Expectations of Foreign Investors in Terms of Labor Laws

Human Resource Management

Project Report

on

Expectations of Foreign Investors in terms of Labor Laws

India, like other countries worldwide, is experiencing the effects of globalization. In order to make conditions friendlier for investors, there is a need for adaptability. Labor legislation, such as the Indian Disputes Act and Contract Labor (Regulation and Abolition) Act, are now under debate, along with issues concerning special economic zones.

Submitted by:

Anupam Chaturvedi- 12P188

Nirmal Shamnath Bari- 12P192

Abhinav Gulati- 12P202

Harsh Vardhan - 12P212

Praval Kumar - 12P222

Shivam Singh - 12P232

Introduction

There has been a steady expansion of foreign investment in recent decades.

The upward trend is particularly strong for less developed countries, signifying the increased importance for these countries of FDI, as well as the increased presence of multinational firms. Alongside the expansion of FDI have risen concerns regarding competition between countries or regions to attract FDI.

After adopting new economic policy by government of India in July 1991 many foreign investors came in the Indian economic scene because the government of India gave many incentives to the foreign investors. So it is clear that government opened the doors of Indian market to foreign investors.

With more companies operating internationally, the impact on various business functions and labour laws in India is becoming more pronounced. Globalization, and the need to attract foreign investment, inevitably leads to an attack on workers' rights by diluting existing labour standards, as trans-national corporations concede to the demands of multinationals. This dilution of stringent labour standards and strong resistance to any strengthening of workers' rights (which sometimes become an obstacle to competitiveness in the global economy) is becoming prevalent in India.

Since the beginning of the reforms in the early 1990s, there have been demands from industry for liberalization in the stringent labour regulatory framework. The influx of foreign companies has increased the demand for more relaxation in labour laws to make investment conditions more conducive. This article identifies the areas in Indian labour laws where change is demanded in the wake of increased foreign participation and steps taken to adapt to the changing time of globalization.

International Labour Standards: A world of division

This section reviews international labour standards and its progression in the context of divergent geo-political and economic environments of global trade. The 1947 preamble of the original General Agreement on Tariffs and Trade (GATT) states: 'Relations among countries in the field of trade and economic endeavor should be conducted with the view of raising standards of living and ensuring full employment'.

Little towards this end has been achieved as the debate between developed and developing countries continues to play out at WTO negotiation meetings (e.g., Human Rights Caucus 2005). A major reason behind this is the political economic conflicts between developing and developed countries, as market liberalization offered both challenges and opportunities for developing countries. At the first WTO Ministerial Conference in 1996, the US and the European Commission supported labour standards enforcement on a human rights basis, whereas minimum wage and labour rights were missing from the agenda. Asian nations questioned Western countries' motivation and resisted linking trade with enforceable labour standards because such standards could be used as non-tariff barriers to trade (Fields 2003). The Ministerial Conference concluded: 'We reject the use of labour standards for protectionist purposes, and agree that the comparative advantage of countries, particularly low-wage developing countries, must in no way be put into question' (WTO 1996).

The task of ensuring labour standards was delegated to the ILO. The ILO is an UN organization charged to oversee labour standards around the world. The ILO passes resolutions and urges nations to honour their obligation to work towards the realization of the ILO Declaration of Fundamental Principles and Rights at Work declared in 1998 (ILO 1998). However, scholars and practitioners argue that the ILO does not have any enforcement powers, prompting critics to label the organization 'toothless'. The declaration established four areas of fundamental labour standards, or core labour rights. They are:

1) Freedom of association and the right to collective bargaining

2) Abolition of child labor

3) A ban on forced labour, and

4) The elimination of discrimination with regard to employment.

These are also known as 'social clauses' at the legal level. Labour practices embody the implementation of these standards, as well as minimum wages versus living wages,5 limitation of work hours, and occupational health and safety.

However, as the debate over incomplete labour standards persists. The question is how to realize this when 'decent work evolved with social and economic progress and goals can and should rise over time'. Many developing countries either do not have laws to protect these rights or, due to institutional and infrastructural limitations, cannot implement them. The limited implementation of core standards affects labour practices.6 In 2000, the ILO introduced 'decent work' as means of capturing and realizing objectives from different interest groups involved in the debate (ILO 2000). The following section analyzes the complexity and contradictions embedded in labour standards discourse