IN an indication of shrinking options in formal employment and stalled labour reforms, it’s the organised sector in India which has begun to increasingly opt for casual — more technically, “non-contractual” — employment between 2012 and 2018. This is according to a study of government data commissioned by the Economic Advisory Council to the Prime Minister.
The study, “Emerging Employment Patterns of 21st Century India”, written by Laveesh Bhandari of Indicus Foundation and Amaresh Dubey of Jawaharlal Nehru University, and accessed by The Indian Express, is yet to be made public. It also found that since 2004, the rate of population growth has been almost twice the rate of growth in jobs.
Why this isn’t good news
for long, the economy’s growth and its ability to create jobs have been victims of inflexible labour laws that make it difficult for firms to hire and fire contingent on economic conditions. This structural hurdle reflected in most of employment being restricted to the unorganised sector and on non-contractual terms. This preference increasingly afflicts the organised sector as well.
The study looks at employment data from three comparable surveys of the National Sample Survey Organisation (NSSO): The Employment-Unemployment Surveys of 2004-05 and 2011-12 and the Period Labour Force Survey of 2017-18.
It finds that not only the rate of employment growth (at 0.8 per cent) over this period is far slower than the rate of population growth (1.7 per cent), most of the employment generated is of casual nature (see table).
Non-Contractual employment — the kind that happens with domestic help, for example — not only pays less money for the same amount of work but also provides little by way of security of job or work conditions.
Typically, the unorganised sector, that is, workspaces that are neither registered with the government nor follow any labour laws, prefers to employ without contracts.
A striking finding of the study is that non-contractual labour is being preferred over contractual even in the organised sector — and this change has come about since 2012 when the organised sector employed 2.44 crore on non-contractual terms and 2.65 crore on contractual terms. In 2018, however, the respective numbers were 3.61 crore and 2.80 crore.
Mahesh Vyas, who heads Centre for Monitoring Indian Economy and regularly tracks employment and unemployment trends, says that “informal” employment has grown faster than the formal mode in recent years. What makes this finding significant is the fact that Narendra Modi-led government, which has been in power since 2014, has taken several policy decisions, such as demonetisation and the introduction of the Goods and Services Tax, to transform Indian economy into a more formal one.
One obvious explanation for businesses preferring casual labour over formal contracts is the inflexibility of Indian labour laws — one of the two big reform items, along with the easing land acquisition, that the Modi government failed to push through. Stringent labour laws not only make it difficult to hire and fire employees depending on the economic situation but also make it costly, especially in light of rising minimum wages, to employ people formally.
“Of course, labour laws are playing a role here but there could be other contributory factors as well,” said Bhandari. For instance, he elaborates, if an educated individual was not formally employed with any one company and was freelancing without necessarily signing a contract. “I am not saying that this is happening but more study is required on this subject to understand this trend,” he says.
Bibek Debroy, the chairman of EAC to PM, said that Bhandari and Dubey’s paper was one of the two studies commissioned by the EAC.
The other paper, which looked at different sets of data, was by Surjit Bhalla, who was until recently a member of the EAC (and is also Contributing Editor, The Indian Express), and Tirthatanmoy Das of IIM-Bangalore. “The studies were commissioned because there was some confusion about the NSSO data on unemployment,” said Debroy. “But these two papers, too, have given very different results. Moreover, the Bhalla-Das paper did not get into the ‘organised-unorganised’ distinction,” he said. The government has not yet taken a call on the papers, Debroy said.
The Bhalla-Das paper was first submitted in July 2018 under the title “All you wanted to know about Jobs in India — but were afraid to ask” and was later updated and re-submitted in November 2018 titled “Population, Education, and Employment in India: 1983-2018”.
Bhalla and Das credited the Modi government for initiating economic reforms “specifically geared towards employment generation — e.g. the emphasis on road construction (a labour-intensive activity); the MUDRA initiative (provision of loans to small entrepreneurs); the housing initiative as well as the policy to increase employment via a wage subsidy to employers” and concluded that “over 2.3 NDA-II years, the economy is estimated to have added 8.7 million jobs per year… As a reference, during 2004/5 and 2009/10 the economy (added) 2.8 million jobs per year”.