While the government takes great pride in the fact that India is one of the fastest growing major economies in the world and economic prognoses tout a radiant future, the nation is in fact in a rather precarious position. In spite of robust economic growth which averaged at over 7% per annum for over a decade, income inequality continues to expand, and the rate at which national poverty is diminishing is not proportionate to the growth in gross domestic product. These discrepancies arise out of the fact that the poorest sections of the population are not benefiting from the country’s GDP growth by virtue of being excluded from the organised production process. Indian poverty persists not only due to insufficient economic activity but also due to the presence of large unorganised sector.
In 2018, only 50%
of the Indian population participated in the labour force, 81%
of which was employed in the informal sector, also known as the unorganised sector or the shadow economy. While the size of the unorganised sector has been shrinking gradually (it stood at 86%
of the population in 2005), the portion of informal sector workers within the organised sector (as contract/casual labourers) has been on the rise. Taking this into account, the proportion of informal workers in the total participating labour-force reaches around 92%
Although the informal sector is accredited with the absorption of large masses of workers that would otherwise remain unemployed due to the absence of formal-sector opportunities, the reprieve provided by it is detrimental to the country’s developmental progress. The informal segment of the economy is responsible for maintaining India’s unequal status quo; in fact it is accountable for exacerbating the pervasive divide in the standards of living amongst the population. Figures
published by Credit Suisse in 2018 state that the richest 10% Indians own around 80% of the country’s wealth while the less-privileged 60% own less than 5%. Inequality obstructs the eradication of poverty, leads to social stratification and drives crime upward.
The informal sector consists of enterprises which are labour-intensive
. Low-skilled labourers who are desperate enough to work for miserly wages in order to meet their subsistence requirements largely constitute the labour force of unorganised economic activities. Since unorganised firms operate outside of the jurisdiction of corporate law, workers in their employ are assured of neither job-security nor social protection. Owing to the nation’s mammoth population, an oversupply of menial labour is paving the way for easy exploitation on the part of unconscionable entrepreneurs.
The expendable nature of the unorganised labour force causes wages to remain at minimal levels, sometimes lower than the legal minimum. Also, the prices of products and services produced by these workers usually do not rise in sync with the rate of inflation, further adding to their despair. Workers are unable to improve their work-expertise in such a paradigm, are deprived of career growth opportunities and finally are bereft of the capacity to accumulate significant savings. In this manner, they are further excluded from the main economy due to their inability to save and invest. In 2011, the real average daily wage in India’s organised sector was Rs. 513
whereas the corresponding wage in the informal sector stood at Rs. 166
. The table below shows the minimum wages prevailing in the Delhi region as of October 2019:
Source: Ministry of Labour and Employment
Due to the aforementioned oversupply of cheap labour, employers are granted a large scope to disregard laws and ethics in their relationship with respective casual employees. While the introduction of the Unorganised Workers’ Social Security Act, 2008
and The Code on Social Security, 2019
are conducive to the conservation of the rights of unorganized labourers, they have not been very effective. The constant influx of menial migrant labourers also makes the nation susceptible to the expropriation of its workers’ surplus value.
Unorganised firms are disadvantaged in comparison to the organised ones in terms of access to financial services from banks, exposure to new information and technology, etc. What is true for individuals employed in the informal sector is true for the enterprises which employ them - they are unable to expand and thrive due to their unorganised nature. In order to maintain a cost advantage
over organised businesses, informal enterprises must remain as crude and underdeveloped as possible; this is due to the fact that their cost advantage does not stem from augmentations to infrastructure.
The Indian agricultural sector (largest employer of the informal sector) serves as an example of an industry which is tainted by disguised unemployment due to an oversupply of labourers; it employed 55%
of the nation’s labour force in 2017 but contributed a meagre 16%
to the GDP. Such industries function very inefficiently and are in a dire need of infrastructural transformation. Labour-intensive models of production are not sustainable by being more expensive in the long-run as well as due to diminishing marginal returns from labour. The automation of manual labour is revolutionising labour-intensive production worldwide and is predicted to result in the obliteration of millions of jobs. Raising efficiency in production necessitates the elimination of superfluous inputs, if such are present: those jobs which do not require high skill-sets are most vulnerable to obsolescence. A report by the World Bank suggests that 69 per cent
jobs in India are under threat due to automation.
According to the NSSO, the unemployment rate was at a 45-year high of 6.1%
in the year 2018. Amongst the young populace, one in five individuals remains unemployed and additions to the workforce arising from rural demographics mostly end up in the unorganised sector. In 2018, India’s labour force comprised 512 million people and only 465 million were employed; while reports delineate impressive growth figures in the annual creation of jobs, newly created jobs are predominantly not directed towards workers of the low-skilled category. Another appalling statistics is that of the rate of female participation in the labour force, which has been dwindling steadily; it declined from 32%
in 2005 to 23%
in 2019. India stands to severely lose out on potential economic growth if such a situation shall persist.
Today, the Indian formal sector is witnessing severe job-cuts: in 2017, Infosys dismissed 11,000
employees, US-based Cognizant Technology Solutions is expected to lay off 12,000
members of staff in the coming future and Zomato recently let go of 540
personnel citing automation as the reason behind it. On the other hand, many argue that automation is actually set to create new jobs in the future, characterised by higher skill levels. The World Economic Forum reported that close to 38% companies expect to extend their labour-forces post-automation. Wipro have evidenced this phenomenon by releasing approximately 12,000
employees, only to retrain and subsequently re-employ them.
It should be noted that in order for automation to be regarded as a potential investment into the nation’s human capital, there must be some basis to believe that the Indian workforce is capable of enhancing their skill-sets to adapt to such transformations. Also, it is imperative to note that the informal sector will struggle to stay relevant in such a paradigm and even if it succeeds, it will imply that there will be a deeper schism between the citizens employed in formal and informal sectors.
India needs to act now to future-proof the appropriateness of its population to survive such shifts and to prevent dire disruptions to its economy. With 41% residents being under the age of 18, India has one of the youngest populations in the world and the current education system does not appear to be doing enough to impart them with requisite skills.
In recent times, skill-development has become a priority for the government. The creation of the Ministry of Skill Development and Entrepreneurship in 2014 was a step towards the creation of a framework for skilling/re-skilling the population. Subsequently, the launch of the Skill India campaign in 2015 was aimed at imparting some 40 crore individuals with requisite skills by 2022. Such initiatives need to become more commonplace across the nation, with an emphasis on skilling young people about to enter the labour force. Estimates indicate that over 120 million workers will require to be retrained as a result of wider implementation of automation and artificial intelligence.
Participation in organised production is the first step towards a stable livelihood for the poor, those living in marginal poverty as well as those employed within the informal sector; It is the government’s responsibility to take initiative and create adequate roles for them within the main economy. At present, the Indian economy is faced with a conundrum of simultaneously securing the future of an ever-increasing labour-force and sustaining high levels of economic growth through the adoption of capital-intensive technology in production. Inaction on these two fronts can have calamitous ramifications; without upskilling the working population and imparting necessary proficiency to young individuals, economic inequality will only rise and the working population with marginal financial stature may submerge into indigence. Government support for enhancing infrastructure is particularly essential for small and medium-sized enterprises to yield increased profits. As things currently stand, India’s semi-skilled labour force is a major hindrance to the nation’s overall development and poses perturbing challenges to which there are few solutions.
The author is a Research Intern in ORF Delhi
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