International Institute of Planning & Management-Ahmedabad

Ethical and Unethical Issues Akrudi Plant(PUNE) Subject: Business Ethics Submitted to: Prof. Manasi Vahiya Submitted by: Shivangi Trivedi

Business Ethics IIPM

Akurdi Temporary Closing of Plant

Akurdi plant is the mother plant of the company, from where Bajaj Auto Limited first began its two-wheeler and threewheeler production, after it got government licence to do so in 1959. The plant over the years has become unviable. It is presently working at around 10% of its capacity of 0.5 million vehicles per annum, but employs 2,200 workmen and 200 staff. Contrast this with the company's newest facility at Pantnagar, which makes 1 million vehicles with 500 people. Akurdi plant has become unproductive inspite of the best efforts of the workmen and the management. This owes itself primarily to two reasons - the absence of any tax incentives and the continued presence of octroi. The latter state Octroi not only directly costs the company a few hundred rupees per vehicle, but also leads to logistics nuisances. BAL will gain Rs 1000 per unit from shifting the production base, as it gets sales tax benefits and other government concessions at Waluj. Bajaj Company is examining options to address the issue of idle staff at Akurdi. Meanwhile, employees at the plant have been put on a 4-day week schedule. Bajaj Auto's decision to stop production at its Akrudi plant near Pune is fast assuming a serious nature than expected, with the Maharashtra government today taking note of the auto major's decision.At the cabinet meeting the government expressed concern over the issue and is looking into the matter. The government will not allow Bajaj Shivangi Trivedi(FB/11-13/IIPM) Page 2 is particularly unfortunate, especially when Maharashtra is supposed to be India's most progressive

Business Ethics IIPM to enter into any other business activity from the said plant. Bajaj seems to have plans to enter into some new business like real estate development or IT sector. The land at Akurdi and it is very valuable the company people reported. This development comes a day after Agriculture Minister Sharad Pawar meeting the representatives of workers union in Bajaj Auto. They said that they will ensure that the interests of the labour at Akurdi plant are protected. The fate of nearly 2,730 workers is in jeopardy over the closure of the plant.

Compensat e
The Bajaj Auto Managing Director, Mr Rajiv Bajaj, has reiterated that vehicle production at its Akurdi plant could not be resumed, asserting that though the workers were not responsible for the stoppage, they could not offset the Rs 100-crore loss per annum, the company incurred on manufacturing here. The clarification comes in the wake of a face-off between the BAL management and its 2,700-strong blue-collar workforce that followed when the company shifted all vehicle production from Akurdi, to its plant near Aurangabad since September 1. Workers have since been protesting against the companys directive that they need not come to work, but would be paid their wages till they retired. For a plant to be viable, it must manufacture at least one million units per annum. Every vehicle manufactured at Akurdi costs Rs 1,000 more than what it costs to produce at Pantnagar, Chaka or Waluj on account of sales tax and Octroi. They are not such a big company that we can afford to lose Rs 100 crore, adding that though he had no

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Business Ethics IIPM complaints against the Akurdi work culture, it could still not offset a loss of this magnitude.

Wages directive
Though BAL has 2,700-odd workers, only 1,650 of these are directly affected by the stay at home and get your wages directive, since 278 are working with Bajaj dealers, and the others are in component manufacture, tool room etc. They have an average salary of Rs 1.6 lakh per annum, and Mr Bajaj says that the company has every intention of honouring its commitment to pay each of them six days wages till they retire. The workers union at Bajaj Auto plant in Akurdi-Pune and the company administration failed to reach a solution over the proposed salary hike for workers and the voluntary retirement scheme (VRS) benefits. The workers' union and the Bajaj Auto management have been at logger heads since August last year when the company decided to stop production at the Akurdi plant.

In the wake of this development, the salary hike and the proposed VRS was discussed and drafted by the company management and Vishwa Kalyan Sanghatana trade union. A draft of the same had proposed a salary hike of Rs 2,500 per month to every worker from July 1 onwards. Apart from this, a VRS proposal was also drafted with Rs 10,000 per month pension for 12 years and Rs 5.75 lakh lump sum per worker. However, the workers at the unit opposed the VRS details and demanded one time payment of Rs 17.75 lakh instead of dividing the amount into pension scheme and one time payment of Rs 5.75 lakh. Workers are not keen over the pension scheme and want the entire amount of Rs 17.75 lakh to be paid in cash. The company management is not

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Business Ethics IIPM ready for the same. So, the salary hike agreement remains hanging as of now.

Effect on Shares
A total of 53,105 shares changed hands in the counter on BSE. The stock broke away from a band of Rs 2,700 to Rs 2,805 that it had hovered at since mid-August 2006. Earlier, it had bounced back from Rs 2,459.65, on 21 July. Market men are betting on continued strong growth in Bajaj Autos motorcycle sales. Sales are expected to grow in the upcoming festive season. Over the medium term, analysts reckon that availability of finance, improved road infrastructure, rising incomes and favourable demographics will lead to higher penetration of motorcycles in India. Replacement demand is also emerging as a strong growth driver. Further, the governments focus on the growth of rural economy is positive for two wheeler companies, as 45%50% of their sales are from the rural segment.

Plant in Pune
Bajaj Auto Limited will halt two-wheeler production at its Akurdi plant in Pune from September this year. The companies managing director Rajiv Bajaj had hinted at the closure of the of Bajajs four-decade-old Pune plant during the AGM held in Pune last month. Company sources have confirmed the move, but were unwilling give details on the time frame decided to shut down production at the Pune plant. They might shut down the Akurdi plant. The Akurdi plant made 350,000 vehicles last year and this year it has come Shivangi Trivedi(FB/11-13/IIPM) Page 5

Business Ethics IIPM down to 50,000 with 2,200 workers. The Pantnagar plant is doing one million vehicles with 500 people. Shutting down plants is not easy in this country. Company has to be a sick unit to be shut down. The Akurdi plant has been lying unused with labour sitting idle. Several rounds of VRS have been vehicle implemented production but is the either company has at not been successful in significantly reducing manpower. All new happening Chakan,

Aurangabad and Pantnagar. Meanwhile, BAL MD Rajeev Bajaj made it clear that the government policies on capacity rationalisation, primarily the regional distortions created due to inconsistent tax benefits and imposition of octroi in Maharashtra, were the reasons for the shutdown. Hence, neither the workmen nor the company's management was responsible for the Akurdi plant closure. Since the issue of the Akurdi plant closure was related to the government, office would forward a report to the industries department, after it receives the from BAL. Also that government level meeting could be expected there after. Production to supply other plants and corporate functions would continue. It was erected a few days ago by the Vishwakalyan Kamgar Sanghatana, a union recognised by the company. For workers protesting against Bajajs decision to stop production at the plant, the shed is an unlikely fortress of strength. At half past one in the afternoon, 10 days after the plant was closed, a sudden heavy downpour sends the protesting workers scurrying into the shed. Many of them have worked at the plant for over 30 years. Now, even Shivangi Trivedi(FB/11-13/IIPM) Page 6

Business Ethics IIPM though Bajaj has promised them full pay without work, they are fighting for their right to work. This is not the only peculiar aspect in the controversy surrounding Bajajs 45 year old plant, situated in the Pimpri - Chinchwad area, near Pune. The Bajaj decision has put the spotlight on several larger issuesa companys right to shut down an unproductive plant; the definition of fair compensation to a worker who is affected by such an act; the governments differential tax regime favouring certain geographies; and the inevitable redistribution of industrial capital caused by it. There is more to stir up the controversy.

Political Connection
A strong political connectionthe plant is adjacent to Baramati, Maratha strongman Sharad Pawars constituency. And finally, there is also a hint of a hidden real estate angle. Production has dropped from 4.5 lakh vehicles annually two years ago to around 50,000 today with 2,200 workers, while there are 500 workers at Pantnagar with a one million production capacity," MD Rajiv Bajaj told shareholders at the companys annual general meeting in July. Currently, running at a mere 4% capacity utilisation, the plant wasnt contributing much. Then there is the tax angle. All of Bajajs newer plants Waluj (Aurangabad), Chakan (Pune) and Pantnagar (Uttarakhand) enjoy tax benefits like excise holidays, concessional sales tax, and zero octroi which are not available in Akurdi. The unspoken argument here was that since it was the government that created this differential tax regime, why it is now stopping companies from making the most of it is a question still to be answered.

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Business Ethics IIPM But soon, the real estate angle sprung up in the midst of all this. There has been more than a hint of a suggestion that Bajaj may want to use the 165 acre that makes up the Akurdi plant for other purposessell it or develop it on its own. The company denies this. Punes real estate developers are not willing to go on record. With Pune becoming an IT hub, there will be many takers for the land. Property prices in the region have gone up 10 times in the last two years. The reasons for the rise are apparent upcoming malls, multiplexes and vehicles ferrying BPO executives are a common sight in Pune. A real estate broker in Akurdi pegs the current value of land along the MumbaiPune highway at about Rs 20 lakh per Guntha (one-fourth of an acre). That could put the value of Bajajs property at about Rs 1,320 crore. A recent report by HSBC Global Research pegs the value of the land at Rs 1,089 crore. The report also estimates that a VRS settlement could cost Rs 163.8 crore. It suggests that Bajaj could make a net gain of Rs 925.2 crore by selling the land and paying off the VRS. Thats a lot of money. And even though Bajaj Auto has denied interest in it, other companies in Akurdi want to convert factories into malls or IT parks. PCMC is reviewing 21 such proposals from big industrial units for conversion of use. Bajaj Auto is not on the list. Many of the applicants are loss-making. They have excess freehold land. There is no reason to avoid the temptation of the boom in property process. As per regulations, companies which intend to change the use of the land they occupy need to pay a conversion premium of Rs 27 per sq. ft on the area they intend to utilise. Bajajs Akurdi property has two types of land in a 50:50 ratiofreehold land and that allotted by

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Business Ethics IIPM MIDC. So, an alternative use of the land has to be endorsed by the state government.

Legacy of Disputes
This is not the first face-off between the Bajajs and the workers in Akurdi. One of the workers, now in his mid-50s, has vivid recollections of June 17, 1979, when two workers lost their lives in a police firing outside the factory. While the first wage agreement was signed in 1981, the subsequent ones were signed with delays ranging between two to 22 months. After these delays, wages were not back-dated, workers allege. The last wage agreement ceased on February 28. Workers also allege they are under-paid in this plant. In 1981, Bajaj paid an average salary of Rs 1,200 per month when Tata Motors (formerly TELCO) was paying Rs 1,150. Now Bajaj pays only Rs 10,000 compared to Tata Motors Rs 22,000, the workers claim. But Bajaj officials said wages cannot be compared with other companies. Workers accused Bajaj of wage discrimination among production facilities. They claim that while the workers in Akurdi draw an average wage of Rs 10,000, though the plant is operating for the last 45 years, workers at the Waluj plant, in operation over last 20 years and Chakan plant, operating since last 10 years draw average monthly wages of Rs 14,000 and Rs 17,000, respectively. The union expects Bajaj Auto to push through a voluntary retirement scheme (VRS) soon. Though there have been many such schemes in the past, they have not found much takers. Out of the 349 workers who opted for the last VRS scheme in 2006, just 22 people were eligible for Rs 11.34 lakh in gross, while the rest got only Rs 8-9 lakh.

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Business Ethics IIPM The sudden shutdown has left us all in mental agony and deprived us of our right to work, cry workers. But Bajaj Auto has extended an olive branch. It has promised to help workers find alternate employment with its vendors and dealers & is neither forcing the workers to take this up nor are we assuring them of alternative employment.

Conclusion
At last what happened that neither they did retrenchment nor layoff? Ultimately they created that thing which frustrated workers to live their job. And they shifted plant to Pune.

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