UPSC Mains 2016 GS Paper 3 Q1: model answer

Annual Survey of Industries data show that contract workers rose to close to two-fifths of all workers in India's organised factories in the decades after 1991. Even formal firms now hire informally.

How globalisation reduced formal jobs

• Competition from imports forced firms to cut costs, often labour costs.
• Capital-intensive technology imported with FDI replaced workers.
• Outsourcing to small suppliers and home-based workers in global value chains.
• Flexible hiring: contract and fixed-term work to avoid rigid labour laws.
• Public sector downsizing after disinvestment.

Is informalisation harmful to development?

Yes, mostly:

• Low wages and no social security; most workers lack a written contract.
• Low productivity: small informal firms rarely invest or innovate.
• A narrow tax base: informal firms stay outside GST and income tax.
• Vulnerability to shocks: the Covid-19 lockdown left migrant workers stranded in 2020.
• Women concentrated in the least protected work.

But it also:

• Absorbs labour leaving agriculture and keeps households afloat in bad years.
• Gives flexibility and a first step to entrepreneurship.

Way forward

• The Social Security Code, 2020 extends cover to gig and platform workers.
• e-Shram, with over 30 crore registrations, to target welfare.
• Easier formalisation: GST thresholds, Udyam registration, EPFO incentives.
• Enforcing equal pay and benefits for contract workers doing permanent work.

Globalisation brought growth; the task now is to make the jobs it created count as real jobs.