India's IT industry faces labor law hurdle

Reinstated labor law might result in handing more power to worker unions and subject companies to more regulatory scrutiny, which would slow growth, report notes.

IT companies in India are worried the Industrial Employment (Standing Orders) Act, which have been reinstated this year, would lead to more workers' union power and increased regulatory scrutiny in their operations at a time when the industry is facing a challenging global landscape.

According to a report by India's Economic Times on Monday, the Act was enacted in 1946 but IT companies have been exempted from complying to it for more than a decade. It mandates companies to "define with sufficient precision the conditions of employment" and make these conditions known to employees by posting them up on notice boards. These conditions, or standing orders, must be approved by labor unions or staff representatives, it noted.

This has caused IT companies, particularly those in Bangalore where some of the country's more prominent software companies are based, to worry that they will have to comply with "complicated and unnecessary procedures" and encourage union activity in a sector that has traditionally been largely free of labor unions, the report stated.

"This is a retrograde step. This law belongs to the 19th century and does not take into account the ground realities of a globalized world," said Mohandas Pai, a former member of Infosys' leadership team who was instrumental in getting the earlier exemption from the law, in the article.

A spokesperson for Infinite Computer Solutions added the law will only encourage non-performing employees to hide behind the law and union power to stay in their jobs.

"We are part of the IT industry and, like every organization in our industry, we have formulated our own working norms, guidelines, and practices which are based on the spirit and purpose of fulfilling more than what the law is meant for," the spokesperson added in the report.

The exemption from the law had helped attract investment in the Indian IT industry, and in Bangalore alone, has led to more than a million professionals being hired, the Economic Times stated.