WHILE the Indian economy has undergone dramatic changes over the past two decades – with economic reforms leading to increased exposure to global practices – in one area it has refused to accept the hire-and-fire culture.

Issuing pink slips to employees at times of an economic downturn may be quite common in America – unlike in many European countries and Japan – but in India it is taboo. Recently, when Jet Airways, the leading private sector air carrier, announced the possible lay-off of about a thousand employees, there was a furore with virtually all the political parties warning the airline not to embark on such a dangerous path.

The airline had to beat a hasty retreat and call off the lay-off programme. Other airlines heeded the warning and despite the industry flying into turbulence – caused by the global economic crisis – there have been no major job losses.

One reason for the strident opposition to mass lay-offs in India is the absence of a social security net for most employees. In the US and other western countries, most workers are covered by an elaborate social security network that ensures basic minimum compensation for the unemployed and even emergency healthcare facilities.

In India, a majority of employees in the private sector do not have any kind of social security. Job losses could lead to severe law and order problems, with the unemployed being lured to criminal activities, social vices such as alcoholism, leading ultimately to the destruction of the family.

The central and state governments have made it virtually impossible for the organised sector to lay-off their employees. Yet, often when a company (or an entire industry) turns bankrupt, workers end up in an unsavoury situation: officially they continue to be on the pay-rolls, but they are not paid their wages for years.

The classic example was that of the Bombay textile mill workers. Just about 25 years ago, there were over 200,000 workers employed by the textile industry in the city. However, the failure on the part of most management to induct new technology and to modernise their mills led to the inevitable collapse of the sector.

A foolish strike organised by a militant trade union leader came in handy for the mill-owners, who cited the agitation and shut down their mills. Over 200,000 jobs – and hundreds of thousands of other related, but indirect jobs – were lost. Many of the workers took to liquor, gambling and other social evils. A few took to crime.

Thousands ended up as petty hawkers and vegetable vendors, earning a fraction of their earlier wages. Most, however, remained unpaid for years; many of the mill-owners sold off the land – a virtual gold mine – to developers, but in most cases the workers have still not been compensated.

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THE destruction of the textile industry and the loss of hundreds of thousands of jobs have ensured that labour laws in the country remain unchanged over the past two decades. Industry and trade bodies frequently urge the government to formulate an ‘exit’ policy, where an employer can compensate a worker and shut down a unit, in case the business fails.

But both the BJP-dominated National Democratic Alliance (NDA) and Congress-led United Progressive Alliance (UPA) governments have shied away from initiating reforms in labour laws. Many companies, however, have managed to overcome the lack of an exit policy by offering a golden handshake to their employees.

Even public sector undertakings – including banks – have in the past floated such voluntary retirement schemes, encouraging older workers to accept a hefty compensation and quit. Many of those who opted for the schemes realised that the money – which appeared substantial in the beginning – disappeared in no time, as they splurged on cars, expensive TV sets and other goodies.

And with bank interest rates having plunged in recent years, returns have been negligible. Many have had to opt for part-time jobs that pay significantly lower wages than their original government jobs.

Many trade unions are also opposed to their workers opting for such schemes, resulting in a mixed response to voluntary retirement options. India’s leading two-wheeler-maker, Bajaj Auto, earlier this year introduced an attractive scheme for workers at its sprawling plant at Pune, about 200 km from here.

The union, however, wanted a one-time compensation, instead of the staggered one being offered, and warned the workers not to accept it. The company, however, was determined to shut down the plant; production has stopped for several months now, though hundreds of workers report for work daily. They are paid their existing wages, but have no work at the factory.

Last month, Bajaj Auto reported a nearly 30 per cent drop in second-quarter profits, triggered by the Rs600 million paid for workers opting for the voluntary retirement scheme. The company has shifted operations to a low-wage unit about 350 km away, and hopes to save substantial costs over the coming years.

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THE global financial crisis has led to hundreds of thousands of job cuts in the US, Europe and other parts of the world. Last week, for instance, Citibank announced a massive global retrenchment involving over 52,000 employees.

The number of unemployed in the US has crossed the 10 million-mark, the first time in 25 years, and nearly a quarter million people lost their jobs just last month. The unemployment rate is at a 14-year-high of 6.5 per cent.

While leading automobile manufacturers, including General Motors, Ford Motor Company and Toyota, are slashing jobs, the services sector has also seen huge job cuts. Hewlett Packard has eased out nearly 25,000 people, DHL about 10,000 and American Express over 7,000.

In India, however, both the information technology and financial services sectors are maintaining that there are no plans of job cuts. In fact, many of the leading players continue to push ahead with their hiring plans. Says Nandan Nilekani, joint chairman, Infosys Ltd: “The fundamentals of the IT industry are very strong and there is no need to worry. There are no pink slips about to be handed out.”

Nilekani says the company will honour all the 25,000 job offers it has made so far this year. TCS, India’s top IT firm will hire nearly 50,000 people this year. Satyam Computers, a smaller company, will be hiring about 10,000 new people.

The financial services sector is even more bullish on the hiring front. State Bank of India (SBI), the country’s largest commercial bank, will be recruiting 25,000 employees, while Bank of India – which has absorbed about 30,000 new personnel – will be hiring about 75,000 over the next two years.

Even international players, who are expanding their presence in the Indian financial services sector, are on a hiring spree. Accenture will be taking in about 10,000 new employees by 2010 and Deloitte Touche Tohmatsu about 3,500.

The insurance sector, which is witnessing massive growth, expects to create a whopping 350,000 new jobs – including financial advisors and executives – by the end of the current fiscal. Top players, including Tata AIG, Bharti AXA, MetLife, Max New York and Aviva, are on a hiring binge.

Max New York Life, for instance, plans to hire about 10,000 employees over the next 12 months, besides 70,000 agents. Even the manufacturing and industrial sector is expanding its work-force. Larsen & Toubro, a top engineering company, will be recruiting about 10,000 engineers and other employees over the next three years, and leading automaker, Maruti Suzuki, is going ahead with plans to hire about 1,000 employees.

One of the major reasons for the continued hiring of employees by India Inc is the relatively healthy state of the economy. At a time when all the major world economies are either in recession – last week, Japan was officially declared to be in recession – or are on the verge of entering that phase (the US), India’s gross domestic product (GDP) is expected to grow by between 7 and 7.5 per cent this fiscal.

Even in fiscal 2009-10, it is likely to grow by a significant 6 to 6.5 per cent, so demand for skilled and experienced personnel will not shrink. Nor are job cuts likely to assume serious dimensions, as is happening in the developed world.