INDIA’S SUBOPTIMAL USE OF ITS LABOUR POWER

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THE CONTEXT: The state of employment in India highlights the predominance of informal employment among the working population. It is noted that a significant portion of Indians earns their livelihood through labour, with about 90% engaged in informal jobs characterized by insecurity and lower earnings. Examining the Periodic Labour Force Survey data shows improvement in the Labour Force Participation Rate and a decline in unemployment rates, mainly driven by self-employment and women in rural areas.

ISSUES:

• High Informal Employment: About 90% of the Indian workforce is engaged in informal employment, characterized by precarious conditions such as lack of job security, absence of employment benefits, and lower earnings. This vast informal sector includes casual labourers and the self-employed, often without formal contracts or social security.
• Stagnant Earnings Across Employment Types: Despite overall economic growth, the earnings for a significant portion of the workforce have not improved substantially. For instance, the all-India average daily earnings increased by only about ₹10 (in 2010 prices) between 2017-18 and 2021-22, a mere 4% increase. This stagnation is particularly concerning for the self-employed and regular wage/salaried workers, whose earnings have not seen real growth during this period.
• Shift Towards Lower Quality Employment: There is a concerning trend regarding the quality of employment, where there has been a considerable rise in unpaid family labor. This category has shifted from 26% to 31.4% in the self-employed sector between 2017-18 and 2021-22. This shift indicates a move away from secure and well-paying employment to more precarious and less financially rewarding work.
• Demographic Dividend Not Fully Leveraged: India is currently experiencing its demographic dividend, a period where the working-age population exceeds the non-working-age share, offering a potential boost to economic growth. However, the economy is not fully leveraging this opportunity due to the predominance of low-quality, low-productivity jobs. This underutilization of human capital could hinder India’s ability to maximize the economic benefits of its demographic dividend.
• Moderate Increase in Casual Workers’ Earnings: While the earnings for casual workers have seen some increase (from ₹162 a day in 2017-18 to ₹196 a day in 2021-22, approximately a 20% increase), this growth is modest when considering the overall economic context. Moreover, even with this increase, the earnings of casual workers barely surpass the poverty line, highlighting the persistent issue of low wages in the labor market.
• Lack of Significant Improvement in Employment Quality: The most desirable employment category, regular wage, and salaried workers, has not seen any actual increase in its share of total employment or average earnings. This stagnation is concerning as it suggests that the labor market is not generating higher-quality jobs that offer better security and wages.
• Economic Growth Not Translating into Better Labor Market Outcomes: Despite improvements in macroeconomic indicators like the GDP growth rate, these gains are not translating into significant improvements in the labour market regarding job creation, job quality, or wage growth. This disconnect raises questions about the inclusivity and sustainability of India’s economic growth model.

THE WAY FORWARD:

• Promoting Formal Employment: To address the high rate of informal employment, policies could be implemented to incentivize formalization, such as simplifying business registration processes, offering tax benefits, and providing support services for small businesses to transition into the formal sector. Pradhan Mantri Rojgar Protsahan Yojana (PMRPY) was designed to incentivize employers to create new employment, where the government pays the total employer’s contribution towards EPF and EPS for new employees. As of March 2019, PMRPY had generated over 1.2 crore jobs, according to the Indian Ministry of Labour & Employment.
• Enhancing Skill Development: Investing in vocational training and education can improve the workforce’s skill set, making them more suitable for higher-quality jobs. This could involve partnerships between the government, private sector, and educational institutions to align training programs with market needs. The Skill India initiative, launched in 2015, aims to train over 400 million people in India in different skills by 2022. The National Skill Development Corporation (NSDC) has trained more than 2.5 million people as part of the Skill India mission.
• Creating Quality Jobs: Economic policies could focus on sectors with the potential for high productivity and job creation. This might include investing in infrastructure, technology, and industries that have a multiplier effect on the economy. The Make in India program, launched in 2014, aims to transform India into a global manufacturing hub, which could create quality jobs and improve productivity. The program has increased Foreign Direct Investment (FDI), with FDI inflow growing from $16 billion in 2013-14 to $60 billion in 2016-17.
• Improving Wage Policies: The Code on Wages, 2019, aims to regulate wage and bonus payments in all employments in any industry, trade, business, or manufacturing. The code seeks to benefit about 50 crore workers from organized and unorganized sectors.
• Leveraging the Demographic Dividend: The National Youth Policy of India focuses on youth empowerment and creating opportunities for them. India has one of the youngest populations in the world, with a median age of 28 years as of 2020, which presents a significant opportunity for economic growth.
• Addressing Labor Market Imperfections: The National Career Service (NCS) in India aims to bridge the gap between job seekers and employers by providing a platform for job matching. NCS has over 1 crore active job seekers registered and thousands of employers.

THE CONCLUSION:

The growth in self-employment, especially among unpaid family workers, and earnings stagnation for salaried and self-employed individuals are worrying trends. These issues are critical from a welfare perspective and have broader macroeconomic implications, affecting consumer expenditure and economic growth. Addressing these challenges is paramount, especially as India navigates its demographic dividend, to ensure that economic growth translates into tangible improvements in the job market and earnings for its working population.

UPSC PAST YEAR QUESTIONS:

Q.1) While we found India’s demographic dividend, we ignore the dropping rates of employability. What are we missing while doing so? Where will the jobs that India desperately needs come from? Explain. (2014)

Q.2) Demographic Dividend in India will remain only theoretical unless our manpower becomes more educated, aware, skilled, and creative.” What measures have been taken by the government to enhance the capacity of our population to be more productive and employable? (2016)

MAINS PRACTICE QUESTION:

Q.1) Examine the trends in the Indian labor market concerning the rise in the Labour Force Participation Rate (LFPR) and the decline in unemployment rates since 2017-18. Discuss the implications of these trends on the quality of employment and earnings, particularly in the context of the informal sector and demographic dividend.

SOURCE:

https://www.thehindu.com/opinion/lead/indias-suboptimal-use-of-its-labour-power/article67929725.ece