The state of Tamil Nadu has allowed employees of IT companies to form trade unions, by bringing the sector under the ambit of the Industrial Disputes Act, 1947.

The move is unlikely to result in significant costs for IT companies immediately, said Rahul Jain of Systematix Shares & Stocks.

But former Infosys board member TV Mohandas Pai criticised the move, saying that an industry that has 15-20 percent attrition levels -- where employees can move out if they are not satisfied -- such a law was not required.

"The IT industry caters to the global marketplace and there we need certainty, we need 24x7 service because we do very critical work," he said. "If you don’t have proper legal protection for work to be done in 24 hours and you are susceptible to several demands from employees, then, it is going to be troublesome."



Below is the verbatim transcript of Rahul Jain and TV Mohandas Pai's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.



Sonia: How should a stock owner approach this newsflow, should he be worried about the potential cost increases for IT companies or is this just noise?



Jain: In my opinion, this is more like a small kind of a HR related issue that a company may face at the end whenever they would have this kind of a small slippage in terms of some firing which they may do for -- there are cases where people don’t want to relocate and the company has no choice to end up firing some of the people for non-performance. Buy beyond that, from an investor perspective, I think it is too small a thing to make any impact.

Latha: This news that Tamil Nadu has now said that the industrial disputes act applies to IT companies as well. The labour secretary clarified that yesterday to journalists. So is this going to be big bad news for IT companies?

Pai: I think it is a bad news for Tamil Nadu because in most states they have exempted IT industry from all this unnecessary regulations because an IT industry caters to the global marketplace and there we need certainty, we need 24x7 service because we do very critical work. If you don’t have proper legal protection for work to be done in 24 hours and you are susceptible to several demands from employees, then, it is going to be troublesome.

So I think this is bad for Tamil Nadu and many companies will think twice before expanding in Tamil Nadu. In most states, they have an exemption for very good reasons. It is a high growth industry and Tamil Nadu must remember that employees walk away, it is an industry with very high attrition, there are a lot of jobs. An industry with 15-20 percent attrition doesn’t need any protection for labour.

Sonia: What about the investors who are watching this right now, they shouldn’t be too concerned about their holdings in the companies, right because as the analyst just told us, it won't lead to any major cost increase or anything?

Pai: No, it will not lead to cost increase, it will lead to [the sector] becoming uncompetitive over a period of time. So investors shouldn’t worry about it right now but keep an open eye. If any unnecessary event happens there, then it will be a big risk and if a company has got too much of its staff there, too much of business coming from there, it is certainly a very big risk for which they have to watch. Because IT has become a mature industry now. It handles a lot of critical functions and if there are some things like this, I think it is something that they have to keep an eye on.

Latha: Is it likely therefore that companies with large presence in Tamil Nadu will slowly start to deescalate from the state?

Pai: I would advise them not to expand in the state. There are other parts of countries that are very good. The law protects you. [Chandra] babu is back [in Andhra Pradesh].

Sonia: You are also hinting at Karnataka, which has rules prohibiting a formation of labour unions, is that correct?

Pai: There is protection of labour law for companies here because this is essential service but the government of Tamil Nadu should not get stuck up in old issues and old matters. Tamil Nadu, as it is, is suffering a period of bad industrial growth where there are no jobs and for now to come and say this is an open invitation to unruly elements in the state who want to come and cause trouble.

It is a state with a very divided politics where most people are trying to outdo the other and this is one area which is creating jobs. Even here if government does not give a minimum protection -- it will not mean anything, nothing may happen but the threat will always hang over your head and that is why governments in many states had said that IT is referential service and this is what you have to do.

20 percent of all the people to whom we give an offer, 15-20 percent, don’t join. There is no penalty for people not joining. Is there a law which compels people to stay in company and not leave companies and have a minimum term? No. So what is this labour protection you are talking about when people walk out, 15-20 percent labour force changes every year, they don’t want to go to another place, they don’t want to give the condition, some of them don’t want to work. It will only the bad elements after a long period of personal improvement plan (PIP) so as to go. Now let's see what happens.