India's reforms target labor anarchy, but too late for some

Sun Jul 26, 2015 1:39am EDT
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By Rajesh Kumar Singh and Frank Jack Daniel

NEW DELHI (Reuters) - Last month, hundreds of workers went on the rampage at a factory belonging to garment exporter Orient Craft, torching vehicles and smashing windows in the gritty industrial fringes of Gurgaon, a Delhi satellite city.

Increasingly common in Indian workplaces, these violent outbursts could become a thing of the past under a bold round of labor reforms planned by Prime Minister Narendra Modi.

Many businesses cheer the plans, which they say will help make India a manufacturing hub. Taiwan's Foxconn, the world's largest contract electronics manufacturer (2317.TW: Quote), plans to set up 12 new factories in India and employ one million workers.

Yet Orient Craft, which has suffered three riots in three years, fears the changes will create as many problems as they solve by making the cottonwear it exports to global brands such as GAP (GPS.N: Quote) and Marks & Spencer (MKS.L: Quote) less competitive.

Like many other low-margin businesses in India, garment makers will gain from increased flexibility to hire, and fire, seasonal labor - reforms demanded by industry since India began to shift away from socialism in 1991.

But to make this more palatable for unions, Modi wants to also extend the social security net. The government expects that will reduce labor volatility, but it will also raise costs for companies like Orient Craft whose chairman Sudhir Dhingra fears losing clients to lower-cost rivals in Bangladesh.

Dhingra said the new flexibility will enable him to hire workers according to his business requirements, but only if Indian garments remain in demand. If they are priced out of business, the net benefit evaporates, he said. "Buyers are already moving to cheaper locations," said Virender Uppal, the head of India's Apparel Export Promotion Council. "If labor costs go up further, it's going to affect business."

Modi plans to take the amendments to parliament later this year.   Continued...

An employee works inside a garment factory of Orient Craft Ltd. in Gurgaon on the outskirts of New Delhi, India, July 3, 2015.  REUTERS/Anindito Mukherjee