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1	
  
	
  
A Study of Subcontracting in the
Garment Industry in Gurgaon
Society for Labour and Development
New Delhi, Febr...
2	
  
	
  
Table of Contents
1. Introduction ………………………………………………………………………………...............3
2. Methodology…………………………………………...
3	
  
	
  
1. Introduction: It is common knowledge that labour intensive industries engage in
subcontracting or outsourcin...
4	
  
	
  
3. Subcontracting in the Indian Manufacturing Industries
Subcontracting is defined as a type of inter firm rela...
5	
  
	
  
organised. Most of the subcontractors in the belt are owned by locals from Haryana and all
workers are migrants...
6	
  
	
  
Most of these subcontracting are undertaken by the Tier 1 companies by violating the
supplier code of brands. F...
7	
  
	
  
product produced in the fabricators. Workers have also reported that ‘power theft’ by the
subcontractors may al...
8	
  
	
  
Table 1: Distribution of Workforce in the 14 subcontractors studied
Particulars
No. of workers
reported to be
w...
9	
  
	
  
a) Whereon ten or more workers are working, or were working on any day of the
preceding twelve months, and in a...
10	
  
	
  
season, workers working in these subcontractors work 3100 hours and 30 minutes10
in a year.
This is well over ...
11	
  
	
  
production is taking place for CREW BOS. In terms of distribution of production, little over
21% of the produc...
12	
  
	
  
around 60% of them are employed through a contractor. Moreover, the company employs
four subcontractors for ad...
13	
  
	
  
through subcontractors in Kapashera - Dundahera area. One of the subcontractors studied is a
regular supplier ...
14	
  
	
  
of sick leave. Even accessing
unpaid leaves during emergency
situation is difficult in the
factories.
Contract...
15	
  
	
  
thugs and practice violence.
Described below are some of the major problems faced by workers of subcontractors...
16	
  
	
  
7. Reasoning of Tier 1 Companies in Subcontracting Production
7.1 Flexibility in Production
The growing contra...
17	
  
	
  
same premises of the Tier 1 Company through contractors, the Tier companies, who are the
principal employers, ...
18	
  
	
  
Table 2: Piece/part rates in subcontractors of Tier 1 garment companies in Gurgaon.
Items
Piece/Part
Rate (in
...
19	
  
	
  
is Rs 27. However, the hourly wage prevailing in the labour market for garment workers in
Gurgaon is between R...
20	
  
	
  
Annual returns filed by one of the main units of Richa Global22
claims that out of the 3654
workers who were e...
21	
  
	
  
subcontractors makes accessing unpaid leave easy. Not having to search for new job while
returning from villag...
22	
  
	
  
physical conditions and familial situations. However, at the subcontractors, workers have the
freedom to refus...
23	
  
	
  
consistent legal struggles, working at Tier 1 companies will become financially attractive for
workers. At thi...
24	
  
	
  
10. Recommendations
1. The global brands should take responsibility in tracing down their supply chain and
ens...
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A report on the subcontracting in the garment industry in gurgaon, SLD - February 2013

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WAGE STRUCTURES IN THE INDIAN GARMENT INDUSTRY

The Indian economy adopted a liberalised economic policy regime after 1990--91, in an attempt to ensure greater integration of the domestic economy with global competitive markets. This was motivated by the policy assumption that opening up of domestic markets would enhance the competitive efficiency of domestic business enterprises on account of transfer of technology, knowledge and skill sets from abroad. A large set of literature has shown that despite the modernisation of domestic enterprises over the past two decades, the Indian manufacturing sector has failed to propel itself on a high growth trajectory (Unni and Rani, 2004). Contrary to the policy belief, severe competition in the global export markets have led domestic firms to resort to cost cutting labour market strategies that have led to the widespread prevalence of oppressive labour relations across the Indian manufacturing sector (Vijay, 2009).
In a bid to remain globally competitive, firms have targeted reduction of labour costs as a tool to ensure a reduction in production costs. This is evident in firms denying payment of minimum wages, social security, or fringe benefits to its workforce and increasingly resorting to informal employment contracts that ensure flexibility to businesses in terms of labour costs. Persistent minimum wage violations or

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A report on the subcontracting in the garment industry in gurgaon, SLD - February 2013

  1. 1. 1     A Study of Subcontracting in the Garment Industry in Gurgaon Society for Labour and Development New Delhi, February 2013 Supported by: Rosa Luxembourg Stiftung
  2. 2. 2     Table of Contents 1. Introduction ………………………………………………………………………………...............3 2. Methodology………………………………………………………………………………………….3 3. Subcontracting in the Indian Manufacturing Industries……………………………………..4 4. An Overview of the Subcontractors (Fabricators) in the Garment Industry in Gurgaon…………………………………………………………………………………………………4 4.1 Organisation of Production…………………………………………………………............4 4.2 Distribution of Subcontractors………………………………………………………………6 4.3 Workforce and the Legal Framework………………………………………………………7 4.4 Seasonal Nature of Work and Working Hours……………………………………..........9 5. Brief Profiles of some Tier 1 Factories Studied………………………………………………10 6. Comparison of General Working Conditions in the Tier 1 Factories and Subcontractors…………………………………………………………………………………………13 7. Reasoning of Tier 1 Companies in Subcontracting Production……………………………16 7.1 Flexibility in Production……………………………………………………….……….16 7.2 Reduced Overhead Cost……………………………………………………………...…16 7.3 Reduced Workforce and Reduced Responsibility…………………………………..16 7.4 Freedom of Association…………………………………………………………………17 8. Why workers want to work at the Subcontractors when they can easily get jobs in the factories? ……………………………………………………………………………………………….17 8.1 Wages………………………………………………………………………………………17 8.2 Relative Ease in Accessing Leaves……………………………………………………19 8.3 The Fear of Contractors………………………………………………………………..21 8.4 Working Hours and Breaks……………………………………………………...........21 8.5 Compulsory Overtime …………………………………………………………………..21 8.6 Target Pressure and Subsequent Violence…………………………………………..22 8.7 Highly Skilled Workers’ Preference to Make Complete Garments……...………22 9. Conclusion…………………………………………………………………………………………..22 10. Recommendations……………………………………………………………………..…24
  3. 3. 3     1. Introduction: It is common knowledge that labour intensive industries engage in subcontracting or outsourcing of production, though in varying degrees, depending on the nature of the industry. From our interaction with workers in the garment industry, it has been learned that in the last half a decade, the subcontracting in the garment industry in Gurgaon has been maturing as a common practice. Subcontractors have become an integral part of the export oriented garment industry in Gurgaon and they contribute significantly to sustain the business cycle the Indian suppliers face by providing the extra shop floor space required to produce more during the peak seasons, and by absolving the Tier 1 companies from the legal liability of keeping a regular workforce and by assisting the Tier 1 companies to adhere to the lean manufacturing principles. Subcontracting is taking place in the garment industry in a discreet manner (the agencies or entities which are getting the subcontracted work are not registered as factories, or micro/small/medium enterprise, or contractor/ subcontractor under any of the Laws) and thus making this invisible in the eyes of law. The objective of this research has been to understand the general trends practiced by major garment manufacturing companies in Gurgaon with regard to ‘subcontracting’ and the reasons and implications of these practices on the working conditions and freedom of association of workers. 2. Methodology: In order to understand the above mentioned objective, an extensive mapping of subcontracted firms/workshops in Kapashera- Dundahera belt is conducted. During the mapping period, (July – September 2012) 60 functioning subcontracted workshops were found in the region. The actual number of workshops- functioning and temporarily closed- is estimated to be between 90 and 95. Though the total number of workers employed in the functioning subcontractors during the time of the mapping is estimated to be anywhere between 3000 and 4000, workers estimate that there are about 7000- 8000 workers employed by the subcontractors on an average. 63 workers from 14 subcontracted units and 21 workers from 7 Tier 1 factories were interviewed to get primary information on the subcontractors and the Tier 1 companies. Right to Information Act, 2005 has also been used to get information pertaining to the Tier 1 companies.
  4. 4. 4     3. Subcontracting in the Indian Manufacturing Industries Subcontracting is defined as a type of inter firm relationship where large firms procure manufactured components sub-assemblies and products from a number of small firms1 . In the garment industry, subcontracting takes place in the form of ‘product subcontracting’2 where the subcontractors produce the complete product and the parent firm essentially markets the product. This is significantly different from the subcontracting taking place in the automobile industry in Gurgaon, where it is mainly component subcontracting. The variation extensively practiced from the product subcontracting in the garment industry in Gurgaon is that the parent firms supply the ‘cut’ fabric and other essential raw materials to the subcontractor and the subcontractor produces the product as per the parent firm’s specification. This is popularly known as ‘job work’ in the garment industry in India and these subcontractors are popularly called as ‘fabricators’ in Gurgaon. The subcontracting practiced in the garment industry in Gurgaon is more of a permanent nature than a temporary set up. An analysis of this is done in the following sessions. 4. An Overview of the Subcontractors (Fabricators) in the Garment Industry in Gurgaon: 4.1 Organisation of Production: Tier 1companies and other smaller companies which get contracts for production from the Tier 1 subcontract work to the ‘fabricators’ in the Kapashera- Dundahera belt. The companies provide the cut fabric along with other raw materials and sample garment with the prescribed measurements to the subcontractors. In most cases, a reporter (a recorder) from the Tier 1 company brings the raw materials to the subcontractor. Upon receiving them, the proprietor of the subcontractor signs a ‘contract’ and he brings the finished products to the company after the production. Small trucks are used for transportation. After receiving the raw materials, it is on the subcontractor to decide how the production in the shopfloor to be                                                                                                                           1  R  Nagaraj:  Subcontracting  in  Indian  Manufacturing  Industries:  Analyses,  Evidence  and  Issues   http://www.igidr.ac.in/faculty/nag/Sub-­‐Contracting%20in%20Indian%20Manufacturing%20Industries.pdf     2  This  definition  is  adopted  from  R  Nagaraj:  Subcontracting  in  Indian  Manufacturing  Industries:  Analyses,   Evidence  and  Issues   http://www.igidr.ac.in/faculty/nag/Sub-­‐Contracting%20in%20Indian%20Manufacturing%20Industries.pdf    
  5. 5. 5     organised. Most of the subcontractors in the belt are owned by locals from Haryana and all workers are migrants from UP and Bihar. These workers have the same background as the migrant workers in the Tier 1 companies. According to workers, almost all companies in Gurgaon use the help of subcontractors though the degree of help varies. Some companies use subcontractors to produce more than half of the total production on a regular basis and some uses them occasionally to deal with emergency situations. Subcontractors benefit by not having to have any independent relationship with the brands since that require more knowledge of the industry and market situations. Moreover, these subcontractors do not have the infrastructure required by major clothing brands to undertake production. For example, some of the brands like Inditex for which production is found to have happened in the subcontractors in the Kapashera- Dundahera belt require safe and hygienic working conditions in the supply chain3 . However, most of the subcontractors in the belt violate even the provisions of hygiene, safety and health in the Factories Act, 1948 let alone the codes of the brands. However, there is a symbiotic relationship existing among the big companies in Gurgaon and the subcontractors in Kapashera- Dundahera belt. Some of the subcontractors in Kapashera- Dundahera belt get production order from as far as Khandsa (10 km) and Manesar (20km to 30km) regularly. In the subcontractors, workers have a greater say in the organizing of production than in the bigger companies where the production process is determined by the production engineers. In the subcontractors, masters provide the sample and raw materials to workers and in most cases workers organize production. For example, in some fabricators, even though there is enough number of machines to set up assembly line production workers decide to produce full garment and they are allowed to follow production in the way want to. In some cases, 2 to 4 workers make a workstation and produce the garment together. This flexibility is allowed since productivity-linked wages ensures that workers will not have to be paid in case they produce less by adopting a method they want to rather than the one master determines.                                                                                                                           3   http://www.inditex.com/en/corporate_responsibility/social_dimension/code_of_conduct_for_manufacturers _and_suppliers  
  6. 6. 6     Most of these subcontracting are undertaken by the Tier 1 companies by violating the supplier code of brands. For example, Marks and Spencer clearly mentions in their supplier code that ‘suppliers must agree with them about production sites and no subcontracting of their order is allowed’4 However, in the past, suppliers of Marks and Spencer in Gurgaon used subcontracting as a means of punishing workers for exercising their freedom of association. 4.2 Distribution of Subcontractors Garment workers who are working in Gurgaon report that the subcontractors or what they popularly call as ‘Fabricators’ are on growth in the last one decade. They describe this growth as ‘from less than 5 fabricators in Kapashera- Dundahera area in 2000 to over 90 in 2012’. That is, in terms of the number of fabricators, they grew 18 times in 12 years. Workers say that it is not difficult to find at least 2 ‘fabricators’ in each alley in the residential area where migrant workers live. The actual number of fabricators – currently functioning and temporarily closed5 - is estimated to be between 90 and 95. Some are temporarily closed due to inadequate work during the low season in the garment industry. However, workers report that from September till May, the peak season of production starts and most of them restores production. Most of the closed-down fabricators still keep the premises occupied and pay rent for it during the low season. Though the total number of workers employed in the functioning subcontractors during the time of the mapping is estimated to be anywhere between 3000 and 4000, workers estimate that there are about 7000- 8000 workers employed by all subcontractors functioning in this belt on an average. Why are these subcontractors functioning from the residential areas where workers are living? The rent for floor space in the residential areas in Kapashera- Dundahera region is much lower than the rent in Udyog Vihar, where garment industries in Gurgaon tends to concentrate6 . And this lower rent in the residential area ensures lower overhead cost per                                                                                                                           4  Marks  and  Spencer:  Global  Sourcing  Principles   http://corporate.marksandspencer.com/documents/how_we_do_business/global_sourcing_principles.pdf   5  The  closure  of  the  fabricators  is  temporary  since  these  will  be  reopened  in  a  few  weeks  to  restart  production   when  the  season  picks  up.     6  There  have  been  various  media  reports  in  2011  and  2012  about  the  increasing  price  and  rent  of  real  estate  in   the  industrial  area  in  Gurgaon.  Some  of  the  reports  claim  that  the  rent  per  square  feet  of  floor  space  in  Udyog  
  7. 7. 7     product produced in the fabricators. Workers have also reported that ‘power theft’ by the subcontractors may also be contributing to the lower overhead cost of production in the subcontractor. Another factor is the proximity of subcontractors to workers’ living areas makes the availability of labour easier7 . 4.3 Workforce and the Legal Framework The 14 subcontractors studied employs approximately 372 workers during lean season of the year and as per workers’ estimate this goes up to 830 workers during the peak season of production. The average number of workers employed by these subcontractors is 27 during the lean season when the interviews were conducted. However, workers have estimated that during the peak season, this increases to 59 on an average. However, the size of these subcontractors varies significantly. The smallest subcontractor employed 10 workers during lean season and had employed up to 20 workers in the previous one year period. The largest of the subcontractors, had employed 50 workers during lean season and up to 130 workers during peak season. Some subcontractors find enough work to employ a relatively steady (in terms of numbers) workforce throughout the year, though most subcontractors experience significant variation in the ability to employ a steady number of workers throughout the year. The following table explains the distribution of workforce in these selected subcontractors.                                                                                                                                                                                                                                                                                                                                                                                           Vihar  area  is  between  Rs  30  and  Rs  50  and  real  estate  price  has  shown  upto  50  times  increment  in  price  in  the   last  15  years.  http://www.fridaygurgaon.com/news/1658-­‐now-­‐cyber-­‐vihar-­‐s.html     7  Though  other  cities  in  India  like  Ludhiana,  Amritsar,  Kolkata,  Ahmedabad,  Surat    and  Bangalore  have  been   reportedly  facing  labour  shortage  in  the  garment  industry  ,  Gurgaon  has  been  successfully  luring  skilled   workers  to  its  factories  from  Uttar  Pradesh  and  Bihar.       http://www.thehindu.com/business/Industry/textile-­‐industry-­‐facing-­‐labour-­‐shortage-­‐ assocham/article2139390.ece   http://www.thehindubusinessline.com/industry-­‐and-­‐economy/economy/article2159113.ece   Though  labour  shortage  has  never  been  the  issue  in  Gurgaon,  the  industry  faces  high  turnover  rate.  The  trade   unions  working  in  the  area  accuses  the  skewed  human  resource  management  of  the  companies  where   workers  are  denied  their  statutory  labour  rights  and  right  to  freedom  of  association  for  this  high  turnover.    
  8. 8. 8     Table 1: Distribution of Workforce in the 14 subcontractors studied Particulars No. of workers reported to be working during the time of interview Maximum number of workers reported to have worked in the last one year Subcontractor 1 50 50 Subcontractor 2 37 40 Subcontractor 3 25 80 Subcontractor 4 20 35 Subcontractor 5 45 130 Subcontractor 6 35 80 Subcontractor 7 20 70 Subcontractor 8 15 40 Subcontractor 9 50 110 Subcontractor 10 10 20 Subcontractor 11 13 45 Subcontractor 12 14 20 Subcontractor 13 15 70 Subcontractor 14 23 40 Total Workers 372 830 Average no. of workers 26.57142857 59.28571429 The above table describes that all the subcontractors who were studied have employed more than twenty workers in the last one year. Therefore the Factories Act, 1948 is enforceable in these subcontractors. Under section 2(m) of the Factories Act, 1948 a factory is defined as any premises
  9. 9. 9     a) Whereon ten or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power b) Whereon twenty or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on without the aid of power. And section 2(k) defines manufacturing as ‘making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating or adapting any article or substance with a view to its use, sale, transport, deliver or disposal. All these subcontractors ‘factories8 ’ use electric sewing machines- in most cases, the most modern machines of JUKI brand- for production and thus must be covered under the Factories Act, 1948 even if only 10 workers are employed. However, none of these factories/subcontractors are registered under the Factories Act, 1948 either in Delhi or in Gurgaon as per the data available from the labour departments9 . Therefore, the existence of these subcontractors without being registered under the Factories Act, 1948 in the first place is illegal. 4.4 Seasonal Nature of Work and Working Hours According to workers, September to May is the peak season of production in the garment industry in Gurgaon and this is also the season when the subcontractors work with full capacity of production. All subcontractors which are studied except one operate from rented premises in the residential areas in Kapashera- Dundahera. Average working hours during the peak season in a week in the subcontractors is 78 hours. The pattern workers have reported is that on weekdays they work from 9am to 9 pm and on Sunday from 10am to 4pm. During lean season, some subcontractors manage to provide 8 hours of work on weekdays to workers and some unable to provide any work and close down their operation. Even if we assume that most of the subcontractors close down during the lean                                                                                                                           8  The  term  factories  are  used  to  refer  to  these  production  units  deliberately  since  they  are  legally  factories.     9 http://hrylabour.gov.in/docs/tenders/   http://delhi.gov.in/wps/wcm/connect/doit_labour/Labour/Home/Factories+Inspectorate/    
  10. 10. 10     season, workers working in these subcontractors work 3100 hours and 30 minutes10 in a year. This is well over the 2544 hours11 of maximum work a worker will have to do in a factory in a year and equivalent to 8 hours of work on weekdays and an average 1.78 hours12 of overtime on weekdays. That is, if production is restructured in these subcontractors, the layoff practiced during the three months from June-August by the subcontractors could be avoided. 5. Brief Profiles of some Tier 1 Factories Studied: • CREW BOS Products Limited As per data available from the Labour Department through RTI, the company operates from its premises in Plot 199, Udyog Vihar Phase 1, Gurgaon and employed 188 workers in 2011. The workers who were interviewed for this study also confirmed that the company employs less than 200 workers in this particular premise. However, the company subcontracts on a regular basis to one of the subcontractors in Gurgaon. The company specializes in manufacturing leather garment and accessories. As per the statement of audited financial results for 2011/2012, the profits from operations before other income and financial costs are reported to be 4974.43 lakhs for the year ended on 31st March 201213 . The income the company earned from operations is 43204.04 lacs and this includes income to the tune of Rs 11475.46 lacs from international merchant trading. Workers who are working in the Company are paid salary, well over minimum wages since that is the industry standard in the leather garment and accessories manufacturing. Major brands which source from this Company is Next, Gap, American Eagle and Zara. The subcontractor of Crew BOS employs around 40 workers during the peak season and during the time of interview there were 23 workers working in the subcontractor. This subcontractor acts as dedicated subcontractor of CREW BOS and throughout the year                                                                                                                           10  (  78  hours  a  week*  39.75  weeks  of  the  peak  season)   11  (48  hours*  53  weeks).  This  is  after  assuming  that  the  worker  had  not  availed  any  leave  or  holiday.   12  (3100  ½-­‐2544)/312  working  days.  The  assumption  here  is  that  the  worker  works  on  all  weekdays  and  do  not   take  any  leave  from  work  throughout  the  year.     13  http://www.crewbos.com/docs/2011-­‐12/Audited_Results_31032012.pdf  
  11. 11. 11     production is taking place for CREW BOS. In terms of distribution of production, little over 21% of the production14 is taking place in the subcontractor. Workers are provided with 1 and a half days of earned leave in 30 days. The company does not provide any other casual or sick leave benefit to any workers. The working hours in the company is extended to 7pm to 8pm on a regular basis without any additional payment. That is, workers are expected to work 2 to 3 hours of overtime without any additional overtime payment. No weekly off is provided to any of the workers and working on Sunday is compulsory. Workers are paid a days’ wage for working on weekly off day. Company provides Provident fund and ESI facilities to all workers. • Ambika Overseas Ambika Overseas is a garment manufacturing and exporting company with head office in Plot 677, Udyog Vihar Phase 5, Gurgaon, The Company employs around 200 workers in this premise. However, most of the production is taking place through 5 different subcontractors of the company operating from Kapashera and Dundahera. Production is organized based on salary and piece rate system. About 20 women workers employed by the company get transportation facility to the company. Around 50 salaried workers in the company are provided with provident fund and ESI facilities. However, the piece rate workers are not provided any social security by the company. Most of the production is managed through the subcontractors. These 5 subcontractors of Ambika Overseas employ around 102 workers during the low season and around 315 workers during the peak season. That is about 50% of the production is managed from the subcontractor during the low seasons and about 61% of the production is managed by subcontractors during the peak season15 . • Evergreen International Evergreen International is another leather garment manufacturing company operating from Plot No: 775, Phase 5, Udyog Vihar, Gurgaon. The Annual returns filed by the company under the Factories Act, 1948 shows that the company employs 100 workers on an average. However, workers report that there are about 300 workers working in the company and                                                                                                                           14  This  is  by  merely  comparing  the  workforce  in  the  parent  firm  and  in  the  subcontractor.     15  This  comparison  is  based  on  the  workforce,  not  on  the  output.  
  12. 12. 12     around 60% of them are employed through a contractor. Moreover, the company employs four subcontractors for additional production. One of them is in Dundahera region and the other two are operating from three residential areas in Delhi like Khanpur, Nangloi and Sangam Vihar. The company produces leather garments, mainly leather jackets. The workers in the company are employed on the basis of salary and workers in one of the subcontractors are employed on the basis of piece rate system. The subcontractors of Evergreen International are in operation since 2007 and since then the company regularly produces through the subcontractors. • Richa Group It is one of the biggest companies in Gurgaon in terms of workforce, output and reputation in the industry. Richa Group has over 17 units in Gurgaon in the name of Richa Global, Gaurav International and ABC Leathers. Gap, Next, Zara, Armani etc. are some of the major brands sourcing from the Company. However, this company is also not free from the vice of subcontracting. The fabric to the subcontractors is sent out regularly from one of the units of the company. That is, the group keeps the connection to subcontractor out from all manufacturing units, rather it engages with the subcontractors from one particular manufacturing unit. Workers who work in this unit is recruited on the basis of piece rate system unlike the salaried workers in all other units. All different manufacturing units of the Group are dependent on this particular unit to the get work done through subcontractors whenever necessary. However, according to workers, Richa Group engages with subcontractors only when it is urgent. However, the involvement of one particular unit with subcontractors and keeping all other units guardedly out of any connection with the subcontractors is very systematic. The major units of Richa Group employs more than 1000 workers each in the units and provides most workers minimum wages, provident fund, ESI, minimum bonus etc. • Knitscraft The Company employs around 1000 workers in Plot No 490, Phase 3, Udyog Vihar, Gurgaon. More than 80% of the workers are recruited through a few contractors. Most contract workers are faced with rampant wage theft and non-enrollment with social security facilities and non-payment of bonus by the company and the contractor. Zara is one of the major buyers sourcing from the company. However, this company also gets production done
  13. 13. 13     through subcontractors in Kapashera - Dundahera area. One of the subcontractors studied is a regular supplier of Knitscraft and produces throughout the peak season for Knitscraft. There have been reported wage violations in Knitscraft in the last one year where contract workers are not paid their wages according to the Minimum Wages Act, 1948. 6. Comparison of General Working Conditions in the Tier 1 Factories and Subcontractors Conditions of: Tier 1 Companies Subcontractors Wages Most workers are provided minimum wages. However, there is general violation of wages according to grade and experience of workers. Overtime is paid at single rate in most of the companies. That is, there is general tendency and practice of wage theft in these factories. Wages are paid on monthly basis. Though workers do not get guaranteed minimum wages in the subcontractors, during peak season, they earn more than the minimum wages. Wages are paid on a fortnightly basis. Social Security Some companies enroll workers with PF and ESI. However, the benefits of social security are, in most cases, limited to the workers employed directly by the company. No workers in the subcontractors are enrolled with social security facilities such as PF and ESI. None of the workers are provided with any bonus. Leaves Though various labour laws make provisions of earned, festival, casual and sick leaves, most workers working in the Tier 1 factories are deprived of leaves. Only a handful of workers are provided with earned leaves. Only those workers who are enrolled at ESI department enjoy the benefit No workers are provided with any paid leave in the subcontractors; be it earned, casual, sick or festival holidays. However, accessing unpaid leave is reported to be easy in the subcontractors
  14. 14. 14     of sick leave. Even accessing unpaid leaves during emergency situation is difficult in the factories. Contract Labour Many companies in Gurgaon are increasingly recruiting workers through contractors and keeping them under insecurity of casual employment. Moreover, wherever contractors are involved workers face more violence and oppression. No contractors are involved in the recruitment of workers in the subcontractors. Safety and Health Accidents are on rise in the companies in Gurgaon. One of the Tier 1 companies studied in the report had two deaths in the shopfloor in 2012 during early hours of Sunday morning. These companies have adopted modern architecture etc. in the building, however, workers’ safety is not their major concern16 . Subcontractors in this belt are functioning from rundown buildings, even some of them with asbestos roofing like sweatshops. All health and safety provisions as prescribed under various acts are compromised in these production facilities. Freedom of Association The general trend in Gurgaon is to deprive workers of their right to freedom of association and collective bargaining. Workers who are vocal about their rights get easily terminated from the service. In order to keep workers out of the trade union activities, these companies involve local Workers in the subcontractors have no freedom of association at all. Since the complete set up of production in the subcontractors is informal, it is easy to be thrown out. There are no unionised workers in the subcontractors in this belt at all.                                                                                                                           16  Workers  have  said  during  a  few  occasions  that  impressing  buyers  with  massive  buildings  is  more  important   to  companies  than  providing  safe  workplace  for  workers.    
  15. 15. 15     thugs and practice violence. Described below are some of the major problems faced by workers of subcontractors a) Insecurity in the Job and Seasonal Layoff: Insecure job is in fact the major concern workers of the subcontractors have. From May to August, most subcontractors in the belt slow down the production or closes down. This is due to the lowered demand for production from subcontractors from the Tier 1 companies. Workers reported that during this slow season, some of them visit their villages in UP and Bihar. But for many workers, especially married workers who have families and school going children, this is a difficult time. Some of them find jobs in the big factories in these months and joins the ‘fabricators’ when the season starts. b) Fluctuating Piece Rate: Workers report that the rate paid to them for piece varies significantly depending on the season. Due to the high demand for subcontracting from the Tier 1 companies in the peak season, the pieces fetch a higher rate. However, the same or similar pieces fetch much lower rates during low season and significantly reduce the earnings of workers. The negotiating power workers have with regard to the piece rate is much lower during the low season and that has serious impacts on their earnings and life. c) Substandard Physical Conditions: Most of the subcontractors operating from the housing colonies do not adequately follow the safety and health provisions provided in the Factories Act, 1948. Some even have only one common toilet for over hundred male and female workers. At the same time, most of the Tier 1 factories in Gurgaon operates from highly modern buildings. In some fabricators, the drinking water provided to workers is not potable as per workers. The floor space provided to workers in all the subcontractors is less than the prescribed 3.38 square metre per worker according to the Factories Act, 194817 . In a nutshell, most of them operate like sweatshops from the housing areas.                                                                                                                           17  Section  16(2)  of  the  Factories  Act,  1948  prescribes  that  there  shall  be  in  every  workroom  of    a  factory  at   least  14.2  cubic  metres  of  space  for  every  worker  employed  there  in  with  a  condition  that  no  height  of  more   than  4.2  metres  is  counted  to  this  effect.  This  necessitates  that  each  worker  in  the  factory  must  be  provided  a   floor  space  of  3.38  square  metre.    
  16. 16. 16     7. Reasoning of Tier 1 Companies in Subcontracting Production 7.1 Flexibility in Production The growing contract labour in the garment industry in Gurgaon and the way in which the contractors are functioning provides a huge flexibility to the companies in Gurgaon in terms of workforce. It is fairly easy to hire when workers are required and fire when they are not and thus follow lean principles of production18 . However, without having to arrange for anything else by the Tier 1 Companies, except providing the sample garment with measurement and the cut fabric, the subcontractors deliver the finished product ready for shipping to the Company. Though contract labour provides a lot of flexibility, it is more flexible with complete subcontracting of production to a separate entity altogether. Most Companies in Gurgaon procure order beyond the normal shopfloor capacity during the peak season and that necessitates unreasonable hours of overtime. For some companies, even with the excessive overtime hours of production, shipping on time becomes difficult and there the subcontractors come as a boon. Out of the 7 Tier companies studied, four of them (Ambika Overseas, CREW BOS Private Limited, Evergreen International and Knitscraft) have more than one regular and exclusive subcontractors and one of these companies has up to 5 subcontractors. 3 Tier 1 companies have subcontracting in each peak season almost regularly. 7.2 Reduced Overhead Cost When the rent per square feet floor space in UdyogVihar region where garment companies are operating from is upto Rs 50 in 2012, the per square feet rent in the Kapashera- Dundahera region is little over 12 Rupees19 . Workers have also reported that there is rampant power theft practiced by subcontractors in the region which further brings the cost of production down at the subcontractors. This lower per unit cost is another advantage of subcontracting. 7.3 Reduced Workforce and Reduced Responsibility Having to employ lesser workers without compromising production is quite advantageous to the tier 1 factories. Legally, there is greater responsibility associated with greater number of workers and this is quite low when it comes to subcontractors. If workers are employed in the                                                                                                                           18  This  has  been  discussed  in  detail  in  a  previous  report  published  by  Society  for  Labour  and  Development  “  A   Study  of  the  Contract  Labour  System  in  the  Garment  Industry  in  Gurgaon”   19  This  calculation  based  on  of  the  subcontractor  paying  Rs  16000  for  the  area  of  1300  square  feet  in   Kapashera.    
  17. 17. 17     same premises of the Tier 1 Company through contractors, the Tier companies, who are the principal employers, cannot legally get away from the liability of wages, social security and other benefits to contract workers. However, almost no involvement of the Tier 1 companies in the production process happening in the subcontractors dissolves them of all liabilities towards workers. Moreover, sometimes the subcontractor himself gets the contract for producing for the Tier 1 Company through some middlemen and in this case the subcontractor himself will have little knowledge of the Tier 1 Company. 7.4 Freedom of Association Another major reason cited by workers for Tier 1 companies subcontracting production is to regulate workers’ freedom of association. There has been incidence of subcontractors coming to the help of Tier 1 Companies producing for global brands during the time of a partial illegal lockout in Gurgaon in 2010. This Tier 1 Company had sustained production a few months with the help of subcontractors working in the Kapashera-Dundahera region. Subcontractors come to the help of companies when former needs help to bring down the little negotiating powers workers and their organizations have. Due to the presence of subcontractors and their ability to produce same or sometimes even better (due to the presence of experienced tailors they have) quality products, a temporary halt in the production by workers/ unions does not affect the Tier 1 companies much. 8. Why workers want to work at the Subcontractors when they can easily get jobs in the factories? It has been revealed during our investigation that workers who are working in the subcontractors prefer working at subcontractors than to work in factories. Though these subcontractors are functioning illegally, all workers interviewed except two leather workers, said that they prefer to work in the subcontractors than in the companies. The reasons for this preference by workers are summarized below. 8.1 Wages As discussed before, most of the subcontractors operating in Kapashera- Dundahera area are based on piece rate or part rate. A look at the below table shows some examples of the piece rates/part rates existed in the subcontractors during June – October 2012 and the wages workers earned for 8 hours of work under the respective piece rate system.
  18. 18. 18     Table 2: Piece/part rates in subcontractors of Tier 1 garment companies in Gurgaon. Items Piece/Part Rate (in Rs) No of pieces produced in 8 hours Total Wage Earned (in Rs) Full sleeve cotton ladies shirt 25 10 250 Gents T shirt ( Hosiery) 8 32 256 ladies shirt 45 6.4 288 Stitching of sleeve of cotton shirt of gents 1.6 300 480 Denim shirt with 30 operations for gents 62 8 496 Denim Shirt 75 4 300 Ladies Top 20 17.5 350 Shirt 20 12 240 Night Gown for Ladies 15 40 600 Gents Shirt 25 20 500 Skirt 35 8 280 Average Wage Earned 367.2727273 The average wage of Rs 367 leaves workers with about Rs 4620 per hour they work. There is variance in the hourly wage from Rs 31.25 to Rs 75 according to the style of garment, type of fabric etc. The piece rate per hosiery garment is sometimes as low as Rs 8 per stitching a gents T shirt. The highest piece rate reported in the above table is for denim shirt for gents which fetched workers Rs 75 per piece and the productivity of labour is as low as 0.521 in an hour. However, all these workers earn more than the notified minimum wages payable to manufacturing workers in Gurgaon. The hourly wage payable to the highly skilled manufacturing workers in the garment industry according to the Minimum Wages Act, 1948                                                                                                                           20  Rs  367/8  hours   21  Productivity  of  labour  is  measured  as  the  output  produced  per  labour  time.  The  assumption  here  is  that  no   other  factors  like  technology,  work  environment  etc.  change  during  the  time  of  measurement.    
  19. 19. 19     is Rs 27. However, the hourly wage prevailing in the labour market for garment workers in Gurgaon is between Rs 23.9 and Rs 27. This is 14 % to 24% less than the average wage they earn in the fabricators under the piece rate system. This is one of the major reasons why workers those who are working in the subcontractors prefer to work in the subcontractors. A previous study by Society for Labour and Development has revealed that most labour contractors engaged by the garment companies in Gurgaon engage in stealing significant amount of money from the wages of workers. All subcontractors hire workers directly and there is no contractor involved at any stage of the hiring. Most of the hiring is informal as new workers are brought by ‘masters’ or colleagues and the environment in the shopfloor is of very informal nature. The non-involvement of labour contractors by the subcontractors leaves less possibility of wage theft. Workers report that quite often they need to take loans to finance some or the other of household needs. Workers also report that in the factories the possibility of a wage advance is very limited. However, the subcontractors advance wages to workers on request and workers find that as an added advantage in working at the subcontractors. 8.2 Relative Ease in Accessing Leaves As explained in one of the previous sessions, most companies in Gurgaon violate the provisions of leave. The Punjab Industrial Establishment (National and Festival Holidays Casual and Sick Leave) Act, 1965 mandates that workers must be provided with three gazetted holidays of national importance, 5 festival holidays, 7 casual leaves and 14 sick leaves. In addition to this, the Factories Act, 1948 mandates annual leave of 1 day for every 20 days of work. However, most of the companies in Gurgaon do not provide all these leaves to its workers. Among the 7 Tier 1 companies studied only 4 of them provide the earned leaves. Casual as mandated by the Act is not provided to any of the Tier 1 company workers. Paid festival leaves are not provided to any of the workers. The data from the Chief Inspector of Factories regarding the compliance of Tier 1 companies towards the earned wages show that wherever data is available, not all workers worked in the companies have been provided with the earned wages as per the Act. For example, the
  20. 20. 20     Annual returns filed by one of the main units of Richa Global22 claims that out of the 3654 workers who were employed by the factory in the year 2009, 572 workers had applied not to avail the earned leaves and the company had provided earned leave for 1008 workers and 1791 workers who left the service (termination or resignation or by any other means) were paid wages in lieu of earned leaves. That still leaves a minimum of 283 workers that is almost 8% of the workforce without the earned leaves in 2009. Gaurav International, another subsidiary company of Richa Group, employed 2584 workers during 2009 and claimed that 937 workers applied not to avail the earned leaves and the company paid earned leaves to 1257 workers and also to 924 workers who have left the job. And the total number of workers who the company claimed to have provided leaves seems to exceed 534 than the actual number of 2584 workers the company claimed to have employed! This suggests that the numbers shown in the returns have been faked. In most companies workers are not only denied paid leaves but also unpaid leaves during emergency. In the feudal family setup prevailing in the areas these migrant workers come from, a few days of leaves to look after family emergencies, to participate in marriages, births and deaths are very inevitable. And denial of that from the factory’s side and having to search for alternate jobs after returning from the villages is conceived as an unnecessary annoyance. The subcontractors do not provide any paid leaves to workers at all. Since their wages is linked to productivity, on the day of leave, the day they produce nothing, they are not paid any wages. However, all workers reported that it is easy to get unpaid leave sanctioned in the subcontractors. They can take leaves for as many days as needed and still come back to the same job. Workers have also reported that if the Tier 1 companies are willing to provide 18 earned leaves as mandated by the Factories Act, 1948 and festival leaves, national holidays and casual leaves as prescribed by Punjab Industrial Establishment (National and Festival Holidays Casual and Sick Leave) Act, 1965 and sick leaves prescribed by either Punjab Industrial Establishment (National and Festival Holidays Casual and Sick Leave) Act, 1965 or Employee State Insurance Act, 1948, they would not need any additional leaves under normal circumstances. In the Tier 1 factories, accessing leave is also reported to be difficult with permissions from supervisors, line in charges and managers of different levels. However, the relationship workers have with masters and the informal environment in the shopfloor in the                                                                                                                           22  Plot  No  232,  Phase  1,  Udyog  Vihar,  Gurgaon  
  21. 21. 21     subcontractors makes accessing unpaid leave easy. Not having to search for new job while returning from villages is one of the major advantages identified by workers as working in the subcontractors. 8.3 The Fear of Contractors The growth of contract labour in the garment industry in Gurgaon is another major reason for workers preferring to work in the subcontractors. Most of the companies in Gurgaon employ workers through contractors who engage in various illegal practices and violate various labour rights of workers including wage theft, non-enrollment with social security facilities, engaging in physical violence etc. The subcontractors operating in Kapashera- Dundahera area hire workers directly. Workers get the information regarding hiring through masters or their friends working in a particular subcontractors. The social capital workers build in the workplace with masters and coworkers gives them the feeling of safety from physical violence and wage theft. 8.4 Working Hours and Breaks Most workers working in subcontractors have identified the ability to take sufficient and frequent breaks from work as another advantage. Workers report that the one hour break- half hour lunch break and fifteen minutes tea break in the morning and post lunch- available to Tier 1 Factory workers is not sufficient. Workers report that the manual work they do in the shopfloor require more breaks to restore energy. All piece rate workers interviewed for the study reported that they take sometimes up to 5 short breaks23 excluding the lunch break in 8 hours of work. In the subcontractors, workers have the freedom to go out during their breaks. 8.5 Compulsory Overtime Though overtime work and the extra earning from that is very crucial for survival of workers and their families in Gurgaon given the meagre income they earn from the 8 hours work, workers do not like to be compelled indiscriminately for overtime work every day. And the production process in the garment industry is so organized that it cannot meet the requirements of buyers without unreasonable hours of compulsory overtime. Therefore, the companies require that all workers do overtime during the peak season regardless of their                                                                                                                           23  Workers  say  that  they  use  these  breaks  normally  to  smoke  or  chew  pan  and  drink  tea.    
  22. 22. 22     physical conditions and familial situations. However, at the subcontractors, workers have the freedom to refuse overtime work. 8.6 Target Pressure and Subsequent Violence The target pressure workers report in the factories is not existent in the subcontractors. Workers report that all salaried workers working in the factories in Gurgaon are pressurised to meet production target. Supervisors and line in charges are responsible for meeting the target. They attempt to achieve the production target by restricting workers’ toilet breaks, and by exerting pressure through verbal abuse. Physical violence is also another means exercised by the supervisors and in charges to extract more production. This target pressure and the subsequent verbal abuse and physical violence are limited in the subcontractors. 8.7 Highly Skilled Workers’ Preference to Make Complete Garments Almost all of the garment factories in Gurgaon are working in the assembly line where their role is to perform a repetitive and monotonous task. If the capitalist organization of production alienates producers from the product, the assembly line organization of production completes that alienation by alienating workers from the necessary and complete skill they need to produce the complete product. The highly skilled workers who can produce the complete garment feel more and more alienated by the assembly line production organization. The possibility of producing complete garment is better in the subcontractors and the highly skilled workers prefer to work under that system than under the assembly line production. Even when piece rate work is preferred in some of the factories in Gurgaon, it is based on assembly line which is popularly called as ‘part rate’ system by workers. The employment of highly skilled workers in the Tier 1 and other factories is limited in the role of sampling masters. These companies employ only a minimum number of sampling tailors since they are more expensive than the assembly line tailors. Therefore, the highly skilled workers prefer to work in the subcontractors. 9. Conclusion The symbiotic relationship between Tier 1 companies and the subcontractors are promoting forced labour and indecent work in the garment industry in Gurgaon. If the poverty level wages in the garment industry can be raised to living wages and the issue of wage theft can be addressed effectively through organized workers’ struggles and
  23. 23. 23     consistent legal struggles, working at Tier 1 companies will become financially attractive for workers. At this point, most of the workers in the garment industry are working there since that is the only employment option available to them other than construction work. This economic coercion on workers to work at a wage which is well below a decent living wage combined with substandard working conditions is ‘forced labour’. The coercion which leads them to work in sweatshops at subcontractors for a mere 20% increased earnings than that of in the Tier 1 companies is nothing other than forced labour. If the Tier 1 factories pay workers the ‘notified minimum wages’ along with the legally mandatory double overtime, this 20% increment in the earning workers get at the subcontractors would not arise. The global brands which have been found to be benefiting from the presence of the subcontractors in the belt are morally responsible for pushing workers to accept such indecent and illegal working conditions. The failure of the labour department in Gurgaon in ensuring employers’ compliance to labour laws and the failure of the global brands in ensuring compliance of labour laws and international labour standards from the suppliers are the catalysts of this forced labour in this global industry. Personal dignity, one of the major components of decent work as defined by ILO, is being compromised significantly by the Tier 1 Companies by indulging in verbal and physical abuses in order to meet unreasonably set targets. Furthermore, recruitment of workers through contractors who act as thugs to keep workers out of exercising their freedom of association and forcing workers to work at sweatshops of subcontractors is a major means depriving workers of their personal dignity. Another major component of ILO decent work, family stability, is highly compromised by the employers by indulging in wage theft and leaving workers with meagre real income to lead a dignified life. The refusal of legally mandatory weekly off day and other earned and casual leaves to workers is also another factor contributing to undermine the family stability of garment workers. Fundamentally, the garment industry is violating the concept of decent work by pushing workers to accept illegal and inhuman working conditions. The legal invisibility of the subcontracting in the garment industry and the subsequent undocumented workforce leads to the creation of inefficient industrial and labour policies by the government. From the point of view of effective governance, it is important that these subcontractors get registered and legally be part of the system.
  24. 24. 24     10. Recommendations 1. The global brands should take responsibility in tracing down their supply chain and ensuring compliance to the labour laws and international labour standards. 2. Clear provision should be made in the Contract Labour (Regulation and Abolition) Act, 1970 to include subcontractors even though they are not using contract labour for production. 3. Disclosure of subcontracting by the Tier 1 Companies should be made mandatory to the labour department and the global brands. 4. Government of Haryana must conduct a thorough mapping of the subcontractors and smaller production houses in and around Gurgaon and take necessary measures to bring legal accountability of these subcontractors to the Government. 5. Subcontracting of work by Tier 1 companies as a response to the trade union activities must be included in the unfair labour practices defined by 5th schedule of the Industrial Disputes Act. 1948    

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