Model Answer
0 min readIntroduction
Globalization, defined as the increasing interconnectedness of nations through trade, investment, and cultural exchange, has profoundly reshaped the Indian economy since the liberalization policies of 1991. While it has spurred economic growth, it has also presented challenges to the Indian labour market. The influx of cheaper imports, coupled with automation driven by technological advancements, has led to a decline in employment within the formal sector. This shift has, in turn, contributed to a rise in informal employment, raising concerns about worker rights, social security, and overall economic development. The question of whether this increased informalization is detrimental to India’s progress requires a detailed examination.
Globalization and Formal Sector Employment Reduction
Globalization’s impact on formal employment in India can be attributed to several factors:
- Increased Import Competition: The opening up of the Indian economy led to increased competition from cheaper imports, particularly from countries like China. This forced domestic industries to restructure, often leading to job losses in labour-intensive sectors like textiles, leather, and footwear.
- Technological Advancements & Automation: Globalization facilitated the transfer of technology, including automation, to India. This resulted in reduced demand for unskilled and semi-skilled labour in the formal sector, as machines replaced human workers. For example, the banking sector has seen reduced counter staff due to increased automation.
- Shift towards Contractual Labour: Companies, seeking flexibility and lower labour costs, increasingly adopted contractual labour practices. This reduced the number of permanent employees in the formal sector, contributing to job insecurity.
- Rise of Global Value Chains (GVCs): While GVCs created some employment, they often involved fragmented production processes with a focus on low-wage, low-skill jobs, primarily in the informal sector.
Increased Informalization: A Detriment to Development?
The rise of informalization in India is a complex phenomenon with both positive and negative consequences.
Negative Impacts
- Lack of Social Security: Informal workers lack access to social security benefits like pensions, health insurance, and unemployment benefits, making them vulnerable to economic shocks.
- Poor Working Conditions: Informal employment is often characterized by poor working conditions, low wages, and long working hours.
- Reduced Tax Revenue: The informal sector contributes a relatively small share of tax revenue, limiting the government’s ability to fund public services and infrastructure development.
- Hindrance to Productivity Growth: Lack of investment in skills and technology in the informal sector hinders productivity growth and overall economic efficiency.
Positive Aspects
- Employment Generation: The informal sector provides employment to a large segment of the Indian population, particularly those with low skills and limited education. It acts as a buffer against unemployment.
- Entrepreneurship & Innovation: The informal sector fosters entrepreneurship and innovation, particularly at the grassroots level.
- Flexibility & Adaptability: The informal sector is more flexible and adaptable to changing economic conditions than the formal sector.
- Lower Production Costs: Lower labour costs in the informal sector can contribute to lower production costs and increased competitiveness.
Government Initiatives & Challenges
The government has implemented several initiatives to address the challenges posed by informalization, including:
- Pradhan Mantri Shram Yogi Maan-dhan (PMSYM): A pension scheme for unorganized workers. (Launched 2019)
- e-Shram Portal: A national database of unorganized workers to facilitate access to social security benefits. (Launched 2021)
- Labour Codes: The recent enactment of Labour Codes aims to streamline labour laws and improve working conditions, but their effective implementation remains a challenge.
However, challenges remain in extending social security coverage to all informal workers, enforcing labour laws, and promoting formalization of the economy.
| Formal Sector | Informal Sector |
|---|---|
| Organized employment with job security | Unorganized employment with limited security |
| Access to social security benefits | Limited or no access to social security |
| Higher wages and better working conditions | Lower wages and often poor working conditions |
| Contributes significantly to tax revenue | Lower contribution to tax revenue |
Conclusion
Globalization has undeniably contributed to a reduction in formal employment in India, leading to increased informalization. While the informal sector plays a crucial role in employment generation, its inherent vulnerabilities and limitations pose a significant threat to inclusive and sustainable development. Addressing this requires a multi-pronged approach focusing on skill development, promoting labour-intensive manufacturing, strengthening social security nets, and simplifying regulations to encourage formalization. A balanced strategy that leverages the benefits of globalization while mitigating its negative consequences is essential for India’s future economic prosperity.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.