Comment

If one accepts the basic hypothesis that Indian companies outsource work mostly for reasons of cost, it’s quite likely that they will be compromising the long-term interests of their own employees, customers and business. A credit card company that uses goons to recover dues will sooner or later lose the trust of its customers. A company that employs cheap transport operators without checking their antecedents will find that it has compromised its employees’ interests. And so on.

In short, if companies use outsourcing as a way to shirk their responsibilities to customers and employees, they have only themselves to blame for the consequences. However, there is another side to the story. We need to ask why companies do stupid things like this. Two major reasons stand out: rigid labour laws and a weak legal system.

Under Indian labour laws, firing employees is almost impossible. Companies that can’t fire, won’t hire. Nobody in the organised sector wants to hire people in low-skill jobs even though there are a lot of them available.

An Assocham study shows that between 1998 and 2003, when the economy grew at 5.3 per cent on an average, organised sector employment declined 4.14 per cent. The Organisation of Economic Cooperation and Development (OECD) did its own survey and found that between 1997 and 2004, organised sector jobs shrank by one per cent. Unorganised, low-quality jobs grew by 8 per cent. A booming economy, it seems, is not quite enough to create quality jobs for our people.

Outsourcing is one way to shed jobs, and this is what Indian companies have been doing for the past two decades. While companies have stopped hiring drivers, security personnel and administrative staff for as long as one can
remember, more recently they have also begun outsourcing higher value white collar jobs — from HR to finance and payrolls. The only way to determine whether this is good or bad is for companies to ask themselves a simple question: are they doing it only to cut costs, or to generate greater value for their internal and external customers? If they can do both — cut costs and add value — outsourcing is the way to go. Otherwise, it’s better to do a job in-house.

However, companies today don’t even bother to ask themselves this question because of rigid labour laws. For them it is now a given that you must have fewer staff — because more staff means more problems with labour laws. Given the fluidity of demand conditions and lightning-quick changes in market scenarios, companies are seeking to minimise the number of employees they have on their rolls, never mind if the long-term consequences may be negative. Manufacturing companies are opting to automate functions even if the cost of employing labour is actually lower.

A weak legal system makes it even more important to shed labour and outsource as much of your dirty work as possible. If banks today employ semi-criminals to recover loans, it’s because they know that the legal system will never allow them to turn a loan defaulter out of his house or auction his property. At least not till the costs outweigh the benefits. To get around this problem, banks and credit card companies had, till
recently, compromised comfortably with people operating on the wrong side of the law. Now that customers are up in arms against the use of unsavoury characters to collect dues, they are going to reap the whirlwind and face a worsening climate for repayments.

Quite simply, we need urgent reform of our labour laws and the legal system. But our political parties do not see the urgency. They’d like to believe that workers are better protected by archaic laws than a booming economy. As for an efficient legal system, they are opposed to it totally. If we have a system that can actually dispense quick justice, who’d want to vote for these scoundrels anyway? Don’t expect quick movement in these areas.