Total Rewards Quarterly

The Indian Manufacturing Story - A Time for Change

Indian Manufacturing

The Indian manufacturing industry has the potential to touch USD 1 trillion by 2025. With the government’s ambitious target to increase the share of manufacturing sector’s contribution to GDP from the existing 16% to 25% by 2025, manufacturing in India is increasingly becoming a lucrative proposition. In this context, labor productivity and overall industrial peace are of paramount importance for the economy to bear the fruits of the Indian manufacturing story. Blue collared workmen are the backbone of the Indian manufacturing industry and with high automation in the industry, the workmen skills have seen a major upward growth in the past two decades.

Although 90% of India’s labor force continues to be in the unorganized sector, the productivity of the organized sector with 10% of the total labor force is around 900% more than the unorganized sector, and contributes to almost half of the Indian National Domestic Product (NDP). More than half of the Indian organized labor continues to be with the state and central government and manufacturing sectors employ the highest headcount. This article will primarily talk about the trends for the blue collared workmen (manufacturing) in India from a human resource perspective and productivity perspective.

The Changing Workplace for the Blue Collar

The work environment for blue collar workmen is typically governed by two critical factors – prevailing labor laws enacted by the centre and state and long-term settlements between employee groups and employers. Labor laws in India have been designed to be beneficial legislations towards employees. Labor laws typically provide for terms and conditions of employment with respect to quality of working conditions, method and quantum of wage payments, controlling working hours, provisions for statutory savings, methods to resolve disputes along with necessary rights to workmen, etc.

Recent developments in labor laws are expected to have a significant impact on both employees and employers. Aon Hewitt’s study on the impact of changes in Payment of Bonus Act suggests an approximate 400% increase in bonus payouts in the manufacturing sector due to a large number of new employees being eligible along with a near doubling of entitlement amounts. It may not be long before organizations start replacing the ‘mandatory’ bonus provisions with productivity linked incentives in line with the provisions present in the Bonus Act given the significant rise in payout amounts.

One of the upcoming developments with proposed labor code on industrial relations is expected to provide flexibility for employers to enter and exit employment contracts basis supply and demand fluctuations, drive faster and effective resolution of disputes paving the way for improvement in overall industrial peace. Other developments in changing the maximum overtime in factories from the existing 50 hours per week to 100 hours is anticipated to enhance effective utilization of the manufacturing capacity in India.

Leading Indian organizations are increasingly focusing to move the story from hostile conditions of employment towards a holistic model of employment addressing the needs of the younger workforce and providing opportunities for growth and development. Aspects like engagement practices, rewards and recognition practices, individual-based performance management programs are gaining greater significance changing the landscape of blue collar work environments with focus on overall labor productivity.

Competitive Manufacturing Hot-Spots

While the white collar labor in India is highly mobile, the blue collar workmen in the organized sector are more regional and the mobility is restricted due to ingrained importance attached to family structures and stability factors in the culture. In the British and post-colonial India, majority of these workmen clusters were dependent on the proximity to the nearby ports – Hooghly industrial belt, Mumbai-Pune industrial belt, Ahmedabad-Vadodara belt and Madurai-Coimbatore- Bangalore belt are some of the prime examples. These were facilitated by existing rail infrastructure and the favorable taxation under the Export Processing Zone model. However, with rapid development of rail and road infrastructure in the country over the last three to four decades and the introduction of Special Economic Zones (SEZs), multiple new manufacturing belts have come up across the country.

Organizations typically compete for talent and skills within a particular cluster through competitive wage settlements in lieu of a commitment for productivity and higher standards of performance. While majority of these clusters have a mix of various industries, however, some areas do tend to develop expertise in a particular industry and this facilitates availability of skilled talent and increases talent competition in the region.

Broadly, if we consider the four zones in the country, below is an indicative list of industrial areas from a workmen mobility perspective:

North India
NCR and UP West – Manesar, Ghaziabad, Agra, Aligarh,
Gajraula and Saharanpur
Uttarakhand – Haridwar, Pantnagar, Dehradun
and Sitarganj
Rest of North – Haryana, Punjab and Himachal
West India
Goa
Gujarat – Silvassa, Surat, Vadodara and Ahmedabad
Maharashtra – Mumbai, Pune, Nashik and Aurangabad
South India
Bangalore/Chennai belt, SriCity, Tamil Nadu
East India
West Bengal, North East India and Odhisa

Demographic Trends

The job profiles for blue collar employees in India can broadly be classified into skilled (executed by ITI qualified employees) and unskilled jobs (executed 12th or below educated). Aon Hewitt’s research on the demographics of employment provides for the break-up of these two categories across regions.

Over time there has been a continued shift in the talent pool from unskilled to skilled employees. Even unskilled employees have been noticed to develop expertise on respective processes and industries with experience.

From a profile perspective as well there is clear bifurcation between skilled and unskilled employees. There is a distinct correlation between the complexity of job and the skill of the employees.

In addition to the jobs mentioned above, jobs like project assistant, lab assistant, etc. are being given to diploma engineers with considerable experience.

Rising Blue Collar Wages: Increase of competition in manufacturing in India has seen an increase in the wages for both skilled and unskilled labor in the organized sector. Workmen wages aggregated across the country have seen an increase of approximately 13.4% (CAGR) in the last three years. Overall growth in Indian economy has also increased opportunities in the unorganized and service sector too, resulting in higher increments for unskilled workforce when compared to skilled workforce. This observation holds true for all the four zones in India.

This increase in wages for unskilled workmen has had an impact on the overall wage differentiation between skilled and unskilled labor. If such differentiation is continued then in the next five years, the difference between skilled and unskilled wages will reduce to less than 4%.

Proactive Focus Beyond Wages: Majority of the employee’s benefits for the blue collar workmen were restricted to insurance, employee loans, subsidies, providing for canteen, transport facilities and so on. Many organizations are also known to be giving employee personal loans for housing and other needs at very low to negligible interest rates.

An Aon Hewitt study across leading FMCG firms across regions identified a strong prevalence of HR practices in the area of rewards & recognition, engagement and employee growth from the erstwhile notion of factory benefits. Organizations are also increasingly seen to identify measure and recognize performance at an individual level for the blue collar employees in this journey. Preference towards employing younger & skilled workforce, willingness to compete and pay above the market, providing strong cash incentives for productivity at workplace and enhancing the overall employee experience through recognition programs and engagement programs appear to be guiding factors that are driving the work climate in the current day factories. Although India has a high supply of labor across the country but the availability of skilled and talented labor is very low among the talent pool. This has led to a number of attraction, retention and employee engagement initiatives.

In Summary

While the India manufacturing story offers great opportunities of growth for both the employers and employees, overall labor productivity with industrial peace and employee commitment are of paramount importance to script the success in the years to come. In the context of rising wage costs for competing on talent, organizations will need to focus on positioning themselves competitively as compared to the market. At the same time, designing and implementing competitive & best-in-class HR practices that lead to employee satisfaction and drive workplace results is of significant importance to drive success at the blue collar workplace.

 




Article by:

 

Krishna Chaitanya Malladi
Consultant,
Aon Hewitt



Nakshatra Bhatt
Consultant,
Aon Hewitt

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