Article: Udta Udyog – Industry’s addiction to contract workers

Temporary and Contract Staffing

Udta Udyog – Industry’s addiction to contract workers

With Indian industry so reliant on low cost contract workers, is it possible to have sustainable industrial growth? A look at how this addiction is eroding corporate Indias ethical health & people management capabilities
Udta Udyog – Industry’s addiction to contract workers

If corporate India is honest in its claim that it needs contract workers simply for flexibility, it should have no hesitation inpayingfor that flexibility


We cannot build a robust and continually expanding manufacturing sector on the shaky foundations of industrys addiction to poorly paid contract workers


Indian industry has become dangerously addicted to contract workers. The growing dependence threatens corporate India’s ethical health, the quality of its products and services as well as the harmony of our employee relations. But the classical symptoms of addiction continue to manifest themselves. Our businesses find it difficult even to contemplate survival without contract workers. They demand them in ever greater quantity and at low cost.

Getting addicted

As late as two or three decades ago, Indian industry managed perfectly well with a minimum of contract labor. In those innocent times, contract workers were used sparingly for canteens, gardening and security. When there were surge loads, contract workers were deployed for peripheral operations, such as loading and unloading, too. 

With liberalization, industry busied itself with becoming globally competitive, which also meant that people productivity had to be lifted significantly and continually. Unfortunately, economic reforms never reached phase two and labor reforms didn’t kick in. Industry was, therefore, faced with the dire scenario of competing with manufacturers from countries with far more flexible and enlightened labor laws while ours were still primitive, disincentivized productivity and encouraged multiple and militant unions. The correct thing at this stage would have been to pressure the Government to follow quickly with the second tranche of reforms to keep Indian manufacturing competitive in the face of lowered import tariffs. But that is not what was done. 

One company after another peeped into its 'jugaad' bag and came up with a resource that was free from major union protection and could be hired and fired at will. At first, only the more daredevil spirits in the group experimented with this addictive material. Soon, however, there was an entire ecosystem of vendors and beneficiaries who played a role in anaesthetizing the regulatory apparatus and emboldened even the more timid spirits to try it. Within organizations too, the limitations on using contract workers only for peripheral or non-perennial activities were dismantled and thus began the true addiction of using them for permanent operational jobs.

It seemed paradise had been regained despite the threat posed by the opening of the economy. Indian manufacturers (and services were not too far behind) had struck upon a limitless Klondike of workers who would work for 50% (soon to decline to 30%) of what regular employees had to be paid. One after another organization had 50% (in several cases increasing to 80%) of its workforce comprising of this wonder narcotic.

What was lost?

As industry fell prey to this addiction, organizations saw erosion in both their ethical and people management principles. Many corporates, having codes of ethics brimming over with precepts that would do credit to Vikramaditya, reconciled themselves to a blatant set of double standards. The very organizations that (rightly) launched remedial actions to bridge the 25% gap in emoluments between similarly placed women and men, blandly accepted the 75% differential in payments between contract workers and permanent employees. As Brosnan and De Waal demonstrated years ago, even primates possess a strong aversion to inequity. Is it any wonder that with humans these gaps led to literally murderous rage on the part of the deprived? 

Things looked no better from the people management perspective. All the sophisticated models for building motivation and commitment were substituted by the primitive notion that fear of firing was the only way to extract work from people. Just think. The research, learning, practical experience and best practices that emerged over the past century and more in inspiring and getting excellence out of people was suddenly negated and made inapplicable to an ever-increasing proportion of the organization’s workforce. Could we really expect quality products, organizational commitment and continual productivity improvements in such situations? HR departments continued to do more and more sophisticated analyses and partnering but covered fewer and fewer people. The vast bulk of the direct workforce was managed by some low-ranking functionary, often buried deep in a procurement department.

Mitigating the symptoms

It is not as if there have been no attempts to palliate this addiction. Each of the following three steps has helped a bit, though none have been really adequate.

  • Improved safety, training and dignity of treatment. This is clearly a gain, at least within the premises of large employers. The unmet challenge is to extend these improvements to all parts of the value chain, including second and third tier vendors and their contractors, who are jointly responsible for an increasing share of the value added to any product.

  • Replacement of contract workers by apprentices, temporaries and employees on fixed term contracts. One might respond to these stratagems by parodying Juliet: "Exploited labor by any other name would smell as repugnant." However, to the extent some companies pay their FTCs on par with permanent employees (though usually without experience premiums, bonuses and benefits) these are steps in the right direction.

  • Use of temping agencies. Established staffing firms avoid the most egregious forms of exploitation practiced by some smaller contractors and have the potential to offer a degree of job security. However, the fundamental challenges of pay parity, belongingness and building employee commitment remain.

Breaking the habit

There are three steps necessary in the slow path to rehabilitation.

  • Parity in payments and benefits with permanent employees. This really is at the heart of the cure. If corporate India is honest in its claim that it needs contract workers simply for flexibility, it should have no hesitation in paying for that flexibility. Considering the extent to which this addiction has spread, parity may not be possible overnight. However, it is also not impossible. Companies in several enlightened groups, including Tatas and Mahindras, have already adopted time-bound glide paths to move towards pay parity and to limit the proportion of contract workers they will permit.

    Organizations determined to continue with the addiction, devise many rationalizations. One of the wiliest is to point out that permanent operatives’ wages have spiraled up mainly due to wage and cost-of-living adjustment agreements as evidenced by the fact that they are paid more than even their supervisors. The answer is very simple: start with the supervisors’ emoluments, de-rate them to the operatives’ level through an independent job evaluation exercise and then aim for parity. Incidentally, the same methodology can be adopted in cases where organizations have no permanent operatives at all.

  • Possibility of future permanency. Apart from the need for wage parity, some scheme of future absorption for at least a select number is also important to ensure a long-term convergence of interest between contract workers and the organizations that engage them. This will bring commitment and the desire for improving quality and productivity back into play for the bulk of the workforce.

  • Making permanent employment competitive. In the longer term, there is no alternative but to reform those labor laws whose rigidities led to the addiction in the first place. Since it is these same laws that are preventing the generation of quality employment to accompany economic growth, one would hope that a development-focused Government will pay it priority attention. The unions too must play their part in supporting such reforms which provide a buttress against relapse.

A future on firm foundations

'Make in India' is important but equally important is 'How we make in India'. We cannot build a robust and continually expanding manufacturing sector on the shaky foundations of industry’s addiction to poorly paid contract workers. Let’s fight our addiction and build the underpinnings for sustainable industrial growth. 


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Topics: Temporary and Contract Staffing

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