Labor Management Practices in India Businesses Have White Paper

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Labor Management Practices in India

Businesses have huge market opportunities in India, especially in such areas as healthcare, information technology, agriculture and tourism sector (Guenthner, 2009; Timmons, 2007) . As the divisional president of this company I foresee an immense investment opportunities in this country, not only at the national level but also at the state level. In order to put the investment prospects of India into perspective, I will present a profile of the labor management practices in India as well as a specific sector of that country's economy in which this company can invest profitably. I will start by presenting an executive summary of the country's political, social and economic system.

Executive Summary

Originally, India was operating an autarkic economic system. However, since the 1990s, the government of India introduced some policy reforms aimed at liberalization of the country's economy. As a result, the country is gradually becoming an open market economy and is currently implementing policies that will deregulate its industries, privatize its public corporations as well as create an enabling environment for the free flow of trade and foreign direct investment (FDI). The actions taken by the Indian government in this regard have already started to produce positive results. For instance, since 1997, the country has been consistently recording an average annual growth rate of 7 per cent (Central Intelligence Agency, 2011; BBC World News, 2011).

The main sectors that constitute the India's economy include agriculture, handicrafts, service and various categories of modern industries. A greater proportion of the Indian labor force (as much as 50 per cent) is employed in the agricultural sector. However, the greatest contributor to economic growth in that country is the services sector. The country has a large educated population, especially those specializing in information technology (IT). It is thus not surprising that it is one of the IT services constitutes a large part of its exports in the 2000s (Central Intelligence Agency, 2011; BBC World News, 2011).

Nevertheless, there are other challenges facing the Indian nation. The country still from other ills that is common among the developing countries. Notable among them are poor physical and social infrastructure, high poverty rate, and limited access to primary and tertiary education, low non-farming employment opportunities.

Having presented the above summary of the socio-economic and political conditions in the country, I will now proceed to examine the educational system and workforce in India.

Educational System and Workforce

Currently, public schools as well as the higher institutions in India are reforming the country's education system. Broadly speaking, they have modeled their system of education in such a way that the students are provided with the opportunity to become proficient in such areas as information technology and communication. In addition, the students are trained to enhance their proficiency in other relevant areas, including history and the arts. One of the objectives of the Indian public school and university systems is to build a bridge between theory and practice. Recently, the government of India have introduce more reforms into the nation's education system by hiring more IT teachers to work in all public schools, aligning their curriculum to reflect international standards and making it more easy for foreign universities to operate in India (Educational Institutions Resource Bank, 2011).

With regard to workforce, it will be necessary to note here that India has as much as 500 million workers. The country's labor force, however, shows an extreme pattern -- it has huge number of illiterate workers who are not familiar to machines or routine work on one part, while on the other part it has a highly significant pool of seasoned scientists, engineers, and technocrats whose training qualified them to work in any part of the world. The country equally enjoys another important advantage: while the working age population is declining in many countries, it is rising in India (Economist Intelligence Unit, 2010).

I have succeeded in examining the Indian's education system and workforce in this section. In the following section, I examine the employment law and labor relations in India.

Employment Law and Labor Relations in India

In 1926, the Indian government enacted the Trade Union Act in which it made relevant provisions for recognizing and protecting the labor union movements in the country. The goals of country's labor unions are to protect the interests of the workers (Sincavage & Sharma, 2005).

Large scale manufacturers and foreign investors operating in India still some obstacles resulting from the country's restrictive labor laws, particularly as it affects working times, terms of employment contracts, and so on. For instance, the country's labor laws requires that any company with a staff strength of 100 or more must obtain the government's permission or authorization before they can retrench workers or close their company's unit that is no longer profitable or viable. In addition, the politicians in the country are not in favor of the development of special economic zones that will have less restrictive labor laws. Furthermore, the country's establishment abhors any legislation that they believe can weaken the rights of workers. It is important to note here that, while the labor laws of that country remain restrictive, the average wage paid to the workers is low as can be seen in table 1 below. Also, though the resistance and other activities

Table 1 -- Hourly Compensation Costs in India's Organized Sector


Hourly Compensation in Rupees (All Employees)

Exchange Rate (Rupees/USD)

Hourly Compensation in USD





















Source: Sincavage & Sharma, 2005

of the politicians and the labor unions have tended to slow down the country's advance towards labor liberalization, there are still many states in the country that have flexible labor laws (Economist Intelligence Unit, 2010; Pathark, 2011; Datt, 1997).

It can also be seen from the above table that, though the country's Minimum Wage Law of 1948 requires that minimum wages in the rural and urban areas be set at 20% and 50% of the country's per capita GDP respectively, the cost of human capital in India is next to nothing when compared to India (Pathak 2011; Datt 1997).

Having examined the standards of employment and labor relations in India in this section, I will now discuss some cultural issues that constrain labor mobility in the country. This will be the topic of the following section.

Culture vs. Free Flow of Labor

The main cultural factor that affects occupational mobility of labor in India is the existence of discrimination that is based on a caste system. With respect to labor, this form of discrimination is based on work and descent. Under this form of discrimination, the members of a specific caste, trade or groups are deprived of the opportunity to shed or escape from their stigmatized background. Hence if an Indian native is born as a barber, a farmer or a toilet cleaner, he will remain in that profession for life. Even though some Indian natives were able to overcome this obstacle by relocating to the cities, this system exists in rural India ((Pathak 2011; Datt 1997; Country Watch 2011).

Fortunately, the Indian government is taking serious measures to eradicate caste discrimination by way of legislation. The Reservation Policy which the government has been implementing since the country's independence in 1947 had ensured that the scheduled castes receive equal treatment on employment. For instance, the policy mandated all government departments to reserve 17% of job vacancies scheduled castes and another 8% to scheduled tribes (Pathak 2011; Datt 1997).

Before concluding this paper, I will discuss an investment opportunity in India that will benefit our company. This will be the focus of the next section.

Investment Opportunity -- The Case of Healthcare Industry

I strongly believe that our company will reap huge profit if it invests in India's healthcare industry. I will illustrate my argument in this regard by presenting a brief discussion of India's thriving healthcare industry.

There is high level of poverty in India. This, together with the Indian government's restrictive policies, is the main obstacle to the growth of a strong and large indigenous healthcare market in that country. However, the growth outlook for this industry in that country is improving rapidly the policy reforms that are currently taking place in that country. Currently, both life expectancy and income are gradually rising in India. Besides, the Indian government is becoming more serious about supporting the healthcare sector to the economy. According to the Economist Intelligence Unit (2005), all these factors should can make the country's spending on healthcare to grow by about 12% annually. In addition, in 2004, the healthcare spending in India was 5.2% of nominal GDP, which is about U.S.$34.9 billion (Economist Intelligence Unit, 2005). I expect it to rise by 10% of GDP by 2014, and this can translate into about 25% gains in pharmaceutical sales per year. By investing in healthcare sector of India's economy, this company can take advantage of this…

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