Maruti Violence May Signal Broader India Labor Time Bomb

Mukesh Kumar Yadav says he’s struggling with medical bills after he lost two toes in an accident this month at a Maruti Suzuki India Ltd. (MSIL) plant. He’s a contract worker who earns a fraction of a permanent employee and isn’t entitled to on-the-job injury compensation.

“We do not matter to them and they have no duty toward us,” said Yadav, who takes home about 7,000 rupees ($126) a month as a forklift driver at Maruti Suzuki’s Manesar plant. “Maruti just gets us to work and gives us money.”

While Yadav didn’t take part in the July 18 riot that shuttered the plant and led to the death of a manager, his story helps show why discontent was brewing among workers. Other carmakers should take note of worker complaints in the run-up to the violence at India’s largest carmaker because wage disparity is prevalent across the auto industry, said Ammar Master, an analyst at LMC Automotive.

“This combination of lower economic benefits and perceived inequality is a ticking time bomb waiting to explode at the slightest altercation,” said Master, who’s based in Bangkok. “This is going to be a problem for everybody unless they address the issues. If these labor issues are not addressed, it’s going to take away investors from India.”

Idled Factory
Police have been seeking to detain workers at Maruti’s idled Manesar factory, which according to the company’s website accounts for about 40 percent of total production capacity, since a brawl between an employee and supervisor escalated into a riot on July 18. That day, workers attacked managers, ransacked and set fire to company property, according to Maruti. Chairman R.C. Bhargava on July 21 declared a factory lockout pending the conclusion of a police probe, with outsiders and factory workers not being allowed inside the plant.

Permanent workers take home about 18,000 rupees a month, triple as much as a contract worker, according to seven workers interviewed by Bloomberg News.

Maruti Suzuki isn’t obliged to pay contract workers medical benefits because it hires a contractor to manage those workers, said S.Y. Siddiqui, head of human resources at New Delhi-based Maruti, declining to name the contractor. He also declined to comment on individual cases when asked about Yadav.

Siddiqui defended company policy, saying Maruti Suzuki pays more than 70 percent above minimum wage. When including meals and retirement provisions, the average cost for contract workers — who account for about half of Maruti Suzuki’s workforce — is about 12,000 rupees a month each, he said. For permanent employees, the cost starts at 12,500 rupees and rises to about 23,000 rupees in three years, he said.

‘Same Work’
Rathore Netaji said such disparity wasn’t fair, leading him to quit in June after 3 ½ years as a contract worker at the Manesar plant, located about 50 kilometers (31 miles) southwest of New Delhi. Netaji said he lent colleagues money several times because contract workers don’t get health-care benefits. Non fulltime employees don’t get to use the company’s shuttle-bus services and during good times, Maruti would only give out sweets or blankets to permanent workers, he said.

“Everybody on the line does the same work, so why should one person get paid more than the other?” said Netaji, 22, who used to take home about 7,800 rupees a month. “We do so much for the company. We made Maruti number one in India. We care about the company so why doesn’t the company look after us? They don’t care about the contract workers.”

Stalled Forklift
Yadav was rushed to the hospital by a Maruti Suzuki contractor on July 16, when a piece of machinery crushed his foot while trying to restart a stalled forklift, he said. Nine days later, the contractor told Yadav he was on his own to pay further medical bills, forcing him to move to a cheaper government hospital and spend about 400 rupees on medicine and bandages each day, he said.

A contract worker was injured that day at the Manesar plant and medical expenses were reimbursed by Maruti Suzuki to the contractor, Maruti Suzuki said in an e-mailed response to Bloomberg queries about Yadav’s incident.

“Maruti put up the photo of my brother in the factory to tell other workers to be more careful,” said his brother, Sarvesh, who is also a contract worker at Maruti.

Indian law entitles contract workers to be paid as much as permanent workers should their jobs be similar, said Anoop Kumar Satpathy, a fellow at the V.V. Giri National Labour Institute in Noida, near New Delhi. Most contract workers aren’t aware of that right, allowing employers to pay less to temporary workers, Satpathy said.

Contract Workers
The number of licensed contract workers across India almost doubled to about 1.5 million last year from 773,849 in 2000, according to the Labor Ministry’s latest annual report. Satpathy said the government “severely” underestimates the numbers because some states don’t report contract worker data.

Full-time employees such as Narendra Prasad Mishra are sympathetic to contract workers, saying that mounting worker discontent was poisoning the atmosphere at the Manesar plant.

“Management was suspending workers for any small reason,” said Mishra, who racks materials on the production line. “Contract workers had a very low salary. With that sort of money, how can you support yourself and a family in Gurgaon.”

Prior Stoppages
Contract workers may get little help from the government.

“What has that got to do with me?” Satwanti Ahlawat, labor commissioner for the state of Haryana where Maruti’s two factories are located, said before hanging up when asked to comment on contract workers’ complaints about low salaries.

Prior to the violence erupting July 18, the Manesar plant had already seen three production stoppages in the past year, as workers went on strike demanding the right to form a union, higher pay and better working conditions. In October, management reached an agreement with the workers to end their strike.

The Manesar-Gurgaon region is an industrial hub, with companies including Hero MotoCorp Ltd. (HMCL), Honda Motorcycle & Scooter India Pvt., Sona Koyo Steering System Ltd. (SONA) and Rico Auto Industries Ltd. (RAI) operating factories there. As New Delhi expands, so is the suburb of Gurgaon as fields turn into construction sites and construction cranes dot the landscape.

For Maruti, which on July 28 reported a 23 percent drop in first-quarter net income, the riot means the company can’t assemble its top-selling Swift and DZire models.

Worst Performer
As of yesterday’s close, the stock had fallen 8.5 percent since the violence erupted, the worst performer on the benchmark Sensitive Index during the period. Japan’s Suzuki Motor Corp. (7269), which owns a majority of the Maruti Suzuki, has declined 6.6 percent.

Further profit drops may loom. The company is losing about 1,600 cars worth 700 million rupees in production each day the plant is shut, according to Ashvin Shetty, an analyst at Mumbai- based Ambit Capital Pvt. Chairman Bhargava said in a July 28 interview that the next two to three weeks will be crucial for the automaker as it decides if it needs to shift manufacturing to its other plant in Gurgaon.

“Maruti can’t afford to keep the plant closed,” said Umesh Karne, an analyst with BRICS Securities Ltd. in Mumbai. “Customers may not be willing to wait,” with rivals including Hyundai Motor Co. (005380) and Tata Motors Ltd. (TTMT) offering vehicles at competitive prices, he said.

Strike History
Maruti may reduce its number of contract workers to account for less than 20 percent of its total workforce by March 2013, Siddiqui said.

In the past few years, workers at factories belonging to Rico, Honda and Hero have gone on strike demanding higher pay and permanent employee status for contract employees. In 2008, the managing director of Graziano Trasmissioni India Ltd. was beaten to death after a group of dismissed employees turned violent, police said then.

Indian police are narrowing their search after arrest warrants were issued for 11 union leaders, including Ram Meher, president of the Maruti Suzuki Workers Union, for their roles in starting this month’s deadly riot, a police official said last week.

Meher hasn’t responded to calls to his mobile phone since sending a July 19 statement saying that the clash started when a supervisor insulted a worker because of his caste and hundreds of bouncers paid by Maruti Suzuki attacked workers with weapons. The company and Indian police have denied allegations about the hiring of bouncers.

While the results of the investigation have yet to come out, LMC’s Master said similar situations may arise at other Indian auto companies unless they improve their labor relations.

“It only takes one match to start a fire,” Master said. “Making contract workers permanent is one solution. The costs will increase but the costs of stoppages are far more.”

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