Changes in the Indian economy: impact on HR practices & industrial relations.

AuthorSohani, Shrihari S.

The author brings forth here the changes that were evident in the macroeconomic conditions of the country in the preceding decade and how they affected organizational actors. It was found that such changes had a profound impact on the human resource management practices of the firms as well as on the industrial relations climate of the country. Work arrangements have evolved drastically in the past ten years and have challenged the existing norms within the firm and also brought the industrial relations climate under strain. The article traces how different human resource practices have changed to adapt to the dynamic exogenous environment.


To understand the changes that take place in organizational policies and practices, it is imperative to focus on the exogenous environment in which the organizations operate. Effective human resource practices are critical to a firm's survival and hence akin to any other firm-level practice is sensitive to the economic environment in which the firm operate (Budhwar, 2003; Sodhi, 1994). An economic analysis allows for a study of organizations, industrial sectors and markets. Organizations indulge in scanning the economic environment to make decisions regarding capacity levels, product differentiation, setting of processes and investment in R&D. Apart from the above it also assists in understanding how firms organise their activities and what changes they bring to their organizational process to remain adaptable as per the contingent exogenous conditions.

With multiple changes happening across sectors such as a radical shift in the utilization of technology to variations in how revenue is earned there has been a marked change in work relationships across organizations (Kalleberg, 2009; Okhuysen et al., 2013). These changes range from exhibiting boundary-less career by employees (Howes & Goodman-Delahunty, 2014) to a prevalence of more flexibility oriented contracts Vis a Vis commitment oriented contracts. Rapid advancement in technology with respect to social networks has enabled stronger peer to peer connectivity and new techniques of work interaction (Adler, Kwon & Heckscher, 2008; Gittell & Douglass, 2012). Such changes have also spawned new methods of employee engagement and also provide new platforms for recruitment and selection. The last ten years have seen one major recessionary economic event and this has impacted all sectors. Organizations faced with an unpredictable demand scenario owing to recessionary tendencies of the market have shown a greater propensity towards hiring contingent labor (Verma & Gomes, 2014). Hiring contractual employees has been seen as a trend in both blue and white collared jobs. Indian labor market has also seen an increase in migrant labor. Changing HR climate in diverse sectors is also bringing to fore issues related to diversity, discrimination and ethical treatment of employees (Buddhapriya, 2013; Bukhari & Sharma, 2014; Sia & Bhardwaj, 2008).

Indian Economic Scenario

The last ten years have, for a majority of the time, seen rule from a single coalition government. India's economic performance in the years 2005 to 2008 was superlative indicated by the high growth rate in GDP ranging from 6.57% to 9.32% (Rangarajan et al., 2008). Sectors such as services and infrastructure thrived due to high uptake in demand. Excess liquidity coupled with easy financing brought a surge in the real estate, automobiles and consumables market. In the services sector, India witnessed one of the fastest growth globally. The annual contribution to GDP by the services sector in 2013-14 was 57% (Bhargava, 2015). Agriculture continues to be a major employer, but its share in GDP has consistently been declining and contributes to around 17% of the annual GDP of the country. The country enjoyed a very high average growth rate to the tune of about 9%, but this period of growth was punctuated by a contraction in demand owing to the global recession that was witnessed in 2008. This moderation in growth became further anaemic with growth rates plunging to 4.4% in 2012 (Mishra, 2014). This was owing to a decrease in the value of the rupee, increase in current account deficit and slow recovery in industrial and infrastructure sectors.

The crisis of 2008 had international origins with roots in the subprime crisis in the USA and escalating oil prices. High unemployment rates in the developed world led to protectionist policies resulting in a contraction in the services sector in India. For example, the growth in information technology industry slumped to less than 10% (Heeks, 2015). This had a large scale impact on the bottom line of Indian technology firms. Similarly, the contraction in demand also led to investors altering their investment profile and shying away from the real estate market. This led to the crash in property prices and a decrease in investment in new projects. The subsidy mind-set of the government also did not help and lacunae in government spending schemes such as MANREGA, which had a cap on investment in asset creation did not give any support to the infrastructure sector. The automobile sector also saw a gross decrease in demand leading to increased inventory and shutting down of plants to control production.

Since India's financial institutions did not have a direct exposure to the subprime crisis in the USA, the toxicity of credit default did not impact the banking and financial sector as much. The strong regulatory framework put in place by RBI also assisted in buffering the Indian economy from global recessionary trends to a large extent. RBI extended credit in the Indian economic system and followed an accommodative monetary policy by lowering interest rates. The government also resorted to reducing the excise duties to assist in demand creation. All these factors assisted India to have a cushioned impact of the global crisis but then also recessionary trends starting in 2008 had slowed down the economy. The recovery has not been as strong as expected though green shoots have started appearing in the stock markets indicated by high rallies and also with an increase in property rate and uptake in demand for capital goods. The global recession also heralded a new financial model of expenditure being followed by many global firms with respect to their service's needs. They have started reducing their capital expenditure and have increased their operating expenses with respect to consumption of services. This trend can be clarified by observing an increase in adoption of financial models such as pay per use that are inherently flexible and do not lock up capital. With the economic context for the preceding decade clarified, we now proceed to understand the impact the changes in the exogenous environment has brought on the HRM practices and labor relations in India.

Impact on HRM Practices & Labor Relations

Strategic HRM attempts to understand how managing work and workers can enrich the competitiveness of organizations. Obviously, HRM scholars focus a considerable extent of their energy on work and workers in the context of the workplace and the exogenous environment. Dynamic economic environment is propelling alternative forms of work arrangements such as contingent workers and part time workers in order to impart flexibility to the organizations. On the other hand, from a legal point of view, firms are finding it difficult to ensure compliance with employment and labor laws for workers in such work arrangements. The ups and downs in the Indian economy in the last...

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