This chapter and the next investigate the extent to which an agent can be motivated to act in the principal's interest when the principal cannot determine whether the agent has in fact taken the appropriate action. Agents’ behavior is problematic because their goal is to maximize their own utility. The next chapter is devoted to the specific hidden action problem of motivating workers and management in a firm, with the top executives receiving most of our attention. This chapter examines a wide variety of other issues. In many of these the principal is a surrogate for society as a whole, and the principal's utility is maximized when the agents – the producers and consumers – are all motivated to do their part in contributing to an efficient outcome.

As with all hidden information problems, there are hidden characteristic elements as well as the hidden action element. In fact, some of the topics could have been presented as hidden characteristic problems. For instance, we could study resource allocation from the standpoint of inducing consumers to reveal their hidden preferences and firms to reveal their hidden production technologies so that an efficient outcome can be identified. However, the approach taken in the first section is that of inducing each individual to choose a bundle of goods and services at which his or her marginal rate of substitution equals that of the other consumers. Similarly, when discussing pollution abatement in Section 2, we begin with the fact that the adjustment cost of an individual firm – the firm's characteristic – is hidden from the government. If the firm were simply asked to report its adjustment cost we would have a hidden characteristic problem, belonging in Chapter 5. However, we instead look at an incentive scheme that harnesses the profit motive to induce firms to coordinate their actions so that the adjustment burden falls on the firms that can reduce pollution at the lowest cost to consumers.

Hidden action problems are complicated by the presence of uncertainty. If your car breaks down a week after you bring it home from the repair shop you do not know whether you are the victim of bad luck or shirking by the mechanic.

The previous chapter focused on the transformation of work organisation and employment relations in India's automotive industry on a national scale. It also summarised existing literature on work and employment in the Indian auto industry. This chapter moves towards an explanation for the high levels of conflict documented in the auto industry by focusing on employment relations in the largest auto manufacturing region in India, the National Capital Region (NCR).

Despite considerable inter-regional competition since the 1990s, and the potential for rival regions like the Chennai Metropolitan Area (CMA) or regional clusters in Gujarat to challenge and eventually overtake the NCR, this region remains India's leading auto manufacturing region in sales, production volume, and by virtue of the leading role of its passenger car and two-wheeler manufacturers. Global production networks led by Maruti Suzuki India Limited (MSIL) in the passenger car market and Honda Motorcycle and Scooter Limited (HMSI) and Hero MotoCorp (Hero) in the two-wheeler markets dominate the auto industry. These networks have transformed the workplace and industrial landscape of communities across the NCR. This is especially true to the south of New Delhi in the semi-rural hinterland of Haryana.

As outlined in Chapter 4, MSIL's role in the industry epitomises the transformation of work organisation and employment relations under conditions of economic liberalisation. Its practice of systematically replacing most of its regular (or permanently-employed) shop-floor workforce with low-wage migrant workers hired through multiple labour contractors has been emulated by rival OEMs, by OEMs in other market segments, and by Tier-1 and Tier-2 auto supply manufacturers.

This argument is substantiated by focusing on the analysis of primary data drawn from several years of the author's field research in the NCR. Dozens of interviews with workers, including regular workers, casual and contract workers, as well as employers, managers, labour contractors, trade unionists, and local villagers and landowners were conducted over several months in late 2011, mid- 2012 and mid-2013.

This enabled the author to assemble a database of firms and suppliers, including their employment relations practices and wage levels, as well as numerous other

elements of work and life established through ethnographic research (see Appendix for full details of field research, data sources and interview participants). Access to these participants was gained in a number of ways.

Motor vehicle manufacturing is a highly complex industry that encompasses the production and distribution of passenger cars, motorcycles and scooters, three-wheeler vehicles, tractors and other agricultural vehicles and equipment, as well as vehicles used in the construction and mining sectors. The branded manufacturers that assemble finished vehicles tend to represent firms at the head of vast global production networks, with varying levels of global sourcing of raw materials, components and industry services. These are the auto industry's global lead firms, known as Original Equipment Manufacturers (OEMs) in industry parlance. This book focuses on those firms engaged in the production of passenger cars and two-wheelers as well as some commercial vehicles and three-wheeler models.

The global production networks of these OEMs have largely been imposed and entrenched in key Indian manufacturing regions since the early 1980s, transforming commercial relations between foreign and local producers and work organisation within firms. The intersection between these global production networks and regional social structures of accumulation predicated upon low-wage, precarious and informal work helps to explain why Indian auto firms have not reproduced ‘high road’ labour standards and employment relations (Chapter 1).

This chapter sets the scene for this discussion by outlining the key OEMs and key regions of Indian auto manufacturing, including the configuration of key OEMs’ global production networks. This chapter represents the ‘who, what and where’ of the book by providing context for the discussion of industrial, social and political conflict in the ensuing chapters. In doing so, it shows how the domestic industry has been transformed by global production networks in an era of economic openness and liberalisation.

The rapid growth of the auto industry is one of several indicators of India's social and economic transformation over the past three decades. In 2014–15, the auto industry had a gross turnover of US$58.9 billion (SIAM, 2016). Although this was below its peak of US$67.6 billion in 2012–13, India is currently the world's sixth largest producer of passenger cars and commercial vehicles (Table 2.1). Although well behind China's production volumes, it compares favourably with other major passenger car producers like Germany, the United States and South Korea. After China, India also had the second-fastest growing automotive output of the top 10 producers from 2000 to 2014, although its growth recently fell behind the major North American producing regions (Table 2.2).

In total, 157 people were interviewed for the study of automotive manufacturing firms located in the National Capital Region (NCR), which is India's largest auto producing area. This includes 106 workers in different tiers of the industry, 21 employers or managers, four labour contractors, as well as 26 other participants, including landowners, trade union officials, government officials, and some workers employed in other sectors or industries.

For OEMs, 12 workers were interviewed, but no employers. The workers were all employed as regular workers or had recently been retrenched. For Tier-1 firms, 47 workers were interviewed. Of this, 13 were contract workers and 34 were regular workers. In addition, it was possible to interview 4 Tier-1 employers: two plant managers, one senior manager, and a senior company executive.

For Tier-2 firms, 14 workers were interviewed, of which 12 were contract workers and 2 were regular workers. Two Tier-2 employers – a senior executive and a plant manager –were also interviewed. For Tier-3 firms, 33 workers and 11 employers were interviewed, including 6 business owners or proprietors, 3 managers and 2 skilled workers in supervisory roles. Four Tier-4 business owners – all own-account workers – were also interviewed.

Four labour contractors were interviewed. No employer, worker or trade union was willing or able to put the author in contact with a labour contractor. In total, 90 labour contracting enterprises were contacted by mail and over 40 enterprises were physically approached at the cluster of offices in Old Gurgaon. Most labour contractors refused to speak about their work. However, 8 labour contractors were prepared to hold discussions and, of these, 4 agreed to participate in formal interviews to document their activities, functions, and relations with workers and employers in the auto industry.

The interviews are listed by tier or group and in chronological order by the date of interview. In order to maintain the anonymity of participants, most names of most of the firms in this study have been coded. A minority of participants were not adversely affected by having their identities revealed and instructed the author to do so. In these cases, the names of participants and their position and affiliations have been recorded.

State institutions have played a critical role in the modernisation of automotive manufacturing in India and the emergence of new regional industrial zones. They have also played an important role in the evolution of conflict in the auto industry. The previous chapter showed how Indian auto manufacturing has been transformed by global production networks since the 1980s. This chapter turns to the role of the state in this process and its gradual impact on work organisation, labour standards, and employment relations.

At a regional level, key State governments in India have played a strong and consistent role in attracting, encouraging and shaping automotive-based investment from foreign and domestic lead firms known as Original Equipment Manufacturers (OEMs). This chapter shows how successive governments in the State of Haryana – a 45,000 square km territory overlapping with the National Capital Region (NCR) – played a leading role in this process, working with national governments to facilitate the rise of global production networks orchestrated by Japanese OEMs.

This chapter shows how, at a national level, this process of regional development was shaped through two phases: first, a period of ‘restricted openness’ from 1982 until 1991 and second, a longer period of ‘emergent neo-liberalism’ after 1991. The first period represents a bridgehead between India's postcolonial planning tradition, based on Import Substitution Industrialisation (ISI), to an era of neo-liberal policy-making after 1991.

In this first period, industrial policy was based upon gradual measures to extract the benefits from foreign investment, technology and ‘lean manufacturing’ while maintaining a series of restrictions on foreign capital via auto market segmentation, industrial licensing, joint ventures with Public Sector Units (PSUs) and private domestic, industrial conglomerates and targets for locally-manufactured components in global production networks. Despite these restrictions, the sheltering of domestic auto markets enabled pioneering foreign OEMs to impose much of their preferred models of work organisation, labour standards and employment relations via lean manufacturing.

In the second phase, the gradual liberalisation of financial markets, trade rules and restrictions on domestic and foreign investment from 1991 until the 2000s dramatically re-shaped auto market segmentation and competition. This had major implications for labour standards and employment relations in the operations of OEMs, their strategic partner firms, and key independent suppliers.

There are few people as famous in contemporary India as sporting great Sachin Tendulkar. So, for German luxury vehicle manufacturer BMW, the decision to hire Tendulkar as a brand ambassador represented a major foray into India's vast and rapidly-expanding automobile market.

While not among the largest vehicle manufacturers in the country, BMW's passenger cars and Sports Utility Vehicles (SUVs) represent an upmarket product range for a small minority of affluent, aspiring buyers. This growing consumer base has emerged in a country where, just a single generation ago, any model of passenger car was considered a rare luxury. Even today, cars represent rare opulence for the tens of millions of Indians who continue to live and work in poverty.

Nevertheless, BMW's Indian manufacturing operations and extensive marketing, spearheaded by Tendulkar, signify something important about the transformation of Indian society and its economy over the last quarter of a century. It suggests that there is a growing market for foreign-branded luxury consumption.

BMW has recently taken steps to align itself with the ‘Make in India’ initiative, which was announced by Prime Minister Narendra Modi in September 2014 to market India as the global ‘destination of choice’ for Foreign Direct Investment (FDI) in manufacturing. In 2015, BMW announced plans to increase locally-manufactured content in its cars and SUVs from 20 per cent to 50 per cent and openly identified with Modi's industrial policy agenda (Subramaniam, 2015).

To help promote this decision, BMW marketed a video with Sachin Tendulkar, tagged on social media as ‘#SachinMakingBMW: Legendary sportsman Mr. Sachin Tendulkar marked the occasion in a unique way by assembling a BMW 5 Series using parts from Indian auto component suppliers’ (BMW India, 2015). This video encapsulates much of the face of Indian automobile production today, including branded luxury consumption, celebrity glitz and social emulation. It also demonstrates how these features of the industry are complementing efforts by local states to encourage the world to set-up new bases for mass production and consumption across India.

Leading industrialists in auto manufacturing have made recent, widely-publicised efforts to support Narendra Modi's ‘Make in India’ initiative, which aims to attract new Foreign Direct Investment (FDI) in Indian manufacturing as the basis for income growth, employment creation and rising prosperity (GoI, 2016; 2016a). For example, India's second Automotive Mission Plan (AMP-2), co-produced by the Society of Indian Automobile Manufacturers (SIAM), aims ‘to propel the Indian automotive industry to be the engine of the “Make in India” program’ (SIAM/GoI, 2015: 3).

CEOs of several global auto manufacturers have visited India during Modi's premiership to reiterate their commitment to Indian manufacturing. High profile examples include Suzuki, Toyota, Hyundai, Renault-Nissan and Ford. Maruti Suzuki India Limited (MSIL) chairman, R.C. Bhargava, has argued that ‘nobody wants to miss the opportunity and the size. They don't see the kind of potential growth in any other market like in India’ (cited in Thakkar, 2017a).

The scale and intensity of conflict in India's automotive industry presents a radically different side to this elite-driven narrative. Conflict in Indian auto manufacturing has taken many forms, manifesting at a workplace or enterprise-level, at an industry level through solidarity strike action and street protests, and at the level of social and political conflict. Various forms of industrial conflict, including strikes, employer lockouts, factory occupations and hunger strikes, have increased in frequency since the 1990s.

During this period, a gradual process of economic liberalisation has culminated in the opening up of all domestic auto manufacturing to FDI, and the removal of residual restrictions on the investment activities of industrialists – domestic and foreign. Since the mid-1990s, most of the world's leading global automotive lead firms – known as Original Equipment Manufacturers (OEMs) – and their strategic partners and key components suppliers have established operations in different regions of India.

This process of liberalisation, investment, relocation and industrialisation has profoundly shaped the development of Indian regions. It has given rise to new industrial zones and reshaped established ones. Auto manufacturing transplants have resulted in a rise in infrastructure development through road and rail-building, commercial and residential construction and construction of shopping malls to cater for a growing minority of middle-to-high income residents