Account for the changes in the employment pattern in India after liberalization. What are your suggestions for employment security in the 'informal' sector of the economy? Discuss.

India’s employment pattern has undergone a significant transformation since the initiation of economic liberalization in 1991. Prior to liberalization, the public sector and agriculture dominated employment. However, the subsequent reforms, aimed at globalization and market liberalization, triggered a shift towards the private sector and services. This transition, while fostering economic growth, has also led to increased informality and precarity in the labor market. The informal sector, characterized by lack of job security, social protection, and decent working conditions, now employs a vast majority of India’s workforce, necessitating focused policy interventions to ensure employment security. Changes in the Employment Pattern Post-Liberalization The liberalization policies of 1991, including deregulation, privatization, and opening up to foreign investment, fundamentally altered India’s employment structure. These changes can be categorized as follows: Shift from Agriculture to Non-Agriculture: Liberalization spurred growth in the manufacturing and services sectors, drawing labor away from agriculture. While agriculture’s share in GDP declined, its employment share remained relatively high due to a lack of sufficient employment opportunities in other sectors. According to the Periodic Labour Force Survey (PLFS) 2022-23, agriculture still employs around 45.8% of the workforce. Growth of the Informal Sector: The rapid growth of the unorganized sector, particularly in construction, manufacturing, and services, became a defining feature. This was driven by factors like lower compliance costs, flexibility, and the inability of the formal sector to absorb the growing labor force. The Economic Survey 2022-23 estimates that over 90% of India’s workforce is employed in the informal sector. Rise of Services Sector Employment: The services sector experienced substantial growth, becoming the dominant sector in terms of GDP contribution. This led to increased employment in areas like IT, finance, tourism, and retail. However, a significant portion of employment within the services sector is also informal and characterized by low wages and job insecurity. Decline in Public Sector Employment: Privatization and downsizing of public sector enterprises resulted in a decline in public sector employment. This contributed to the growth of the informal sector as displaced workers sought alternative employment opportunities. Changes in Employment Type: There was a rise in contract labor, temporary employment, and self-employment, reflecting the increasing flexibility of the labor market. This trend, while offering some benefits, often comes at the cost of job security and social protection. Employment Security in the Informal Sector: Suggestions Securing employment in the informal sector requires a multi-faceted approach addressing the vulnerabilities faced by workers. The following suggestions are crucial: Universal Social Security Coverage: Extending social security benefits – including health insurance, pension, and unemployment benefits – to all informal sector workers is paramount. The Pradhan Mantri Shram Yogi Maan-Dhan (PMSYM) scheme , providing a minimum assured pension to unorganized workers, is a step in this direction, but needs wider coverage and simplified procedures. Strengthening Labor Laws and Enforcement: While maintaining flexibility, labor laws need to be strengthened to ensure minimum wages, safe working conditions, and protection against unfair dismissal. Effective enforcement mechanisms are crucial to ensure compliance. The Code on Wages, 2019 aims to universalize minimum wages, but its effective implementation remains a challenge. Skill Development and Training: Investing in skill development programs tailored to the needs of the informal sector can enhance employability and earning potential. These programs should focus on providing relevant skills, promoting entrepreneurship, and facilitating access to credit. The Pradhan Mantri Kaushal Vikas Yojana (PMKVY) can be leveraged for this purpose. Promoting Formalization: Incentivizing the formalization of informal enterprises through simplified registration processes, tax benefits, and access to credit can improve working conditions and provide social security benefits. Facilitating Access to Finance: Providing access to affordable credit and financial services to informal sector workers and enterprises can help them invest in their businesses, improve productivity, and create more employment opportunities. Microfinance institutions (MFIs) play a crucial role in this regard. Promoting Collective Bargaining: Supporting the formation of worker collectives and trade unions can empower informal sector workers to negotiate for better wages and working conditions. Data Collection and Analysis: Improving data collection on the informal sector is essential for understanding its dynamics and designing effective policies. Regular surveys and studies can provide valuable insights into the challenges faced by informal sector workers. Addressing the challenges of employment security in the informal sector also requires a shift in mindset, recognizing the sector’s vital contribution to the economy and prioritizing the well-being of its workers. A collaborative approach involving government, employers, workers, and civil society organizations is essential for achieving sustainable and inclusive growth. The post-liberalization period has witnessed a significant restructuring of India’s employment landscape, marked by a decline in agriculture’s dominance, the growth of the informal sector, and the rise of services. Ensuring employment security in the informal sector is a critical challenge requiring a comprehensive strategy encompassing universal social security, strengthened labor laws, skill development, formalization, and access to finance. A proactive and inclusive approach is vital to harness the potential of the informal sector and create a more equitable and sustainable future for all workers.

What is the difference between formal and informal employment?

Formal employment refers to jobs with legally recognized employment relationships, providing benefits like social security, health insurance, and job security. Informal employment lacks these protections and is characterized by precarious working conditions and low wages.

Employment Pattern in India After Liberalization | UPSC Mains ECONOMICS-PAPER-II 2013

India’s employment pattern has undergone a significant transformation since the initiation of economic liberalization in 1991. Prior to liberalization, the public sector and agriculture dominated employment. However, the subsequent reforms, aimed at globalization and market liberalization, triggered a shift towards the private sector and services. This transition, while fostering economic growth, has also led to increased informality and precarity in the labor market. The informal sector, characterized by lack of job security, social protection, and decent working conditions, now employs a vast majority of India’s workforce, necessitating focused policy interventions to ensure employment security.

Changes in the Employment Pattern Post-Liberalization

The liberalization policies of 1991, including deregulation, privatization, and opening up to foreign investment, fundamentally altered India’s employment structure. These changes can be categorized as follows:

Shift from Agriculture to Non-Agriculture: Liberalization spurred growth in the manufacturing and services sectors, drawing labor away from agriculture. While agriculture’s share in GDP declined, its employment share remained relatively high due to a lack of sufficient employment opportunities in other sectors. According to the Periodic Labour Force Survey (PLFS) 2022-23, agriculture still employs around 45.8% of the workforce.
Growth of the Informal Sector: The rapid growth of the unorganized sector, particularly in construction, manufacturing, and services, became a defining feature. This was driven by factors like lower compliance costs, flexibility, and the inability of the formal sector to absorb the growing labor force. The Economic Survey 2022-23 estimates that over 90% of India’s workforce is employed in the informal sector.
Rise of Services Sector Employment: The services sector experienced substantial growth, becoming the dominant sector in terms of GDP contribution. This led to increased employment in areas like IT, finance, tourism, and retail. However, a significant portion of employment within the services sector is also informal and characterized by low wages and job insecurity.
Decline in Public Sector Employment: Privatization and downsizing of public sector enterprises resulted in a decline in public sector employment. This contributed to the growth of the informal sector as displaced workers sought alternative employment opportunities.
Changes in Employment Type: There was a rise in contract labor, temporary employment, and self-employment, reflecting the increasing flexibility of the labor market. This trend, while offering some benefits, often comes at the cost of job security and social protection.

Employment Security in the Informal Sector: Suggestions

Securing employment in the informal sector requires a multi-faceted approach addressing the vulnerabilities faced by workers. The following suggestions are crucial:

Universal Social Security Coverage: Extending social security benefits – including health insurance, pension, and unemployment benefits – to all informal sector workers is paramount. The Pradhan Mantri Shram Yogi Maan-Dhan (PMSYM) scheme, providing a minimum assured pension to unorganized workers, is a step in this direction, but needs wider coverage and simplified procedures.
Strengthening Labor Laws and Enforcement: While maintaining flexibility, labor laws need to be strengthened to ensure minimum wages, safe working conditions, and protection against unfair dismissal. Effective enforcement mechanisms are crucial to ensure compliance. The Code on Wages, 2019 aims to universalize minimum wages, but its effective implementation remains a challenge.
Skill Development and Training: Investing in skill development programs tailored to the needs of the informal sector can enhance employability and earning potential. These programs should focus on providing relevant skills, promoting entrepreneurship, and facilitating access to credit. The Pradhan Mantri Kaushal Vikas Yojana (PMKVY) can be leveraged for this purpose.
Promoting Formalization: Incentivizing the formalization of informal enterprises through simplified registration processes, tax benefits, and access to credit can improve working conditions and provide social security benefits.
Facilitating Access to Finance: Providing access to affordable credit and financial services to informal sector workers and enterprises can help them invest in their businesses, improve productivity, and create more employment opportunities. Microfinance institutions (MFIs) play a crucial role in this regard.
Promoting Collective Bargaining: Supporting the formation of worker collectives and trade unions can empower informal sector workers to negotiate for better wages and working conditions.
Data Collection and Analysis: Improving data collection on the informal sector is essential for understanding its dynamics and designing effective policies. Regular surveys and studies can provide valuable insights into the challenges faced by informal sector workers.

Addressing the challenges of employment security in the informal sector also requires a shift in mindset, recognizing the sector’s vital contribution to the economy and prioritizing the well-being of its workers. A collaborative approach involving government, employers, workers, and civil society organizations is essential for achieving sustainable and inclusive growth.

Account for the changes in the employment pattern in India after liberalization. What are your suggestions for employment security in the 'informal' sector of the economy? Discuss.

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Introduction

Changes in the Employment Pattern Post-Liberalization

Employment Security in the Informal Sector: Suggestions

Conclusion

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