behind China and the United States) within the next 20 years or so as per the global investment banking and securities firm Goldman Sachs; others like Citibank Financial have still better projections for the country.

As global firms seek success in their Indian operations, and as Indian firms reach a higher degree of professionalism in the global context, they have to make critical decisions related to HRM models as strategic choices. This will necessitate the appreciation of the factors, which influence HRM policies and practices in the Indian context, and the challenges that the HR function faces. These factors, among others, include the availability of requisite skills and competencies, required mindsets, desired values and customs, a facilitative legal framework and institutions and a cultural environment for promoting excellence (Budhwar and Varma, 2011b). These factors are the products of a country’s socio-economic and political realities. A comprehensive understanding of such realities and insights helps a fuller comprehension of the HRM model of a country (Budhwar and Sparrow, 2002a). Next, we summarise the historical developments in Indian HRM.

Historical Developments in HRM

One of the first companies to have adopted formal concern for labour in India is the Tata Iron and Steel Manufacturing Company Ltd (now known as Tata Steel). The emergence of the personnel function in India is attributed to the appointment for the first time of labour welfare officers by this company in 1920; others followed suit much later. Interestingly, provisions similar to those provided by Cadbury in Britain were provided by the Tata group in India around this time (see Budhwar and Khatri, 2001). One of the earliest pieces of labour legislation in the country emerged in the form of the Trade Unions Act of 1926, which gave formal recognition to the workers’ right to form unions. The Royal Commission of Labour 1931 recommended the appointment of labour welfare officers, and the Factories Act of 1948 made that mandatory in all factories employing 500 or more workers. Around the time when India got independence in 1947 and immediately after that a number of pieces of labour and industrial legislation were enacted that led to managing the labour legislation as an important area of activity for personnel managers. The Industrial Disputes Act 1947 (IDA) formed one of the most important areas of labour legislation, which envisages a conciliation–adjudication–arbitration model of industrial disputes settlement. It provides for compulsory adjudication of industrial disputes – both rights and interest. Although a compulsory adjudication system was a World War II legal instrument used by the British to contain industrial conflict during the war time, it was formalised by the British Indian government by incorporating this concept in the IDA, in April 1947. Despite much debate and despite controversies in post-independence India, the system still survives even in resolution of interest disputes and there are no signs of its replacement by a less-regulated collective bargaining framework of the Western type.

After independence, in the 1950s, two professional bodies related to the personnel function emerged. The Indian Institute of Personnel Management (IIPM), a counterpart of the Institute of Personnel Management (IPM) in the United Kingdom was formed at Calcutta and the National Institute of Labour Management (NILM) at Bombay. Since the 1960s onwards, massive case law on labour legislation emerged that added considerable legal complexity to the personnel management function. In the 1960s, the personnel function also began to expand beyond the welfare aspect with three areas of labour welfare, industrial relations and personnel administration developing as the constituent roles for the emerging profession. In the 1970s, the thrust of personnel function shifted towards greater organisational ‘efficiency’, and by the 1980s it began to use and focus on terms such as organizational development (OD) and human resource development (HRD). The two professional bodies that is, IIPM and NILM, merged in 1980 to form the National Institute of Personnel Management (NIPM) at Bombay (Budhwar and Varma, 2011b).

In the 1990s and later, HRD became the main focus of the personnel function apart from the existing focus on industrial relations (IRs), especially in larger companies. But this was seen mainly as a tool for improving business performance. The vigorous efforts by some academics helped in popularising the concept of HRD among both academics and practitioners. Programmes of HRD and organisational development at the individual enterprise level in public as well as private sectors are being adopted. The formation of ‘The National HRD Network’ in 1985 was a landmark in the history of HR evolution in the country. In February 2012 it had a membership of 12,500, which included HR and other managers as well as academics. It is the largest forum for debating HR interventions in the country, which has definitely helped in sharpening the abilities of HR professionals and in the benchmarking of the best HR practices by different firms. On the above date, there were 30 regional chapters of the HRD Network in different parts of India. Even as this forum has been named HRD Network for historical reasons, for all purposes its activities include all areas of HRM including industrial relations. The 1990s also witnessed the elevation in the status of personnel managers to the board level, although only in professionally managed organisations (Budhwar and Sparrow, 1997). Subsequently, there has also been a massive upsurge in re-labelling the title of personnel managers to HRD managers or HR managers, and re-labelling the personnel department as the HRD department or HR department. Simultaneously, due to globalisation as well as the adoption of new technology considerable downsizing took place in the last decade of the 20th century. This gave rise to the need for the measurement of HR performance. The concept of an HRD scorecard is being used and now several metrics are being used as devices to measure the effectiveness of people-development activities.

As is well known, the concept of HRM as a strategic approach to employment management (or HR philosophy as it is referred to by many Indian academics and managers) developed in the Western countries during the 1980s and the 1990s both in its hard (instrumentalist) and soft (empowerment) dimensions (Legge, 1995). Empowerment was viewed as ‘the elixir of the 1990s’ and the key focus area of new HR thinking in the Western organisations. Its Indian counterpart was the HRD discourse that lasted nearly two decades. The HRM debate as such, which seems to have concluded especially in the United Kingdom, almost never started in India, although trade unions remained very critical of globalisation policies as they have been hard hit by it. This is symptomatic of the state of HR as an academic discipline, which had not developed on a large scale. The IR academics, on the other hand, remained busy arguing for the promotion of genuine collective bargaining that was believed to be hindered by the compulsory adjudication system. But the new thinking in the HR domain did travel through the MNCs’ route. As far as HR teaching was concerned, this necessitated the introduction of new courses and an updating of the existing ones by the concerned faculties. Most business schools and university departments (except the top ones), however, are still in the process of devising innovative courses in this area, knowledge of which is necessary for realising the goal of professional excellence in people management; in reality the basic HRM course for general MBA students is still functional HRM including training and development (or old personnel management with minor adjustment). Courses in strategic HRM are taught in the top business schools even as HR managers in many private sector professionally managed organisations in the country are using the modern methods and interventions of HRM (see Budhwar and Sparrow, 1997; Cooke and Saini, 2010a).

The fast-growing Indian economy has created a pressure on the Indian HRM function to become more creative and innovative. The HRM profession promises to commit itself to improving the efficiency and engagement of the human resource, getting better results and improving industrial relations. This highlights, among others, the role of training and development and team or group HRM activities. Due to such changes the use of terms like ‘talent management’, ‘employer branding’, ‘competency mapping’, ‘performance management’, ‘leadership development’ and ‘the alignment of the HR strategy with business goals’ are now being talked about or are seriously implemented, especially in leading private sector organisations and MNCs operating in India as well as being taught by leading business schools in the country. Indeed, the rapidly changing business context of India is forcing such development. In order to better understand the impact of such forces, next we examine the influence of major national factors in Indian HRM.

National Culture and HRM

The long rule of the British in India promoted feudalism, inequality and hierarchy among both the urban and non-urban populations. The caste system in the country too has also played a contributory role in promoting hierarchy and inequality. The family-owned business houses made full use of the inculcation of these societal values in practising a kind of neo-feudalism in industry. This is reflected in the organisational structures and social relations that reflect hierarchy, status consciousness, power distance and low individualism. These values have helped strengthen hierarchical superior–subordinate relationships, which acts as a kind of a mechanism of social control on the employee. Studies have shown that Indian managers attribute high priority to the importance of cultural assumptions that guide their employees’ perceptions and organisational thinking (Budhwar and Sparrow, 2002b). It is also revealed that the common Indian values, norms of behaviour and customs exercise considerable influence on their HRM policies and practices (Budhwar and Varma, 2011a). The Indian social and cultural environment puts primacy on strong family ties that dilute individualism, resulting in greater dependence on others. This highlights the importance of interpersonal relations in people management in India, more than the importance given to it in other societies. The core bases of the management system in social and family relationships can then be attributed to various factors including a strong caste system, an agrarian-based society, a high incidence of illiteracy, a high level of poverty and an indifference of the state system to the needs of the individual (Budhwar and Sparrow, 1997).

Kanungo and Mendonca (1994) have shown significant cultural differences between India and Western countries on the basis of Hofstede’s (1991) four initial cultural dimensions of power distance, uncertainty avoidance, individualism, and masculinity. India stands relatively high on uncertainty avoidance and power distance and relatively low on individualism and masculinity dimensions. Relatively high uncertainty avoidance implies an unwillingness to take risks and accept organisational change. The relatively low individualism implies that family and group attainments take precedence over work outcomes. The relatively high power distance implies that managers and subordinates accept their relative positions in the organisational hierarchy and operate from these fixed positions. Obedience is facilitated by the supposedly superior authority of the position holder and not on any rational basis. This is simply by virtue of the authority inherent in that status. The relatively low masculinity implies that employees’ orientation is towards personalised relationships rather than towards performance (Kanungo and Mendonca, 1994: 450). On the fifth dimension of long-term versus short-term orientation, traditionally, India is known as a long-term oriented nation (see Tripathi, 1990). However, results of a recent research (see Budhwar et al., 2006) suggest that due to the severe pressure created by the liberalization of economic policies and the presence of foreign operators in Indian organisations, the question of immediate survival has become more important. This explains a recent shift of emphasis towards short-termism but, more importantly, an emphasis on developing rationalised, formal and structured HRM systems (see Budhwar and Varma, 2011b).

From the above discussion, it can be deduced that the Indian societal culture has made a lasting impact on most management functions such as staffing, communication, leadership, motivation and control. Staffing for top managerial positions among Indian organisations (especially in the private sector) is generally restricted by familial, communal and political considerations. Authority in Indian organisations is likely to remain one-sided, with subordinates leaning heavily on their superiors for advice and directions. Motivational tools in the Indian organisations are more likely to be social, inter-personal and even spiritual.

National Institutions Supporting the HRM Framework

The IR Framework

The hallmark of the Indian IR is a massive state presence in it through the Industrial Disputes Act, 1947 (IDA). This Act empowers the ‘appropriate Government’, in its discretion, to refer to an industrial dispute for adjudication either on failure of conciliation or even without any resort to conciliation. Apart from the IDA, two other laws form part of the IR law in the country, that is, the Trade Unions Act 1926 (TUA) and the Industrial Employment (Standing Orders) Act 1946 (IESOA). The TUA confers on workers freedom of association and provides to unions immunity against civil and criminal liability for conspiracy in taking industrial action. The IESOA seeks to ensure standardisation of the terms of employment and their certification by a government officer, who is obliged to satisfy himself that they are just and fair. These sets of laws were intended to facilitate the realisation of the individual and collective rights of the workers.

Promoting industrial growth with social justice has projectedly guided the IR policy of the Indian government. Towards this end, apart from providing a facilitative legal framework, the central government has effectively used a consultative tripartite conference institution for promoting industrial peace. This is called the Indian Labour Conference (ILC) and it brings together representatives of employers, labour and government to its meetings that have been held annually since 1940. One of the most notable non-legislative initiatives in IR came from the government in 1958 as a result of the deliberations at this forum in the form of the Code of Discipline and the Joint Management Councils. These instruments were to be used as a formal basis for recognition of unions and the facilitation of collective bargaining. However, the impact of these bodies was merely transitory (Johri, 1998: 49) and they have now almost petered off with the passage of time. Legal means and interventions continued to dominate the IR scene in the country, although lately, collective interest disputes rarely come before the adjudication machinery due to considerable fear in the working class of the rising managerial prerogatives in the neo-liberal world. Labour is now more prone to accepting the unilateral decisions of the employers regarding pay and benefits, especially in the private sector.

But by conferring the working-class rights and the individual labour rights, these laws, along with others, did succeed in creating a working-class consciousness in the country. They led to a situation of clash between workers’ aspiration and employers’ willingness to grant benefits. Being a labour surplus economy, the country’s labour market realities helped the employers to obtain cheap labour and violate minimum labour employment standards by colluding with the labour bureaucracy. But the IDA model – that could not be replaced or even diluted despite considerably long debate on its fate – substantially diluted collective labour rights by ensuring massive state presence in IR to control labour power. It resulted in the juridification of IR (Saini, 1997, 1999). Its influence has been so strong that labour arbitration as a method of industrial disputes’ resolution in the country is almost dead. Employers manage IR, among others, by diluting the efficacy of IR laws through consultation as well as adoption of extra-legal means. Variegated unfair labour practices (ULPs) are committed by them in the process, and even by workers/unions. Over the years the pressure of unions, opposition parties, other pressure groups and union federations have succeeded in influencing the state agencies to enact a large number of labour laws. One finds the situation paradoxical and perplexing. On paper, even industries that have become sick beyond hope are required to comply with these laws, including payment of minimum wage and minimum bonus. In reality the system works such that employers have learned to get away with these legal requirements. However, MNCs and other conscientious employers want an IR framework with simpler laws that do not require them to indulge in manoeuvring and shenanigans. By and large, the IR law framework in larger organisations adversely affects the cause of forging workplace cooperation so as to meet the challenges of HRM in responding to the changed needs of industry in the era of globalisation.

Unions

Being a democracy, India has at least a seemingly union-friendly legal framework of IR. The compulsory adjudication system of the IDA has kept the unions weak (Saini, 1999). The first two decades after the independence witnessed rapid unionisation of the organised sector in the country (both private and public). But unionisation in India started declining after the famous Bombay Textile Strike, which lasted more than a year and was not officially withdrawn until recently (Venkata Ratnam, 2001). This has brought a sea change in the concept of collective bargaining, which is less and less on an industry basis and more on a unit basis.

Membership of unions that are submitting returns is still low; as per the latest estimates it is barely 4 percent of the total workforce. The total trade union membership as per the latest estimates is about 20 million in an aggregate workforce of about 500 million in 2011. This is despite the fact that in the 1970s and 1980s the judiciary delivered several judgments in the area of industrial relations and other labour laws that reflected its attitude of extreme sympathy with the working people and less to the basic principles of industrial organisation. However, in the present economic environment some aspects of the existing legal framework are required to change its strong pro-labour stance. Lately, some of the recent labour judgments reflect the belief that the judiciary is more sympathetic with the employers and realise the need for efficiency, discipline and productivity in the new environment. Presently, there is reduced workers’ resistance to employers’ change initiatives, despite patches of working-class success in resisting the individualisation of IR through HRM. Interestingly, in contrast to national firms, the impact of unions on the HRM policies and practices of MNCs operating in India is negligible (see Budhwar, 2012), although there are many cases of union success including through grave violence in the two cases discussed by Saini (2006, 2012). However, the workers’ stance is slowly changing and becoming more cooperative towards their employers.

It has to be admitted that the liberalisation of the Indian economy has put tremendous pressure both on the employees and employers. As a nation, India is lagging far behind in productivity standards and production of quality goods (see Budhwar and Varma, 2011a). These realities have begun influencing the mindsets of unions and union leaders, who now seem to be meekly giving in to the legitimacy of the globalisation agenda, as they are aware of these burning problems. In such circumstances, the possible consequence of the adoption of appropriate HRM policies is likely to be salutary. They will lead to minimum wastage of human and financial resources at the micro level. Their adoption will also give due importance to professional activities as per market exigencies. But, values of ‘association’, ‘industrial justice’ and ‘workers’ dignity’ will face crisis; ‘minimum standards of employment’ are also getting clouded due to the unofficial support of the state to cost-cutting preferences of employers that are hidden in the globalisation agenda. But being a democracy, the country cannot openly adopt policies that disapprove of these IR values.

Diluting ‘workplace pluralism’ as a value by superimposing HRM on it may work successfully if a significant chunk of the workforce is ‘gold-collared’. The merger of HRM and IR agenda can possibly work effectively in such a situation. If that can happen, one can also forecast greater possibility of the use of HRM as a broad model of workplace justice. Some of the best examples in this regard are most software companies in the country, which have used empowerment HRM as a model of workplace justice, which automatically keeps the law and adversarialism away (see Budhwar et al., 2009). The viability of the use of soft HRM as the principal philosophy in managing human resources increases in the case of such companies that employ knowledge workers. However, without question this will be too much of an asking from firms that do not have knowledge workers. Nevertheless, to a great extent this is successfully practised in many MNCs operating in India, irrespective of having knowledge or non-knowledge based employees (see Bjorkman and Budhwar, 2007; Budhwar, 2012). It needs a macro level of overhauling of the Indian HRM system, which has made quite some progress so far. Still, India has to go a long way in this direction (also see Budhwar and Varma, 2011b).

Going by the way the Indian government has reacted to the situation, the continuance of its sympathy to the cause of social justice in the organised sector appears only remote. This is despite the fact that there has been no labour law reform at all in the post-liberalisation era. This may appear surprising to the champions of globalisation. But principally, governments’ unwillingness to effect labour reforms in the past decade or so is largely explained by their fragility at the central level; they have not shown the courage to antagonise the trade unions openly by undertaking these reforms. Interesting as it may appear, most employers have been able to manage the show despite the archaic laws. However, there is always a limit to everything, including the regulatory laws for workplace functioning. An amendment has been recently made to the IDA in 2010, but it has not touched at all the controversial parts of the labour legislation that the Congress government had promised in 1991 while announcing the new economic policy.

At the executive level, state governments’ attitudes have changed considerably. Many of them have announced far-reaching changes in their labour policies, which henceforth appeared sacred cow in favour of the workers. Now they tacitly support hire and fire policies; forbidding of bandhs (closures), as happened in the case of Kerala (a state in South India); and easing of requirements for labour inspection, for example in the state of Rajasthan. The West Bengal state government (which was until recently headed by a Marxist party) during its regime cancelled the registration of hundreds of unions for non-submission of returns to the Registrar of Trade Unions, which is contrary to its earlier position. The incidence of granting permission for closure and retrenchment (as required under the IDA) in the state of Tamil Nadu has gone up, thus reflecting the new thinking among the states.

The above developments in Indian IR augur fairly well for developing HRM, for it is difficult to sustain it in situations of zero-sum IR. This is especially important when India’s HR systems and processes have to be attuned to facilitating efficiency and productivity, and eventually the export-promotion model of development. But the government’s support can be said to be forthcoming indirectly, that is, by remaining oblivious to the legal intent. The question is whether this is enough for the country’s needs to attract higher levels of FDI. MNCs and other professional establishments need more tangible ways of state support including having the changed legal framework itself. Intriguingly, it should be appreciated that one way of tackling the problem of flexibility at the micro level is the effective adoption of HRM thinking. It has been used in many organisations including leading ones like Reliance and Tata Steel. The latter had about 80,000 workers when it realised the state of crisis due to overstaffing. Today it has managed to reduce itself to about 35,000 employees through well thought-out and sagacious employee relations policy. But most other organisations are unable to do this, especially in the public sector, for example, Air India, which is continuously incurring massive losses. The need for reforms in IR law so as to be facilitative to the globalisation policies then remains paramount.

The Labour Law Framework

India has about 50 major pieces of central labour legislation and about 150 pieces of state labour legislation. All of these can be grouped into five major categories, that is, laws relating to working conditions; laws relating to wages and monetary benefits; laws relating to industrial relations; laws relating to social security; and miscellaneous labour laws. Some of these laws were already in existence at the time of independence; more were added to give way to the philosophy of a welfare state adopted by the Indian state and enshrined in the Constitution. But the size of the organised sector workers who are protected by these laws has always been small and never exceeded 10 per cent of the total workforce in the country. Presently, it is estimated to be around 7 percent including the informal workforce in this sector. Some of the most salient pieces of Indian labour legislation can be listed as follows.

• Apprentices Act, 1961
• Beedi & Cigar Workers (Conditions of Employment) Act, 1966
• Bonded Labour System (Abolition) Act, 1976
• Building and Other Construction Workers (Regulation of Employment Service) Act, 1996
• Child Labour (Prohibition and Regulation) Act, 1986
• Cine-Workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981
• Contract Labour (Regulation and Abolition) Act, 1970
• Dangerous Machines (Regulation) Act, 1983
• Dock Workers (Regulation of Employment) Act, 1948
• Dock Workers (Safety, Health and Welfare) Act, 1986
• Emigration Act, 1983
• Employees’ Compensation Act, 1923
• Employees’ Provident Fund and Miscellaneous Provisions Act, 1952
• Employees’ State Insurance Act, 1948
• Employers’ Liability Act, 1938
• Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959
• Equal Remuneration Act, 1976
• Factories Act, 1948
• Industrial Disputes Act, 1947
• Industrial Employment (Standing Orders) Act, 1946
• Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979
• Labour Laws (Exemption from Furnishing Returns and Maintaining Registers by Certain Establishments) Act, 1988
• Maternity Benefit Act, 1961
• Mines Act, 1952
• Minimum Wages Act, 1948
• Motor Transport Workers Act, 1961
• National Commission for Safai Karamcharis Act, 1993
• Payment of Bonus Act, 1965
• Payment of Gratuity Act, 1972
• Payment of Wages Act, 1936
• Plantations Labour Act, 1951
• Public Liability Insurance Act, 1991
• Sales Promotion Employees (Conditions of Service) Act, 1976
• Trade Union Act, 1926
• Weekly Holidays Act, 1948

Supporters of globalisation have often argued that Indian labour is over-protected, and many pieces of labour legislation have lost their relevance in the globalising India. They have also felt a dire need for carrying out labour law reforms so as to meet the flexibility needs of the changing global economy. A critical look at the labour law framework reveals the following points.

• Among others, problems are faced when an employer wants to close their operations or lay-off or retrench workers in a factory, plantation or mine employing 100 or more workers. This requires requisite permission from the government, which is sometimes difficult to obtain. It is a reality that a lot of arbitrariness is often exercised in handling the permission issues. Sometimes, decisions are taken by government officials on extraneous considerations. Many organisations that are perennially sick are denied the permission. Globalisation philosophy is difficult to sustain if firms do not have the requisite flexibility in the formal labour market. The presence of chaotic competition caused by the new realities is bound to compel employers to search avenues of flexibility so as to try to excel. Therefore, a review of the existing structure of retrenchment and closure law is long overdue.
• Also, it is believed that the Indian organised sector provides too much job security to workers without relating it to performance, accountability and productivity. Consequently, these laws have a debilitating effect on labour mobility, which is an essential pre-requisite of efficient working of firms in a competitive environment. On the contrary, countries like China are able to re-structure their labour market much more rationally as per the needs of globalisation.
• Another area that requires the government’s attention is section 9-A of the IDA. This section envisages an employer providing 21 days’ notice to a union/workmen in case he or she wants to make any change in workers’ service conditions. When this is so done workers raise an industrial dispute about the change, and many times employers miss some critical opportunities to make their competitive position better. This tends to become the biggest stumbling block in managing change.
• The multiplicity of labour laws in India is a big hurdle for employers. This has made the system very complex for ordinary managers as well as workers. Many of the problems in this regard relate to the applicability of these laws; the definitions of various terms like ‘worker’/‘employee’, ‘appropriate government’ and ‘wages’; the different administrative structure for enforcement of these laws; the creation of special dispute resolution bodies; and so on. This leads to an excessive role for lawyers, which should be avoided so as to promote a greater degree of voluntarism in IR. There is a need for the simplification of Indian labour laws, which is something that would be beneficial to workers as well as employers.
• A plethora of case law has been delivered by the judiciary to clarify labour law complexities. Many of these decisions are not quite easy to comprehend, which adds to the existing confusion of the employers. This has made the grasping of labour laws a very complex affair. In fact, labour law complexity often tends to convert union leaders into full-time pleaders, who have set up labour law practice as a vocation; even though they should be seen to be busy resolving workers’ grievances or organising workers for collective strength and collective bargaining.

Interestingly, there are some silver linings for the employers so far as their competitive position viz a viz workers is concerned. The recent signals from the judiciary in the labour field are encouraging from the employers’ point of view. Some of these recent labour judgments reflect the belief that the judiciary is more sympathetic with the employers’ problems in the era of globalisation and realises their susceptibilities in the new environment. The number of strikes resorted to by workers is declining and employers have successfully used lockouts to face the union power. The higher number of dismissal decisions of employers is being upheld by the higher judiciary so as to make stronger the employers’ position in industrial relations.

Shifting Agenda in the 21st Century: Possible Directions for HRM in India

In the present competitive business environment the Indian HR function faces a large number of challenges. Many of these were discussed above. To survive and flourish in the new dispensation, drastic changes are required at the national, organisational and individual levels. Some of these seem to be taking place, although possibly not with the required rigour and not quite in the right direction. One serious problem while making such judgment and analysis is the availability of reliable empirical research evidence. On the basis of the available information and our own experiences, the following observations can be made.

The National Level

The above section highlighted some of the main national factors that significantly influence HRM in India (for details in this regard also see Budhwar and Sparrow, 1998, 2002b). Early indications suggest that the nature and accordingly the impact of most of the national factors (especially different institutions such as trade unions, the legal framework and the dynamic business environment) on Indian HRM is going to change. The legislations have to be amended so as to suit the present economic environment and help both workers and employers in the ‘real’ sense. The stance of unions is further expected to become more co-operative. The dynamic business environment is further going to dictate the nature and type of HRM systems suitable for the country. With the rapid developments in the software and IT enabled services (ITeS) sector and an increased emphasis on business process outsourcing (BPO), one can expect the emergence of sector-specific HRM patterns (see Budhwar et al., 2006).

The Organisational Level

A Strategic Approach to HRM

The existing research evidence (see Budhwar and Sparrow, 1997, 2002b) regarding the strategic nature of HRM in Indian national firms suggests that there is a low representation of the personnel function at board level, and few organisations have devised formal corporate strategies. Of these, a handful seem to consult the personnel function at the outset (comparing to a norm of about 50 per cent in European organisations), many involve personnel in early consultation while developing corporate strategy and many also involve personnel during the implementation of their corporate strategy. Of course, the status of the personnel function in India has improved in the last two decades or so. The number of personnel specialists moving to the position of CEO has increased over the last few years. On the other hand, it seems that Indian firms are witnessing a significant devolvement of responsibility of HRM to line managers. One can notice this in the areas of pay determination, recruitment, training, industrial relations, health and safety, and expansion/reduction decisions. Moreover, Indian firms have been showing an increased emphasis on training and development of HR (see Budhwar and Varma, 2011b). However, if a strategy of devolvement is not associated with a closer integration of HRM into the business planning processes, it may create a situation of chaos in organisations as they attempt to cope with the HRM implications of liberalisation. Hence, the way forward is the adoption of a more strategic approach to HRM.

Structured and Rationalised Internal Labour Markets (ILMs)

The existing literature suggests the existence of unique ILMs in Indian organisations, one based on social relations, political affiliations; political contacts, caste, religion and economic power (see Budhwar and Khatri, 2001). However, considering the present dynamic business environment, Indian organisations need to pursue more rationalised HRM practices and build still stronger ILMs (which should emphasise solely on performance and should be less influenced by the mentioned social, economic, religious and political factors). There are some indications regarding such developments (in the form of increased emphasis on training and development, preference for talent in the recruitment and performance-based compensation), however, these tend to be more in the MNCs or the professionally run sectors such as the BPO, ITeS, pharmaceuticals. Globalisation dynamics require that there is a need to speed-up the merit- and performance-based decision making in all sectors (also see Budhwar and Varma, 2011b).

Open to Change, Sharing and Learning

In the present competitive business environment radical changes are taking place, and it is difficult to keep a track of many such changes. The new economic environment, although it presents a number of threats to local firms, also offers many opportunities to learn, collaborate and change to suit the new context. To make the best use of the existing conditions, Indian firms need to be flexible and to demonstrate readiness to change. Regular interaction with competitors and relevant stakeholders is becoming a necessity in the modern networked organisations. In this regard, a lot can be learned from HR managers working in MNCs operating in India who are open and flexible in their approach to managing human resources. For example, a research investigation with 65 top HR managers in as many foreign firms operating in India (see Bjorkman and Budhwar, 2007) reports that local firms are more rigid to change, are less transparent in their operations, provide less learning opportunities and operate on traditional ILMs. However, the HR managers also perceive that the scenario is rapidly changing and such a gap between the working of MNCs and local firms is going to decrease in future. This should be one of the main items on the agenda for Indian firms. The liberalisation of economic policies, globalisation realities and the operating practices of foreign firms will all put pressure on Indian firms for a more professional performance. The increasing number of Indian students graduating from the developed countries and going back to India will also contribute a great deal towards resorting to a greater degree of professionalism by visionary Indian firms.

Crossvergence of HRM

With the coming-in of a very large number of MNCs to India one can expect an active mixing-up of different management systems (such as the Japanese or the American way of doing things). In such conditions, there will be a greater possibility of standardisation of managerial roles across different firms. This is an outcome of the globalisation exigencies or some kind of ‘crossvergence’, that is, a blending of work cultures (due to the active interface of diverse groups). Hence, one can expect cultural convergence and cultural overlap among different types of firms operating in the country. Already, Japanese and many American firms operating in India are able to adopt their respective HR practices in their operations with minor modifications (see Budhwar, 2012).

The Individual Level

Many Indian educational institutions (such as the Indian Institute of Management and the Indian Institute of Technology) are known to be producing world-class graduates. Considering the rapidly changing business environment and the emergence of a large number of MNCs in the country, a paradigm shift in the mindsets of individuals can be witnessed. The HRM policies of the foreign companies have exercised considerable power in influencing the traditional scenario of preference for secured jobs. For example, the professional customer handling by the Citi-bank has been positively influencing the public sector banks in the country that have to now operate in a competitive environment. The Indian managers view these practices as benchmarks. Further, most foreign firms and an increasing number of local firms emphasise the need to attract talent. They are increasingly adopting formal, structured and rational approaches to attract, acquire and retain talent (Budhwar et al., 2009). This has significantly influenced behaviour at both the individual and organisational levels. The opportunities provided by the new sectors such as software, call centres and IT on the one hand and the MNCs on the other have encouraged females to come and join the mainstream workforce. Such developments are expected to continue and will eventually help transform the adoption of HRM practices in the country.

Key HRM Challenges

The HR environment in the country has been changing rapidly over the years. New HR challenges are emerging due to the new contextual factors. These challenges are discussed below.

Even though the size of the Indian workforce is huge, there is an acute skill shortage in the fast-growing economy. Until recently, there was no all India authority to oversee skill development and to certify skill attainments. Only very recently, the National Skill Development Corporation (NSDC) has come into being as a public private partnership (PPP) initiative. The scarcity of skills is noticeable at all levels. MNCs are finding the existing skill levels of graduates highly inadequate. Ironically, this is despite the fact that India is believed to have the largest number of English-speaking people. A recent survey of employers in 20 sectors such as IT, power and infrastructure in India reported that 64 per cent of the employers were not satisfied with the skill sets of fresh engineering graduates, even as most employers were happy with the English communication skills of the new graduates (The Economic Times, 2011). The skill gaps were found to be the largest within higher order thinking skills and smallest among the lowest order thinking skills. Further, a McKinsey report in 2005 observed that only 25 per cent of Indian engineering graduates are employable in MNCs. The primary reason for the inadequacy of skills is consequent of an insufficient number of educational and skill development institutions as well as the quality of the faculty in the existing institutions. It is estimated that India needs to create 1,500 new universities to add to the existing 380 universities and 11,200 colleges so as to meet the educational needs of the growing populations (Budhwar and Varma, 2011b). For several companies in highly competitive sectors, the talent crunch constitutes a ‘make-or-break’ HR issue, which makes the value of good HR management readily apparent to top executives (Grossman, 2006). Thus in several companies a much higher respect of HR is gaining ground. Another factor that compounds the skill shortage is the large percentage of women who are hired but who do not join or who leave early, which is a significant problem when one considers that women in many sectors make up a significant percent of the workforce in urban areas.

So far as vocational education and training in India is concerned, it divided into two sub-systems. At the central (federal) level, while the vocational education is under the control of the Ministry of HRD, vocational training is basically regulated by the Ministry of Labour. Partly the former ministry also exercises some control even in matters of training. Further, some 35 ministries of the central government are involved in providing and supporting some kind of training in their respective areas of operations (Saini, 2003). Vocational education is provided at the senior secondary stage in schools. This is over and above engineering, management and other technical education that takes place under the overall supervision of the University Grants Commission (UGC) and the All India Council of Technical Education (AICTE), both of which are central statutory bodies. State governments also exercise control in matters of accreditation of education at the engineering diploma level. Among the specialised vocational training institutions, more than 4,000 industrial training institutes (ITIs) are being run at present; out of these 1,654 are run by the government and 2,620 are run privately. Altogether, they have a training capacity of 625,000 students. Apart from these, the Apprentices Act 1961 has been applied to some notified industries. The Act obliges the employers covered under the Act to engage apprentices in certain predetermined trades as well as those holding degrees and diplomas as per the specified ratio. This scheme is, however, working much below the projected capacity for lack of proper enforcement. Various government ministries and non-governmental organisations (NGOs) are running vocational training schemes for the informal sector. Apart from these, companies in the public and private sectors are also involved in providing skills training and their upgradation.

It has been found that private training-provider institutions have been able to grow with a good degree of effectiveness and have some remarkable stories of success. But the government-run industrial training institutes (ITIs) are functioning under several constraints and this should be kept in view while planning for effective training strategies. The following factors have been considered as crucial in the efficaciousness of a training implementation framework: autonomy (operational, financial), quality of skills delivery, the dedication of staff, a holistic approach, a focus on specific target groups and skills, freedom of admission and staff policy, effective management, adequate fees, employability of skills, marketability of products, capacity building of providers, networking, needs’ assessment, local resource base and scientific support in training and technology design (Adams and Krishnan, 2003).

Further in view of the scenario of skill shortages, another crucial issue for Indian HRM is recruitment and selection. The criticality of recruitment arises from the fact that the attrition rate in many industries is very high – as high as 150 per cent, especially in many BPOs. This is largely due to talent shortages, which open more opportunities to candidates with the requisite competencies. Recruitment also becomes crucial due to the growing needs of industry in many sectors; many HR managers claim that 80 per cent of their time goes on recruitment (Grossman, 2006). Since Indian organisations have to keep in view the recruitment and engagement practices of the MNCs, they need to work on devising appropriate recruitment tests and devices. For recruiting the managerial category employees companies have to go to the institutes of excellence like the IIMs (Indian Institute of Management), IITs (Indian Institute of Technology) and other institutes known for pursuit of excellence. These institutes invite companies for recruitment on the basis of the employer brand of the recruiter concerned. So, companies with a lower recruitment brand are always seen to be struggling to get the best possible candidates, as they are already placed with companies having better employment brands. Thus, HR departments have to consistently work on getting the best possible opportunities to recruit from top institutions and then have to make policies to retain them. Most leading companies are providing in-house HRD facilities so as to meet their talent needs, which also help as retention tools. Companies especially in the private sector are using employee involvement devices to enhance the engagement of their employees (Cooke and Saini, 2010a). Use of employee involvement and empowerment devices is becoming common place with most software companies; but others have also begun using them. Companies like Tata Steel and Maruti-Suzuki are well known for their suggestion schemes, which prove useful techniques for employee engagement and retention. But given the fact that India is primarily a high-power distance country, it is not very easy to use empowerment devices in the Indian context. Overall, the employee engagement scores have been found to be as low as just 7 per cent. The reasons for this have been found to be ‘indifferent managers, low wages, caste discrimination, hierarchical relations, rule-centricity, and misuse of managerial power’ (Budhwar and Varma, 2011b: 321).

Quite like the way generation Y is throwing challenges to HR managers globally, the Indian situation is no different. It has a serious challenge of meeting the reasonable expectations of this section of the Indian workforce. HR managers need to understand the precise factors that are relevant for recruiting and motivating them. They do not get attracted to economic considerations alone. Factors like interesting work, job design, flexibility, challenging work, opportunities for development and work–life balance are some of the important factors that they look for in any organisation. They also desire to be subjected to a lesser degree of control. Since globalisation is promoting values of individualisation as opposed to collectivisation, HR will need to evolve more relevant motivation and engagement devices for the idiosyncratic younger generation.

The issue of leadership development too has been further exacerbated by the talent crunch. With a rising number of Indian MNCs and the increase in success and profitability of other Indian companies, HR will be on its toes to work on succession planning and leadership development. With the amazing expansion plans of these companies sagacious leadership becomes ever more difficult. Unlike Japanese MNCs that mostly rely on their own nationals to work in their facilities in India, most others rely on Indian nationals and less on expatriates.

HR also needs to assume a greater presence in its strategic role and move away from the transactional HR. Presently, it is so in isolated cases only, especially software companies. They need to learn to align their work and processes with business goals and strategies. The alignment is more a rhetoric than reality. Business schools also have a responsibility of popularising this aspect of their role in training the MBAs in HR. The discipline is growing but at a lesser pace. The greater use of metrics in measuring the efficacy of human capital deployment will also be an important part of the HR’s role.

Last but not least, employee relations have been re-surfacing as an important issue in many industries and industrial belts. Many cases of grave violence were noticed in cases such as Honda Motorcycles and Scooters India Pvt Ltd, Glaziano (an Italian MNC), Maruti-Suzuki (a Japanese MNC that witnessed four strikes by its young Manesar workers over a union registration issue) and many other Indian companies. Glaziano witnessed the murdering of their Indian CEO in 2008 by the workers. Another case of murder of the company president was recently witnessed in Regency Ceramic in January 2012. In 2009, workers of Pricol killed its vice-president over an industrial dispute. There have been recent cases in Gurgaon where contract workers burnt public and private vehicles out of disgust when their colleague was assaulted by the contractor for not obeying his orders. These incidents reflect the rising unrest among workers due to their declining labour power. It also underscores that industrial relations (IR) issues can not be believed to be wiped out by pursuit of neo-liberal policies by the state where it throws the working class to the pure exigencies of the market. Conflict can not remain suppressed for a long time. It does manifest itself sometime in very violent manners. Given that IR as a discipline is weakening considerably and fewer HR students are willing to take an interest in it, HR managers will have a grave responsibility of innovating ways to handle these issues. Interestingly, even as contract labour is not legally a responsibility of the principal employer, lately it is raising its voice in a way that the latter cannot ignore it as an issue for the contractor to handle. In many cases of recent IR disruptions contract labour issues came to the surface, production came to a halt and some serious socio-legal issues concerning them had to be tackled by many companies. With the rising incidence of contract labour employment in the country, this is likely to be one of the key challenges for HR.

Conclusion

This chapter has focused on the present state of HRM in India that has emerged through its historical evolution, the institutional framework that supports the existing HR paradigm in the country, the challenges that Indian HR presently faces, and the future imperatives that HR managers have to attend to. It has highlighted that there is a remarkable progress in the professionalisation of HRM in the country in the organised sector. Attempts towards greater professionalism can be attributed partly to the progressive policies brought along and pursued by the MNCs and the professionally managed Indian organisations including some of the public sector enterprises. The attitude towards business practice in general is changing, and people are realising how far they need to change so as to cope with the change needs. Among others, the key problems that have adversely influenced the management of human resources in India include the problems of skill and competency development, the rigidity caused by the labour law framework, scarcity of talent to assume leadership roles, the hierarchy-driven mindsets of employers, low employee engagement in general, HR professionals who can play the strategic partner’s role, a dynamic government’s indecisiveness in matters of privatisation and dis-investment, and fragility of political coalitions that adversely affects the government’s willingness to take bold decisions.

Another important factor affecting the HRM policies at the macro level is the deceleration in the employment growth in the organised sector and the massive under-employment in a labour surplus economy. This increases the power of employers, and enables them to shape their HR strategies towards cost reduction and other instrumentalist devices. Thus a greater reliance is put on employment of peripheral rather than core employees. With the weakening of the employee power, the HRM practices vis-à-vis this section of employees are bound to reflect the hardest possible devices including resort to denial of minimum standards of employment and commission of unfair labour practices (ULPs) in their IR policies. In the time to come India will have to respond to the need to mainstream the millions of socially, economically and educationally deprived Indians who are unprotected by law and/or are underemployed or are self-employed. This today is also an issue of intense debate among business and academic communities. The Mahatma Gandhi Rural Employment Guarantee Scheme (MNREGA) launched by the Indian government is a salutary step in restoring some semblance of dignity to them. It will be a challenge to all concerned as to how HR policies are devised for this large section of informal sector workers so as to mitigate social unrest among them.

At the same time several MNCs are leading and practising some of the most modern HR interventions to seek competitive advantage. In such settings, it is noticeable that the role of HRM managers is getting transformed from that of adopting the legal compliance approach to that of culture building, communication, change management, performance management and measuring effectiveness of HR systems and interventions. Within the organised sector, however, the HRM practices are quite varied depending upon variegated factors. The majority of management schools, however, are still struggling with getting qualified faculty so as to adequately respond to the challenges of the new environment in terms of evolving appropriate courses, even as the professionals have responded well to the challenges by using some of the most modern interventions – more so in the software industry. A shift is noticeable in the attitude of the government. It is less concerned with social justice dispensation, and has demonstrated a far greater degree of willingness to ensure the success of the globalisation model of development. Interestingly, this has been possible to quite an extent despite the rigid labour law framework, for it is the governmental power that activates that framework. A rapidly growing industry of HR professionals has emerged, which is increasingly becoming sensitive to the needs of aligning HRM with business needs and strategies. Apart from the performance of the traditional HR functions, new transformational themes are being identified, even though not to the extent they are in vogue in the developed world (Cooke and Saini, 2010a, 2010b; Varkky, Pradnya and Gautum, 2001). These, among others, include concepts like ‘People Capability Maturity Model’, work–life balance, diversity management, talent management, innovative welfare measures and benefits, employee involvement devices and strategic leadership.

Some of the key challenges before the Indian state include streamlining the working of the unorganised sector and providing a workable model of competency and skill development at the national level. This is corroborated by the setting up in May 2008 of the NSDC. And the hitherto adversarial model of employee justice dispensation promoted by the present legal framework is getting weakened due to the change in the attitude of the social partners; but at the same time several instances of workers’ wild responses to industrial conflict are visible in the recent past, which certainly establish that the possibility of disruptions in employee relations is far from over. Many companies are putting primacy on the pro-active management of employee relations, beside their other strategic HRM priorities. If the HRM function grows fast, then it can help in diluting or even altering the hurdles created by the existing cultural realities to facilitating professional excellence. MNCs are expected to further contribute towards a still faster dawn in India of the era of strategic HRM as a way of organisational life.

Useful Websites

Indian Society For Training & Development: www.istdtrg.org

The National HRD Network: www.nationalhrd.org

National Skill Development Corporation: www.nsdcindia.org

Strategic Human Resources Management India: www.shrmindia.org

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