People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)

Vol. XXX

No. 02

January 08, 2006

Role Of IT/ITES Sector And Its Unionisation


W R Varada Rajan


THERE has been, of late, a debate over suggestions at unionisation of employees working in the Information Technology/IT-enabled services (IT/ITES) sector.


The IT/ITES sector and its role in country’s economic growth, in terms of its contribution to GDP, exports and employment creation has been steadily increasing. As per NASSCOM estimates, the size of the industry is at $22 billion, comprising $4.8 billion of domestic revenues; $12 billion of software and services export revenues and $5.2 billion of revenues from exports of IT-enabled services and business process outsourcing (BPO). However, the export revenues net of imports are surely much less.


Placed in the context of the economy as a whole, revenues of this sector now amount to 4.5 per cent of GDP. This makes it an important segment of the non-agricultural sector. By way of comparison, the gross revenues from IT services was, in 2004-05, about 20 per cent higher than the GDP generated by the construction sector and almost three times as much as the GDP generated in mining, electricity, gas and water supply. In terms of value addition, as a percentage of GDP, the contribution of IT/ITES sector is more than double the contribution of textile sector.



But, the IT/ITES sector contribution to employment does not at all match with its role in the generation of income and foreign exchange. As per NASSCOM estimates, the employment in IT/ITES sector is around ten lakh in 2004-05. This represents only around 0.21 per cent of the non-agricultural workforce and 0.08 per cent of the total workforce in the country. When compared to other sectors of economy, the IT/ITES sector employment is quite low. For example, it constitutes a mere 3.4 per cent of the total employment engaged in textile production.


This mismatch between employment generation and contribution to gross revenue and GDP of the IT/ITES sector is not merely due to its technology savvy character but mainly due to the tutored shift in the IT policy of the government towards software services and away from hardware manufacturing. Originally, the emphasis of India's IT policy was on generating an indigenous hardware industry, with focus on domestic production of mini and microcomputers. But, the process of liberalisation and the experience from 2000 onwards saw a shift in emphasis away from hardware to software services. The hardware imports have been gradually liberalised to make available cheap imported equipment for the growing software and services export industry. As a result, the share of revenues from hardware sales fell from 44.4 per cent in 1995-96 to 17.8 per cent in 2004-05 and this trend is continuing. In the hardware sector, the domestic producers like PCL, DCM and ECI have been marginalised – rather, made to vanish – and the MNCs like HP, IBM, Compaq, Epson, Samsung etc. have monopolised the domestic market.


Further, the absolute dependence of the domestic IT/ITES sector on service exports, that too concentrated to one country, the USA, makes this sector extremely vulnerable to external shocks and raises doubts on its sustainability. Moreover, even within the domestic service providers, concentration of 61 per cent of the export revenues within the top 20 players (out of a total of around 415 firms) along with the overcrowding by numerous small firms with low turnover, lower margins, which in turn are leading to comparatively low wages, reflects a very high range of income inequality, uncertainty and extreme fragility of the service conditions among majority of the IT/ITES sector workforce. This is quite contrary to what is being showcased by the advertisement blitz on the IT/ITES sector by the media.




This phenomenon is reflected in the extremely fragile working condition in the IT/ITES sector. The much rosy picture painted in the media may be true only in respect of a smaller segment of the IT/ITES sector. The conditions generally prevailing in the larger segment of the IT/ITES sector are: long working hours (without any compensation for the extra hours), almost no leave or holidays, strenuous work environment, close surveillance on employees, no right to collectively represent or complain et al. The pay packet for the employees in this sector might relatively be attractive vis-à-vis other sectors. But, there are no social security provisions even for this tiny segment, except in a few firms. Such relative well-off remuneration is not the case for the entire workforce, particularly in the smaller firms (with a workforce of around 350) operating as subcontractors of the bigger 20 BPO units. A study on the BPO units made by V V Giri National Labour Institute has described the surveillance prevalent in ITES (BPO) as comparable to 19th century Roman slave-ships. This is not an exaggeration.


There cannot be any sector – be it in industry or services – which can stake any claim that it should be a trade union-free sector or immune to unionisation. The employees of the Information Technology and IT-Enabled Services (IT/ITES) sector also should have the basic right to association, which is a fundamental right guaranteed by the Indian Constitution. Moreover, the right to association and right to collective bargaining constitute the core conventions of the International Labour Organisation (ILO). The latter includes the right to strike as well. The industrial legislations in the country, including the Trade Union Act, are applicable to the IT/ITES sector as well. The labour ministry, government of India, has taken a stand that the state governments are the “appropriate” authority under labour laws and legally vested with powers to deal with violations of labour laws that protect the interests of the workers of the IT/ITES sector. Further, it had requested the chief secretaries of the states to get implementation of labour laws reviewed expeditiously. This, in itself, confirms the trade union view that the IT/ITES sector can under no circumstances be outside the purview of industrial legislations.


The present debate has been sparked off with the Centre of Indian Trade Unions (CITU) forwarding a list of several complaints it received from the employees in this sector to the labour ministry for taking suitable action. The CITU stressed that steps must be taken to see that this sector respects labour laws of the country and creates proper working and living conditions for the employees.


The complaints from the employees in the IT/ITES sector include the following:

These are only illustrative and not exhaustive. The most common complaint is the practice of the employers impounding the educational certificates and the passport of the employees, in their attempt to tackle the problem of high attrition levels prevalent in this sector. Yet another practice, widely prevalent in this sector, is not to pay the employees their contracted monthly salary upfront, but to defer a substantial part of it to be paid after expiry of a specified period subject to their performance being satisfactory.




The rape and murder of a young woman employee, Prathibha, working in the BPO firm HP in Bangalore on the night of December 13, 2005 further fuelled the present debate. This incident deserves outright condemnation and has naturally roused the righteous indignation of all sections of the society –– more particularly the employees of the IT/ITES sector itself. “Are our young women to pay their honour and life as the price for the BPO boom?’ is the question on everybody’s lips!


The employees of IT/ITES sector have begun to feel acutely the need for unionisation, perhaps not so much to make or achieve any economic demands but more for pursuing their demands of security of job and better work place environment. Though there is a growing demand for unionisation from the employees of this sector, the same is muted, as any attempt to do so will result in arbitrary dismissal. The phenomenon of being shown the ‘pink slip’ haunts the employees in this sector, which is eloquently testified by the ‘Thank God It’s Friday (TGIF)’ syndrome. (Incidentally, there is a restaurant by the very name ‘TGIF’ in the cyber city of Bangalore!) But, sooner, than later, this demand will come to surface – may be after some among the employees venturing to bear the cross, of vindictive dismissal even, to assert their right.


Admittedly, the very proliferation of the IT/ITES sector is a by-product of globalisation and the practice of Business Process Outsourcing (BPO), resorted to internationally. Hence, we need to take note of the global practices in this sector. There are trade unions functioning in the IT/ITES sector in several developed countries. There is no reason why India should be exception to this global trend.


There is no denial that the onus of forming unions will be that of the employees working in the IT/ITES sector. None from outside, including the central trade unions, can do anything more than facilitating the process if and when the employees concerned come forward.




The IT/ITES – and more particularly the BPO segment thereof – is showing a frenzied response to the very suggestion for unionisation of the employees. First, the NASSCOM came out with a bald statement that there is no need for trade unions in the IT/ITES sector. Perhaps realising such a stance would not be tenable, the NASSCOM later made a correction in their stance that the employees of the IT/ITES sector did not want trade unions.


After the gruesome murder in Bangalore, the NASSCOM just stopped at expressing shock and dismay at the incident. It refused to discuss even the issue of regulation of working conditions in this sector. From yet another BPO hub of Gurgaon, Padma Singh of Hero ITES presses the panic button saying ‘unions would aggravate issues, and strikes could make global clients apprehensive about working in India’.


The threat perception on the part of the employers of the IT/ITES sector is, unfounded. The IT/ITES sector has nothing to fear about unionisation, if the employers can be transparent and are willing to recognise the merit of engaging their employees in dialogue on issues relating to their service conditions and work environment. But, in our country the employers have never taken kindly to the very idea of the employees unionising, as they innately prefer a union-free environment.


There is an argument that India will lose its competitive advantage of the BPO segment of the IT/ITES sector, once trade unions become a reality in this sector. But, this has to be viewed from two angles. First, there is no justification of the IT/ITES companies to persist with their race to the bottom both within the country and between countries of the third world aspiring to secure the favour of international companies in the matter of BPO contracts. In this, there is an implied truth that the employers fear that the employees, once unionised, may seek a larger share of the pie, which is presently taken by the former. The foreign companies resorting to BPO attach more value to the skills and efficiency levels - including the fluency of language, areas in which India is definitely having an edge over other developing countries. Second, there is no reason why the employees, even after unionisation, will refuse to cooperate with the employers in the matter of sustaining the work orders, as these employees can very well be expected to have an enlightened vision of their prosperity being intertwined with the prosperity of the very companies that they are serving. So, India can and will continue to be the favourite destination of BPO, notwithstanding unionisation of the IT/ITES sector. At any rate, there is no empirical evidence to suggest the foreign companies awarding BPO contracts are specifying absence of trade unions as a necessary precondition!


What is required is a positive thinking and approach on the part of the employers towards recognising the trade unions rights of the employees the IT/ITES sector. Unionisation could lead to a more dignified work place atmosphere and positive response would not be lacking on the part of the employees even after unionisation.


It is, therefore, imperative that the present fear driven work environment gives place to a responsible unionised situation in the IT/ITES sector. The right course for the employers should be to encourage their employees to form their own unions and deal with them as representative entities ushering in a process of dialogue to resolve the issues and grievances. This should emerge as a reality very soon. Whether these unions should chose to affiliate with any central trade union or not is another question, which must be left to free will and discretion of the employees.