#35: Time limits, growth limits
Regulations on working hours limit the potential of India’s most promising oases for skilled work
In the last fourteen years, the number of Global Capability Centres (GCC) operating in India has more than doubled. In 2010, 700 such centres in the country supported operations for multinational enterprises, but by March 2024, the count had hit 1700. Today, India accounts for over 50% of all Global Capability Centres worldwide. Through these centres, India generates employment for 19 lakh professionals and $64 billion in revenue. GCCs account for 35% of IT/ITES employment and 25% of India’s IT/ITES exports. The latest Economic Survey has recognised the role of such centres in promoting economic growth, exports, and job creation.
The Indian Government aims to double the number of GCCs in the next five years. How can we make India a preferred destination for investments in global capability centres? India already has two advantages: a skilled workforce that can be employed in global capability centres at 1/10th the cost of workers in the United States, and cheap office space that can be leased by global capability centres at 2/5th the cost of office space in other Asian markets. However, India suffers from a drawback that may harm the country from capitalising on this new industry—a lack of flexibility in working hours regulations.
A few Indian states have created flexibility in working hour regulations. These states also enjoy the lion’s share of economic activity related to global capability centres. Other states may also be able to take advantage of this new development if they institute flexible working hour regulations.
Restrictive working hours: a problem for global capability centres
In Indian states, offices (which include global capability centres) are controlled by law. These laws are called the state’s ‘Shops and Commercial Establishment Act’, which regulate the following matters concerning working hours:
Operating times for offices,
Schedules for weekly and public holidays,
Breaks during the workday,
Hours of work, including overtime, in a day, week and quarter, and
Minimum premium for overtime work.
State laws specify when offices should open and when they have to close. For example, offices in Bihar cannot open before 8 AM and must close after 10 PM. Similarly, offices in Madhya Pradesh cannot open before 6 AM and must close after 12 AM. Offices in global capability centres cannot cater to clients in countries like the United States and Canada if they cannot operate beyond these traditional limits.
Recently, states have exempted offices from opening and closing hours regulations (see Gujarat, Tamil Nadu and Punjab). However, states impose conditions while issuing these exemptions. For example, Punjab allows establishments to operate after 8 P.M. only on the condition that women will not be employed after 8 P.M. Such conditions continue to make global capability centres unviable since women form 30% of all workers in IT/ITES offices.
Global capability centres may also need to work throughout the week or during public holidays. These centres often support businesses like airlines, banks, and hospitals that need 24X7 support and require occasional work on holidays. Further, 70% of India’s global capability centres support multinational enterprises headquartered in the United States and Canada. Such a centre in Punjab may need to operate at 4:30 A.M. IST on a Sunday to service a business in New York, where it would be at 7 P.M. EST on Saturday. However, such centres are prohibited under Punjab’s law from operating on a Sunday (Section 10), making such work illegal. In some cases, public holidays may also not fit in with the work schedule in client countries. For example, offices in Andhra Pradesh must observe ‘Andhra Pradesh formation day’ on 1st November (Section 31), a working day in other countries and Indian states.
Like exemptions from operating hours, many states now exempt offices from regulations on weekly holidays. However, these exemptions come with conditions. For example, Orissa allows offices to operate on a weekly holiday on a case-to-case basis (Section 12). However, the office must employ separate staff for work on the weekly holiday. The requirement that firms hire separate staff for work that may come up for certain weekly holidays, makes the promise of GCCs unviable.
In addition to fixed holidays, state laws specify the maximum hours an employee can work a day and a week. For example, employees in Maharashtra cannot work more than nine regular hours daily (Section 12). Similarly, employees in West Bengal cannot work more than eight and a half regular hours daily (Section 7). In both states, employees cannot work more than 48 regular hours per week. The law also limits how much overtime employees may work in a day. In Maharashtra and West Bengal, this limit is one hour (Section 14) and one and a half hours (Section 7) per day, respectively.
Such hour restrictions are not compatible with the needs of global capability centres. A recent example of the requirement came up with the Microsoft-Crowdstrike incident, a global outage of servers and computers running Windows software. The outage disrupted services in banks, hospitals, airlines and government services for multiple hours. Microsoft's GCCs had to work long hours to address this emergency. In India, employees in global capability centres would not have been able to work these hours without breaking the law or emergency exemptions.
Within the workday, offices must also provide rest intervals as specified by law. In Tamil Nadu, employees must be provided a 30-minute break after four work hours (Section 9(2)). In Orissa, the break has to be after five hours (Section 9). These breaks may have been relevant in offices where employees must engage in physically demanding work. However, such breaks may not be appropriate for intellectual work, sometimes requiring extended hours of attention.
State laws specify the minimum premium that offices must pay for overtime work. For example, Uttar Pradesh requires offices to pay at least double the regular wage for each hour of overtime work (Section 6(2)). In contrast, Japan only requires offices to pay a 25% premium for overtime work (Article 37).
The table below summarises some of the restrictions on working hours that apply to global capability centres in India.
Some states show the way forward
Some Indian states have realised that this level of restrictions will hamper the growth of global capability centres in India. Karnataka, Andhra Pradesh, and Haryana are examples of exemptions that help global capability centres operate in their urban areas.
Karnataka has restrictions on working hours similar to those imposed in other states under the state’s shops and commercial establishments law. The state law in Karnataka requires offices to open and close at fixed hours (Section 11) and adhere to weekly closing days (Section 12). However, Karnataka recognised that global capability centres could not operate with such limits on operating hours, so it amended the state law with the following objective:
“The nature of work in information Technology establishments... entails lot of mental work in terms of fault finding, imagination and reflection and design... no time can be set out with regard to their working hours and even weekly holiday”
(Statement of Objects and Reasons, Karnataka Shops and Commercial Establishments (Amendment) Bill, 2001)
In 2001, Karnataka became the first Indian state to exempt global capability centres from working hour regulations by amending the state law. Under the amendment, Karnataka exempted IT/ITES and research establishments from limits on office operating hours and weekly holidays.
“Nothing contained in section 11 or sub-section (1) of section 12 shall apply to:-
……
(q) Information Technology Establishments;
(r) Information Technology enabling services or establishments;
(s) Bio-Technology and Research Centres or establishments of epidemic and other diseases”
(Section 3(2), Karnataka Shops and Commercial Establishments Act, 1961)
Global capability centres fall under the definition of ‘Information Technology enabling services or establishments’ of the state’s shops and commercial establishments law.
Like Karnataka, Telangana (formerly part of Andhra Pradesh) is also a centre of global capability centres. 180 global capability centres operate out of Hyderabad. Like other states, Andhra Pradesh imposes several working hour restrictions on offices. Telangana has adopted Andhra Pradesh’s shops and commercial establishments law in toto, and imposes identical limits on working hour regulations. The following table summarises restrictions applicable to offices in Andhra Pradesh and Telangana.
In 2002, united Andhra Pradesh became the second Indian state to implement exemptions that benefitted global capability centres. Andhra Pradesh issued the following notification:
“In the G.O. 1st read above, Information Technology … were granted exemption from the provisions of sections 15, 16, 21, 23, 31, and 47 (1) (2) (3) and (4) of the Andhra Pradesh Shops and Establishments Act, 1988 for a period of (5) years from 30.05.2002 …”(G.O. Ms. No. 16, LET&F (Lab.II) Deptt., dated:30.05.2002, as quoted in G.O. Ms. No. 62, dated: 30.5.2012)
As a result, IT/ITES establishments (including global capability centres) from all restrictions on working hours mentioned in Table 2. This exemption benefitted global capability centres in the state. For example, a global capability centre in Punjab would have to let go of its female employees after 8 P.M.. In contrast, a global capability centre in Hyderabad could continue working through the night with both sexes.
Haryana (primarily Gurgaon) has also attracted several global capability centres in the last decade. Like Karnataka and Andhra Pradesh, Haryana exempted offices from operating hours (Section 9) and schedule of weekly holidays (Section 10) in 2009.
“The Governer of Haryana exempts any shop and commercial establishment …… from the operation of Sections 9 and 10 of the Punjab Shops and Commercial Establishments Act, 1958” (Notification No. L.R. -II- Exemp. / CD / Mgt. / 2009-6 / 41864, dated 05.11.2009)
Indian global capability centres are concentrated in states that have instituted exemptions from working hour limits. Between 2020 and 2023, Indian global capability centres leased 60% of all office space in two cities—Bangalore and Hyderabad. In the first quarter of FY2024, this percentage has increased to 86%. Indian global capability centres also find the largest pool of skilled workers in these two cities. For example, Indian global capability centres find 45% of all skilled employees for the Banking, Financial Services and Insurance sector in Bangalore and Hyderabad.
Goa takes an alternative approach to exempting offices from working hour regulations. Most states exempt offices in specific industries from working hour regulations. However, Goa, in 2021, introduced an amendment which states:
“Nothing in this law shall apply to—
(a) employees in any establishments whose average monthly wages exceed twenty-four thousand rupees”
(Section 61(1), Goa, Daman and Diu Shops and Commercial Establishments Act, 1973)
This approach does not rely on choosing winners among industries. Instead, this approach exempts those employees from working hour limits who can negotiate suitable working arrangements.
Attracting global capability centres: a reform agenda for Indian states
Indian states can attract global capability centres by relaxing working hour limits for all global capability centres. Many Indian states can offer a skilled workforce and affordable office space to global capability centres. To compete for investments, Indian states must relax limits on employees' working hours and operating times for offices. States must also increase the ambit of offices for which working hour limits are relaxed. Currently, most states only exempt IT/ITES establishments from working hour limits. However, states can also attract investments in global capability centres engaging in sectors like research and financial services.
The following table summarises the reforms that Indian states can pursue to become a preferred destination for global capability centres.
Conclusion: a long-term vision for skilled work in India’s offices
Of the five working hour regulations studied, Indian states have implemented exemptions to two—opening and closing hours and weekly holidays. Of India’s ten most populous states, four implement exemptions to opening and closing hours and weekly holidays. Two states implement exemptions from regulations on weekly holidays. The remaining four states do not implement any exemptions. These exemptions make work across borders operationally feasible. However, no state implements exemptions from the three other working hour regulations—daily or weekly work hours, overtime hours or the minimum premium for overtime work.
Indian states would benefit from relaxing all five working hour regulations for global capability centres. With more global capability centres, Indian states can create more high-paying jobs and spur economic activity. This leads to high tax receipts for the state government as well. To achieve these benefits, Indian states must allow greater freedom for different types of employment contracts with variations in regular and overtime hours, as well as overtime pay. These reforms would allow global capability centres to respond to emergent challenges and engage in creative decision-making at competitive costs. These reforms would also support Indian states’ economic aspirations, like Uttar Pradesh’s aim to become a $1 trillion economy by 2027.
References
Singh, J. ‘Asymmetry of Knowledge spillovers between MNCs and host country firms’. Journal of International Business Studies, 38(5), September 2007, pp. 764-786.
Marin, A., & Sasidharan, S. ‘Heterogenous MNC Subsidiaries and technological spillovers: Explaining positive and negative effects in India’. Madras School of Economics Working Paper 53/2010. Available at: https://www.mse.ac.in/wp-content/uploads/2021/05/working-paper-53.pdf (Accessed: 18 September 2024)
NASSCOM, Zinnov. (2024). ‘India GCC Landscape Report - The 5-year Journey’.
Bhuvana Anand, Shubho Roy, and Abhishek Singh are researchers at Prosperiti.
Good article! What is missing (I think) is the voice of the employee. The enthusiastic young employee will not mind continuous work for 8 or even 10 hours, but for the somewhat older people it is essential to give a break, or allow employees to take a break whenever feasible. The employee's viewpoint on other suggestions would also be helpful.
In the Indian context, overtime at 25% is low. Overtime is generally mandated at 100%, so it will be a contradiction if GCCs are allowed to pay just 25% whereas employees in other establishments still get 100%. I think a better solution would be to fix it at 50%, and advocate that overtime for all be brought to that level.