Everything you need to know about collective bargaining in India.
Collective bargaining has emerged throughout the world, particularly in democratic countries, as a major institutional mechanism for the resolution of conflict of interests between labour and management.
Collective bargaining is a process in which management and employee representatives meet and negotiate the terms and conditions of employment for mutual benefits.
It is collective because both employer and employees act as a group rather than individuals. It is bargaining because the method of reaching an agreement involves proposals and counter proposals, offers and counter offers.
1. Introduction to Collective Bargaining in India 2. Concept of Collective Bargaining in India 3. Forms of Collective Bargaining in India 4. Policies and Procedure 5. Types 6. As a Source of Competitive 7. Advantage 8. Structure 9. Causes for the Limited Success 10. Future.
Collective Bargaining in India: Concept, Forms, Types, Advantage, Structure, Future and Other Details
- Introduction to Collective Bargaining in India
- Concept of Collective Bargaining in India
- Forms of Collective Bargaining in India
- Policies and Procedure of Collective Bargaining in India
- Types of Collective Bargaining in India
- Collective Bargaining in India as a Source of Competitive
- Advantages of Collective Bargaining in India
- Structure of Collective Bargaining in India
- Causes for the Limited Success of Collective Bargaining in India
- Future of Collective Bargaining in India
Collective Bargaining in India – Introduction
In India, collective bargaining has been growing along with the growth of trade unions and the first collective bargaining agreement was made in a textile industry in Ahmedabad. Collective bargaining has been growing rapidly in the post-independence scenario, happening mostly at the plant and organizational level and not at the industry level.
The limited success of collective bargaining in our country can be attributed to the following factors:
i. Problems with the unions such as absence of strong unions, multiplicity, and inter- and intra-union rivalries.
ii. Lack of initiative by the government for development of the process of collective bargaining.
iii. Easy accessibility of adjudication leading to loss of sheen for collective bargaining.
iv. Political interference in union matters and inter-party rivalry causing inter- union rivalry.
v. Negative attitude of managements.
The National Commission of Labour has made the following recommendations for the success of collective bargaining:
i. Limited intervention by the government and usage of compulsory adjudication as the last resort.
ii. Strengthening the trade unions organizationally and financially by making appropriate amendments in the Trade Union Act, 1926 through various incorporations, such as-
a. Compulsory registration of trade unions,
b. Enhancement of membership fee, and
c. Reduction of external influence on union bodies and office bearers.
Collective Bargaining in India – Concept
Credit goes to Webbs for the concept of ‘Collective bargaining’ at the beginning of this century. It is called “collective” because employees form an association authorising it to act as their agents in reaching an agreement and because employers may also act as a group rather than an individual.
It is described as “bargaining” in part because the method of reaching an agreement involves proposals and counter-proposals, offers and counter offers. In collective bargaining, the representatives of both the employers and workers sit together and settle matters by mutual bargaining. The agreements are not compulsorily enforceable. All depend upon mutual goodwill and trust, mainly of the employers.
As a measure for prevention of industrial disputes, it is very important and is being widely used in the western countries. It is closely associated with the growth of trade unionism. Collective bargaining as a technique is an integral part of industrial society. Workers’ participation in management can be successful only as a supplement to a well-established system of collective bargaining.
It is an important instrument for redressing the grievances of the employers as well as the workers. It removes class-hatred, mutual distrust and friction to a considerable extent as things are settled amicably. It educates the workers and gives them a feeling of oneness with the employers and the organisation. It helps in improving their lot without resorting to strikes. On the whole, it improves the industrial relations considerably.
“A mature collective bargaining is the best child of industrial relations”. Collective bargaining assumes unique importance in labour-management relations since impulse for movement in worker’s participation in management must come from within and not from without or government. Labour-management relations through workers’ committees or joint management councils and collective bargaining machinery are complementary and must go hand-in-hand.
Collective bargaining includes – (1) Union recognition (2) Management rights (3) Strikes and lockouts (4) Wages (5) Working conditions (6) Discipline (7) Arbitration (8) Job rights (9) Health and safety, and (10) Social security.
To be successful, collective bargaining should have-(1) Strong representative trade union (2) Strong and sympathetic management (3) Agreement on basic objectives (4) Mutual co-operation and trust (5) Existence of fact-finding approach and willingness to use new methods and tools for the solution of industrial problems.
Large number of companies in India have resorted to this method of labour management association. TISCO and Indian Aluminium have been using this tool with success.
The existing obstacles to collective bargaining must be removed to accord due importance to it as an effective measure for ensuring industrial peace.
Collective Bargaining in India – Forms
At the outset it should be stated that there is a great deal of variation in the collective bargaining practices ranging from an informal oral agreement to a very formal and detailed agreement.
Collective bargaining takes the following forms:
(i) Single plant bargaining- It may be a single plant bargaining, that is, bargaining may be between a single trade union. This type of collective bargaining prevails in the United States and India.
(ii) Multiple plants bargaining- It may be a multiple plant bargaining, that is, bargaining may be between a single factory or establishment having several plants and the workers employed in all these plants.
(iii) Multiple employees bargaining-It may be a multiple employer bargaining, that is, bargaining between all the trade unions of workers in the same industry through their federal organisations, and the employer’s federation. This is possible both at the local and regional levels and is generally resorted to in the textile industry.
In India, collective bargaining has been classified under four categories.
(i) Negotiated by officers – Agreements which are negotiated by officers during the course of conciliation proceedings and are called settlements under the Industrial Disputes Act.
(ii) Negotiated by parties – Agreements which are concluded by the parties themselves without reference to a Board of Conciliation and are signed by them. Copies of such agreements, however, are sent to appropriate governments and to conciliation officers.
(iii) Negotiated on voluntary basis – Agreements which are negotiated by the parties on a voluntary basis which are later submitted to industrial tribunals, labour courts or labour arbitrators for incorporation into the documents as parts of awards. These are known as consent awards.
(iv) Agreements which are drawn up after direct negotiation between labour and management and are purely voluntary in character. These depend for their enforcement on moral force and on the goodwill and co-operation of the parties.
Collective Bargaining in India – Policies and Procedure
The managements in multi-location companies have started to decentralize the process of collective bargaining to leverage the local market conditions. The other perspective was that each distinct profit center should be treated separately and the bargaining strategy of the management should vary accordingly.
A point that should be noted when comparing and contrasting unionized companies is that the frequency of employee representatives’ meetings with management varied from twice a week to very rarely. These were used for formal discussions about grievances and procedural matters.
In all, the important aspect regarding collective bargaining was that there was far less emphasis on achieving productivity gains through the ubiquitous mechanism of productivity bargaining. More and more established companies, with few exceptions, have begun to place less faith in the continued pursuit of detailed productivity agreements and are instead looking at a wide span of initiatives beyond collective bargaining.
In a way, the balance between industrial relations and ‘new’ human resource approaches has shown signs of adjustment.
Trade unions as a whole, both at national and workplace level, were relegated to the sidelines of most of the managerial initiatives. At most there were half-hearted attempts, which sounded like- The unions were invited to the party but they didn’t seem to want to com. So, the party went ahead without them.
The companies had come up with more novel features such as mission, values, guiding principles, employee involvement and potentially radical shake-up of the supervisors.
In fact, when we discuss the trade unions as ‘partners’, a key question that arises is that whom do we mean by ‘the trade union’? Just as we have factions in managers, we have factions in trade unions too.
There is an increased sense of tension between union representatives at plant level and plant managers or local managers. Quite often the plant level union representatives are criticized of cooperating with local managers ignoring the directives of central union leaders.
The Trade Union Act facilitates unionization both in the organized and unorganized sectors. It is through this law that the freedom of association, which is a fundamental right under the Constitution of India, is realized.
The right to register a trade union, however, does not mean that the employer must recognize the union. There is in fact no law which provides for recognition of trade unions and consequently no legal compulsion for employers, even in the organized sector, to enter into collective bargaining.
Yet in reality, because of the strength of particular trade unions, there is fairly widespread collective bargaining, especially in the organized sector.
Collective Bargaining in India – Types: Bipartite Agreements, Settlements and Consent Award
Collective bargaining as it is practiced in India can be divided into three classes. First is, the bipartite agreement drawn up in voluntary negotiation between management and union. The second type is known as a settlement, while the third type of collective agreement is consent award.
These are discussed below:
Type # 1. Bipartite Agreements:
These are most important types of collective agreements because they represent a dynamic relationship that is evolving in establishment concerned without any pressure from outside. The bipartite agreements are drawn up in voluntary negotiation between management and union.
Type # 2. Settlements:
It is tripartite nature because usually it is reached by conciliation, i.e., it arises out of dispute referred to the appropriate labour department and the conciliation officer plays an important role in bringing about conciliation of the differing viewpoints of the parties. And if during the process of conciliation, the conciliation officer feels that there is possibility of reaching a settlement, he withdraws himself from the scene.
Then the parties are to finalise the terms of the agreement and should report back to conciliation officer within a specified time. But the forms of settlement are more limited in nature than bipartite voluntary agreements, because they strictly relate to the issues-referred to the conciliation officer.
Type # 3. Consent Award:
Here the negotiation takes place between the parties when the dispute is actually pending before one of the compulsory ad judicatory authorities and the agreement is incorporated to the authorities, award. Thus though the agreement is reached voluntarily between the parties, it becomes part of the binding award pronounced by an authority constituted for the pose.
Collective Bargaining in India – As a Source of Competitive Advantage
Collective bargaining way of designing and executing employment relations creates a visible and well documented policy available in public domain. It tends to get duplicated in many other organizations in a short time. Then, is it possible to have any long-term competitive advantage through such processes?
Given the amount of managerial time that goes in closing a negotiation with a trade union, it is a valid and legitimate question and concern. In search of a sustainable competitive advantage, should an organization’s management encourage trade unions and go for collective bargaining-oriented employment relations at all? The answer is yes.
What happens is that even though our competitors may duplicate and make similar type of contract with their trade unions yet they may not get the same result in terms of total operating cost. They may duplicate the wage rates that we have set with our trade unions yet the total operating cost per unit of output could be very different because the productivity of the two companies are different.
Collective bargaining mode of managing employment relations is most appropriate in those areas where the employees are extremely sensitive to inequity both in inter-employee and inter – organizational career outcomes. Lack of equity and consistency across employees and across organization makes these employees extremely perturbed and agitated which affects their motivation to work and their commitment to the organization very seriously.
An open negotiation with a trade union where they place their faith and allegiance gives them a feeling of being heard and a voice in those processes that affect their working life. As such, this may not make them more productive but it will ensure an uninterrupted supply of their services to those segments of the organization where employment contracts are still individual centric contracts and where employee loyalty, commitment, and motivation are less dependent on details of their employment contracts.
It is the managerial productivity that is enhanced by the availability of good number of satisfied workers. An organization gains more from the managerial ability to accumulate and integrate services and outputs of many other ordinary workers. Lack of commitment of these workers or timely availability of goods and services from them could affect a manager’s ability to meet the demands of the customers.
Even if a company spends less on account of workers wage than that of its competitors yet its average cost of production could be higher than those of the competitors because due to workplace agitation and work stoppage, its managers could not keep the plant running every day. It is through such poorly managed internal process, e.g., when the workers are paid non-competitive wage or their workplace facilities are grossly inadequate that the operating cost per unit output of a plant rises.
Internal management process is seldom negotiated in open forum. It means others can hardly duplicate a high value practice of a company. Not only that even if a company follows the same negotiation route to arrive at the same wage rate for its workers like its competitor yet it may not get the same output and commitment from its workers. The response of workers on account of a wage agreement depends not so much on the actual agreement as on the way such an agreement has been arrived at.
Many organizations follow the route of cutting wage rate at worker level or of cutting on the facilities at the shop floor. Following such common strategies to get a cost advantage is futile. A manager may get a lot of credit by showing such cost saving on the balance sheet. However, the actual plant-level operating cost depends not so much on what one spends on the workers but more on what the company could get from the workers by way of services.
In most organizations, workers wage bill makes a very small fraction of the total value of production. Example – In motor vehicle manufacturing industries at all India level, less than 1% of the value of production is on account of workers’ wages. This means even if the motor vehicle manufacturer does not pay a penny to its worker yet the price of a motor vehicle costing Rs.3 lakh would come down by only Rs.3000! To sell more cars, most car dealers offer much higher rebate to customers.
This means the actual trick of making a low-cost car must be somewhere else other than the wage contract of shop floor workers. In motor cycle industries, the worker wage bill is just 1.83% of total value of production. In iron and steel manufacturing industry, the worker wage bill is 1.57% of the total value of production.
The problem of low competitiveness of a company originates mainly from low overall productivity of the company which is due to low commitment of workers and poor management of business process to collect and integrate output and job outcomes of different workers and deliver that to the customers in a timely manner. These low commitments of workers show up by way of high absenteeism, poor work discipline, high turnover, and high degree of material wastage at the shop floor.
There are four important factors which affect the commitments of workers at the shop floor, viz., wage rates, shop floor supervisory behaviour, working conditions, and managerial attitude and approach towards trade union.
1. Policy of Wage Leadership:
To get more commitment and motivation from the worker, could an organization follow a wage leadership policy? A wage leadership policy at worker level is of no use because even if the company gets the most qualified and skilled employees yet there is a maximum that a worker could do in a day in the shop floor. His/her maximum productivity depends on the plant and machine that he/she is asked to work with.
What is important at worker level is to make the workers feel that they are being paid fairly as per the industry rates. This is not possible if the wage rate fixation policy is left entirely in the hands of a manager alone. This establishment of market rate is a tricky job because different organizations could be in different locations with different local supply and demand positions of workers. Plus the workplace plant and facilities of different companies could not be exactly same also.
There is no mathematical formula that one could use to arrive at this market wage rate for workers. As an ordinary worker cannot negotiate on his/her own, the outcome is more satisfactory when this negotiation is done by a collective body. Irrespective of the outcome of a wage negotiation, an ordinary worker will feel happier when such a wage rate has been fixed by an open negotiation with a trade union.
In other words, for getting more committed service from ordinary workers the wage rate that is offered to them should not only be right but should also look right from the perspective of workers.
2. Supervisory Behaviour:
It can be improved through extensive on-the job and off-the job behavioural and technical training. And, there is considerable room for improvement in this area. Many supervisors are appointed without much behavioural training on how to guide and work with ordinary workers with low-level education.
3. Working Conditions:
Workplace facilities and conditions can be improved only when workers participate in presenting their observations and understanding of requirements at the shop floor. How will a supervisor and a manager know whether a machine has developed problems and needs immediate repair service unless the user of that machine tells that to his/her supervisor. A worker would be reluctant to present such problems to his/her supervisor if he is heavily apprehensive of management’s reaction to such suggestions.
An individual worker would feel very inhibited to bring such workplace-related problems to the attention of the authorities. Even when an organization follows a suggestion box scheme to collect workers perception of a workplace problem yet such box may go empty unless there is adequate protection against victimization. Such protection or perception of employment and career safety could come only through the creation of an open culture or through the creation of another organization, e.g., a trade union.
4. Managerial Approach and Attitude towards Trade Union:
Most managers do not enjoy sharing organizational decision-making power with the trade union. They believe that because they have higher level of education and are appointed by the shareholders to look after their wealth and income, they are best placed to make decision about the organization.
But in situations where a trade union controls the behaviour and commitment of 80% or 90% of the workforce of an organization, managerial control and concern for only the physical assets may not make much difference on the overall competitive position of a company. In situations where education, income, and power gaps between the managers and workers are very high, the management needs an intermediary organization to reach the workers.
A trade union could be seen as this intermediary which mediates between the demands of management and the wishes and aspirations of workers. The management could reach out for the worker-level human capital through this instrument of trade union.
Individual employment contract is not only ineffective but is a wrong instrument to reach the ordinary workers who are incapable of understanding the nuances of an employment contract. It is a wrong instrument because it costs a hell lot of managerial time to design and monitor each and every employment contract or employees.
A managerial time could be better utilized for other business-related processes if these jobs of monitoring the workers could be passed on to another organization. A well-recognized trade union is just this organization which not only negotiates wage and job-related contracts on behalf of its workers with the management but also stands as a guarantor of their behaviour.
This means an organization would be able to get competitive advantage if it encourages trade union formation among its workers and invests in development of appropriate leadership and expertise among its office bearers. Further in order that its collective bargaining process is not duplicated easily by the competitors, an organization should make such processes a part of its culture and use external experts only selectively with appropriate non-discloser agreements.
The role of collective bargaining driven HR for workers in ensuring competitive position of a company is very similar to business advantage that an organization gets by procuring low-value goods and services through an outsourcing contract. A firm may not get any cost advantage out of a good and reliable Outsourcing contract in non-core areas but without such a supply contract, its activities in core areas could suffer and its operating cost could swell to eat all its marketplace advantage in no time.
A company with continuous problems with workers either on account of agitation or strike cannot maintain its reputation with the customers for long.
A second reason why even an open collective bargaining-based employment relations could give one operational advantage, is that there is scope for creating heterogeneity in collective bargaining also.
Under decentralized bargaining it is possible that different organizations would be able to make different types of agreements with their employee unions that reflect more the local resources, market environment, and company strategic goals than the agreements signed by other organizations. There have been evidences that Indian organizations are slowly moving towards such decentralized bargaining.
5. Participative Management:
The third reason for encouraging collective bargaining in industrial organizations particularly in big ones is the long-term goal of bringing participative management as a management process whereby representatives of employees are made members of a company board. One of the reasons why management-union relations in our country is so much adversarial is that trade union as an organization is formed as a reaction to powerlessness of the employees.
This means the main cause of inimical relations between management and unions is employee non-involvement and non-participation in running the organization. If this root cause is removed then possibly the effects, e.g., the adversarial relations between management and ordinary employees would not be there.
If the employees are given a share of the decision-making power that drives an organization then the effect of their powerlessness, viz., the accumulated frustration of being driven without their consent is like to get diffused. Participative management as a management process involves joint decision making, consultation, and sharing of information with employee representatives at different levels. It is a process by which employee concerns could get integrated with a company strategic plan.
Though, participative management as an organizational management process in India has had a long chequered history of mixed success and failure. And, there were evidences where trade unions actually worked against success of participative forums as they felt it was an instrument to dilute their power and authority. Even then news of their successes in the presence of collective bargaining forum is still coming in from different organizations, though in a limited way.
But success of participative management by way of works council has been well proven in manufacturing organizations. Their utility by way of ensuring shop floor safety and product quality has been recognized through formation of quality circle. It is workers participation at strategic or board level where many organizations had burned their fingers and are quite reluctant to try again.
However, much of our past experiences on participative management at board level were tried in an era where the role of tangible assets in organizational growth and profitability were supreme and shareholders were not very willing to dilute their authority in organizational matters by sharing decision power with those whose behaviour and expertise they have very low confidence.
Shareholders feel the top management are bound by the rules of the organization and are dependent on them for their continued engagement. But the same cannot be said about the trade unions leaders. They are elected by the workers and shareholders have very little control on their behaviour. This was their principal anxiety and worry to involve trade union representatives at strategic level.
It is this legacy of low trust between management and trade unions that shaped the attitude of shareholders and owners. It also affected the framing of appropriate regulatory guideline which left an organisation’s choice for going or not going for participative management purely on its own volition.
The importance of regulatory guideline for workers participation and HR-strategy integration has been proven well in Germany by way of 1976 Co-determination law. Given that education level of ordinary workers are rising very fast and so is their level of knowledge and expertise about management practices in other organizations including in other countries, employee demands for more voice and involvement in organizational process are likely to rise in coming days.
Such increasing demands from rank and file employees could be accommodated better if there are well-recognized trade unions with valid and elected officials from within the organization.
Collective Bargaining in India – Structure
Unlike the traditional individual centric employment contracts of employees that are hammered between an employee and his/her employer, the employment relations in a unionized environment have many elements which are negotiated between the trade union leaders and the management. This negotiation of collective bargaining contracts is regulated by certain legal provisions.
There are three important acts that collectively create an environment within which a collective bargaining between employee unions and the management could happen. These laws are Trade Union Act 1926, Industrial Dispute Act 1947, and Industrial Employment Act 1948. These three acts together allow workers to form association and negotiate with employers on issues related to their employment and workplace welfare.
Trade Union Act 1926 allows any seven or more workmen for form association or trade union and gets registered by the Registrar of Trade Union in each state. It prescribes rights and liabilities of such registered trade unions, conditions under which office bearers of a registered trade union could be disqualified, and penalties and procedures for submission of annual returns.
However, it is to be kept in mind that even these freedoms of association are restricted only to manual workers. All supervisory and managerial employees are excluded from these provisions. Even industrial workers of railways, post and telegraph, and central public works departments are excluded from it.
Industrial Dispute Act 1947 provides protection to workmen in the exercise of their rights to organize or form trade union for the purpose of collective bargaining. A 1982 amendment of the Industrial Dispute Act made the following as unfair labour practice, viz., and refusal by an employer to bargain collectively in good faith with recognized union, refusal by a recognized union to bargain collectively in good faith with the employer and workers, and trade union indulging in coercive activity against certification of bargaining representatives.
Industrial Employment (Standing order) Act 1946 defines conditions of employment in an organization. These conditions include classification of workmen as permanent, temporary, apprentice, probationers, working hours, attendance, late coming, procedure for applying for leave, requirement of entering the premise through certain gates and liability to search, conditions for termination of employment and notice period for employer and employee, suspension under misconduct and means of redressal against unfair treatment.
Collective Bargaining in India – Causes for the Limited Success: Problems with Unions, Problems from Government, Legal Problems, Political Interference and a Few Others
An important factor that is not much recognized but still prevails in many organized sector units is fixing and revising wages through collective bargaining. The course of collective bargaining was influenced in 1948 by the recommendations of the Fair Wage Committee, which reported that three levels of wages exist, that is, minimum, fair, and living.
These three wage levels were defined and it was pointed out that all industries must pay the minimum wage. The capacity to pay would apply only to the fair wage which could be linked to productivity. In addition to this the fifteenth Indian Labour Conference, a tripartite body, met in 1954 and defined precisely what the needs-based minimum wage was and how it could be quantified using a balanced diet chart.
This gave a great boost to collective bargaining; many organized sector trade unions were able to achieve reasonably satisfactory indexation and a system of paying an annual bonus. It is now a law that wage for the thirteenth month be paid as deferred wage to all those covered by the Payment of Bonus Act. The minimum bonus payable is 8.33 percent and the maximum is 20 percent of the annual wage.
Causes for the Limited Success of Collective Bargaining In India:
Though, it is argued that collective bargaining has grown in India due to the statutory provisions, voluntary measures, Industrial Truce Resolution of 1962 and the amendments to the Industrial Disputes Act, 1947, its success is limited.
The causes for its limited success are:
(1) Problems with Unions:
Collective Bargaining process mainly depend on the strength of Unions. But still there are not many strong unions in India. Indian unions are marked with multiplicity, inter and intra-union rivalry, weak financial position and non-recognition. Weak trade unions cannot initiate strong arguments during negotiations. There is usually no unanimous decision among workers to be presented at the negotiating table.
(2) Problems from Government:
The Government has not been making any strong effects for the development of Collective Bargaining. The Government has imposed many restrictions regarding strikes and lockouts, which is an obstacle for the development of collective bargaining process.
(3) Legal Problems:
Now adjudication is easily accessible. As such now collective bargaining process is losing its importance.
(4) Political Interference:
Interference of political leaders in all aspects of union matters, has increased over the years. Almost, all unions are associating themselves with some political party or the other and there are many such unions. To protect their own unions, all political parties interfere into the matters, creating inter union rivalries.
(5) Attitude of Management:
In India managements have negative attitude towards Unions. They do not appreciate their workers joining unions. As strong unions are a must for collective bargaining processes this attitude of management hampers the process.
Collective Bargaining in India – Future of Collective Bargaining in India
In India, the labour institutions are compatible with the government’s officially promoted industrial pluralism and bilateral collective bargaining. The advent of economic liberalization has its effects on the union movement. The independent rank-and-file-led unions have come into existence and are into violent bargaining with the employers for securing substantial wage and non- wage benefits for workers.
The employers on their part, for dealing with militant union leaders, have started adopting the strategy of ‘outsourcing’ from non-union locations. This, in a way has led to decline in the growth of trade unions.
An analysis of ‘monopoly’ versus ‘collective voice’ framework, since independence, indicates that there has been rapid industrialization and minimum industrial strife in the collective voice framework.
Further, the declining employment elasticities imply that more output can be attained with less employment, more so with capital intensive technologies. Unions oppose the introduction of such technologies because it reduces the employment elasticity in the production process.
In several older sectors such as tea and jute plantations in eastern India and textiles in western India, the bargaining processes are under pressure as the inter-plant and inter-firm differences are becoming wider. Similar is the case with the Bureau of Public Enterprises, which sends guidelines for wage settlements to ministries.
In Coal India, for example, employees in the better off units depend on the productivity levels. There have been similar moves in the banking sector too. For instance, the Indian Banks’ Association (IBA) which coordinates the industry level collective bargaining process has already indicated that the current wage settlement would be the last and in future the respective banks can decide the wage fixation depending on parameters such as productivity and profitability.
This is in response to the demands from various public sector banks, which are demanding flexibility in compensation fitment to its employees in order to attract and retain the best human talent.
The two critical aspects of collective bargaining system are the expansion of the coverage and scope and addressing the pressure for decentralized bargaining. These tendencies are on account of various macro developments or parameters such as introduction of parallel production systems, subcontracting of jobs, automation, flexibility, mergers and restructuring processes.
With regard to the demands for decentralized bargaining, the pressure is from better off units which are of high level of productivity and profitability. The employees’ unions from these units would like to be rewarded better than the other units.
The demand is due to the fact that the process of collective bargaining equalizes the profitable and not-so-profitable units and does not have the provision for rewarding higher level of productivity.
The other reason for demanding the decentralizing of the bargaining structure and expanding the scope and duration of labour contracts is to minimize the monopoly effects and inflexibilities in work rules, especially at micro levels. Another reason for reviewing the process of collective bargaining is that in spite of the low union density, by international standards, India loses more days every year than any other country on account of industrial conflict.
Another major factor for reduced importance of the role of trade unions and collective bargaining is the advent of the concept of HRM where the basic premises such as employee welfare, personalized attention, performance based reward systems, etc. eliminate the scope for union or collective bargaining. The entry barriers to unions are even higher in the IT sector on account of proactive HRM practices.
The private corporate sector employs roughly 30% of formal workers in the country. In this sector, the pay fixation is determined by productivity and the unions are a party to the agreement of performance-based pay.