The Changing Face of People Management in India

Pawan S. Budhwar, Jyotsna Bhatnagar

• Publisher: Routledge
• Year: 2008
• Print ISBN: 9780415431866
• eBook ISBN: 9781134083053
• Topic: Business
• Subtopic: Business General
• Index: Business

India has been identified as one of the biggest emerging markets in the world. Indian organizations have increasingly begun to understand the importance of human resources and have started to take into account the motivation, commitment and morale of its workforce.

Despite great advances in human resource practices in India, the relevant literature on this subject remains scarce. This book seeks to fill the critical gap in the literature by providing a thorough understanding of the changing face of Indian HRM systems. Seeking to provide a comprehensive overview of Indian HRM practices, the book is structured into five parts:

• Developments in Indian HRM
• Determinants of Indian HRM
• Sector specific HRM
• Emerging themes
• Future challenges and the way forward

The Changing Face of People Management in India is written exclusively by Indian natives in order to minimise the Western bias and to provide a realistic picture of HRM practices in India. This book is a key resource for anyone studying or working in HRM or international business or with an interest in the unique Indian HRM context.

PART I
The Indian Context

1 Introduction

Human resource management in the Indian context

Pawan S. Budhwar

• Indian economic liberalisation and HRM
• Indian socio-cultural context
• Evolution and developments in Indian HRM
• An overview of the volume

Introduction

This first chapter highlights the need to examine human resource management (HRM) systems in the Indian context, provides background information on India and presents a review of Indian HRM literature. The latter part of the chapter presents the structure of the book and introduces each chapter of this volume.

Developments in the field of Western HRM are now well documented (see, for example, Legge, 1995; Schuler and Jackson, 2007). The existing HRM literature also acknowledges the contribution of HRM towards improving organisational performance (see Guest, 1997; Wood, 1999; Katou and Budhwar, 2007). It further highlights the availability of scant information regarding the relevant HRM policies and practices for firms operating in emerging markets like India. Given the significant role being played by emerging markets towards global economic growth, the need for such information is now of the utmost importance. Over the past decade or so, there has been a gradual increase in the number of scholars conducting HR-related research in the Indian context (for an update, see Budhwar and Singh, 2007). However, as per our understanding there is no book which provides a comprehensive coverage regarding a variety of core issues related to the management of human resources in India. This volume makes an attempt to fill this key gap and develop a resource guide which should be useful to students, academics, researchers and practitioners.

In order to better understand the nature and emerging patterns of HRM systems, it is important to analyse them in the rapidly changing economic, socio-cultural and business context in India. It would also be beneficial to study HRM within the context of specific industry sectors, given the significant contribution of certain sectors (such as information technology (IT), software and business process outsourcing (BPO)), towards India’s economic achievements. Such an analysis will help to highlight the context-specific nature of Indian HRM and would also help to develop both better theories and practice. Next, we provide an overview of the Indian economic context, which has changed drastically over the past fifteen years or so, and highlight how it has contributed towards an increased emphasis on the better management of human resources.

Indian economic liberalisation and HRM

Since achieving independence in 1947 until the beginning of 1990, India was a state-regulated economy. This reduced both entrepreneurship and global competitiveness. It adopted a ‘mixed approach’ for its economic development (emphasising both private and public enterprise). To achieve this, in 1950 the government set up a ‘Planning Commission’ responsible for formulating its national plans. Economic planning in India is mainly carried out through the five-year plans and industrial policies. Presently, the eleventh five-year plan (2007–2012) and the industrial policy of 1991 are in progress. Despite the formalities of planning, the Indian economy reached its nadir in 1991 and witnessed a double digit rate of inflation, decelerated industrial production, fiscal indiscipline, a very high ratio of borrowing to the gross national product (GNP) (both internal and external) and a dis-mally low level of foreign exchange reserves. Foreign reserves had become so low that they were barely sufficient to meet the cost of three weeks’ imports (see Budhwar, 2004). The Indian government was forced to pledge gold to the Bank of England to meet the country’s foreign exchange requirements. The World Bank and the International Monetary Fund (IMF) agreed to bail out India on the condition that it changed to a ‘free market economy’ from a regulated regime. To meet the challenges, the government announced a series of economic policies beginning with the devaluation of the rupee, followed by a new industrial policy and fiscal and trade policies. Since then a number of reforms have been made in the public sector, in trade and exchange policy and in the banking sector, and foreign investment was liberalised (see Budhwar, 2001; Saini and Budhwar, 2004).

In the mid- to late 1990s, the liberalisation of policies initiated increased competition for Indian firms from foreign firms. As a result, Indian firms came under tremendous pressure to change from indigenous, costly and probably less effective technology to a more highly effective one (Krishna and Monappa 1994; Venkata Ratnam, 1995). This also demanded the effort not only to upgrade the infrastructure and existing organisational culture, but also to change the bureaucracy at all operational levels. The policies of that time implied (and to some extent they still do) a switch from labour-intensive to more capital-intensive methods of production, and therefore required organisations to remove surplus labour and generate new sustainable employment. Such pressures forced Indian organisations to improve quality and match international standards such as the ISO 9000 Series. The challenge was also how to increase productivity, reduce costs and over-manning whilst generating employment, improve quality, and reduce voluntary and involuntary absenteeism (see Budhwar, 2004).

Fortunately, the economy has responded positively to various reforms and India is now considered one of the strongest emerging markets (only next to China). As per the forecast of the World Bank, by 2020 India could become the world’s fourth largest economy. India has the largest pool of scientific and technical personnel in the world. The past couple of Central governments have provided a reasonable amount of much needed political stability at the national level. They have also initiated the ‘second generation’ of reforms. If carried out properly, these could push the growth rate to 9 or 10 per cent. However, India still has to go a long way before it can compete fully with some of the more economically advanced Asian nations. For example, India needs to speed up in implementing the next generation of reforms and tackle the problems of excessive workforce, inadequacy of skills, lack of concern for customer satisfaction and unsatisfactory levels of productivity.

Nevertheless, the liberalisation of the Indian economy has created opportunities for resource mobilisation from new sources. HRM issues have now become more important with the firms’ adoption of strategies of expansion, diversification, turnaround and internationalisation. These developments have direct implications for the Indian HR function which is under severe pressure to bring about large-scale structural changes in order to cope with the challenges brought about by economic liberalisation. It is required to develop a domestic workforce capable of taking on the challenges thrown up by the new economic environment. In such conditions the performance of the HR function has become more important than ever (Sparrow and Budhwar, 1997).

Tackling such challenges has necessitated reorienting management systems and processes, and undertaking programmes of attitudinal change. These included mixed bags of harder measures as well as attempts towards greater professionalism for HR empowerment. Vigorous downsizing of the excessive workforce has been initiated both in the public and private sectors and several organisations are adopting voluntary retirement schemes (VRS) to facilitate the reform process. The economic policy of 1991, among others, envisaged the establishment of a National Renewal Fund (NRF). It was aimed to promote upgrading of skills for those affected by downsizing, to finance VRS in the public sector enterprises, and to support programmes of skill enhancement in general. Ironically, almost no effective programme of skill upgrading has been initiated so far and almost all spending by the NRF has been confined to financing the VRS. Even after more than a decade of liberalisation of policies, a ‘skill development fund’ has not been set up to facilitate a professionally managed macro programme of human resource development (HRD). The aim of such a programme would have been to develop appropriate skills and competencies as per social and economic demands, including changing the mindsets of the workforce so as to match the needs of the business realities. If this is initiated, it will need to facilitate necessary HRD programmes at the macro level and adoption of HRM strategies at the micro level (for further details, see Saini and Budhwar, 2004).

In the midst of these developments, one thing is very clear, i.e. all the threats and opportunities created by the liberalisation of policies have significant implications for Indian HRM. Those Indian organisations that have upgraded the technology now compete against multinational enterprises (MNEs) and are considering the need to develop a highly diverse workforce of well-trained, motivated and efficient employees. Organisations are also having to cope with the subsequent de-skilling, re-skilling and multi-skilling problems, workforce reduction policies, retention and career development issues (Venkata Rat-nam, 1995; Budhwar, 2004).

The faster the Indian organisations can modernise and mechanise plants, introduce new technology, revamp plant layout for easier and efficient material handling and eliminate waste, the more successful they will be. The espoused solution to this problem is to use the HR function to develop a constant awareness of missions, ensure continuous appraisal of internal strengths, enhance innovation, improve compensation schemes, introduce more informal communication and develop better employee relations (Sparrow and Budhwar, 1997). This will require a considerable change in the attitudes, working systems, strategy and human resource skills of Indian organisations. It is also argued that an expansion of the role into areas such as strategy development, information system design, cultural development and technical expertise will necessitate a decentralisation of the HRM role, along the lines seen in the West (see Budhwar and Sparrow, 1997). HRD is seen as the key to success in such circumstances (Saini and Budhwar, 2004).

Apart from the economic environment, the socio-cultural context of a country is also known to significantly influence its HRM systems (see Budhwar and Sparrow, 1998, 2002a). Continuing with providing information regarding the Indian context to better understand and highlight the resulting relevant HRM systems, we next present an overview regarding the Indian socio-cultural set-up.

The Indian socio-cultural context

India is a democratic republic, comprising twenty-nine states and six union territories. It borders Bangladesh, Bhutan and Burma in the east, China in the north and north-east, Pakistan in the west and north-west and Sri Lanka in the south. It occupies a strategic location in south Asia for international trade and with an area of 3.3 million square kilometres, India is the second largest country in Asia and the seventh largest in the world. A former British colony, India has emerged as the largest democracy in the world and is the birthplace of three of the world’s main religions. Hinduism (about 7000 years BC), Buddhism (487 BC) and Sikhism (AD 1699). Indian society comprises six main religious groups: Hindus (83.2 per cent), Muslims (11 per cent), Sikhs (2 per cent), Christians (2 per cent), Jains and Buddhists (less than 1 per cent). There are over three thousand castes. India has 179 languages and 544 dialects, but the Constitution only recognises sixteen, ‘Hindi’ and English being the two official languages. It has one of the largest English-speaking populations in the Asia-Pacific region with a literacy rate for over fifteen years of age of 51 per cent, but this is unevenly distributed (Budhwar, 2001, 2004).

The total workforce of India is approximately 397 million. Of this, about 92 per cent is engaged in the activities of the unorganised sector (including the so-called informal sector) while about 8 per cent is employed in the organised sector. Of the total employment, 60 per cent of the workforce is engaged in agriculture and the remaining 40 per cent in the non-agriculture sector. Of the non-agriculture sector employment, the unorganised workforce is 82 per cent and the remaining 18 per cent belongs to the organised segment. Only about 12–15 per cent of the total workforce in the country is estimated to be in the category of wage/salary employment. Such employees constitute 6 per cent of the workforce in the rural areas and about 40 per cent of the workforce in the urban areas (for further details, see Saini and Budhwar, 2004). These facts show the diverse nature of the Indian workforce.

Undoubtedly, India has a very diverse society which is reflected in patterns of life, styles of living, land tenure systems, occupational pursuits, inheritance and succession rules. Traditionally, Indians are known to hesitate to delegate, or even accept authority, are fearful of taking an independent decision, are possessive towards their inferiors and frequently submissive to their superiors (see Sharma, 1984; Tayeb, 1987; Sinha, 1990). A possible explanation for such behaviour can be traced to the long imperialist history of India. Similarly, the traditional hierarchical social structure of India has always emphasised respect for superiors, who can be elders, teachers or superiors at work, i.e. the nature of Hinduism evidenced by the caste and social system (Sahay and Walsham, 1997; Budhwar et al., 2000).

An analysis of Hofstede’s (1991) ranking of India on the initial four dimensions given by him reveals that India stands relatively high on power distance and uncertainty avoidance and relatively low on individualism and masculinity dimensions. Relatively high uncertainty avoidance can imply an unwillingness to take risks and accept organisational change. The relative low individualism implies that family and group attainments take precedence over work outcomes. The relative high power distance implies that managers and subordinates accept their relative positions in the organisational hierarchy and operate from these fixed positions. Obedience is facilitated by the supposedly superior authority of the position holder and not on any rational basis. This is simply by virtue of the authority inherent in that status. The relative low masculinity implies that employees’ orientation is towards personalised relationships rather than towards performance (Kanungo and Mendonca, 1994:450). On the fifth dimension of long-term versus short-term orientation, traditionally, India is known as a long-term oriented nation (see Tripathi, 1990). However, results of recent research (see Budhwar and Sparrow, 2002b) suggest that due to the severe pressure created by the recent liberalisation of economic po...

Table of contents

• Cover Page
• Half Title Page
• Title Page
• Copyright Page
• Dedication
• Contents
• List of figures
• List of tables
• List of contributors
• Preface
• Foreword
• Part I The Indian Context
• Part II Determinants of Indian HRM
• Part III Sector–specific HRM
• Part IV Emerging Themes in Indian HRM
• Part V The Future Landscape
• Index