Labour Market of India in Post-Reforms Era

Amit K. Giri* and S.P. Singh**

Abstract

Beginning early 1990, the state of India started launching reform process in the economy to prioritize private sector investments and thereby reinvigorate economic growth, although explicit labour reforms were not introduced. Consequent to the launching of reforms process, the growth rate of India’s economy accelerated in the post reforms period, but had the labour market benefitted from the reforms process? This paper, by use of the difference-in-difference approach, as thrown up by successive National Sample Survey thick rounds from 1983 through 2012 found that contrary to the neoliberalists’ assertion no perceptible positive changes have occurred in India’s labour market. There has been a rise in the incidence of unemployment, increase in informal employment of the workforce and occurrence of stunted structural transformation in the labour market. Of late the union and many a state government is assiduously trying to bring in labour reforms in the economy. The paper concludes with the discussions that will the launching of labour reforms in India’s economy proves to be a boon for the labour market?

Keywords

Economic Reforms, Labour Reforms, India, Neoliberalism, Structural Changes, Informalisation, Unfreedom of the workforce

*Amit K. Giri (corresponding author) is a Research Scholar in the department of Humanities and Social Sciences, Indian Institute of Technology Roorkee, Roorkee-247667, Uttarakhand, India.Email id: amitk.giri@rediffmail.com

**Prof. S.P. Singh is a Professor in the department of Humanities and Social Sciences, Indian Institute of Technology Roorkee, Roorkee-247667, Uttarakhand, India. Email id: singhfhs@iitr.ernet.in

I. Introduction

After independence in 1947 the major challenge for the state of India was to choose that economic model which could provide a growth trajectory to the stagnant economy of India1. Like many other newly independent countries including China and the other east-Asian nations, India, having Jawaharlal Nehru at the helm of affairs initiated ‘Five Years Plan’ by taking a cue of the Soviet Union’s socialist leaning economic model in 1951to provide growth trajectory to the economy. But the ceaseless implementation of socialist economic policy did not augur very well for the economy. From 1951 through the beginning of 1990, the growth rate in the economy only averaged 3.5 per cent, derisively called as the ‘Hindu rate’ of growth. Slow growth severely constrained the occurrence of structural change in the economy. The ever growing India’s labour force2 not only witnessed any perceptible increase in employment opportunities but there had been barely any shift of the workforce3 away from the low productive activities where phenomenal ‘work deficits’ exists, let alone a rapid rise in the wages and earnings, to higher productive activities which could ensure them ‘decent work’, (Tulpule and Datta, 1990; Kannan, 1994; Papola, 1994; Bhalla, 1997; Breman, 1999).

One of the major reasons, according to the neoliberalists, for the persistence of low economic growth, and slow structural transformation in the labour market during the aforesaid period has been the ceaseless adoption of socialist leaning economic policy by the state. Had India adopted the neoliberal policy prescriptions-free play of market forces, minimalist state interventions and more openness in the economy-not only India’s economy would have recorded relatively better growth but would had also experienced faster structural changes in its economy including in the labour market (Zagha, 1999).

The basic idea behind this thesis is that the free play of market forces results in employment of resources at the market-clearing prices, which leads to both efficiency and equity in the economy; and any regulations of the market by the state leads to deviation from full employment. Therefore, all attempts should be done to remove the prevailing imperfections in the market so as to achieve full employment of all resources to achieve optimal social welfare in the economy (Standing, 2002, pp. 159-170). A liberalised economic environment spurs private investment in the economy, and with rapid private investments there will be concomitant increase in employment opportunities for the labour force. But for such process to materialize, in addition to an unregulated industrial regime free from ‘licensing policies’, the labour market should also be freed from all sorts of state controls and regulations and interferences from collective institutions (trade unions), because any interference by the state and collective institutions in the market increase transaction costs and reduces private investments, resulting into increase in the incidence of unemployment and loss in welfare (Fallon and Lucas, 1991).

Also, interference by collective institutions in the free working of labour market not only affects the freedom of employers to employ labour according to his need but this action also prohibits the entry of the unemployed and underemployed workers seeking jobs (Besley and

Burgess, 2004). A regulated labour market affects the ability and the willingness of the firms in creation of jobs as the investors feel that he won’t be able to shed the excess worker during the economic downturn without providing the government stipulated retrenchment benefits to the workers given the stringent labour laws in the state. Thus the retrenchment benefit accruing to workers becomes, in fact, potential hiring costs for the employers (Heckman and Pages, 2000).

Drawing epistemological inspirations from the writings of Adam Smith and the other Classical thinkers, the neoliberalists also argued that one of the major manifestations of neoliberal economic policies is the emergence of capitalist mode of production which is incompatible with ‘unfree’ labour. In the capitalist mode of production all forms of traditional structures and dependency relations would disappear and employers would supersede unfree working arrangements with free working arrangements. The labourers will not only receive wages according to their marginal contribution but would also be free to sell their labour power to the highest bidders unlike in the pre-capitalist mode of production where the dominant class often expropriates the ‘surplus’ from the working class, resulting into immiserisation of the working class (see Brass 2013, pp. 14-43).

Warranted by the economic crisis, beginning early 1990, the state of India, slowly started (given the coalition party government at the centre from 1990 to 2014) shedding its socialist image in favour of neoliberal economic policies, by launching major macroeconomic stabilization and structural adjustment programmes, not only to escape from the economic crisis phase but also to provide a higher growth trajectory to India’s historical subdued growth rate. A lot of studies (Ahluwalia, 2002; Williamson and Zagha, 2002; Rodrik and Subramanian, 2004; Little, 2006; Bhagwati and Panagariya, 2012; Bhalla, 2013) provide credence that after the unleashing of reforms process the economy started witnessing accelerated economic growth4.

But did the labour market of India also started witnessing change in the post-reforms period with the change in the economic structure of the economy as the neoliberalists hypothesised? Has there been a phenomenal growth in employment opportunities for India’s labour force? Has there been a rapid shift of the workforce away from the low productive agriculture and the allied sector to relatively higher productive manufacturing and the services sectors? Has there been a perceptible qualitative change in the working environments of workers which could ensure them ‘decent work’? To take a stock of the prevailing conditions and emerging trends in India’s labour market after the launching of reform process is the major objective of this paper.

The rest of the paper is structured as follows. After this introductory section I, Section II provides a brief note on the sources of data and methodology adopted for this article. Section III provides a snapshot of the changes in India’s economy to set the stage for analysing change in India’s labour market. Section IV explicates the changes in employment and unemployment scenario; Section V provides an analysis of structural change in the labour market; Section VI

explains emerging trends in the quality of employment. Finally Section VII summaries and concludes the article.

II. A Note on Data and Methodology

In order to analyse the changes in the labour market in proper perspective, the changes which has occurred in the labour market in the post reform period has been compared with the labour market conditions which prevailed in the pre-reforms period. Although the launching of reform process started in India in March 1991, but owing to consecutive three crisis years from 1990 to 1993, for all purposes 1993 is taken as the benchmark year for segregating the pre-reforms period from the post-reforms period. Therefore, in this paper also, the years prior to 1993-94 has been referred to as the pre-reforms period and the years after 1993-94 has been treated as the post reforms period. Further the post-reforms period has been divided into three short term period: from 1993-94 to 1999-00; 1999-00 to 2004-05 and 2004-05 to 2011-12.

The data for this study comes mainly from two official sources: (a) the Reserve Bank of India (RBI) Database on India’s Economy and, (b) the National Sample Survey Office (NSSO), an organisation under ministry of statistics and programme implementation, Government of India. In addition, the study has been supplemented with published macroeconomic literatures and micro studies pertaining to the labour market of India. The analysis of changes in India’s GDP by sectors is based on the RBI’s database; and the major part of the labour market analysis is based on NSSO data. The NSSO conducts surveys after every two and five years to collect data on labour market from all over India. The two yearly data is based on thin samples and the five yearly data is based on thick samples. This paper uses only the thick sample year rounds: 38th round (1983), 50th round (1993-94), 55th round (1999-00), 61st round (2004-05) and 66th

round (2009-10), available in NSSO’s each round’s employment and unemployment report. For the 68th round (2011-12), unit level data available in compact disc from the NSSO has been used after making necessary refinements and tabulation. NSSO measures incidence of employment and unemployment in four different ways, but the analysis of labour market in this paper is based only on the comprehensive and widely used usual principal and subsidiary status (UPSS) approach5.

This paper does not resort to establish any cause and effects relationship, therefore, the analytical method has been kept very simple. The ‘differences-in-differences approach’ that is, comparing the changes in the successive periods with the changes in the preceding periods has been largely employed in the whole paper by calculating the compound annual growth rate (hereafter only CAGR) of the variables used for each period. Also the elasticity of employment with respect to growth (hereafter only employment elasticity) has been employed, particularly in section IV of this paper. Among the different variants of the elasticity approaches, the employment elasticity which is the ratio of average annual growth in employment to average annual growth in GDP employed herein is the mid-point employment elasticity.

III. Shift in Economic Policy and Changes in India’s Economic Growth

As stated in the introductory section, beginning early 1990, the state of India fully started prioritizing the private investors playing a lead role in India’s economic growth as the neoliberalists prescribed. To begin with, the government diluted the Monopolies and Restrictive Trade Practices Act (MRTP Act) that constrained the growth of big private business enterprises; eased licensing restrictions and allowed big private companies to expand in core industries earlier reserved only for the public sectors; initiated disinvestment process to shed its stake from the monolith but financially unsustainable Public Sector Enterprises (PSEs); the monetary and fiscal policies were liberalised which eased the borrowing rates and provided tax relief to private enterprises along with the slew of other reform measures in the domestic sector of the economy to stimulate private investments in the economy (for details see Ahluwalia, 1994; Panagariya, 2004; Bhagwati, 2013, pp. 25-42).

Table 1: Sector-wise Gross Capital FormationCompound Annual Growth Rate (in %) Percentage Share to GDP

 PeriodHousehold

SectorPrivate Sector

Public Sector

AllHousehold

SectorPrivate Sector

Public Sector

All

1983-84 to 1993-94 15.3 21.2 12.715.3 8.1 5.2 11.8

25.2

1993-94 to 1999-00 26.5 18.2 11.319.1 9.0 8.6 8.8

26.5

1999-00 to 2004-05 13.4 18.9 9.314.2 13.4 7.1 7.6

28.9

2004-05 to 2011-12 16.7 16.0 16.617.1 13.6 14.3 9.2

38.8

Source: Authors’ calculations based on Reserve Bank of India database on India’s Economy

In the domestic economy, with the launch of reform process in the economy, initially the household sector’s (unincorporated enterprises, employing less than 10 workers with electricity and 20 without electricity) rate of gross capital formation (a proxy for gross investment) continued to accelerate relative to the private incorporated sector and the public sector enterprises like the pre-reforms period, but after 1999 incorporated private sector gross capital formation started increasing relative to household enterprises and the PSEs (see Table 1).

In the external sector, prior to 1991, the average import-weighted tariffs exceeded 117 per cent and more than 80 per cent of tradable goods were protected through quantitative restrictions on imports (Kumar and Mishra, 2007). To give boost to exports after 1991, India progressively cut tariffs rate (in 2013, the average import-weighted tariff stands at less than 40 per cent) and non-tariff barriers, phased out all quantitative restrictions and dismantled import licensing system on almost all intermediate products and capital goods, in addition to officially devaluing Rupee in July 1991.

Consequent to reforms in the external sector, the trade share of India in global trade increased from 1.2 per cent in 1991-92 to close to 2.7 per cent by 2011-12. The impact of economic reforms can also be gauzed from the fact that India’s trade intensity (ratio of the sum of exports and imports to GDP) which was hovering around 13.5 per cent of India’s GDP in

1980s increased to more than 42 per cent of the GDP by 2012, thereby making India one of the most open economies in the world (Table 2).

Table 2: Trends in Exports, Imports and Trade Intensity and their Share to India’s GDP at factor costPeriod Compound Annual Growth Rate (in %) Share in GDP (in %)

Export ImportTrade

Intensity Export ImportTrade Intensity

1983-84 to 1993-94 21.7 16.5 18.8 5.8 7.7 13.51993-94 to 1999-00 14.8 19.7 17.4 8.8 10.4 19.21999-00 to 2004-05 18.7 18.4 18.5 10.5 12.9 23.42004-05 to 2010-11 21.5 24.7 23.4 15.0 23.2 38.22010-11 to 2011-12 28.3 39.3 34.9 16.6 25.6 42.3Source: Same as Table 1

Also, owing to liberalisation in the Foreign Direct Investment (FDI) rules, the FDI inflow increased from a meagre USD 129 million in 1991 (amounting to only 0.007 per cent of the GDP of India) to USD 13141 million by 1994. After further liberalisation in the FDI rules which eased foreign investment, in 2004-05 FDI inflow in India increased to USD 41707 million amounting to close to 2 per cent of India’s GDP by 2008-09.

Figure 1: FDI Inflows in India (in million USD)

Source: Same as Table 1

However, with the onset of economic crisis on the world’s economy beginning 2008-09, FDI inflow in India started decelerating like in many other nations including in the other four big emerging nations-Brazil, Russia, China and Indonesia. But unlike in the other nations, the pro-reformists (see Anand and Tulyn, 2014) argue that the deceleration in the inflow of FDI in India in recent years is on account of weakening of reforms process in India’s economy after 2007. Nevertheless, after 2010-11, inflow of FDI in India’s economy has again starting inching upwards (see Figure 1) probably due to strengthening of economic environment in world’s economy after 2010.

On whole, the growth rate of India’s economy in the post-reforms period surpassed the growth rate witnessed by the economy during the pre-reforms period. As a matter of fact, in each successive period in the post-reforms period, excepting the period 1999 to 2004-05, the growth rate of India’s economy accelerated (see Table 3). India not only shed the image of the ‘Hindu

90/9

1

91/9

2

92/9

3

93/9

4

94/9

5

95/9

6

96/9

7

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

07/0

8

08/0

9

09/1

0

10/1

1

11/1

2

100

10,100

20,100

30,100

40,100

50,100

rate’ of growth but also emerged as the fastest growing economies in the world second only to China.

Table 3: CAGR of India’s GDP at Factor Cost at 2004-05 Prices (in %)

Sectors1983-84 to

1993-941993-94 to

1999-001999-00 to

2004-052004-05 to

2011-121993-94 to

2011-121. Agriculture & allied 2.76 3.31 1.58 3.91 3.062. Industry 5.48 6.94 5.62 8.00 6.982.1 Mining & Quarrying 6.14 5.37 4.6 3.51 4.432.2 Manufacturing 4.94 7.27 6.01 8.9 7.552.3 Electricity, gas & water supply 8.7 6.95 4.25 6.72 6.103. Services 6.40 8.35 7.35 9.80 8.633.1 Construction 4.88 6.36 9.35 8.78 8.123.2 Trade, hotels , transport & Communications 5.72 9.6 8.86 10.24 9.643.3 Financing, real estate and business services 9.07 7.72 6.78 11.71 8.993.4 Community, social & personal services 5.86 8.18 4.58 7.27 6.82GDP at factor cost 4.98 6.69 5.75 8.45 7.11Source: Same as Table 1

(III) Economic Growth and Changes in Employment

Given that the economy of India witnessed a phenomenal growth after the unleashing of reforms in the economy, has there been an expansion in employment opportunities for the labour force? The trend in India’s labour force participation rate (LFPR) 6, workforce participation rate (WPR)7 and unemployment rate8 are provided in Table 4. India’s LFPR after growing at a CAGR of 0.09 per cent from 1983 through 1993 grew at a CAGR of 0.56 per cent from 1993-4 to 1999-00. After increasing a tad in the period 1999-00 to 2004-05 it grew at a CAGR of 0.09 per cent from 2004-05 through 2011-122. In absolute terms the LFPR has increased by 104 million from 1993-94 to 2011-12 and more than 91 per cent of the increase in LFPR during this period is accounted for by the increase in only the male LFPR (Table 4).

Table 4: Labour force (LFPR) , Workforce (WPR) and Unemployment Rate (UR) by UPSS StatusMale Female Persons

Year LFPR (%) WPR (%) UR (%) LFPR (%) WPR (%) UR (%) LFPR (%) WPR (%) UR (%)1983 55.1 53.9 2.3 30 29.6 1.2 42.9 42.1 1.9

1993-94 55.6 54.5 2.1 29 28.6 1.5 42.8 42 1.91999-00 54.06 52.74 2.45 26.02 25.58 1.67 40.54 39.63 2.132004-05 55.9 54.7 2.2 29.4 28.7 2.6 43 42 2.32011-12 55.6 54.4 2.1 22.5 21.9 2.4 39.5 38.6 2.2Estimated Numbers (in million)

1983 203.4 200.6 4.9 103.1 102.8 1.1 306.5 303.4 6.11993-94 256.3 252.3 5.4 123.3 121.9 2.1 379.6 374.2 7.51999-00 279.5 274 6.9 125.4 123.9 2.1 404.9 397.9 9.12004-05 314.7 309.3 7.2 151.9 148.6 4.1 466.6 457.9 11.32011-12 351.3 343.8 7.6 132.4  129.1 3.2 483.7 472.9 10.8Source: Authors’ Estimation based on various NSSO’s Employment and Unemployment Rounds

Why there has been a deceleration in LFPR? If the neoliberalists are to be believed, the U-shaped feminisation hypothesis9 is in operation in India’s economy in the post-reforms period. Females in the age group of 14 to 20 years are substituting work for education and other skills so that they could enter the labour force at a later stage (Neff at al, 2011; Rangrajan et al, 2012; Jose, 2013).

Nonetheless, the rising unemployment figure since 1993 in India somewhat defies the claims of pro-reformists as well as the U-shaped feminisation hypothesis. The unemployment rate of the female labour force has steadily increased from a mere 1.5 per cent in 1993-94 to more than 2.6 per cent by 2004-05 thereby raising the reserve army of female labour from 1.5 million in 1993-94 to more than 4.1 million by 2004-05. Since 2004-05, a marginal decline in female unemployment rate is being witnessed both in relative and absolute terms but still more than three times more women were found to be unemployed in the year 2011-12 compared to. On the other hand, the male unemployment rate had not witnessed much variability in relative terms, it has hovered around 2.2 per cent. But in absolute terms it has also constantly inched upwards since 1993-94 (see Table 4). In whole, in the year 2011-12, close to 11 million persons (male and female combined) were looking for job showing a continual increase in the incidence of unemployment in the post-reforms period.

The magnitude of employment and unemployment situations in India becomes clearer by formally linking GDP growth rate of each sub-sector with the change in employment by the help of the elasticity of employment to growth. The result is shown in Table 5. The table reveals that the pre-reforms period (1983-1993) proved to be better period than the post-reforms periods as far as creation of jobs in the economy is concerned. In the period 1983-1993, a one percentage more growth in GDP resulted into a little less than a half percentage growth in employment, meaning that a little over 5 per cent growth in the GDP of India resulted into 2.4 per cent growth in employment.

Table 5: Elasticity of Employment in India

Sector1983-84

to1993-94

1993-94to

1999-00

1999-00to

2004-05

2004-05to

2009-10

2004-05to

2011-12

1993-94to

2011-121. Agriculture & allied 0.58 -0.1 1.09 -0.36 -0.42 -0.092.Industry 0.46 0.04 0.85 -0.2 0.15 0.32.1 Mining & Quarrying 0.73 -0.7 0.87 0.56 -0.06 -0.052.2 Manufacturing 0.47 0.09 0.81 -0.2 0.11 0.292.3 Electricity, gas & water supply 0.58 -0.45 0.67 -0.12 1.41 0.613.Services 0.61 0.56 0.62 0.3 0.38 0.553.1 Construction 1.14 1.1 0.89 1.19 1.11 1.033.2 Trade and allied sectors 0.66 0.7 0.47 0.05 0.14 0.483.3 Finance, real estate &business services 0.85 0.76 1.38 0.38 0.46 0.793.4 Community, social &personal services 0.54 0.08 0.47 0.002 0.23 0.24GDP at factor cost 0.44 0.15 0.51 0.01 0.06 0.21Source: Authors calculation based on employment data from different NSSO rounds and sector wise-wise value added data at factor cost (at 2004-05 prices) based on RBI database on Indian economy.

On the other hand, in the entire post-reforms period, 1993-2012, the elasticity of employment to growth gives a figure of 0.21, which implies that a GDP increase of above 7 per cent, resulted into only 1.5 per cent increase in employment opportunities for India’s labour force. The most worrisome trend was witnessed in the period 2004-05 to 2009-10, when the Indian economy witnessed almost ‘jobless growth’ as the overall elasticity of employment to growth in the Indian economy registered almost nil (e =0.01), despite the economy recording the highest economic growth (8.5 per cent) since India’s independence (see Table 5).

As a matter of fact, in the post-reforms period all the sub-sectors of the economy have shown lower elasticity compared to the pre-reforms period. The agriculture and the allied sectors have shown a negative elasticity, which in fact is a good sign. But the industry sector showing a very low elasticity does not augur well for an economy like India which has a vast industrial reserve army of labour and also given the fact that a major chunk of the reform process in the economy has been devoted to give a boost to the private sector investment and thereby generating employment in this sector.

Nonetheless, the services sector contributed significantly in absorbing increased labour force in the post-reforms period. But a closer look of the services sectors reveals that it is mainly the construction sector and the petty trade and the allied sector which has maintained steady trend in creating jobs since 1983; the other sub-sectors performances comprising services sector too have played truant like the manufacturing sector in the post-reforms period.

From the long term trend, one can discern the fact that the pace of employment creation in India’s economy has occurred at a slower pace in the post-reforms period compared to the pre-reforms period. This shows clearly that the Indian economy is not only facing an enormous employment generation challenge for both the male and female workers in the post reforms period but also failed to reap the ‘demographic dividend’ from its world’s largest and youngest labour force as most of the unemployed are in the age group of 18 to 29 years.

(IV) Economic Growth and Structural Change in Labour Market

Giving the incidence of unemployment has increased in the post-reforms period relative to the pre-reform period, but has India’s workforce shift from the low productive sectors to relatively higher productive sectors too have slowed? Table 6 provides the changes the sectoral composition of workforce juxtaposed with the share of each industry’s output in India’s GDP.

In the period 1983-1993 with a decline in the share of agriculture and the allied sector in India’s GDP by 6.5 per cent, a little over 3.7 per cent workforce shifted away from this sector to either the manufacturing or the services sector. In the post-reforms period from 1993-94 to 2004-05, the shift of the workers from the agriculture and the allied sector has been rather slow. In this period, the share of workforce in this sector declined by only a little over 8 per cent with a 9 per cent decline in the share of this sector in India’s GDP. However, after 2004-05, the shift of the workforce from this sector gained momentum. In the period 2004-05 to 2011-12 close to 8 per

cent of the workers shunned this sector with a 5 per cent decline in the share of agriculture and allied sector in India’s GDP.

Table 6: Sector-wise Share in GDP and Sector-wise Share of Workforce (in UPSS Status)Sectors 1983 1993-94 1999-00 2004-05 2011-12

GDP WPR GDP WPR GDP WPR GDP WPR GDP WPR

1.Agriculture & allied34.9

768.4

528.2

464.7

523.2

759.9

19.03

56.6 14.148.8

9

2.Industry19.1

512.1

20.08

12.43

20.36

11.93

20.22

13.05

19.64

13.66

2.1.Mining & Quarrying 2.92 0.58 3.26 0.72 3.02 0.55 2.86 0.58 2.06 0.54

2.2.Manufacturing14.6

511.2

414.5

911.3

515.0

711.1

15.25

12.19

15.7 12.6

2.3.Electricity, gas & water supply 1.58 0.28 2.23 0.36 2.27 0.28 2.11 0.28 1.88 0.52

3.Services44.9

619.4

551.4

22.82

56.37

28.16

60.75

30.35

66.25

37.45

3.1.Construction 6.71 2.24 6.64 3.12 6.52 4.42 7.7 5.69 7.87 10.6

3.2.Trade and allied sectors16.8

38.79

18.04

10.18

21.19

14.08

24.49

14.85

27.47

15.78

3.3.Finance, real estate &business services

9.03 0.5613.2

40.94

14.02

1.2414.7

11.69

18.09

2.32

3.4.Community, social &personal services12.3

97.86

13.47

8.5814.6

48.42

13.84

8.1112.8

28.75

GDP at factor cost 100 100 100 100 100 100 100 100 100 100

Source: Authors Calculation from the GDP figure at 2004-05 Prices of RBI and Employment data from various NSSO rounds.

However, defying the neoliberalists’ arguments, the India’s surplus agricultural work force has, by and large, shifted to the services sector. In the services sector, in the post-reforms period, the work force share has increased to more than 37 per cent in 2012 from close to 23 per cent in 1993, however, it is the construction and the petty trade and the allied sector which has absorbed most of the workforce. The industrial sector has failed to absorb the workforce willing to shift from the agriculture sector. The share of industry’s output in India’s GDP has fluctuated in the narrow band of 19-20 per cent and the share of the workforce in the industrial sector too has fluctuated in the narrow band of 12-13.6 per cent in the entire post-reforms period. The main reason ascribed for the worsening of labour market scenario during this period has been the increasing capital intensification in India’s industry during this period (Kannan and Raveendran, 2009). According to Hasan et al (2010), the growth of capital to labour ratio in 1980s was modest and was comparable to china’s but in the post-reforms period beginning 1991, the pace of growth of capital stock intensified resulting into higher capital stock per worker in India than in China.

Nevertheless, going by the relative figures do not make much sense as it may be possible that the share of workforce in some sectors may show a decline in relative sense but in absolute terms the magnitude of workforce in that sector might have increased/decreased. The share of workforce in agriculture and the allied sector has declined steadily in relative terms since independence, but in absolute terms the workforce in this sector has been always on the rise until

2004-05. In 2004-05 the agriculture and the allied sector employed 16.5 million more workers compared to 1993-94 and more than twice of the workforces it used to employ on the eve of India’s independence. As a matter of fact in the early period of economic reforms (1993 to 2005), a decline in the welfare of the country was noticed despite better growth compared to the pre-reforms era10.

It is only after 2004-05 a perceptible shift of the workforce away from the agriculture and the allied sectors has been noticed in India’s economy. But had those workers who moved away from the agriculture and the allied sector shifted to the industrial sector and the services sector? From 1993 to 2004, the rate of increase of workforce in industry has been very much similar to the pre-reforms period. However, after 2004-05, the shift of the workforce and the labour employing capacity of this sector slowed up. In the period 2004-05 to 2009-10, despite this sector growing by over 8 per cent per annum, this sector retrenched close to 5 million workers, due to rising capital intensifications in Indian industries. Also in 2008-09, with the coming of Indian economy in the grip of the global economic crisis, the workers from the export-intensive manufacturing sector had to be retrenched on a massive scale (Kuccera, 2012; Giri and Sinha, 2014). However, since 2009-10, the Indian industry has again become a net employer (Table 7).

Table 7: Workforce Estimates by Sectors from 1983 to 2011-12 by UPSS Status (in million)Sectors 1983 1993-94 1999-00 2004-05 2009-10 2011-121. Agriculture & allied 207.2 242.46 237.67 258.93 244.85 231.22.Industry 36.64 46.55 47.35 59.71 54.94 64.72.1 Mining & Quarrying 1.76 2.7 2.17 2.64 2.95 2.62.2 Manufacturing 34.03 42.5 44.05 55.77 50.74 59.62.3 Electricity, gas & water supply 0.85 1.35 1.13 1.3 1.25 2.53.Services 58.89 85.44 111.74 138.82 160.39 177.13.1 Construction 6.78 11.68 17.54 26.02 44.04 50.13.2 Trade, hotels, transport and communications 26.61 38.11 55.86 67.93 69.63 74.73.3 Finance, real estate and business services 1.7 3.52 4.92 7.75 9.57 10.93.4 Community, social and personal services 23.8 32.13 33.42 37.12 37.15 41.4Total Employment 302.7 374.45 396.76 457.46 460.22 472.9Source: Authors estimation from various NSS rounds adjusted with Projected Population as on January 1 of the fiscal year. For example, the projected population for 1993-94 corresponds to January 1, 1994.

It is gratifying to note that the services sector has maintained its steady growth trend in not only absorbing the growing labour force of the country but also to many workers willing to shifted to this sector from the agriculture and the allied sector in the post-reforms period akin to the pre-reforms period.

However, a closer look of Table 7 reveals that the majority of India’s workforce shifted from the agriculture and the allied sector has to the unorganised sector, the construction and the petty trade and the allied sectors. From a little over 11.6 million in 1993 having a share of 6.65 per cent in India’s GDP the workers in the construction industry have increased to over 50 million by 2011-12 with a share of only 7.8 per cent in the GDP of India. This trend solely depicts the persistence of the employment of distress nature among the workers in India. And also this shift cannot be called as sustainable as a little economic shock in this sector will make

the workers jittery and again they will resort to shift to the agricultural and the allied sector given the jobs of casual nature in this sector.

On whole, the foregoing analysis depicts that the structural change witnessed in India’s economy is not only in contrary to the structural growth theorists but also very much dissimilar to the east-Asian nations where the surplus workers from the agriculture and the allied sector has shifted to relatively more productive manufacturing and the services sectors in their post-reforms era (Binswanger-Mkhize, 2013).

(V) Economic Growth and Changes in Quality of Employment

The analysis in the preceding sections has taken into account all the sectors of the economy without any segregation. But in reality, there are two sectors in India’s economy which employs labours: the organised sector and the unorganised sector11. By and large, it is ‘only’ the organised sector which assures ‘decent’ formal employment12 to the workforce guaranteeing security of employment and social security benefits13; whereas the unorganised sector provides only informal employment bereft of any social security benefits. Tremendous ‘work deficits’ including use of coercion and restrictions on the mobility of the workers has been a common feature in this sector in the pre-reforms period and even after that (see Lerche, 2007).

Figure 2: Trends in Organised and Unorganised Sector Workers (UPSS Status)

1983 1993-94 1999-00 2004-05 2009-10 2011-120

50100150200250300350400450

788082848688909294

24 27.5754.1 62.6 72.88 77.55

278.7

346.87 342.6394.9 387.34 395.3492.07

92.64

86.486.3

84.2 83.6

Organised Sector (in million) Unorganised Sector (in million) Unorganised Sector (in %)

Source: Same as Table 3.

The unorganised sector workforce after witnessing an increasing trend from 1983 to 1993-94 had started declining. From close to 92.6 per cent in 1993-94 the share of workforce in the unorganised sector declined to 83.6 per cent by 2011-12. But in absolute terms, the unorganised sector workforce has increased by 48.5 million from 1993-94 to 2011-12. However, the increase in the unorganised sector workers has occurred at a decelerating pace in the post-reforms era relative to the socialist era. During 1983 to 1993-94, the unorganised sector workforce increased at a CAGR of over 2.2 per cent per annum, whereas in the post reforms period it has increased at a CAGR of only 0.7 per cent per annum. Also, in the post reforms era there has been almost three fold increase in the share of organised sector workers, the organised

sector workforce increased from a mere 27.5 million in 1993-94 to over 77.5 million by 2011-12 (Figure 2).

However before reaching to the final conclusion that the trends shown by the Indian labour market in the post neoliberal era are very much consistent with the neoliberal arguments, one has to see the ratio of the informally employed workers to the formally employed workers in the organised and the unorganised sectors, because all the workers in the organised sector may not be formally employed.

Table 9 shows that in the post-reforms era until 1999-00, close to 62 per cent of the workers in the organised sector were formally employed. That is, despite possessing same skills and working on the same shop floor along with the formally employed workers, 38 per cent of the informally employed workers were not the employees of the enterprise in which they work. They were casually employed or they were hired through a third party-labour contractor.

Table 9: Workers in Formal and Informal Employment in Organised and Unorganised SectorsYear Sector Informal Employment Formal Employment Total Employment

(1) (2)(in million)

(3)(in %)

(4)(in million)

(5)(in %)

(6)(in million)

(7)(in %)

(8)

1999-00Unorgansied 341.30 99.62 1.40 0.41 342.60 86.34Organised 20.50 37.89 33.70 62.29 54.10 13.63Total 361.70 91.15 35.00 8.82 396.80 100.00

2004-05Unorgansied 393.50 99.65 1.40 0.35 394.90 86.32Organised 29.10 46.49 33.40 53.35 62.60 13.68Total 422.60 92.37 34.90 7.63 457.50 100.00

2009-10Unorgansied 385.08 99.42 2.26 0.58 387.34 84.16Organised 42.14 57.82 30.74 42.18 72.88 15.84Total 427.22 92.83 33.00 7.17 460.22 100.00

2011-12Unorgansied 393.36 99.50 1.98 0.50 395.34 83.61Organised 44.82 57.83 32.70 42.19 77.50 16.39Total 438.18 92.66 34.70 7.34 472.90 100.00

Source: Same as Table 3.

After 1999-00, there has been a steady decline in the share of formally employed workers in the organised sector. In 1999-00, close to 33.7 million workers amounting to 62.3 per cent were formally employed in the organised sector which has steadily declined to 32.7 million workers amounting to a little over 42 per cent of the total workforce in this sector by 2011-12 (Table 9, col. 5 and 6). Paradoxically, when the economy of India grew at a rapid pace from 2004-05 to 2009-10, informal employment in the organised sector also gained pace, increasing from 46.4 per cent in 2004-05 to about 57.8 per cent in 2009-10.

Putting together both the workers in the organised and the unorganised sectors, one could notice that there has been no change in the percentage of workers employed informally in the post-reforms era relative to the pre-reforms era (Table 9, col. 4). Close to 92.66 per cent of the

workers are employed informally in both the organised and the unorganised sectors in 2011-12 which is similar to the total percentage of workers employed informally during the entire socialist era.

The alternative way to observe the trends in informal employment and formal employment is by looking at the magnitude of self-employed14, regular/salaried15 and the casual16

workers. Both the self-employed workers and the casual workers are informally employed and only a part of the regular/salaried workers are formally employed. In effect, both self-employment and casual work is primarily a survival mechanism rather than productive work with decent work and progressively rising income levels. Majority of the self-employed workers and the casual labour in the rural areas are marginal famers owning less than one acre of agricultural land, artisans, the homeworkers and the landless workers. In the urban areas, these categories of workers are mainly homeworkers working through putting-out system, street vendors and other street service provider in survival-level jobs. These categories of workers are fully open to market despotism without any institutional protection (Breman, 2001).

In the post-reforms era there has been a marginal decline in the category self-employed workers in both absolute and the relative terms, especially after 2004-05. But, of the 11.5 million workers who shunned self-employment from 2004-05 to 2011-12, only about 2.7 million, could join as a regular/salaried employee and the remaining had to contend with the job of casual labour. During the period 2004-05 through 2011-12, the strength of casual labour increased by over 11.7 million in the Indian economy (Table 10). Thus, the expectation that such self-employed and casually employed people with limited asset base and with limited markets for their products would get into regular wage and salaried jobs has been belied in the post-reforms period.

Table 10: Categories of Workers (in million) and (in percentages) in UPSS StatusSectors 1983 1993-94 1999-00 2004-05 2009-10 2011-12

No. % No. % No. % No. % No. % No. %

Self-Employed174.0

557.5

204.8

54.7

209.3

52.6

258.4

56.4

232.7 50.7

246.85

52.2

Regular/Salaried employee 40.8613.5

49.43

13.2

58.214.6

69.715.2

75.1 16.4

84.6517.9

Casual Labour 87.78 29119.

832

130.3

32.8

129.7

28.3

151.3 32.9

141.429.9

Source: Authors Estimates from various NSSO employment and unemployment rounds

As a matter of fact many of these household enterprises have been made a ‘node’ or outside production units by many a multinational enterprises (MNCs) in the Global Production Network (GPNs) chains, unlike in the Chinese economy in which the household enterprises were made uncompetitive and the workers employed in these enterprises were forced to join the ranks of proletariat, called as ‘primitive accumulation’ in the Marxist terminology (Glassman, 2006; Weber, 2008). In so doing the MNCs are not only earning exorbitant profit and rent but they are also encouraging the growth of unorganised sector thereby informal employment and the

unfreedom of workers in India’s economy. Many microeconomic studies (Mehta and Sherry, 2009; Mezzandri, 2010; Bhaskarn et al, 2010; Olsen and Morgan, 2010; Nathan and Sarkar, 2011; Carswell and De Neve, 2011; Barrientos et al, 2013; Phillips, 2013; Carswell and De Neve, 2013; Nathan, 2013) have found that in place of the life-long labour attached labour system (sometimes hereditary) prevalent in India has been replaced by the short term bondage system. Use of coercion and advancement of debt in order to restrict the mobility of the workforce are quite commonplace in such modes of production as majority of these households’ enterprises employs migrant workers and child labour in the production process. So, what Banajee (2003) and Brass (2008) termed as ‘deproletarianisation’ and Breman (2010, p.337) as neo-bondage clearly manifests in the post-neoliberal era of India.

V. Towards Summing Up

The changes which have emerged in the labour market consequent to the change in policy regime from a welfare state to neoliberal state have been summarized hereunder.

(A) Despite faster growth rate, employment growth in India has been slow resulting into increase in the incidence of unemployment in the post reforms period relative to the pre-reforms period.

(B) A shift of the workforce from the low productive agriculture and the allied sector is being witnessed in the economy after 2005, but unlike in the other developed countries of the world, the workforce of India has been shifting from low productive and unorganised agriculture and the allied sector to another low productive and unorganised construction and the petty trade and allied sector, the manufacturing sector has played truant in employing the labourforce. This trend shows the phenomenon of distress migration of the workers from the agriculture and the allied sector and cannot be termed as the occurrence of structural change in the true sense of the term.

(C) With the growth of organised sector in the economy after 1993, it is being noticed that employment in this sector have also risen, but there has been an increased use of informally employed workers in the organised sector. Informalisation of the formally employed workforce is going on apace in this sector. As a matter of fact, the percentage of informally employed workers in India’s economy have hovered around 92 per cent since independence without any change in the post-reforms period of India.

(D) In the post neoliberal era, although the life-long system of attached labour system has vanished, but the capitalist enterprises are in the process of restructuring. In this process, again they are resorting to the age old process of introduction, reintroduction or the reproduction of labour that is unfree.

In addition, the share of wage in gross value has been observed to be reducing since 1999 despite increase in labour productivity (Sood et al, 2014); there appears to have been serious erosion in the workers’ rights as the trade unions have been on the defensive, labour militancy have given way to employer militancy and there has been a significant increase in the incidence of lockouts and decline in strikes in the post reforms era relative to the pre-reforms period

(Sundar, 2005, 2011; IHD, 2014, pp. 128-129); and as the microeconomic studies provides (see Annavajhula and Pratap, 2012) the employers are hiring and firing workers according to their requirements.

According to Bhagwati and Panagariya (2013, pp. 111-124), India has the most stringent and cumbersome labour laws17 in the whole world and the state is very protective of the interests of the labourers, both the labour laws and the state are adversary to the interests of the employers. But from the foregoing analysis it appears that the labourers in India have been made subservient to capital in the neoliberal growth era and all the labour laws have been made defunct, like the other Asian countries where almost similar trend has been observed in the labour market, though they have with flexible labour laws (Chang, 2009).

Despite this, the industrial lobbies has been making demands for introducing flexibility in labour laws since 1990s, and as a matter of fact both the union and the state governments have been stealthily providing leeway to the investors (Kohli, 2005; Harris-White, 2010; Sood et al, 2014), however due to coalition party government at the centre not a single government since 1990 has tried to initiate legislation on labour reforms in India’s parliament. But since the formation of a new stable government (led by Bharatiya Janata Party which won 272 seats in the house of 543in May, 2014), the call for introducing full-fledged labour reforms in the economy has become more vocal from the industrial lobbies.

The industry lobbies are demanding reforms in those laws which prohibit them to hire and fire workers as and when they want and they could maintain labour discipline in the organisation (Arvind and Jha, 2014; also see note 17). It has quite obvious that the union government of India will table bill on reforming labour reforms in the parliament, as this initiative is in keeping with the Bharatiya Janata Party’s 2014 election manifesto promise of “to review our labour laws which are outdated, complicated and even contradictory”. In fact, the incumbent union government cabinet has approved amendments to Factories Act (1948), the Apprenticeship Act (1961) and Labour Laws Act (Exemption from Furnishing Returns and Maintaining of Registers by Certain Establishments, 1988) (Business Standard, August 1, 2014, p. 7); and Rajasthan government has already started legislation on four key laws: Factories Act (1948),the Industrial Disputes Act (1947), the Apprenticeship Act (1961), and the Contract Labour (Regulation and Abolition Act) (1970) (Times of India, August 1, 2014, p. 7). Haryana and Madhya Pradesh governments’ cabinets too have given their nod to start legislation on the so called ‘archaic’ labour laws.

This paper has shown that since India embarked on launching economic reforms to appease the capital, without explicit labour reforms in the economy the labourers of India has been at the receiving end. Will this second generation reforms herald employment opportunities for millions of unemployed labour force, will there be a phenomenal growth in organised sectors employment along with the increase in formal employment; will there be a phenomenal growth in the real wage and freedom of the workers? Or will this reform process accentuate shifting

distribution from wages to profits, increase in the profile of unemployed and informal workers and attenuate workers’ rights along with increase in the deproletarianisation process in India’s economy.

Notes

1. The rate of growth of the Indian economy averaged 1.66 per cent per annum during the pre-independence period 1900-01 to 1946-47 (Bhalla, 2008). 2. Labour force constitutes all the persons who are working, seeking work or unemployed.3. Work force constitutes those who are engaged in any economic activities.4. Although the initiation of labour reforms has been a part of the ‘Washington Consensus’ programme through which reforms in the other sectors were introduced in India’s economy, but labour being a sensitive issue but mainly due to the persistence of coalition governments in India not a single governments since 1991 have dared to legislate on labour reforms (also see Sharma, 2007). 5. Usual principal status measures those engaged in work for the largest part of the 365 days before the date of the survey and usual subsidiary status measures those who were employed for at least 30 days during the 365 days prior to the date of survey. Thus, usual principal and subsidiary status (UPSS) measures those employed under usual principal status and also under usual subsidiary status. 6. LFPR is an indication of the total supply of labour. It is the proportion of the country’s population actively engaged in the labour market either by working or seeking work. 7. WPR is the proportion of the country’s labour force who are engaged in work.8. Unemployment Rate is the proportion of the labour force that does not have employment and is seeking or available for work. 9.The U-shaped feminisation hypothesis says that as a less developed economy witnesses secular and inclusive growth, young women especially of poorer household starts substituting relatively less paying jobs with education and other skills termed as the ‘income effect’ on the expectations that they will get into the high paying jobs later termed as the ‘substitution effect’.

10. In the period from 1993 through 2005 there has been a decline in the real wages of the casual workers leading into increase in distress employment (Abraham, 2009; Himanshu, 2011). The neo-Marxist (Suryanarayana, 2008; Hirway, 2012) critique that the change of regime from a welfare state to a neoliberal state failed to include those excluded from the mainstream development process. The aforesaid developments in the Indian economy from 1993 through 2005 necessitated the then incumbent government of India to keep aside its neoliberalists agenda for a while and had to again launch the pro-welfare measures at the end of the 10th Five year Plan because the United Progressive Alliance (UPA) in power, a coalition of more than 20 political parties (with Indian National Congress being the largest party), has to gear up for next general election scheduled to be held in April-May, 2009. A lot of studies (Berg et al, 2012; Imbert and Papp, 2012; Panagariya and Mukim, 2013; Chand and Srivastava, 2014) have provided the

evidence that consequent to these rights-based programmes (especially the Mahatma Gandhi National Rural Employment Guarantee Act) the workers witnessed a rise in bargaining power and a considerable raise in their real wage rate. During 2004-05 to 2011-12, there has been more than 7.5 per cent increase in the real wage rate of casual workers in the rural areas, much higher than the 5.8 per cent rise witnessed by the urban casual workers in their real wage rate, and 3.5 per cent and 4.6 per cent growth in wage rate witnessed by the regular/salaried workers in the rural and the urban areas respectively. Also consequent to the introduction of rights-based programmes, for the first time since the independence of India, there has been an absolute decline in poverty level in the period 2004-05 to 2011-12. 1. The persons below the poverty line in India declined from 45.3 per cent in 1993-94 to 37.2 per cent in 2004-05, but in absolute terms poverty level in India increased from 403.7 million in 1993-94 to 407.1 million in 2004-05. In the year 2011-12, the head-count ratio of poverty in India stood at 21.9 per cent and the number of people below poverty line declined to 269.3 million (Planning Commission of India, 2013). 11. According to the National Commission for Enterprises in the Unorganised Sector (NCEUS, 2008, p.2), a manufacturing or services providing enterprise is in organised sector if it employs 10 or more workers with electricity and 20 or more workers without the use of electricity. Such enterprises can be a proprietary or partnership enterprise. Also, all enterprises, under the domain of government, public or private limited companies, cooperatives, trust, etc. are categorised under organised sector in India. On the other hand, all unincorporated private enterprises owned by individuals or households engaged in the sale and production of goods and services operated on a proprietary or partnership basis and with less than ten workers constitutes the unorganised sector in India.

12. Only those workers employed in the organised or the unorganised sector and enjoying valid written contracts and social security benefits are formally employed. All those workers, including the self-employed, who are not entitled to any social security benefits and valid written employment contracts, are informally employed despite working in organised sector.

13. The formally employed organised sector workers are entitled to (a) sickness, maternity, disability and death benefits under Employees’ State Insurance Act, 1948; (b) retirement benefits and old age monthly pension under Employees’ Provident Fund and Miscellaneous Provisions Act, 1952; (c) twelve weeks paid leave and other medical allowances for those workers not covered under The Employees’ State Insurance Act, 1948 under The Maternity Benefit act, 1961; (d) 15 days wages for every years subject to a limit at the time of superannuation, retirement, resignation or death under The Payments of Gratuity act, 1972; (e) compensation for injury caused by accident, arising out of and in the course of employment, resulting in death or in total or partial disablement under The Workmen’s Compensation Act, 1936; and (f) and retrenchment benefits under the Industrial Disputes Act (1947).

14. The persons who operated their own farm or non-farm enterprises or were engaged independently in a profession or trade on own-account or with one or a few partners are deemed to be self-employed. Self-employed persons who run their enterprises without hiring any labour

are considered as own-account workers. However, they could have been assisted by unpaid helpers in running the enterprise.

15. Those persons who worked in others’ farm or non-farm enterprises (both household and non-household) and, in return received salary or wages on a regular basis (i.e., not on the basis of daily or periodic renewal of work contract). This category included not only persons getting time wage but also persons receiving piece wage or salary and paid apprentices, both full time and part-time.16. A person who is casually engaged in others’ farm or non-farm enterprises (both household and non-household) and, in return, receives wages according to the terms of the daily or periodic work contract are casual workers.

17. In India, there are over 40 central laws and over 200 state laws on labour issues since labour as a subject is part of the concurrent list of Indian Constitution on which both the centre and the provincial governments have the right to legislate. The most important and contentious laws are: (i) According to the Trade Unions Act, 1926, seven or more workers in an establishment can form a trade union as long as they represent at least 10 per cent of the labour force. Alternatively, one hundred workers in an establishment can form a trade union even if they are less than 10 per cent of the workforce. This act empowers trade unions to strike and represent their members in labour courts in disputes with employers; (ii) according to Chapter V (A) of the Industrial Disputes Act, 1947; the retrenchment of workers in factories employing more than 50 workers requires notice and payment of compensation to the workers. Chapter V (B) of this Act covers those factories employing more than 100 workers. This Act requires official permission for the factories if it wants to retrench workers; (iii) the Contract Labour Act (1970) prohibits the use of contract labour in the core or perennial activities of an enterprise, warranting use of labour on a regular basis and regulates conditions of work where contract labour is permitted. Contract Workers are defined as all persons who were not employed directly by an employer but through the contractor. These workers may be employed with or without the knowledge of the principal employer; (iv) the Factories Act (1948) are applicable on those manufacturing units employing ten or more workers using power and twenty or more workers if not using power. This act limits the maximum hours of work per week to forty eight; limits work without a day of rest to ten days; requires a paid holiday for each twenty days of work; prohibits the employment of children younger than fifteen; and bans the employment of women for more than nine hours per day and between 7 p.m. and 6 a.m.; (v) according to the Minimum Wages Act, 1948, the minimum wages for scheduled employment are to be fixed and periodically revised by the central and state governments in their respective spheres. The Act may be applied to every employment in which collective bargaining did not operate and purports to fix the minimum wages in such a manner as to enable the concerned workers subsist at least above the official poverty line; (vi) The Apprenticeship Act, 1961 makes it obligatory for the employers to engage apprentices having requisite infrastructures as laid down in the act in 254 groups of industries; and (vii) Labour Laws (Exemptions from Furnishing Returns and Maintaining Registers by Certain

Establishments) Act, 1988 makes it obligatory for those firms having at least 10 employees to maintain registers and file income tax returns.

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