INFORMALISATION OF LABOUR POST-GLOBALISATION

INFORMALISATION OF LABOUR POST-GLOBALISATION

GS MAINS 3 – INDIAN ECONOMY
Practice Question : How globalisation has led to the reduction of employment in the formal sector of the Indian economy ? Is increased informalisation detrimental to the development of the country? (2016 GS 3 Mains)
Approaching the Question : A brief introduction; Body of the answer – about informalisation, discuss its advantages and disadvantages for the economy; Give way forward and conclude the answer.

RELEVANCE OF THE TOPIC?
Informalisation is often discussed in the context of globalisation. The connection between the two and related aspects have been repeatedly asked in GS 3 mains.

 

WHY INFORMALISATION OF LABOUR?

1. Restrictive labour laws in India promoted contract hiring (hire-fire at will).
2. The rise of service sector growth called for the skilled labour of only a miniscule section of the population.
3. Absence of thrust on manufacturing sector which lead to the missed opportunity of creating formal employment.
4. Creation of newer industries which are capital- intensive in
nature.
5. Small firms can circumvent formal sector laws due to various concessions .
6. Automation and Industrial Revolution 4.0 were not in favour of creating more formal
employment.
7. Steep competition for labour induced an environment wherein informal employment arrangements are agreeable .
8. Poor quality of education and poor vocational skills made cheap and unskilled labour available in abundance.
9. Large number of vacant posts and delays in hiring in the public sector is not helping the case of shrinking formal sector jobs.

 

INFORMALISATION – BENEFITS TO THE ECONOMY

1. Informal economy significantly contributes to production, employment and income generation.
2. It promotes economic growth as it absorbs huge working population in developing
economies.
3. It benefits part-time workers, the section of population who wants increased flexibility in their job description.
4. It has absorbed a large number of women into the working fold giving them economic independence.

 

INFORMALISATION – DETRIMENTAL TO THE ECONOMY

1. Informal workers have low wages and bare minimum social security adding o their vulnerability which instigates inequality.
2. Low wages means low savings rate and this is detrimental for the credit cycle of the economy.
3. Informal workers lack access to institutional credit which is a dent in India’s aspirations for financial inclusion.
4. Companies often lose the incentive to skill their employees resulting in stagnant human resource development.
5. Informal sector is predominantly cash based which leads to generation of black money.
6. A large informal economy means lower tax revenue for the government to low
owing tax base.
7. Casualisation of Indian labour market leads to under-utilization of India’s demographic
dividend.

 

WAY FORWARD

1. Create formal jobs in manufacturing sector, especially through MSMEs.
2. Improve industry-academia partnership to provide youth with necessary skills for employment.
3. Reduce hidden unemployment in agriculture by facilitating smooth transition to industry.
4. Inculcate labour migration into urban planning and development.
5. Decrease regulatory hindrances.

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