Dramatic TV images of Indian police beating workers from the subsidiary of a top Japanese auto firm make it even tougher for the communist-backed coalition to push through labor reforms, analysts say.
Successive Indian governments have talked about making labor laws more flexible to improve competitiveness and attract foreign investment, but have failed to follow through because of the political cost.
Prime Minister Manmohan Singh has been no different. In his first year in office, labor reforms remain on the drawing board. Even privatization has been stalled because of opposition from his communist coalition partners. This opposition seems to be mounting.
PHOTO: AFP
"This issue gives the left something to attack the government and the left is getting serious," said columnist Prem Shanker Jha. "One can forget about labor reforms."
Foreign investors cite India's rigid labour laws, which make it difficult to fire workers during economic downturns, as one of the biggest obstacles to doing business in Asia's third-largest economy.
Although India has one of the fastest-growing major economies in the world, it attracts only a fraction of the investment that pours into regional rival China. While India's economy grew just under 7 percent in the fiscal year ended March, China is achieving growth rates above 9 percent.
The beatings came in the swanky outsourcing boomtown of Gurgaon just outside the capital New Delhi on Monday, after a march by more than 2,000 workers of Honda Motorcycles and Scooters India, a wholly owned subsidiary of Japan's Honda Motor Co, turned violent and protesters attacked police.
In the full glare of Delhi's media, the policemen retaliated brutally, thrashing hundreds of cowering workers with canes after surrounding them. Many lay on the ground, bleeding from head injuries, as the police struck them repeatedly.
There was uproar in parliament the following day, with communist leaders denouncing the police action as "barbaric."
Japanese ambassador Y. Enoki warned the incident was "a disadvantage for India's image as a [foreign investment] destination and also [gave a] negative image of Japanese management."
India sought to calm foreign investor fears as tensions outside the plant remained high yesterday.
"An isolated incident involving a labor dispute should not become a benchmark for judging the investment climate in India," a foreign ministry spokesman.
"The country's democratic institutions and its legal system provide an effective mechanism to deal with such incidents in a transparent manner. The legal interest of foreign investors will be fully safeguarded," he said.
In a bid to avert further violence yesterday, a huge posse of policemen guarded the hospital and access roads as restive workers gathered on the streets. A large security cover was also thrown around the factory compound.
Right-wing commentators blame militant trade unionists for stirring up trouble. Left-wingers say the Honda company were using strong-arm tactics to cower workers with a legitimate grievance.
Either way, the issue has only served to highlight the need for clear and transparent labor laws, which are properly enforced, to keep pace with India's fast-growing economy.
"This incident calls for formulating proper service conditions," said Arun Kumar, professor at the Jawaharlal Nehru University.
"Even the communist parties would support reform in labor policies which provide better working conditions, and foreign investors would also be comfortable when there are clear rules," he said.
Despite its steadily growing economy and undoubted potential, India has struggled to attract foreign investment, managing to bring in around US$4 billion-US$5 billion a year, compared to more than US$50 billion for China.
Investors are put off by India's creaky infrastructure, an overloaded judicial system that can stretch commercial disputes out for a decade and by an often unhelpful, and 20-million-strong bureaucracy.
Communists' suspicion of reforms is another impediment.
"It's not only this incident, but the attitude of the communists to reforms will ultimately impact foreign investor sentiment," said D.H. Pai Panandikar, president of RPG Foundation think tank .
Given the growing gap between rich and poor, some economists like Kumar say the answer lies not in forcing through reforms loaded in favor of employers but in formulating clear rules which reduce confrontation in the workplace.
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