COIMBATORE, India — This ancient city has turned itself in recent years into a manufacturing dynamo emblematic of India’s economic rebirth. But a homicide case playing out in an auto-parts factory here is raising concerns about whether the Indian industrial miracle is hitting a wall of industrial unrest.
Pricol Ltd., which makes instrument panels for the likes of Toyota Motor Corp. and General Motors Co., was rocked in late September when workers burst into the office of Roy George, its 46-year-old human-resources boss. Angry over a wage freeze, they carried iron rods, witnesses say, and left Mr. George in a pool of blood. Police arrested 50 union members in connection with his death, their lawyer says. Charges haven’t been filed.
Battle lines are being drawn in labor actions across India. Factory managers, amid the global economic downturn, want to pare labor costs and remove defiant workers. Unions are attempting to stop them, with slowdowns and strikes that have led at times to bloodshed.
India’s Labor Pains
The disputes are fueled by the discontent of workers, many of whom say they haven’t partaken of the past decade’s prosperity. Their passions are being whipped up, companies say, by labor leaders who want to add members to their unions and win votes for left-leaning political parties. Adding to the tensions are the country’s decades-old labor codes, which workers and companies alike say require an overhaul.
“We can’t be a capitalist country that has socialist labor laws,” says Jayant Davar, president of the Automotive Component Manufacturers Association of India.
The unrest serves as a reminder that India has far to go before it stands alongside the world’s other economic powerhouses. With its widening middle class and growing base of rural consumers, India has averaged more than 8% growth for the last half-decade. It is seen as a country that can help lead a global economic recovery.
But first, it must show it can ride out booms and slowdowns alike. The country’s manufacturing sector, after growing about 7% annually for the past 16 years, logged 2.4% growth in the 12 months that ended in March. That has pressed manufacturers to make some unpopular cutbacks — spurring labor actions that have slowed production further and suppressed growth.
Strikes at India’s manufacturing and service companies rose 48% in 2008 from the year before, India’s Ministry of Labor says. This year, labor actions have hit manufacturers from Indian automaker Mahindra & Mahindra Ltd. to Finland’s Nokia Corp. and Swiss food giant Nestle SA.
Workers at a unit of Korea’s Hyundai Motor Co. staged sit-ins in April and July, demanding recognition of an outside union and reinstatement of suspended workers.
In September, workers at a unit of Japan’s Honda Motor Co. tried to prevent a trial of a new assembly line by threatening engineers and executives with shock-absorbers and motorcycle pieces, according to a court documents.
Some confrontations have turned vicious. Last year, the chief executive of Graziano Trasmissioni India Pvt. Ltd., a manufacturing unit of Swiss high-tech group OC Oerlikon Corp., was beaten to death by workers who had been suspended at a plant outside New Delhi.
The impact has been global. A strike that started in late September at Indian supplier Rico Auto Industries Ltd. left Ford Motor Co. without transmission parts, forcing it to halt production temporarily at an Ontario plant that makes Edge sport-utility vehicles and at a Chicago plant that builds Taurus sedans.
The six-week Rico strike spurred GM to idle an SUV-production facility in Delta Township, Mich., for a week and cut one shift for a second week. GM also cut a shift at a transmission factory in Warren, Mich., said a person familiar with the matter.
At Pricol, the standoff that led to Mr. George’s killing continues. The company says its pay is generous for the market. It accuses S. Kumarasami, a labor lawyer who organized the Pricol union, of inciting violence and trying to bring the company to a standstill to advance his broader leftwing political agenda.
Mr. Kumarasami, who wasn’t among those arrested and represents 20 Pricol workers who remain in custody in the matter, says he doesn’t advocate violence. The company risked workers’ lives, he says, by choosing to suppress wages. “Economic violence is also violence,” he says.
An Asian Manchester
Coimbatore, a colonial-era textile hub in the southern state of Tamil Nadu, expanded in recent decades into a manufacturing center for machine parts and small motors. Dubbed the Manchester of South India, its streets are lined with shops that sell pumps, coils and bearings.
Pricol was founded here in the 1970s by Vijay Mohan, the son of a textile-factory owner, as a maker of moped speedometers. Now its seven plants around India export 50 products — from fuel gauges and clocks to cigarette lighters — to some 40 countries.
As its work force grew, so did its problems.
Pricol, like other Indian manufacturers, is guided by two old labor laws. The country’s Industrial Disputes Act of 1947 requires companies to gain government permission before dismissing workers. The Contract Labor Law of 1970, meanwhile, prohibits employers from using temporary workers for long-term jobs. Both aim to encourage companies to protect workers by making them permanent.
Manufacturers have long complained that it can take years to dismiss their permanent employees, leading to bloated work forces and hampering companies’ ability to respond quickly to changing business conditions. Executives and industry groups say relaxing the labor laws would allow companies to hire more workers and would attract more manufacturers to India, ultimately underpinning a rise in wages.
“Some of the hardships faced by labor will be lessened if there is greater demand for workers, as would happen in a more flexible market,” says Cornell University economics professor Kaushik Basu, who was recently appointed chief economist for India’s Ministry of Finance. There are no current efforts to change the laws, officials say.
Union leaders complain that companies are hiring contract workers for longer than the law intends. They say that by using these workers — who are generally paid less and don’t draw company pensions — employers undercut permanent employees’ leverage in wage negotiations.
“Companies are doing well in India, even during a global recession,” says D.L. Sachdev, national secretary for the All India Trade Union Congress, which is backed by the Communist Party of India. “The way they keep their margins safe is to increase the exploitation of the workers.”
[ Workers at Indian auto-parts maker Pricol. Its head of human resources was killed in September following more than two years of labor unrest.] Peter Wonacott/The Wall Street Journal
Workers at Indian auto-parts maker Pricol. Its head of human resources was killed in September following more than two years of labor unrest.
Mr. Mohan, now 62 years old, says Pricol tried to do right by workers from the beginning — offering employees one cafeteria instead of separate facilities for workers and executives, and adopting equal wages for male and female workers before most other local manufacturers did so. And for 25 years, Mr. Mohan says, it avoided hiring cheaper contract workers.
“People said I was a bloody fool,” he says. “I was, in fact, an idealist.”
But in 2000, fearful of building a costly permanent work force, Mr. Mohan changed course. Factory contract workers now account for about one-third of the 2,200 people employed at Pricol’s three Coimbatore plants, the company says.
By 2007, Pricol’s sales had nearly tripled from 2000, to 4.81 billion rupees ($104 million).
Workers grew upset that their wages hadn’t seemed to rise along with company sales, says machine operator C. Murali Manoharan. Then a 16-year Pricol veteran, he made about $170 a month at current exchange rates. He says supporting his school-age daughter grew harder as food and education prices rose, and he seethed as executives saved enough from their salaries and bonuses to buy new cars and houses.
“The company’s growth was huge,” Mr. Manoharan says. “But our wages were still low.”
Workers began demanding bigger pay increases. Mr. Mohan resisted, telling workers that raises had already been negotiated by Pricol’s existing unions.
Doused With Kerosene
In early 2007, workers turned to Mr. Kumarasami. The head of the All India Central Council of Trade Unions in Tamil Nadu’s capital, Chennai, Mr. Kumarasami promised Pricol workers he would help secure higher wages for permanent and contract workers alike.
Mr. Kumarasami immediately led a strike at Pricol’s three Coimbatore plants. At one point, striking female factory workers doused themselves with kerosene and threatened to light themselves on fire. Mr. Mohan says the threat was a union stunt to wring concessions from the company, which Mr. Kumarasami denies.
With production slumping, Mr. Mohan replaced the striking contract workers with other contract workers, and braced for a battle with Mr. Kumarasami. “He’d thought we’d buckle in a day,” says Mr. Mohan. Permanent employees returned to work in June, after striking for 100 days.
In July — when Pricol traditionally announced its wage increases — Mr. Mohan said there would be no raises, citing the work stoppages’ impact on production and sales. Soon after, several contract laborers who had been hired during the strike were rounded up by workers and tied to trees outside the factory, say executives and workers.
These disruptions stung. In 2008, as India’s automobile market boomed, Pricol’s sales remained essentially flat. Net profit fell to half of 2007 levels.
In July 2008, Mr. Mohan again said he couldn’t raise wages. The next month, engineers and Pricol executives touring the factory floor were beaten by a group of workers with iron rods, says V. Balaji Chinnappan, a general manager of manufacturing. Several were hospitalized. Mr. Kumarasami said his union discourages violence and blames the flaring tempers on “the intransigence of the management.”
Splits developed in Mr. Kumarasami’s union. Machinist Mr. Manoharan, then serving as a union leader, said he began to believe a labor settlement wasn’t possible with Mr. Kumarasami in the picture. Toward the end of 2008, he says, he started meeting privately with Pricol executives to explore a settlement.
Soon, he recalls, came a telephone call from another worker, who told him: “Join with management and I will beat you.”
In March 2009, two men on motorcycles he couldn’t identify came to his house and thrashed him with iron rods, breaking his hand. In May, he says, another Pricol worker slashed him from behind with a machete as he waited at a bus station, leaving him unable lift his arm.
“That union achieved nothing,” says Mr. Manoharan, who is paid by Pricol though his limp arm has kept him off the job.
Such feelings led some Pricol managers to believe they could work around Mr. Kumarasami. One executive who spearheaded this approach was human-resources manager Mr. George, a native of the southern Kerala state educated at one of India’s top management universities.
Hired into a volatile situation in March 2009, the new HR boss tried to bond with workers, executives say, particularly those who had protested wage freezes with work slowdowns, including cardplaying or sleeping during their shifts. He asked to hear grievances and maintained an open-door policy. Attempting to cool tensions among co-workers, the balding father of two organized “bring your kids to work” days.
In the summer, citing flat sales and a rare net loss stemming from the unrest, Mr. Mohan declined to raise pay.
On Saturday, Sept. 19, Pricol handed dismissal notices to more than 40 workers that Mr. Mohan calls “militant” union members.
Pricol calls the dismissals legal and says it warned workers verbally and in writing. Mr. Kumarasami maintains the dismissals are “illegal” and says he is challenging them through the government’s Labor Bureau.
The next Monday during lunch break, Pricol’s Soundarya Rammurthi says she heard shattering glass and screams. The 30-year-old human-resources executive says she saw two workers with iron rods and “burning eyes” heading into Mr. George’s office. She fled the building and called security guards.
Pricol executives say two video cameras — one that would show people entering the building, another near Mr. George’s office — were intentionally disabled. A third camera recorded about eight workers fleeing the human-resources building, says Mr. Chinnappan.
Mr. Kumarasami declined to comment about the 20 workers still detained in the matter before charges have been filed. He calls Mr. George “an unfortunate victim,” but accuses Pricol of using the murder to destroy his union. He says more than 1,200 Pricol workers remain members.
Mr. Mohan says he’s ready to make peace. He has enlisted outside mediators and agreed to their suggestion to unfreeze factory wages. Mr. Kumarasami said this has helped create “a mood to consult” with management on labor issues.
Pricol’s output has rebounded. Between shifts, workers amble around a cordoned-off murder site. In Mr. George’s vacant office, gashes remain in the walls.
“I don’t say that everything is hunky-dory,” says Mr. Mohan. “There’s an artificial calm.