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* Labour volatility common in workplaces
* Govt sees reforms benefiting workers and employers
* Garment exporters losing market to lower-cost countries
* Exporters say changes will inflate cost, impact business
By Rajesh Kumar Singh and Frank Jack Daniel
NEW DELHI, July 26 (Reuters) - Last month, hundreds ofworkers went on the rampage at a factory belonging to garmentexporter Orient Craft, torching vehicles and smashing windows inthe gritty industrial fringes of Gurgaon, a Delhi satellitecity.
Increasingly common in Indian workplaces, these violentoutbursts could become a thing of the past under a bold round oflabour reforms planned by Prime Minister Narendra Modi.
Many businesses cheer the plans, which they say will helpmake India a manufacturing hub. Taiwan's Foxconn, the world'slargest contract electronics manufacturer, plans toset up 12 new factories in India and employ one million workers.
Yet Orient Craft, which has suffered three riots in threeyears, fears the changes will create as many problems as theysolve by making the cottonwear it exports to global brands suchas GAP and Marks & Spencer less competitive.
Like many other low-margin businesses in India, garmentmakers will gain from increased flexibility to hire, and fire,seasonal labour - reforms demanded by industry since India beganto shift away from socialism in 1991.
But to make this more palatable for unions, Modi wants toalso extend the social security net. The government expects thatwill reduce labour volatility, but it will also raise costs forcompanies like Orient Craft whose chairman Sudhir Dhingra fearslosing clients to lower-cost rivals in Bangladesh.
Dhingra said the new flexibility will enable him to hireworkers according to his business requirements, but only ifIndian garments remain in demand. If they are priced out ofbusiness, the net benefit evaporates, he said.
"Buyers are already moving to cheaper locations," saidVirender Uppal, the head of India's Apparel Export PromotionCouncil. "If labour costs go up further, it's going to affectbusiness."
Modi plans to take the amendments to parliament later thisyear.
THE ROOTS OF A RIOT
The June 20 riot at the Orient Craft factory was sparked byan unfounded rumour that a worker had died from an electricshock. A similar rumour in February led to strife at anothernearby apparel exporter, Richa Global.
Nobody was seriously hurt in these outbursts - unlike the2012 riot at a Maruti Suzuki plant that left oneexecutive dead and many injured.
Workers, labour officials and managers say the cost ofliving, low wages and conditions in slums where migrant workersstay keep Gurgaon's labourers on edge. They can easily turn ontheir bosses - even at firms like Orient Craft, known for itsworker care.
"When your life is so stressed, any trivial reason iscapable of turning you violent," said Akshay Kumar Pal, a42-year-old worker from Uttar Pradesh state.
Pal has lived for a decade in a cramped, dirt-floored roomwith a leaky roof in Gurgaon. In his block, 80 people live up tosix per room, sharing three toilets and a single water tap.Rents rise every year. Pal said he was a tailor at Richa Globaluntil April when he was sacked, accused of involvement in theFebruary riot. He says he was not there.
At Richa, Pal earned about $200 a month after 2-3 hoursovertime every day. Half of his pay went on rent and food,leaving little for his wife and two daughters back home. "Thereis a big mismatch between our wages and the cost of living," hesaid. "You cannot survive without overtime."
TOO LITTLE, TOO LATE
Orient Craft's bright, ventilated factories are recognisedas offering better conditions than most. It's known for takinggood care of its 32,000 employees. But even Dhingra recognisesthat the system is not working.
"We know the wages paid to workers are not good enough tosecure them a decent and dignified living," he said. "But wecannot afford to pay more, else we will lose all our business."
The failure by successive governments to overhaul one of theworld's most rigid labour markets has squeezed firms likeDhingra's between low-cost producers like Bangladesh and skilledand fast-moving innovators like China.
Modi's reforms aim to help companies go up the value chain,creating jobs for the 200 million Indians who will reach workingage over the next two decades, and reducing labour volatility.
Shankar Aggarwal, the top bureaucrat at the labour ministry,said laws had not adapted to the dynamics of mobile labourforces and industry demands. The changes under discussion willimprove productivity as well as industrial relations, he said.
Instead of saddling companies with additional costs, Dhingrawants the government to set up hostels for workers in industrialtowns to reduce tension in the workforce.
He also wants India to sign free trade agreements with theEuropean Union and the United States to offset the costadvantage exporters from Bangladesh enjoy.
"After starting so late, changes in laws alone will not beenough," he said. (Editing by Douglas Busvine and Ian Geoghegan)
