July 31, 2012

steering mutual fund investors to pay more to fund managers

I contributed an editorial two weeks back on the issue of potential rise in costs for mutual fund investors as recommended by a regulator-nominated committee. Here is what I wrote in that contribution:


Investor un-friendly
Sebi advisory committee on mutual funds has made some progressive and some regressive proposals

The last one month has seen mutual fund investors being psychologically prepared to bear additional annual fund charges while investing in mutual fund schemes. It gives a feeling of chickens being prepared for the slaughterhouse. Following Monday's meeting of 14 members of an ongoing Securities and Exchange Board of India-appointed advisory committee on mutual funds along with Sebi officials and finance ministry officials, information leaks from attendees (despite being sworn to secrecy) were designed once again to get mutual fund investors to prepare for an annual expense hike of 0.25 percentage point. 

Since Sebi has to take the final call as the securities market regulator, it will make it convenient for Sebi, reeling under pressure from finance ministry to provide some incentives to the mutual fund industry, to justify a hike. 

This will translate into a rise in investors' cost ranging from 10 per cent to 14 per cent depending on the size of the scheme he is invested in as Sebi-imposed limits on total annual fees ranges from 2.25 per cent on the first Rs 100 crore of their assets under management of a scheme to 1.75 per cent on AUM portion above Rs 700 crore. 

The mutual fund industry is seeking to extract its pound of flesh after Sebi, under the previous chairman, C B Bhave, had banned entry load exactly three years back. The 0.25 percentage point hike is like a backdoor replacement to entry load. The problem is that it makes matters only worse for a portion of the investor population, particularly debt scheme investors and self-driven and progressive investors who prefer to bypass the agent route and invest directly in equity schemes through the asset management companies' websites or branches. 

The proposed new hike will apply to all schemes -- equity, debt and others. Entry load, when it was allowed, was primarily imposed on equity schemes by mutual funds. Thus, investors in debt schemes who never suffered from entry load burden will now have to suffer from the hike in total expense ratio. Further, a few months before Bhave completely banned entry load he had restricted the imposition of entry loads only for those investors subscribing through agents. 

Investors investing directly through AMC websites or branches were thus spared of entry load burden, but now, if annual expense ratio is hiked, they get to bear the brunt too. The fungibility suggestion, where sub-limits on investment fees is being sought to be removed, however, poses no apparent problem to investors as it only provides flexibility on arriving at the level of each charge-head. 

It is strange but in an advisory committee, half of whose members were outside of the industry, did not think it fit to propose charging above the existing limits for schemes which outperform benchmark indices. This would have incentivised fund managers to be more diligent in stock picking. But the committee did make a good proposal of schemes ploughing back collection from exit loads, which is imposed on investors exiting a scheme within a specified period from purchase date, to the scheme instead of giving it to the AMC. 

The committee's proposal of giving AMFI a regulatory role for governing mutual fund distributor, has serious implications. It has the potential to invoke demands from other sections of the securities market, such as stock exchanges seeking regulatory role for governing their brokers. Whether Sebi should outsource regulation responsibilities to an industry body which has a vested interest in keeping their agents happy is something that should be avoided. Sebi needs to tread carefully on all the proposals coming from the committee.

July 30, 2012

(part 2) tragic events at maruti suzuki india's factory

(Part 1 of this was posted yesterday)

I do believe that workers are accountable for their actions and in case any of them was really responsible for the one death and injuries to many in the Maruti factory then he/they should get the full treatment of consequences laid down in Indian laws. 

But there should not be any collateral damage -- workers who were not involved in the violence ought not to be denied their rights as laid down in the same Indian laws. But is that happening? Moreover, is the police being neutral and also investigating the workers' claims of management-hired bouncers being involved in the violence? 

Abuse of rights of un-involved workers will also be tragic.
 
Below is yet another write-up by a representative of the workers which offers useful insights on this and related matters. Here it is:


http://www.epw.in/web-exclusives/manesar-workers-are-villains-truth-or-prejudice.html

The events of 18 July in the Manesar plant of Maruti Suzuki which ended with the murder of a manager were not a sudden conflagration. Anger at the plant had been building up for months over the management’s refusal to recognise an elected union; workers were increasingly frustrated over their inability to exercise their constitutional rights and the demand of equal pay for equal work was falling on deaf years. Rather than portray the workers as villains, managements in this industrial belt of Haryana have to ask themselves why they have not been able to develop a democratic industrial relations framework that can address the concerns of workers.
Rakhi Sehgal (rakhi.sehgal@gmail.com) is vice president of the Hero Honda Theka Mazdoor Sangathan, which is affiliated to the New Trade Union Initiative. 
On Tuesday, 23 July, a Maruti Suzuki worker, VK from Sonepat said that though he had done nothing on 18 July – the day the Manesar plant witnessed large-scale violence ending in the death of an executive of the company – he was coming to surrender to the Gurgaon police because the police were threatening his family with arrest of his father if they could not find VK. He says he was working in the B-shift in the Manesar plant in the paint shop when violence broke out on 18 July but his first name matched the name of one of the 51 workers listed in the first information report (FIR) filed by Deepak Anand, general manager at Maruti Suzuki. Some of us tried to meet him and talk to him before he presented himself to the police, but he was picked up by the Gurgaon police and his family was told he would be taken to the Manesar police station where the FIR was registered. However, until the time of writing (24 July), VK could not be traced either at the Gurgaon police station of Sector 17-C which picked him up or at the Manesar police station where he was to be presented since the FIR was lodged at this station.
According to an unconfirmed report, Haryana police has detained the uncle of RV, an executive committee member of the Maruti Suzuki Workers’ Union (MSWU), because they are unable to locate RV himself. Another worker is afraid to seek medical help for fear of arrest and torture by the police. He is a B-shift worker who injured himself while fleeing the factory premises on the evening of 18 July and is afraid to meet or talk to anyone or seek medical help.
Workers’ colonies near the Manesar plant are deserted. Police swept through the area and went up to Jhajjar and Rohtak on the night of 18 July to pick up any worker wearing a Maruti Suzuki uniform or carrying a company identity card.[1] The Haryana police, administration and the Maruti Suzuki management have managed to terrorise Maruti Suzuki workers into silence and forced them underground. This strategy has worked well for Maruti Suzuki management as it has had all the freedom to present only its version of what is purported to have transpired on the evening of 18 July.
A handful of workers we managed to speak to were unanimous in the view that the death of the Maruti Suzuki executive Awanish Kumar Dev “should not have happened”. According to a worker, Awanish Dev had agreed to take back Jiya Lal, the suspended worker, who had protested caste abuse by a supervisor during A-shift on 18 July, but then Awanish Dev got a call from a senior, instructing him otherwise. Naresh Narwal, additional labour commissioner, and Gurgaon district administration officials told a joint trade union delegation that they too had received word that Maruti Suzuki management had agreed to take back the suspended worker the next day on 19 July and that the matter was almost resolved. Some B-shift workers we spoke to, report hearing the same.
What happened in the matter of a couple minutes that changed the course of events that evening? Was it the phone call from a senior manager, reversing the understanding and agreement with the union? Were the union leaders who protested the alleged reversal of the decision threatened inside that negotiating room? Did union members rush into the negotiating room to protect their leaders who they feared were being threatened or attacked? Or was it the case that some people dressed in workers uniforms carrying “weapons” entered the room and started thrashing managers, exhorting workers who were milling outside the room to follow their lead, and these instigators refused to listen to union leaders who pleaded with them to stop and drop their weapons? Was the fire deliberately started or was it an accident, a short-circuit? Was Awanish Kumar Dev’s death an accident or a brutal murder?
Perhaps We Will Never Know
Perhaps by the time workers and union leaders who were present in that negotiating room are able to present their story (if at all they are able to do so), no one would be willing to listen, because Maruti Suzuki management would have drowned out all reasonable voices and the relentless baying for the blood of workers would have reached such a crescendo that the guilt of all workers would be a foregone conclusion and no one would want to hear otherwise.
Build-up on 18 July
What we do know is that on 18 July the workers and their union were protesting the unilateral decision of Maruti Suzuki management to suspend Jiya Lal. The previous day, workers of both shifts had decided to skip their pre-shift meeting with supervisors to protest against management intransigence vis-à-vis their union in negotiations on the charter of demands submitted by MSWU. On 18 July morning, the supervisor, Ramkishore Majhi, stopped some workers, including Jiya Lal, when they were returning from their tea break and instructed them to stop boycotting the pre-shift meeting. In the exchange of heated words between the supervisor and group of workers, Ramkishore Majhi, reportedly hurled a caste abuse at Jiya Lal, who protested along with others in the group. Thereafter, Majhi reported this incident to his senior managers and Jiya Lal reported it to his union leaders. Without giving Jiya Lal an opportunity to present his version of the incident, or discussing the matter with the union leaders, or showing any intent to resolve the dispute, the Maruti Suzuki management took the unilateral decision of suspending Jiya Lal with immediate effect.
Union leaders and workers protested this high-handedness and called upon the Maruti Suzuki management to either discipline both Ramkishore Majhi and Jiya Lal, or revoke Jiya Lal’s suspension and talk to the union and both parties before taking any action. Disciplinary action against just the worker and not the supervisor when the supervisor was equally, if not more at fault, was not acceptable to the workers. Maruti Suzuki management refused and the situation escalated with every passing hour. Workers were angry with what they perceived to be yet another instance of a worker being punished in a jiffy without establishing his guilt and without talking to their democratically elected union, while supervisors and managers are presumed innocent and protected even when they are at fault. B-shift workers continued production while A-shift workers decided to stay back in the plant at the end of their shift until the dispute was satisfactorily resolved.
Workers had not reacted like that earlier in the month when Ram Mehar, president of the union had been suspended and then taken back a day later. Workers already had an enviable history of conducting a long non-violent struggle during the summer months of 2011. So what was different on 18 July? Had they had enough of management high-handedness and arrogance and decided that they must stand up against it? Were their actions fuelled by another alleged incident earlier in the week when supervisors and workers seem to have had a heated exchange and a supervisor allegedly told the workers they could do what they wanted, their story was going to end in the next two to three days (kar lo jo karna hai, agle do-deen din mein tum logon ka yahan se safaya ho jayega)?
Fighting for Recognition
What is clear is that workers and the union leaders had been increasingly frustrated by Maruti Suzuki management’s disrespect towards their elected union, to establish which they had sacrificed much and had also adhered to all pre-conditions laid down by the management so that it would “allow” the Haryana Labour Department to register the union!
Chairman of Maruti Suzuki India R C Bhargava claimed on 20 July in a press conference that it was the Government of Haryana which had reservations about the registration of a union and not the management. Does this claim have any credence in light of the fact that last year Maruti Suzuki withstood a five-month long agitation, massive production losses, loss of market share and gave a huge payout to the union leaders to abandon their struggle for the registration of their union? If Maruti Suzuki did not have reservations about the registration of a union, then how do we interpret Managing Executive Officer (Administration) S Y Siddiqui’s statement in June 2011 that Maruti Suzuki will neither permit the formation of a union nor “tolerate any external affiliation of the union”.
It has been repeatedly made clear to the workers that they were up against the collective might of a huge corporate like Maruti Suzuki with its clout, influence and money power, and a collusive labour department of the state government who were determined to thwart the exercise of the workers’ constitutional right to freedom of association.
Unfortunately, the formation and registration of a union does not automatically lead to its recognition by managements, many of which refuse to negotiate in good faith, if at all, with registered unions – a cause of much frustration among workers.
Workers of Maruti Suzuki were also pressurising their union not to give in to management demands to form a grievance committee and welfare committee, as agreed to by the previous union (the Maruti Suzuki Employees Union) in the October 2011 settlement. Workers feared that the management would use these committees to build a parallel system of governance and subvert the functioning of their democratically elected union and deny it legitimacy and recognition. Workers did not believe that the labour department of the state government could have issued challans to managers (for non-compliance with terms of the tripartite settlement of October 2011) independently, without the implicit “permission” of Maruti Suzuki management and they saw it as a pressure tactic to force the MSWU’s hand.
Managers and labour officers, who regularly visited the shop floor in Manesar, were fully aware of the mounting concerns, anger and frustration of the workers and yet did nothing to address and defuse the situation. Instead the Maruti Suzuki management escalated tensions by trying to intimidate the union leaders to agree to its terms – no collective bargaining and no serious discussion on the charter of demands until the union agreed to form the grievance and welfare committees! It refused to yield to the union’s conciliatory gesture that the formation of these committees could be a part of the negotiations and not a precondition. Maruti Suzuki management went so far as to lodge false cases against key union leaders at the Manesar police station last month when talks broke down on this issue. Union leaders were repeatedly harassed by the SHO of Manesar police station but they refused to yield to the threats and intimidation.
And yet R C Bhargava claims in the press conference that there were no issues between management and workers and “no one saw this coming”! If that is the case then the entire management team of Maruti Suzuki should be sacked and more competent managers should be hired.
Resisting Violations
The workers and the union leaders were also united in their demand – that the long-term settlement that was under negotiation should be implemented for all casual and contract workers employed at the Manesar plant, who worked alongside them on the shop floor. The management was adamant that it would not agree to do so. It used the same argument proffered time and again in this industrial belt by managements and labour department – that permanent workers do not have the legal right to espouse the cause of casual and contract workers! And that casual and contract workers do not have the legal right to raise an industrial dispute with the principal employer! That these so-called casual and contract workers are working in core production processes in violation of the Contract Labour (Regulation & Abolition) Act, 1970 is known to all and yet no company has been prosecuted for this violation in Haryana. And the Haryana government does not deem it necessary to comply with its statutory duty of constituting a State Contract Labour Advisory Board before which complaints can be raised, investigated and redressed. Maruti Suzuki management’s recent announcement, that by 2013 it will ensure no contract worker is employed in its core production processes, is an admission that this is the existing practice. Will the Haryana Government prosecute Maruti Suzuki (and all other companies) for violating the Contract Labour Act over several years?
The determination of the permanent workers of Maruti Suzuki to redress the injustice being meted out to their fellow workers in the name of business exigency and need for flexibility is evident from their stand taken during negotiations as reported by them. The MSWU offered to give up one year’s worth of arrears and economic benefits if the Maruti Suzuki management ensured implementation of the long-term agreement (LTA) on all casual and contract workers employed at the Manesar plant. The union had submitted that the LTA be made applicable from April 2011 and the management had countered that the Maruti Udyog Kamgar Union (MUKU) LTA was under implementation for the period 2009-11 and applied to the Manesar plant permanent workers as well. Therefore the MSWU settlement, when finalised, could not be implemented retrospectively from 2011. The MSWU countered that if the MUKU settlement was applicable to them from 2009 onwards when many of them were casual workers and trainees, then by the same logic, the MSWU settlement could be implemented for existing trainees, casual and contract workers. If the management agreed to do so, they would drop their demand for implementation of the settlement from April 2011 onwards, agree to its implementation from April 2012, and give up one year’s worth of economic benefits.
Failing Industrial Relations Systems
There is a danger that the events of 18 July will impede a thorough examination of the reasons for the simmering discontentment among workers of Maruti Suzuki (and it would not be stretching it to say of all workers in the industrial belt of Gurgaon-Manesar-Dharuhera-Rewari).
We must recognise and find the collective will to address issues at the centre of the ongoing dispute between workers and management of Maruti Suzuki – the right to form a union (along with the right to affiliate with any central trade union if they choose to) and the right to equal wages and benefits for equal work and an end to discriminatory wage systems and wage theft. These workers have shown the courage to stand up to a powerful corporation and the might of the State. They are not willing to give up their right to form an autonomous union that the management cannot control or dictate to and they are unwilling to sell out their casual and contract workers by accepting a settlement that does not apply equally to all workers doing the same work. This is the biggest threat to the extant production system. And management wonders why the backlash is so severe.
There are many voices commenting on the lack of maturity among these workers, the expression of their demands and their discontentment, their youth, their lack of experience as many are first-generation industrial workers, their supposed hotheadeness and impatience, their aspiration to be upwardly mobile and to have the capacity to indulge in consumerism, and their demands for better wages (why not?). Getting caught up with these issues would be akin to missing the wood for the trees in the immediate circumstances. And yet with an eye towards the long term, one could ask of the Maruti Suzuki management and industrial relations and human resource management experts – if this is the profile of educated workers recruited from ITIs, working in some of the most sophisticated production processes in our country – then why have managements and experts not been able to evolve an appropriate and democratic industrial relations framework and a human resource management system that can address the concerns and aspirations of these workers?
To ignore the problems arising from a defunct industrial relations system and claim as S Y Siddiqui did that “the problem at Manesar, is not one of industrial relations. It is an issue of ‘crime and militancy’” is a gross dereliction on one’s responsibilities and blatant criminalisation of labour.
Trade unions must also introspect on how they are failing the new generation of workers and new formations of labour. We need to collectively reflect on the New Trade Union Initiative’s assessment of last October that “trade union movements have shown a lack of shared understanding and effective strategy to make the workers’ struggle at Maruti Suzuki a decisive trade union battle to change the orientation of the labour policies of companies and government. In order to move forward and build support for the Maruti Suzuki workers the trade union movement needs to build coordination in both the Gurgaon-Manesar-Dharuhera belt and at the national level.”
The Maruti Suzuki management, the labour department of the state, the Gurgaon district administration and the Haryana government must introspect and take responsibility for turning a blind eye to the neon flashing signs and failing to act to defuse or contain the situation before it spiralled so horribly out of control and resulted in the tragic death of Awanish Kumar Dev.
Equally tragic was the brutal murder on 18 October 2009 of 26-year-old Ajit Yadav, a worker at Rico Auto Industries, Gurgaon who was allegedly tossed into the company’s furnace by company officials and company-hired goons during a struggle by the workers to form a union to demand a wage hike and redress of onerous working conditions. Three years later the family of Ajit Yadav and workers of the Gurgaon industrial belt are still awaiting justice!


[1]  On that evening, two buses taking workers of Honda Motorcycles and Scooters India. (HMSI) back home from Manesar after their shift ended were detained all night even though both the buses had been checked thoroughly twice already by Haryana police and no Maruti Suzuki workers were found in the buses.  Calls by the HMSI Employees Union on behalf of their members trapped all night in the buses, fell on deaf ears. The buses were allowed to proceed to their destination only at 8 am the next morning

July 29, 2012

(part 1) tragic events at maruti suzuki india's factory


Over a week back violence rocked Maruti Suzuki India's factory at Manesar near Gurgaon in Haryana resulting in the tragic death of one manager and serious injurieOver a week back violence rocked Maruti Suzuki India's factory at Manesar near Gurgaon in Haryana resulting in the tragic death of one manager and serious injuries to many other managers and executives. The company management blames the violence completely on workers while the workers say they ws to many other managers and executives. The company management blames the violence completely on workers while the workers say they were responding to bouncers called by the management to intimidate the workers. In the crossfire were caught the middle-level managers and executives who had to bear the brunt of the violence. But the eruption of violence was not due to abrupt, ad-hoc factors. Enormous daily stress had build up over the last 2-3 years culminating in the tragic events.
Below is an insightful write-up by an independent writer which provides insights I subscribe to. Here goes that write-up:


Can India Inc. face the truth about the Manesar violence?

DNA / G Sampath / Sunday, July 29, 2012 10:00 IST
It would be sad if the ghastly violence at Maruti Suzuki’s (MSIL) Manesar plant on July 18, 2012, in which a HR manager died, were to be understood simply as a ‘murderous workers’ vs ‘rational management’ kind of an incident. There is a history and a context to this violence, and how that is understood, and acknowledged, by India Inc. will indicate how serious we are about preventing such incidents in the future.
First of all, let’s begin with a game of call-a-spade-a-spade. When your profits go up by 2,200% over nine years (MSIL’s from 2001-02 to 2010-11), when your CEO’s pay goes up by 419% over four years (MSIL CEO’s from 2007-08 to 2010-11), when you get a 400% increase in productivity with just a 65% increase in your workforce (from 1992-2000), when your workers’ real wages increase by just 5.5% when the consumer price index rose by 50% (2007-11) (figures as reported by the researchers Prasenjit Bose and Sourindra Ghosh in The Hindu), when a worker can lose nearly half his salary for taking a couple of days leave in a month – you have a situation that free market economists are programmed not to register: extreme exploitation.
As per media reports, about 65% of MSIL’s workers in its Manesar campus are non-permanent – contract labour, apprentices, trainees, what have you. While the permanent worker gets a maximum of Rs17000 per month, the contract worker gets a maximum of Rs7000. The CEO gets a little more, about Rs.2.45 crore per annum (and this is a 2010-11 figure). And unlike the worker, who gets only two 7.5 minute tea/toilet breaks during an eight-hour shift, and has to run 150 metres to pick up his tea and snack, run another 400 metres to the toilet, drink tea and piss at the same time, holding his cup in one hand and you-know-what in the other, and run back to the assembly line before the seven minutes are up (as otherwise he could end up losing half a day’s pay), the top management does not, I think, get penalised if they spend more than 7.5 minutes at a time flooding the toilet.
The backstory
Apart from the physical and economic exploitation, what the workers were reacting to on July 18 was the sustained assault on their dignity. In 2011, there had been at least three confrontations – in June, September and October -- between the workers and the management. All were totally non-violent. The workers had been agitating for an independent union in place of the ineffective ‘company union’ – the Maruti Udyog Kamgar Union (MUKU). After a lot of struggle, they registered the Maruti Suzuki Employees’ Union (MSEU) in October last year. But in the same month, the management reportedly got rid of the troublesome leadership of this union by offering them a VRS-type settlement.
The workers then formed a new union, the Maruti Suzuki Workers’ Union (MSWU) with a new set of committee members. It was this union which had been negotiating with the management through 2012 – for wage increases, for transportation facilities, slowing down the robotic pace of work, and regularisation of leave benefits.
But with the MSWU apparently making little headway in the negotiations, discontent was simmering among the workers. And on July 18, when a floor supervisor allegedly misbehaved with a Dalit worker (Jiyalal), and instead of the supervisor getting pulled up, the worker got suspended, the new union was expected to deliver – to get Jiyalal reinstated. And when it began to look like they wouldn’t be able to, violence broke out.
The management has said that the workers unleashed the violence. The workers say that the management instigated it by getting hundreds of bouncers to attack the workers, who responded to that attack. But nobody seems to know what exactly happened. The truth might be closer to what a labour activist describes as a combination of karna, karwana and hone dena.
The permanently temporary worker
At the heart of this whole mess is India Inc.’s love for contract labour. My research tells me that manufacturing cars is not a seasonal enterprise – it happens round the year; nor is assembling a car in a factory incidental to the making of a car – it is not like gardening or mopping the factory floor; nor is it something that can be done with a few dozen workers. According to the law of the land – the Contract Labour (Regulation and Abolition) Act, 1970, and Contract Labour (Regulation and Abolition) Central Rules, 1971, it is illegal to employ contract labour where “work is perennial and must go on from day to day”, “where the work is necessary for the work of the factory”, and “where the work is sufficient to employ considerable number of whole time workmen.”
It is the employer’s responsibility to follow the law, and the government’s responsibility to ensure that it is not violated. Not even the MSIL management can deny that they have been using temporary workers for permanent, core, production work. And this is not something that happens in this one plant of Maruti Suzuki. In the entire NCR region – in Manesar, Gurgaon, Faridabad, Ghaziabad, Noida – where there are thousands of factories of all sizes that carry out manufacturing work round the year, the average percentage of permanent workers in the total workforce is 15%. About 85% of the workforce is made up of non-permanent labour. And non-permanent labour includes contract workers, apprentices, trainees, etc. --- add all of them and the percentage of temporary workers becomes as high as 95% in many factories. And these workers remain ‘temporary’ for years and years. I guess you could say that corporate India’s favourite worker is the permanently temporary one.
It wasn’t always this bad. The percentage of contract labour as a proportion of the total workforce doing core manufacturing work has been steadily rising since 1991, the year liberalisation began, and today, the informalisation and fragmentation of what used to be formal or organised labour has reached absurd levels. What this means, in human terms, for the workers, is exploitation of a kind that is not much different from slave labour.
To take a simple example, many factories have what is called the ‘night shift’ and the ‘full night shift’. The ‘night shift’ is from 9am to 1am and the ‘full night shift’ is from 9am to 5 am, resuming again at 9am. Yes, 16-hour and 20-hour shifts are pretty common in the NCR, about as common as the rampant violation of labour laws. And yet, we never hear about the appalling condition of India’s working class, or about how India Inc. routinely breaks the nation’s labour laws with impunity and gets away with it. Or is it possible that this is how we want most of our fellow Indians to live? We seem to care more about one Indian winning an Olympic gold than 700 million Indians living like insects in a drain. All we hear, instead, is how ‘labour law reforms’ are necessary to improve the ‘investment climate’.
Before and after Manesar
Such extreme exploitation is bound to trigger unrest at some point, and the Manesar violence is only the latest in a long series of worker conflagrations that we have seen in the past decade – in Honda Motors, Rico Auto, Orient Craft, EIRO, Pricol and many others. And they are not exclusive to NCR – similar unrest has been seen in other parts of the country as well, and they are only set to spread even more. There are four simple take-aways from all of this:
One: the growing irrelevance of the union. The workers’ unions can only represent the permanent workers. The vast majority of the workers are temporary ones, and the union means little to them, as it does not represent them. The union has traditionally been a management tool to control the workers. But in this scenario, where the union has little leverage, the management either has to play it straight (pay fair wages, give decent working conditions and benefits) or call bouncers and goons to control the workers.
Two: there is a clear nexus between the state and the corporate managements. The two have come together to maximize the exploitation of the worker. Haryana, where Manesar is located, has not even bothered to constitute the legally mandated board that is supposed to oversee the enforcement of the Contract Labour Act. The labour department is conveniently understaffed, and the cops, like cops everywhere, protect the exploiter from the exploited.
According to the workers, not just cops, but also bouncers, local goons, private security agencies, intelligence agencies (take a wild guess who put out the story about the ‘Naxal hand’ in the incident), and even the local village headmen (many of whom are huge beneficiaries of the recent industrialisation of the area – having made money from selling part of their land holdings, from renting out accommodation to workers, from getting into the transportation business, ferrying goods and material to and from the factories, as labour contractors, and other kinds of ‘middleman’ services) have been enlisted to ‘fix’ the ‘troublesome’ workers.
Three: the average factory worker in the NCR today, particularly in Manesar, is a new breed. Corporate India is very clear what it wants: absolute control over the Indian worker. But factory workers of today are not like those workers of 20-30 years ago. They are mostly ITI-trained diploma holders, young, in their twenties, mobile-savvy, net-savvy, and don’t have the time for good old ‘Down with Capitalism’ kind of sloganeering. They don’t care for the ‘communist’ stuff any more than your standard issue MBA. Though they have been hired as contract labour, unlike, say, construction workers, they are not from dirt poor backgrounds. Many are from lower-middle or middle-middle class families; they are exposed to the mall-bound luxuries of Shining India, and they want their rightful share of the GDP they busted their ass to produce. And: they care about their dignity more than they care about their jobs, and that’s easy, because they don’t really have a job anyway – they are temporary workers hired by a contractor, see?
And when such a worker is pushed to breaking point – not just worked to the bone, but taunted and humiliated, he is liable to lash out blindly. And when that happens, you get what happened at MSIL’s Manesar plant last week. It is not a rational or premeditated action – they gained nothing from it. Such violence serves no purpose. In fact, most of them are now busy hiding from the cops. But that is the nature of a rebellion – it is not calculated, it is not rational. And that is how we must understand the Manesar eruption: as a workers’ revolt.
Four: Capitalism is not sustainable without an independent union. If you look at the so-called golden period of capitalism in the 20th century, the US after the New Deal, up to the time Reagan and Thatcher came on the scene, it was a period marked by strong independent unions that managed to get the workers a decent standard of living, and Capital was forced to keep its ‘social contract’, as it were, with Labour. But then, this period, from the 1940s to the early 1980s, was also the period when communism had to be kept at bay; it was the period when capitalists had to show the world that capitalism is a better system for everyone (and not just capitalists) than any other system.
But today, of course, there is no alternative to capitalism, or so the masters of the universe want us to believe. And they also want us to believe there is no need for an independent union because they have a right to squeeze the worker as much as they want, and can. But history – and countless management studies – has shown time and again that a union which enjoys the confidence of the workers is the best tool that management can ever have to ‘control’ the workers. Hire temporary workers, take the union out of the picture – well, you’ll rake in super-profits for a while, but you’re going to have to pay a heavy price later in terms of worker unrest, and the kind of incident we saw at Manesar last week.
Yes, it is true that India’s labour legislation right now is a total mess. We have about 55 central labour laws and more than a 100 state laws, and they are all mostly observed in the breach. It is also argued that these laws make it unreasonably difficult to lay off a worker, and this is cited as the reason why employers want to keep their permanent workers to the bare minimum. The legislation in question here is the Industrial Disputes Act, 1947, which requires companies employing more than 100 workers to seek government approval before firing anybody or closing down.
While this provision should be debated, with equal participation from all the stakeholders, India Inc. needs to look at it less as an unpleasant provision to be eliminated or circumvented, and more as a necessary reminder that a business enterprise always has a social dimension that is as important as profit, and which it ignores at its own peril. Trample on workers’ livelihood and dignity, and your profit is basically blood money – it won’t say so in the balance sheet or the P&L statement, but it will show up somewhere, later, if not sooner. It could be the money you pay to bouncers and private security agencies; or the money you spend on surveillance equipment; it could be an expensive lockout; or it could be the brain tumour caused by all the curses of your downsized workforce; or it could even be the death of one of your managers.
Instead of shedding crocodile tears about the worsening ‘investment climate’, the oligarchs who make up Indian Inc. and their MBA underlings would do well to engage in some soul-searching. For a change, they can ask themselves: Should I continue to treat the Indian worker simply as a cost factor that has to be reduced to zero, or can I treat them with a little more respect, so that they too can live, and work, with dignity?

G Sampath is an independent writer based in Delhi. He is reachable at sampath4office@gmail.com

July 26, 2012

abuse of double taxation avoidance treaties

Here is an editorial on the issue of double taxation avoidance agreement signed by India with over 70:

Obfuscating role of DTAAs 
India-Mauritius DTAA is being used for everything but what the concept stands for

Three weeks before an important meeting of Indian and Mauritian on the revision of the double taxation avoidance agreement (DTAA) between the two countries, the minister of 
foreign affairs, international trade and cooperation of Mauritius was camping last week in India and holding press conferences with the Indian media in what appeared to be an attempt to soften the hardline thinking on DTAAs among Indian tax and government officials. 

This was notwithstanding the fact our Prime Minister currently holding the additional position of a finance minster is not seen as someone being anywhere close to the hardline thinking group of which the previous finance minister, Pranab Mukherjee, was considered as a crucial member. Mukherjee played a key role in getting a draft of the General Anti Avoidance Rules (GAAR) on direct taxation ready and seeking its implementation as soon as possible regardless of whether the larger proposed Direct Taxes Code was approved or not. 

With influential members of the political establishment being on either side of revise-and-curb-allowances-under-DTAAs, with the one holding the status quo view being more influential right now, it is time to take a hard look at the original purpose and objective of a DTAA whether or not any of the DTAAs signed by India with over 70 countries meet them or not. In a world, and in an era encompassing a few centuries, where global trade has inevitably flourished, companies and individuals earn income and make profits from their business operations and transactions in multiple countries. It becomes not just unfair, but also unviable, for a taxpayer if the income or profit made from operations in a foreign country is taxed by that foreign country as well as his home country. 

It was precisely to remove this element of double taxation, treaties such as the DTAAs were conceived and implemented by countries across the globe. The idea was always to eliminate unfair double taxation in order for countries to encourage trade between themselves and attract foreign investments. It was never the purpose to do this by making the rate of taxation very low or almost zero. But this is not considered by the status quo proponents of India's DTAAs with all countries including with countries such as Mauritius which are un-deniably nothing else but tax havens since they charge zero or close to zero rates for income or capital gains taxation. 

Foreign investments into India, whether direct or indirect, are pouring in through such tax havens. About 37 per cent of foreign direct invesments in the country come from Mauritius-registered companies. Clearly, this is nothing but treaty shopping by companies from other countries and there is also the element of round-tripping by Indian companies which route their domestic investments through shell companies set up in Mauritius to evade domestic rates of taxation. 

Such misuse of DTAAs should not be allowed to continue regardless of the threat of foreign investments drying up if they are stopped. India-Mauritius DTAA use is perfectly legitimate if a global investment firm, with its home base in US, or a European country, sets up shop in Mauritius, garners funds from domestic Mauritians and then invests it in India. But if the source of funds are not Mauritian, as they pre-dominantly, then the DTAA ought to be immediately revised to prevent it from happening. 

Even the draft GAAR clauses are lenient in the sense that they only cover residency which only requires board meetings to be held in the other country and adequate manpower and capital to be deployed in the business. Capital requirement is minimal for investment companies seeking registration in Mauritius and even GAAR can not effectively be a party pooper. But a real revision of the India-Mauritius DTAA can provide the much-needed cleansing.

July 11, 2012

sebi's consent term norms

In the last week of May, Indian securities market regulator tinkered with its consent term rules. I contributed an editorial on it, for the newspaper I work for, immediately after that.

Here is what I wrote in the editorial:

Old wine in a new bottle
By modifying its consent mechanism guidelines has Sebi really tightened it to protect the marketplace?
Did the securities market regulator, Securities and Exchange Board of India, just get tough with market offenders through the modifications it made in its its consent mechanism? The changes announced by Sebi on Friday, at first reading, surely indicate measures which tighten the whole consent process. But, on closer scrutiny, one can not fail to notice a few loopholes, including new ones, which could still offer escape routes to offenders. Sebi's move to modify the consent mechansim has probably occurred due to complaints in the past about the liberal manner in which Sebi was settling cases of all sizes and hues through consent orders. To many, the consent orders were less driven with the primary objective of de-clogging the regulatory enforcement system of vast number of cases. The high number of cases settled under the consent order mechanism and the high value of these consent settlements were increasingly giving the impression that it was Sebi, and not the investors and the marketplace, which was truly enjoying the benefits of the mechanism. As per Sebi's last-available annual report for the financial year 2010-11, it settled 185 cases in FY11 and collected Rs 71 crore by way of settlement charges. In the two years prior to that, it had settled 363 consent applications for Rs 49 crore in FY10 and 440 consent applications for Rs 37 crore. From the time the guidelines for the consent order mechanism was laid down in April 2007 and the consent orders started flowing from October of that year, to the end of FY11, Sebi had raked in a total of Rs 160 crore in consent settlement charges. This sum is many times over what Sebi has collected in 15 long years, from FY96 to FY11, through monetary penalties under its regular adjudication route. Even then the benefit of doubt was being given to Sebi since it indeed regulates a vast number of intermediaries spanning several areas of regulation and consent mechanism looked like a good way to speed up the handling of numerous violations which happen as a result of this huge regulatory jurisdiction. It is, therefore, welcome that Sebi on its own decided to tighten the consent mechanism. Excluding insider trading cases, serious fraudulent and unfair trade practices cases, front-running cases, failure to redress investor grievances and a few other types of cases, from the scope of consent orders will help in curbing the reckless manner in which offenders were using Sebi's consent mechanism to just pay up without legal admission of guilt. Further, reducing the scope of the consent mechanism to apply only in cases where the investigation or the inspection is fully complete. However, doubts arise to the effectiveness of these changes when one compares it with the earlier consent mechansm guidelines. The modified norms have a big loophole as Sebi's May 25 circular which details the modifications states immediately after the list of exclusion of offences from consent mechanism, "notwithstanding anything contained in this circular, based on the facts and circumstances of the case, the HPAC (external high powered committee)/Panel of WTMs (whole-time board members of Sebi) may settle any of the defaults listed above." Further, the new exclusion of serious fraudulent cases which substantial losses to investors from consent terms is not exactly new. The earlier guidelines required the HPAC to consider "the amount of investors' harm" before granting a consent order. Further, the earlier norms allowed consent orders to be passed at any stage after cause of violation but also said that in the event of a serious and intentional violation the consent process should not be completed till the fact finding process is completed by way of investigation. Are the modified norms, therefore, merely cosmetic in nature?