GS3 – Indian Economy
Context:
The Annual Survey of Industries 2022–23 reports that 40.7% of India’s manufacturing workforce is employed on a contractual basis, reflecting rising informalisation within formal enterprises.
Trends and Data
- Rising Informalisation:
- The proportion of contract workers has doubled from 20% in 1999 to 40.7% in 2023.
- Productivity Implications:
- Firms with higher dependence on contract labour (CLI firms) report 31% lower productivity compared to those employing regular staff.
- Capital-intensive CLI units show productivity gains, but labour-intensive ones face losses.
- Legal Gaps:
- The Industrial Disputes Act, 1947, largely excludes contract workers from protections like dispute resolution and fair dismissal, worsening their vulnerability.
Factors Driving Contractualisation
- Operational Flexibility:
- Enables firms to hire skilled or unskilled workers as per fluctuating demand.
- Shock Absorption:
- Helps firms quickly scale operations without overburdening their permanent staff base.
- Cost Efficiency:
- Contractual hiring allows firms to cut costs by ~25%, mainly by avoiding parity in pay and benefits.
- Outsourcing Loopholes:
- Third-party contractors act as buffers, letting employers bypass obligations under labour laws.
Concerns and Challenges
- Income Disparity:
- Contract workers earn significantly less than regular employees for similar tasks, with wider wage gaps in large firms.
- Reduced Bargaining Power:
- Fragmented and temporary workforce lacks union representation, making them prone to exploitation.
- Quality and Turnover Issues:
- Contractors often prioritise cost over quality, leading to skill dilution.
- High attrition rates deter firms from investing in the training of contract workers.
Reform Measures Needed
- Labour Code Amendment:
- Revise the Industrial Relations (IR) Code, 2020 to bring contract workers within the ambit of legal protection and dispute mechanisms.
- Fixed-Term Incentives:
- Introduce EPF-linked incentives to promote more stable fixed-term contracts with basic social security.
- Revival of PMRPY:
- Reintroduce and strengthen the Pradhan Mantri Rojgar Protsahan Yojana (PMRPY) to encourage regularisation of informal labour.
- Skill Development Access:
- Facilitate subsidised training and skilling for contract labourers through platforms like NAPS (National Apprenticeship Promotion Scheme) and cluster-based programs.