The organised sector in India has witnessed a significant shift in its employment patterns, with a rising trend towards contractualisation of labour. Recent reports show that nearly one in five workers in organised non-farm establishments were contractual hires in the first half of FY23. This marks a sharp increase from previous years and signals a profound transformation in India’s workforce dynamics.
According to the latest Quarterly Employment Survey (QES) released by the labour bureau, the share of contractual employees in the nine major non-farm sectors of the economy has more than doubled to nearly 18% in the first half of FY23 from about 8.5% in the second half of FY22. These sectors include manufacturing, construction, trade, transport, education, health, accommodation & restaurants, information technology (IT)/business process outsourcing (BPO), and financial services.
READ | Rising unemployment brings election promises under increased scrutiny
Decline in regular employment
Another critical aspect of the increasing contractualisation is the corresponding decline in regular employment within organised establishments. The QES data indicates that the share of regular employees fell to nearly 75% in the first half of FY23 from around 85% in the second half of FY22. This shift not only affects job security but also impacts the overall stability of the workforce. Additionally, the survey noted an increase in other forms of employment, such as fixed-term and casual work, with their shares rising to nearly 2% and 3%, respectively, in H1 FY23. This diversification in employment types reflects a broader trend towards a more fragmented and less secure job market.
The manufacturing sector, in particular, has seen a dramatic rise in the employment of contract workers. In the latest survey, 26.88% of employees in the manufacturing sector were contract workers, up from 10.4% in the first round of the survey conducted in Q1 FY22. This trend was also evident in the health sector (21.34%), transport sector (20.8%), and construction (13.5%). On the other hand, the IT/BPO sector had the least share of contractual workers at 3.34%, followed by financial services at 6.43%.
The Annual Survey of Industries (ASI) for FY22, conducted by the ministry of statistics and programme implementation (MoSPI), revealed that 40.2% of workers in industrial establishments were contract workers. This figure represents the highest share of contractual workers ever recorded and highlights a consistent upward trend over recent years.
The trend towards contractualisation is accompanied by a decline in employer contributions towards wages. The ASI data reveals that the share of employer’s contributions towards the wages of workers has been continuously decreasing, dropping to 10.87% in FY22 from 11.07% in FY20. This reduction signifies a shift in the financial responsibilities from employers to the workers themselves, potentially exacerbating the economic vulnerabilities of contract workers. The total amount of wages and salaries paid to workers in FY22 stood at Rs 6.29 trillion, of which only Rs 0.68 trillion was paid by employers, highlighting the growing disparity in wage distribution.
Implications for the Workforce
The increasing reliance on contractual labour has several implications for the workforce and the broader economy. Contract workers, unlike regular employees, are employed for a specified period or task through third-party agreements. They often lack the job security and social security benefits that come with permanent employment. This shift towards contractualisation has been driven by various factors, including the need for flexibility in hiring during periods of peak demand, as seen in sectors like e-commerce, logistics, retail, and manufacturing.
Staffing firms claim that contractual employment aids faster job creation and facilitates the transition from informal to formal employment. It provides entry-level employment with skilling opportunities and some level of social security coverage, they argue. However, this model leads to a workforce that is more flexible but potentially less trained and more precarious.
Labour economists say that the new labour codes, though not yet implemented, signal a policy shift towards a more flexible workforce with minimum costs for firms. This could lead to a future workforce dominated by contract-based informal workers, raising concerns about job quality and security.
Regional variations and policy challenges
The ASI data for FY22 also reveals significant regional variations in the share of contract workers. States like Bihar (68.6%) and Telangana (64.9%) have the highest proportion of contract workers, while Kerala (21.4%) and Tamil Nadu (23.1%) have the lowest. These disparities reflect the diverse economic and industrial landscapes across India’s states and the varying degrees of contractualisation.
The ASI data sheds light on gender disparities in employment within industrial establishments. While the share of women workers among directly employed workers rose slightly to 18.42% in FY22 from 18.1% in the preceding year, the increase is marginal and highlights the persistent gender gap in industrial employment. Addressing this gap is crucial for ensuring equitable growth and providing diverse employment opportunities in the organised sector.
The growing trend of contractual labour also poses challenges for labour rights and collective bargaining. A recent incident at Bellsonica Auto Components India in Manesar illustrates these challenges. The company’s trade union was deregistered for granting membership to a contractual worker, highlighting the precarious status of contract workers and their limited rights to union representation and collective bargaining.
The case of Bellsonica underscores the challenges faced by contract workers in unionisation and collective bargaining. The deregistration of the company’s trade union for admitting a contractual worker highlights the precarious legal status of contract workers. The PUDR’s statement emphasises that excluding contract workers from union membership denies them essential protections and rights, contradicting the reality of modern shop floors where all workers often perform similar tasks. This incident calls for a re-evaluation of labour laws to ensure they are inclusive and reflective of current employment practices.
The rise in contractual labour in India’s organised sector represents a significant shift in the country’s labour market. While it offers flexibility and rapid job creation, it also raises critical issues regarding job security, worker rights, and the quality of employment. Policymakers, employers, and labour unions must collaborate to ensure that the benefits of this employment model are balanced with adequate protections for workers. The future of India’s workforce depends on creating a labour market that is both dynamic and equitable, providing opportunities for growth and stability for all its participants.