The introduction of reforms in India and the consequent
liberalisation of the economy has exposed the entrepreneurs to an ever
increasing competition. Since then, several policy measures have been
undertaken by the Government in order to enhance the global competitiveness
of the Indian companies. One of the important sets of policy measures relates
to reforms in the labour sector. But the most contentious issue in this
sector which still remains unaddressed is that of the EXIT policy. This
is because the companies have been arguing for a flexible EXIT policy
while the labour unions have been against such a step because of their
fear of loss of job security. But a liberal policy towards the entry and
expansion of firms would be beneficial only if it is accompanied with
a rational policy towards the exit of unviable firms. It is a necessary
condition for inducing competition and enhancing the efficiency of resource
The term 'exit' is the obverse of the term 'entry' into
industry. It refers to the right or ability of an industrial unit to withdraw
from or leave an industry or in other words to close down. The proposal
to introduce an exit policy was first mooted in 1991 when it was felt
that without labour market flexibility, efficient industrialisation would
be difficult to achieve. The need for such a policy arises as a result
of modernisation, technology upgradation,restructuring as well as closure
of industrial units. Such a policy will allow employers to shift workers
from one unit to another and also retrench excess labour. In India, the Industrial
Disputes Act,1947 puts restrictions on employers in the matter of
reducing excess staff by retrenchment, by closure of establishments and
the retrenchment process involved lot of legalities and complex procedures.
Also, any plans of retrenchment and reduction of staff and workforce are
subjected to strong opposition by trade unions.
The key consideration in evolving a practical industrial
exit policy is the protection of the legitimate interests of workers,
both in the public and the private sector. Hence, the Government policy
has been that if a unit can be made economically viable by restructuring
it and retraining/redeploying the labour, no efforts should be spared
to do this. Only in the case of units where even restructuring would not
render it economically viable should the option of closure of the unit
be allowed. Even here, to minimise the adverse effects of closure of a
unit on labour, several options like social security nets, insurance schemes
and other employee benefit schemes as well as creation of a fund to pay
retrenchment benefits to employees have been in place. Some of the measures
- The most important measure is the introduction of Voluntary
Retirement Scheme(VRS). It was introduced as an alternative legal solution
to solve this problem. It is the most humane technique to provide overall
reduction in the existing strength of the employees. It is a technique
used by companies for trimming the workforce employed in the industrial
unit. It is now a common method used to dispense off the excess manpower
and thus improve the performance of the organisation. It is a generous,tax-free
severance payment to persuade the employees to voluntarily retire from
the company. It is also known as 'Golden Handshake' as it is the golden
route to retrenchment.
VRS allows employers including those in the government
undertakings, to offer voluntary retirement schemes to off-load the
surplus manpower and thus no pressure is put on any employee to exit.
These schemes are also not subjected to vehement opposition by the Unions,
because the very nature of its being voluntary and not using any compulsions.
It was introduced in both the public and private sectors. Public sector
undertakings, however, have to obtain prior approval of the government
before offering and implementing the VRS.
A business firm may opt for a voluntary retirement scheme
under the following circumstances:-
- Due to recession in the business.
- Due to intense competition, the establishment becomes
unviable unless downsizing is resorted to.
- Due to joint-ventures with foreign collaborations.
- Due to takeovers and mergers.
- Due to obsolescence of Product/Technology.
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- In order to protect the interest of workers, Government
had set up a National Renewal Fund (NRF) in 1992. The objectives and
scope of the National Renewal Fund were:-
(a) to provide assistance to cover the costs of retraining and redeployment
of employees arising as a result of modernisation, technology upgradation
and industrial restructuring.
(b) to provide funds, where necessary, for compensation of employees
affected by restructuring or closure of industrial units, both in the
public and private sectors.
(c) to provide funds for employment generation schemes both in the organised
and unorganised sectors in order to provide a social safety net for
labour needs arising from the consequences of industrial restructuring.
The National Renewal Fund had two constituents:-
- National Renewal Grant Fund (NRGF) dealt with the
immediate requirements of labour arising from the revival or closure
of sick units. The funds were disbursed in the form of grants for
funding approved schemes relating to retraining, redeployment, counselling
and placement services of employees affected by technology upgradation,
modernisation, restructuring and revival of industrial undertakings.
These funds were also utilised for
compensation payments to employees affected by rationalisation in
industrial undertakings and parts thereof.
- Employment Generation Fund (EGF) disbursed grants
for approved employment generation schemes for both the organised
and unorganised sectors. It included schemes such as:- (a) Special
programme designed to regenerate employment opportunities in areas
affected by industrial restructuring. (b) Employment generation schemes
for the unorganised sectors in defined areas.
Though this fund was dissolved, but the Government has
been continuously making efforts in this direction.
of Counselling, Retraining and Redeployment (CRR) of rationalized employees
of Central Public Sector Undertakings (CPSUs)
The objective and scope of the scheme is to provide opportunities
of counselling, retraining and redeployment to the rationalized employees
of Central Public Sector Enterprises (CPSEs) rendered redundant as a
result of modernization, technology upgradation and manpower restructuring
in the Central PSEs. It consists of three main elements:-
- Counselling:- is the basic pre-requisite of the rehabilitation
programme of the displaced employees. The displaced employees need
psychological counselling to absorb the trauma suffered by them due
loss of job and the resulting challenges both for himself and for
the members of his family. He needs to be made aware of the new market
opportunities so that he may, depending upon his aptitude and expertise,
take up suitable economic activities.
- Retraining:- is to help the rationalized employees
in rehabilitation. The trainees will be helped to acquire necessary
skills/expertise/ orientation to start new activities and re-enter
the productive process after loss of their jobs.
- Redeployment:- of such rationalized employees in the
production process through the counselling and retraining efforts.
At the end of the programme they should be able to engage themselves
in alternate vocations of self-employment. Whereas there cannot be
any guarantee that the rationalized employee will be assured of alternate
employment, yet possible help from the identified nodal training agencies
as well as from the concerned Central Public Sector Undertakings (CPSUs)
would be extended to them for starting new avocations.
The scheme was introduced by the Department
of Public Enterprises (DPEs) and has been assigned the responsibility
of implementing the scheme through its CRR
Cell. For carrying out various activities for implementation of
the CRR Scheme, many nodal
training agencies have been set up which have several Employees
Assistance Centres located all over the country to meet the training
needs under the Scheme.