Financial and Non-Financial Impact on Employees and Engineering Companies in Pune

Financial and Non-Financial Impact on Employees and
Employers of VRS Schemes offered by Large Scale
Engineering Companies in Pune
1. Introduction
“… if we feel need of machines, we certainly will have them. Every machine
that helps every individual has a place, but there should be no place for
machines that concentrate power in a few hands and turn the masses into mere
machine minders, if indeed they do not make them unemployed…” Mahatma
Gandhi
1.1
Voluntary Retirement Schemes (VRS)
1.1.1 Voluntary retirement schemes have now come to stay as a part of policy
of the Government of India, the public and the private sectors. Even the
protests of the Left political parties in India, to these schemes, have
remained vocal and feeble. Industrialists propagate and implement them;
economists advocate them and social thinkers meekly accept them. The
Government Policy can be described as „willing to wound but afraid to
hurt‟. Thus it has so far refrained from making the desired changes in
the labour laws, but opened an escape route by making suitable
provisions in the Income Tax Act, 1961. Voluntary retirement schemes
are now seen as a panacea for increasing competitiveness, extending
markets and accelerated economic growth.
1.1.2 The eighties of the last century saw disintegration of socialist
economies, disillusionment with the public sector in mixed economies,
disequilibrium in the balance of payments of several developing
countries, and the desire of the capitalist economies to penetrate the
markets of populous developing countries such as India, China,
Indonesia in the context of slow growth and limited potential in their
traditional markets. These developments ushered in the winds of change
1
in international thinking. The world was suddenly seen as a global
village in the context of technological progress. This change in thinking
necessitated a number of steps at the national and international level,
which include, inter alia, reduction of trade barriers so as to permit free
flow of goods across national frontiers; creation of environment in
which free flow of capital can take place among nations; creation of
environment permitting free flow of technology and creation of an
environment in which free movement of labour can take place in
different countries.
1.1.3 As these steps came to be implemented by the international agencies and
fora, the governments and trans-national companies, the heat of
competition and the need for technological upgradation came to be felt
by the Indian industry. This in turn called for rationalization,
restructuring and downsizing, a euphemism for labour retrenchment.
The past did not hang so heavily on the shoulders of other countries in
the world as it did in India. They were therefore willing and ready to
implement the changes. They also found support and encouragement
from international agencies.
The World Development Report, 1995 observes as follows, “Major
transformations are associated with massive employment restructuring –
many jobs may be destroyed and many new ones created. Such hires and
separations increase dramatically during periods of major change
creating turmoil in labour market and uncertainty for workers.”
1.1.4 There was however no great turmoil, agitation or militancy in the Indian
Labour Market. May be there was only a whimper. Tushar K. Mahanti
observes in his study Uncertain future makes labourers avoid disputes,
opt for VRS as follows, “Indian labourers known for their militancy and
their penchant to stop work on the slightest pretext have begun to avoid
work stoppages of late... But the question is: what made this attitudinal
transformation possible? The answer is, The fear of uncertain future.
This has made labourers wiser and they are now opting for separation
2
schemes rather than going for work stoppages, lest they might lose their
jobs as well as the financial benefits offered to them.” (Economic Times,
07.04.2003).
1.1.5 This factual position has led the Report of the Special Group on
Targeting Ten Million Employment opportunities per year headed by
Shri S.P. Gupta to observe in 2002 as follows, “The case for
encouraging the growth of the organized sector is certainly supported by
its capacity to invest in major infrastructure, (in most cases they are
capital intensive) to give support systems to the rest of the economy; but
for the generation of employment, their growth cannot be regarded as
the answer… given the fact that the organized sector (especially the
public sector) is already carrying excess labour, the immediate effect
will be more of firing than hiring.”
Voluntary Retirement Schemes have thus not only come to stay, but will
also be quite alive and kicking in the future.
1.2
Special Features of VRS
1.2.1 Voluntary retirement concept is not something new, introduced only in
the wake of economic reforms since nineties. The Central as well as
almost all the State Government Service Rules had and have the
provisions for voluntary retirement. But the response to these provisions
has never been massive, as it has been to VRS. It has been normal and
employees have been retiring voluntarily only in exceptional
circumstances. They were not and are never induced to retire. There is
no doubt provision for compulsory retirement. But it is a penal provision
evoked only in exceptional circumstances. There has never been the fear
of uncertain future. No special incentives are also attached to voluntary
retirement. The response is therefore natural and normal.
1.2.2 In contrast, the voluntary retirement schemes introduced and implemented
in the era of economic reforms and at present as well, invariably provide
inducements to retire. Often these inducements are perceived to be
attractive. But it is not only the bait of inducements that prompt
3
employees to „volunteer‟ retirement. It is the fear of uncertain future and
the possible loss of financial benefits associated with inducements, which
explains the observed response to voluntary retirement schemes.
1.2.3 Secondly, voluntary retirement schemes are not on tap as part and parcel
of the normal service rules in the public or the private sector. It is only
when an undertaking is convinced of the need to restructure, rationalize or
downsize in the interest of survival and growth that proposals for
voluntary retirement schemes are offered. Even such proposals cannot be
offered by many undertakings which do not have the financial capacity to
pay such incentives. It is also not that only technological upgradation that
calls for VRS. Past over-staffing, flab, competition from the small-scale
sector or imports also necessitate introduction of VRS.
1.2.4 But then why VRS and not simple retrenchment? Unlike other
developed and developing countries where the labour laws are not
restrictive and allow relatively smooth process of retrenchment, the
labour laws in India make it almost impossible to implement
retrenchment selectively and timely. Political compulsions have
prevented suitable amendments to the existing labour laws. The
politicians and the bureaucrats have therefore been ingenious to open a
bye-lane where the highway is blocked. They have thus made suitable
provisions in the Income Tax Act, 1961 to enable undertakings to
formulate relatively attractive VR Schemes. The package of attractive
financial benefits coupled with significant income-tax relief lures the
employees to opt for the offered VRS.
1.2.5 Thus there is no uncertain future, redundancy or financial incentives in
natural and normal voluntary retirement, while all these three factors are
the vital components of offered VRS. Normal voluntary retirement is a
one-sided volition. VRS is in a way – mutual understanding apparently
beneficial to both parties.
Finally voluntary retirement either in the normal course or under VRS
need not be and is often not superannuation. Normally retirement and
4
superannuation carry the same meaning to most people. In most cases
retirement under VRS happens to be premature, when the normal
commitments towards family and children are not over, and the
physically and mentally alert and fit retiree has to have his time
gainfully occupied. Idleness, empty mind and reduced income and
financial status can have economic, social and moral implications. These
conditions require to be carefully studied.
1.3
VRS and the Employer
1.3.1 The Employer is an active agent and initiator in any voluntary retirement
scheme he introduces. He is only a respondent in respect of resignation,
normal voluntary retirement or superannuation. The initiative behind VRS
enhances the responsibility of the employer, both in his and workers'
interest. Reducing the flab or overstaffing through VRS is an admission
of miscalculation carrying a price-tag. There is a dislocation in the
systems, working and work-culture where VRS is implemented. The
impact on the remaining workers may affect the working and the
atmosphere in the undertaking. In the event of technological upgradation,
employment of new highly skilled/qualified staff or training of existing
staff has to be carefully planned and funded. It is often said that for an
employer „labour‟ is simply an item of cost to be reduced to a minimum,
if it cannot be eliminated altogether by automation etc.
1.3.2 The employer however lives in a society and is part of the social and
moral ethos. VRS may be a business necessity. But it has also social
and human aspects associated with it. There is an increased awareness
about the social responsibility of business. VRS may affect industrial
relations as well.
Besides, if there is no proper planning and calculation before
introducing VRS, the very objectives behind VRS may go haywire, and
profitability and competitiveness may not improve.
1.3.3. The employer is normally aware of the consequences of introducing VRS
in his undertaking since it involves his self-interest. He can also obtain
5
expert advice. But the expectations from implementation of VRS may not
materialize because of external factors, such as market conditions,
imports and competition in respect of the use of latest technology. It is
only in retrospect and careful studies of undertakings that the implications
of implementation of VRS can be adequately known.
It has been reported that even in countries where downsizing or
retrenchment can be effected with relative ease, the results of downsizing
have not been according to expectations. On the other
hand downsizing
is reported to have yielded the desired benefits in some cases. It may be
also that because of different conditions prevailing in different regions,
different undertakings and different product markets, no generalizations
can be made in respect of the impact of VRS on the employers.
It should however be possible to undertake industry-wise and regionwise studies to study the impact. Such studies would be definitely useful
for considering VRS proposals and effecting policy modifications.
1.4
Statutory Provisions
1.4.1 As stated above, the most important feature of the VR Schemes is the
incentives they offer and the tax concessions available under the Income
Tax Act, 1961. No tax concessions were available before 1987 when
Section 10 (10c) was inserted in the Income Tax Act, 1961 to provide
tax relief to retiring employees who took voluntary retirement in
accordance with the VR Scheme duly approved by the Central Govt.
The provisions of Section 10(10c) became effective from 1.4.1987 and
were applicable only to the employees of public sector companies. For
employees of private sector undertakings/companies, those provisions
were extended only from 1.4.1992. The VR Schemes of the private
sector companies have to be in accordance with the guidelines
prescribed by the Government in this behalf. Further, their VR Schemes
have to be approved by the Chief Commissioner of Income Tax.
The VR Scheme of any private sector company must meet the following
requirements, mentioned in the guidelines.
6
1. It should apply to an employee who has completed 10 years of
service or completed 40 years of age.
2. It should apply to all employees excepting the Directors of the
company.
3. It should result in overall reduction in the existing strength
of employees.
4. The vacancy caused by the voluntary retirement should not be
filled up.
5. The retiring employee should not be employed in another company
or concern belonging to the same management.
6. The amount receivable on account of voluntary retirement of the
employee does not exceed the amount equivalent to three months'
salary for each completed year of service, or salary at the time of
retirement multiplied by the balance months of service left before the
date of retirement on superannuation of the employee. In any case, the
amount should not exceed Rs. Five lakh in case of each employee.
The amount representing the excess above Rs. Five lakh is taxable.
1.4.2 The companies can frame different schemes of voluntary retirement for
different classes of their employees. But they have to conform to the
above guidelines.
The guidelines also include the criteria of economic viability. It has been
clarified that this requirement in the guidelines, which reflects the
economic criterion, is to the effect that the scheme of voluntary
retirement has been drawn to result in overall reduction in the existing
strength of employees of the company.
The schemes can be drawn by loss making as well as profit making
companies.
It should be noted that an employee taking up voluntary retirement in
normal course, such as government servants, does not get the benefits
under these provisions. The benefits are available only if he opts for
voluntary retirement under a voluntary retirement scheme applicable to
7
him, drawn up by the employer and approved by the Chief Income
Tax Commissioner.
1.5
Causes and Extent of Surplus Manpower
1.5.1 The phenomenon of large-scale reduction in manpower through the
implementation of voluntary retirement can not be viewed in isolation.
It has to be seen in the context of economic policies in the past,
the developing economic situation since the late eighties in the last
century, the economic reforms introduced in nineties, opening up of the
economy through liberal import policy, progress in technology in
general and information technology in particular and competition
both domestic and external.
1.5.2 The industrial and trade policies pursued by the Government for over four
decades since Independence provided heavy protection to Indian Industry.
It had a captive domestic market because of highly restrictive import
policies. The accelerated growth of public sector, efforts for import
substitution and lack of competition helped the Indian industry to grow
without technology and market constraints. The only major difficulties it
faced were with reference to industrial licensing policy, foreign exchange
regulation, M.R.T.P. Act and labour legislation. It could get over most of
these problems because of market demand and the compulsions of
economic growth of the country. Labour legislation gave protection to the
labour whose strength and militancy continued to rise. The work-culture
and the overall industrial culture reflected relative disregard towards
efficiency, higher productivity and discipline. Yet the industry could
thrive till the winds of change began to blow since eighties.
1.5.3 During the eighties it became clear that the Indian public sector could not
come up to the high expectations from it. Low rate of return on
investment, declining contribution to nation's exchequer and low capacity
utilization became common features of the public sector working. Delays,
cost overruns and wastage of scarce resources became common. The
public sector was dominated by bureaucracy and politicians lacking
8
business acumen and vision, and neglect of manpower planning. There
had to be a rethinking about the pampering of the public sector.
This realization came to the young and dynamic Prime Minister,
Shri Rajiv Gandhi, in 1984. He declared in a broadcast that the public
sector had spread into too many areas where it should not be. He declared
his resolve to develop the public sector only to undertake jobs which the
private sector could not do and to provide further openings to the private
sector to help its expansion in the interest of free growth of economy.
This rethinking about the public sector was not confined to India. The
disillusionment witnessed in the eighties in socialist economies, the
disintegration of the Soviet Union, the rise of European Common
Market and the trend towards dismantling trade barriers led to a close
review of the public sector in the mixed capital enterprise systems
the world over. The seeds for privatization were sown in this
transitory phase.
1.5.4 But the private sector was also not the epitome of productivity and
efficiency. The post WTO decisions revealed its shortcomings. It had
ceased to be competitive and cost-conscious. Sluggish market
conditions, changes in consumers‟ tastes and preferences and
technological obsolescence compounded its problems.
1.5.5 The political developments in the context of the decline of Indian
National Congress threatened the stability of governments at the Centre.
The populism, lack of fiscal discipline and mismanagement of the
economy by successive Governments in eighties led to a deep economic
crisis. India faced a serious balance of payments crisis as the eighties
came to a close. Foreign exchange reserves dipped to just Rs. 1,500
crore in January 1991, and the Government was forced to sell 20 tonnes
of gold in the international market and pledge another 27 tonnes to the
Bank of England. The rupee had to be devalued. In addition India was
forced to approach the World Bank and the International Monetary Fund
for a loan of about seven billion dollars to overcome the crisis. These
9
institutions did provide help but they insisted on appropriate economic
reforms to bring the economy back on rails.
To ensure the reforms, some stringent conditions were imposed which
were known as conditionality clauses. But these were considered
necessary by the World Bank and IMF for bringing about balance of
payments equilibrium externally and to reduce fiscal deficits and check
inflation internally. Privatisation, opening up of the Indian market, free
flow of capital, technology and goods had therefore to be the main
ingredients of the reforms that were brought about willy-nilly in 1991.
It is a moot point whether the government committed to the socialistic
pattern of society since Independence, would ever have thought of
such reforms in the absence of economic crisis and consequent
pressure from international agencies and developed countries.
Privatisation and disinvestment became necessary to ensure fiscal
discipline. Closure of loss making public sector units and retrenchment
where overstaffing had become a norm and disinvestment were thus
part of the economic reforms.
But hard decisions are not palatable to policy makers who are used to
always opt for the soft side of the equation. Privatisation and
disinvestment policies have therefore been half-hearted or bogged down
in controversies. Retrenchment was not economically as well politically
feasible. Stringent labour laws could not be touched. The offshoot was
the clever voluntary retirement scheme through amendments to the
Income Tax Act, 1961. Excess manpower was discovered and identified
only in the context of compulsive economic reforms.
1.5.6 When the public sector started reducing its fat and shedding manpower,
could the private sector be far behind? There was a clamour for
extending the provision of Section 10(10c) of Income Tax Act, 1961 to
the private sector as well and the demand was graciously accepted.
This was a logical corollary of the New Industrial Policy announced
in July 1991.
10
1.5.7 The new Industrial Policy set the following aims:
1. Unshackling the Indian industrial economy from the cobwebs of
unnecessary bureaucratic control,
2. Introducing liberalization with a view to integrate the Indian
economy with the world economy,
3. Removing restrictions on direct foreign investment as also freeing
the domestic entrepreneur from restrictions of M.R.T.P. Act, and
4. Shedding the load of the public enterprises which have shown a very
low rate of return or were consistently incurring losses.
1.5.8 The Industrial Licensing Policy also underwent appropriate changes
consistent with those in the Industrial Policy. Industrial licensing was
abolished for all projects except for a short list of industries related to
security and strategic concerns, social reasons, hazardous chemicals,
overriding environmental reasons and items of elitist consumption.
Existing reservations for small-scale sector would continue. There
would be automatic approval for technology agreements related to high
priority industries. Approvals for direct foreign investment up to 51 per
cent foreign equity would be accorded to high priority industries. The
policy tries to facilitate foreign direct investment in infrastructure,
core, priority, export oriented industries and establish linkages with
farming sector.
1.5.9 The obvious result of the economic reforms policy, industrial policy and
industrial licensing policy was a review of the manpower both in public
and private sector, increasing the competitiveness and profitability of
industrial undertakings and introduction of modern technology. Some
broad studies were made to estimate the excess or redundant manpower
in both public and private sector in the light of these policies. Prof T.S.
Papola writes in his study Structural Adjustment, Labour Market
Flexibility and Employment, on the basis of the data on industrial
sickness available with the financial institutions, “It was estimated
that closure of chronically sick enterprises in the Central Public
11
Sector would involve redundancy of about 4 lakh workers. Similar
estimates in case of large and medium private sector enterprises were at
around 5 lakh.”1 These estimates were only about redundancy in
chronically sick units.
Sudipto Mundle studied the redundancy of workforce due to
restructuring and closure of both Central and State Public Enterprises
and quasi-government organizations in the coming three years and
arrived at an estimate of 11 lakh employees. For the private sector his
estimate was 13 lakh employees.2 This study has been referred to by
Prof. T.S. Papola in his own study cited above. Assuming the same level
of 18 per cent redundancy in government employment which Sudipto
Mundle assumed, Business Today estimated a surplus of 18 lakh
employees among the ten million government employees including
administrative staff and workers in departmental undertakings such as
the railways, telecom etc. According to Pramod Verma, even without
technological change, it should be possible to reduce labour by 5 to 7
per cent, which meant between 13 lakh and 18 lakh persons; and if
technology was upgraded, the organized sector would have another 25
lakh surplus staff. Ruddar Dutt estimated a surplus of about 25 to 30 per
cent in public sector undertakings.3 The Government of India itself
finalized a scheme envisaging rationalization of about 20 per cent of the
23 lakh employees in 246 central public sector undertakings. This works
out to about 4.5 lakh persons.4 The National Textile Corporation
visualized retirement of 75000 employees, and the Steel Authority of
1
T.S. Papola, „Structural Adjustment, Labour Market Flexibility and Employment‟, The Indian
Journal of Labour Economics, Vol. XXXVI No.1, 1994
2
Sudipto Mundle, Structural Adjustment – Employment and Redundancy in the Organized Sector,
ILO-ARTEP [mimeo] New Delhi, 1993
3
Ruddar Dutt, „New Economic Policy and its impact on Industrial Relations and Employment in
India‟, The Indian Journal of Labour Economics, Vol. XXXVI No. 1, March 1993
4
Ratan Khasnabis, Sudipti Banerjee, „Political Economy of Voluntary Retirement‟, Economic and
Political Weekly, 28.12.1996
12
India 16900 employees. But a study of Mritunjaya Athreya conducted
earlier in 1987 revealed a surplus of 80,000 employees in the Steel
Authority of India. The surplus in Coal India was estimated at 50,000
employees. About 50 per cent of the employees of the State Road
Transport Undertakings were estimated surplus. The same estimate
might apply to the State Electricity Boards.
1.5.10 The use of obsolete technology is also stated to be the reason for
surplus labour and high labour costs, resulting in high production
costs. The case of the dying textile industries is very well known. In the
steel industry it takes TISCO two days to produce one tonne of steel
while in South Korean steel industry it takes only eleven hours for
the same output.
Within the country, with modern technology, Gujarat Ambuja produces
2000 tonnes cement per worker while with outdated technology ACC
produces only 475 tonnes cement per worker.
1.5.11 It will thus be seen that in the early climate of globalization India faced
a serious balance of payment crisis which led to seeking assistance from
International Agencies. This assistance was offered subject to
implementing economic reforms and fiscal discipline because of
pressure from developed countries. The conditions imposed by
international agencies included opening up of the economy through
import liberalization, foreign investment, privatization and liberalization
of industrial policy in favour of the private sector. Privatisation
necessitated closure of loss making public sector undertakings and
restructuring of inefficiently run public sector units not giving expected
rate of return on investment. This required large-scale retrenchment of
surplus labour, which the existing labour laws did not permit. There was
a lack of will to implement amendment to labour laws due to political
compulsions. A way was therefore found out to effect reduction in
surplus labour by suitably amending the Income Tax Act, 1961 and
providing tax-relief and incentives through schemes of voluntary
13
retirement in public sector units. The private sector also faced
competition due to import liberalization, foreign investment and use of
outdated technology. Restructuring of private sector units as well
became necessary. The provisions of the amended Income Tax Act,
1961 were therefore made applicable to private sector also in due
course. This resulted in implementing voluntary retirement schemes on a
large scale in the private sector also. Estimates have varied from 4.5
lakh to 25 lakh of the surplus labour in both public and private sectors.
On a high side this came almost to 20 per cent of the existing staff in the
organized sector, public as well as private.
1.6
Extent of Reduction in Manpower
1.6.1 According to the annual reports of the Ministry of Labour,
Government of India, the number of workers taking VRS with
assistance from National Renewal Fund was, 75,004 during 1992 and
1995. M.V. Srinivasan in his article in the, Economic and Political
Weekly dated 10.7.1999 writes that according to Ministry of Industry,
only 1.18 lakh workers opted for VRS till 1999. He also refers to
the media claims that 2.18 lakh workers in the Central PSUs had
opted for VRS till 1999.
The extent of reduction in public sector banks is however accurately
known. Between 2000-01, 101,300 employees or 11.7 per cent of the
total staff opted for retirement from public sector banks. The number of
companies offering VRS rose from 100 in 1996-97 to 296 in 2000-01
and 366 in 2002-03 (out of a sample of 3,795 companies) according to a
study published in Economic Times dated 7.4.2003. While it is now well
known that the number of companies offering VRS is on the rise in
private sector, company-wise data about the total strength of employees,
employees taking VRS, and the nature of rehabilitation efforts is
difficult to come by.
1.6.2 The impact of reduction in manpower through VRS in the public and
private sectors can however be known, albeit indirectly from the data
14
relating to organized sector employment which is regularly published
officially. It reflects not only the number of employees taking up VRS
but also the numbers relating to normal retirements, resignations,
terminations, new recruitments, privatization etc. It is expected that in a
growing economy, employment in the organized sector should show a
rising trend from year to year. This has been the case in our country as
well. The organized sector employment in India rose from 121 lakh in
1960-61 to 175 lakh in 1970-71, to 229 lakh in 1980-81 and 267 lakh in
1990-91. In the wake of incentives and tax relief provided to retirees in
public and private sectors in the nineties and the rising number of
companies offering VRS since late nineties, the rising trend has been
reversed. The employment in the organized sector rose to a peak of
282.45 lakh in 1997 and has been going down consistently since then.
Table No. 1.1
Employment in the Organized Sector
Lakh persons as on 31st March
Year
Public Sector
Private Sector
Total Organized Sector
1981
154.84
73.95
228.79
1991
190.57
76.76
267.33
1995
194.66
80.59
275.35
1996
194.29
85.12
279.41
1997
195.59
86.86
282.45
1998
194.18
87.48
281.66
1999
194.15
86.98
281.13
2000
193.14
86.46
279.60
2001
191.38
86.52
277.89
2002
187.73
84.32
272.06
2003
185.80
84.21
270.00
Source : The Economic Survey, 2004-05, Ministry of Labour, D.G. E and T.
Public sector employment rose to a peak of 195.59 lakh in 1997 but
came down to 185.80 lakh in 2003 showing a fall of 9.79 lakh or almost
15
a million. The private sector employment reached a peak of 87.48 lakh
in 1998 but came down to 84.21 lakh in 2003 showing a fall of 3.27
lakh. Total organized sector employment peaked to 282.45 lakh in 1997
but came down to 270 lakh in 2003 showing a fall of 12.45 lakh or 4.4
per cent. The fall was steeper at 5.0 per cent in public sector. It was 4.0
per cent in private sector. (The details are given in Table No. 1.1). If we
consider the estimates of surplus manpower referred to above, even this
all-inclusive decline in organized sector is less than 50 per cent of the
estimates if we take into consideration the rise up to 1997 after the
estimates were made. The reduction in surplus manpower through VRS
may therefore continue on a larger scale in the coming years.
1.6.3 The decline in employment in the organized sector is not however
accompanied by decline in national income. National income shows a
positive growth rate against the negative growth rate in organized sector
employment as will be seen from Table No. 1.2. It is a moot point
whether the implementation of VRS on a large scale in both public and
private sectors is a contributory factor in the growth of economy. It is
seen that contrary to the observations of the World Development Report
1995 that in the process of massive employment restructuring many new
jobs would be created, there is a massive reduction in organized sector
employment.
It needs to be examined whether the overall employment in the
organized as well unorganized sectors has increased in the wake of new
economic policy; whether unemployment has come down; whether the
contribution of the organized sector to the gross domestic product has
registered an increase after the implementation of VRS; and the overall
effect has been beneficial to both employers and the employees. Such
reviews and evaluations need to be undertaken by the Government as
well as representative bodies of the industry as also by other nongovernment organizations. Their results should be given wide publicity
from time to time to help mid-course corrections wherever necessary.
16
Table No. 1.2
Variations in National Income and Organized Sector Employment
Per cent change over previous year
Year
GDP at Factor
Cost at Constant
Prices
Per Capita GDP at Organized Sector Employment
Constant Prices
Total
Public
Private
Sector
Sector
1996-97
7.8
5.4
1.1
0.7
2.0
1997-98
4.8
2.5
(-) 0.2
(-) 0.7
0.7
1998-99
6.5
3.9
(-) 0.2
0.0
(-) 0.6
1999-00
6.1
5.2
(-) 0.5
(-) 0.5
(-) 0.6
2000-01
4.4
2.1
(-) 0.6
(-) 0.9
0.1
2001-02
5.8
3.3
(-) 2.1
(-) 1.9
(-) 2.5
2002-03
4.0
2.3
(-) 0.8
(-) 1.0
(-) 0.1
Source : Compiled from data published in the Economic Survey 2004-05
1.6.4 The VRS phenomenon is confined to the organized sector only. This
sector employs highly qualified, skilled and experienced manpower. The
massive strength of academically and technically qualified manpower in
our country needs to be gainfully employed or self-employed. Premature
retirement of such manpower employed in the organized sector is bound
to have economic, social, financial, familial, moral and other
behavioural consequences.
1.6.5 Ours is a highly populous country. The burgeoning population needs not
only to be fed but also gainfully employed to feed itself and contribute
to the country's development and prosperity. As Mahatma Gandhi has
emphasized, the poor of the world cannot be helped by mass production,
but only by production by the masses. In singing praise of modern
technology and vying to make use of it, are we losing sight of the crores
of poor, unemployed and underemployed masses in the country? They
constitute our backbone. As E.F. Schumacher has observed, there is a
universal agreement that a fundamental source of wealth is human
labour. In a country, which abounds in manpower, the primary
17
consideration cannot be to maximize output per man, it must be to
maximize work opportunities for the unemployed and underemployed.
The Common Minimum Programme of the United Progressive Alliance
(UPA) (which came in power at the Centre in 2004) observes as follows,
“The U.P.A. reiterates its abiding commitment to economic reforms
with a human face, (emphasis added) that stimulates growth, investment
and employment ... The UPA rejects the idea of automatic hire and fire.”
Yet the report of the Special Group appointed by the Planning
Commission, on targeting ten million employment opportunities per
year observes, ... “Given the fact that the organized sector (especially the
public sector) is already carrying excess labour, the immediate effect
will be more of firing than hiring.”
1.7
Need for In Depth Studies and the Present Study
1.7.1 The Voluntary Retirement Schemes both in public and private sectors
cannot be viewed in isolation. Various policy announcements of the
Government, the actual pace and nature of implementation, the vision
and views of the private sector, their requirements, the nature of various
VR Schemes, the impact of these schemes on the concerned units,
employers, employees, industry and economy need to be studied by
various institutions and individuals in depth.
This study is therefore a small part of many such studies required to be
undertaken. Due to constraints of time, funds, manpower etc. it is
limited to the financial and non-financial impact on employers and
employees of VR Schemes offered by large-scale engineering
companies in Pune metropolis. It is felt that such industry-wise,
region-wise micro level studies would also help in bringing into
sharp focus the specificities of individual industries and regions and
provide insights for policy making and implementation both at macro
and micro levels.
18
1.8
Pune Metropolitan Region
1.8.1 The locale selected for this study is the Pune Metropolitan Region. For
one, the region is selected because most of the industrial development in
Pune has taken place only after the formation of Maharashtra State in
the sixties of the last century. For another Pune has a long reputation of
being a premier educational and cultural centre not only of Maharashtra,
but also of India. There are scores of professional, educational,
management and research institutions, a regular university and over half
a dozen deemed universities in Pune. This ensures an abundant supply
of skilled, educated and technical professional manpower to industry. In
recent years Pune has become a hub of I.T. industry and soon it is likely
to surpass Bangalore and Hyderabad in IT Sector. Thirdly, Pune has
good medical, health and other infrastructure facilities of water, power,
transport, communication etc. There is a large defence establishment,
the premier defence academy as also defence education and training
establishments in the city.
The city has a very pleasant climate and is endowed with the bounty of
nature in its environs. It is also active and vibrant politically and
socially. Among the 35 mega cities with a population of over one
million in India, Pune ranks eighth. It has recorded fourth highest
population growth rate between 1991 and 2001 among 13 major cities in
the country as will be seen from Table No. 1.3. According to the
Industrial and Commercial Directory of Pune, 2002 published by the
Mahratta Chamber of Commerce, Industries and Agriculture, Pune, the
number of permanent and provisional industrial units registered with the
Joint Director of Industries, Pune, was 48,189 and 13,150, respectively.
The number of registered working factories as on December, 1999 was
3,394, a little more than 10 per cent of the 33,626 registered working
factories in Maharashtra. The city industry is therefore quite sensitive to
changes in Industrial policy, licensing policy and industrial competition.
This makes it one of the ideal locations to study the impact of VR
19
Schemes implemented during the last decade. Finally, the researcher is
based in Pune, familiar with Pune and has relatively easy access to
industrial units and employees. Hence the choice of Pune for this study.
Table No. 1.3
Population of Cities with a Population of One Million and above
Sr.
No.
Name of City
Population
1991
(in Million)
Population
2001
(in Million)
Ten Yearly
Increase Per cent
1.
Greater Mumbai
12.6
16.4
30.2
2.
Kolkata
10.9
13.2
21.1
3.
Delhi
8.4
12.8
52.4
4.
Chennai
5.4
6.4
18.5
5.
Bangalore
4.1
5.7
39.0
6.
Hyderabad
4.3
5.5
27.9
7.
Ahmedabad
3.3
4.5
36.4
8.
Pune
2.5
3.7
48.0
9.
Surat
1.5
2.8
86.6
10.
Kanpur
2.1
2.7
28.5
11.
Lucknow
1.6
2.2
37.5
12.
Jaipur
1.5
2.3
53.3
13.
Nagpur
1.7
2.1
23.5
Source: Registrar General of India.
1.8.2 Pune district is one of the most prominent districts in Maharashtra as
will be seen from Annexure No. 1.1 to this chapter. (The Annexure
No. 1.1 gives data on important indicators for Pune District and
Maharashtra for ready comparison.) According to the alphabetical list of
manufacturing companies published in the Industrial and Commercial
Directory of Pune 2002, there were 4,950 manufacturing units in Pune
District. There were 163 units having Foreign Direct Investment (FDI)
and 198 ISO 9000 and QS 9000 certified units in Pune district. Over 90
per cent of all these units were located in Pune Metropolitan Region.
20
The industrial units in this region are mostly located in PimpriChinchwad-Bhosari Complex, Dapodi, Bopodi, Khadki, Hadapsar,
Kothrud, and Gultekdi etc. The region consists of area under the
jurisdiction of
Pune
Municipal Corporation, Pimpri-Chinchwad
Municipal Corporation, Pune Cantonment Board, Khadki Cantonment
Board and Dehu Road Cantonment Board. There is no language problem
in Pune as besides Marathi, Gujarati and English, Hindi is also spoken
and understood by most of the local population. As a result of the influx
of students and workers from other States the city is fast progressing
towards a cosmopolitan character.
1.9
Chapter Scheme
1.9.1 The chapter scheme for the presentation of this study is as follows:
Chapter 1
Introduction
Chapter 2
Significance and Importance of the Study
Chapter 3
The Impact of Economic Reforms : A Review
Chapter 4
Theoretical Background and Review of Literature
Chapter 5
Analytical Framework
Chapter 6
Voluntary Retirement Schemes
Chapter 7
Presentation and Analysis of Data-I
Chapter 8
Presentation and Analysis of Data-II
Chapter 9
Presentation and Analysis of Data-III and Testing
of Hypotheses
Chapter 10
Conclusions and Scope for Further Research
Bibliography

21
Annexure No. 1.1
Pune District at Glance
Sr.
No.
1.
2.
Items
Unit
Pune
District
Maharashtra
1705‟-1902‟
1604‟-2201‟
E
7302‟-7501‟
7206‟-8009‟
Sq.km.
15,642
307,713
Location
1.1
Latitude
0
1.2
East Longitude
0
N
Area and Population (1991 Census)
2.1
Area
2.2
Towns
No.
34
336
2.3
Villages
No.
1,862
43,027
i.
Inhabited
No.
1,844
40,412
ii.
Un-inhabited
No.
18
2,615
2.4
Rural Population
in 000
2725
48,396
2.5
Urban Population
in 000
2807
30,542
2.6
Total Population
in 000
5532
78,938
2.7
Scheduled Caste People
in 000
631
8,758
2.8
Scheduled Tribe People
in 000
216
7,318
2.9
Male
in 000
2,861
40,826
2.10
Female
in 000
2,671
38,112
2.11
Sex Ratio :
Female per
1000 Males
933
934
Person per
sq.km.
354
257
2.12
Density of Population
2.13
Total Workers
2.14
1
As Cultivators and
Agri. Labours
in 000
2051
n.a.
2
Others
in 000
179
n.a.
3
Non-Workers
in 000
1854
n.a.
Literacy
i.
Total
per cent
71.05
64.87
ii.
Male
per cent
81.56
76.58
iii.
Female
per cent
59.77
52.32
Continued
22
Annexure No. 1.1
Continued
Pune District at Glance
Sr.
No.
3.
Items
Maximum (Absolute)
0
Celsius
38.6
47.7
ii.
Minimum
0
Celsius
9.1
2.4
iii.
Pune Rainfall
mm
992.29
1292.53
Agriculture
4.1
Cultivatable Area
„000 ha
1115
23178
4.2
Area Not Available for
Cultivation
„000 ha
167
2914
4.3
Area Sown
4.4
6.
Net
„000 ha
1016
17732
ii.
Gross
„000 ha
1259
22166
Area Irrigated
i.
Net
„000 ha
225
2568
ii.
Gross
„000 ha
278
3874
Area Under Forest
000 ha
171
5370
4.6
Land Revenue Collection
Rs. lakh
82
7116
Actuals (99-2000)
Rs. lakh
326.09
9200
Animal Husbandry (1997)
5.1
Live Stock
„000
2424
39793
5.2
Cattle
„000
896
17949
5.3
Buffaloes
„000
286
8484
5.4
Sheeps and Goats
„000
1198
14716
5.5
Poultry
„000
3935
34984
No.
3394
33626
No.
1896
39413
No.
15787
152745
Industries (as on Dec. 1999)
Working Factories (Regd)
Electricity (as on 31.3.2000)
7.1
8.
i.
4.5
6.1
7.
Maharashtra
Temperature
i.
5.
Pune
District
Climate (1999)
3.1
4.
Unit
Towns and villages
Electrified
Co-operation (1999-2000)
8.1
Co-operative Societies
(all types)
Continued
23
Annexure No. 1.1
Continued
Pune District at Glance
Sr.
No.
9.
Items
Unit
Pune
District
Maharashtra
Medical and Public Health (1999-2000)
9.1
Hospitals
No.
38
887
9.2
Primary Health Centers
No.
90
1782
No.
4230
65338
10. Education (as in 1998-99)
10.1
10.2
10.3
Primary Education
i.
Institutions
ii.
Students
„000 No.
793
12232
iii.
Teachers
„000 No.
21
314
No.
883
14918
Secondary Education
(1998-99)
i.
Institutions
ii.
Students
„000 No.
590
8748
iii.
Teachers
„000 No.
18
240
No.
104
1541
in 000
112
928
Higher Education (1998-99)
i.
Institutions
ii.
Students
11. Transport and Communication (as on 31.3.2000)
11.1
Total Railway Length
km.
311
5396
11.2
Total Road Length
km.
8695
213951
12. Local Self Government (as on 31.3.1999)
12.1
Village Panchayats
No.
1374
27627
12.2
Municipalities
(including Corp.)
No.
13
239
Source : District Statistical Abstract : Pune District, 1999-2000, Government of Maharashtra

24