GS Paper: GS3-12.Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

Why in the News?

Startup founders publicly claimed to support gig workers’ rights but secretly resist laws that would actually protect them.

What is the nature of employment in urban labour chowks and mazdoor mandis?

• Daily Wage and Informal Work: Workers gather at labour chowks every morning, hoping to be hired for the day. Example: Construction workers in Delhi’s Kashmere Gate labour chowk wait for contractors to hire them for masonry or painting jobs.
• Highly Competitive and Unstable: Large numbers of workers compete for limited jobs, often accepting lower wages out of desperation. Example: In Mumbai’s Dadar labour market, carpenters and plumbers rush to secure work before others.
• Exploitative Hiring Practices: Employers and thekedars (middlemen) negotiate wages, often offering the lowest possible rates. Example: In Ahmedabad, daily wage workers in textile markets are hired at rates well below the minimum wage.
• Lack of Social Security and Benefits: No job security, health benefits, or pensions; workers are paid only for the day they work. Example: Brick kiln workers in Hyderabad have no accident coverage despite working in hazardous conditions.
• Piece-Rate and Task-Based Payment: Workers are often paid per unit of work completed rather than a fixed wage. Example: In Chennai’s wholesale vegetable markets, loaders are paid per sack carried rather than for the number of hours worked.

Who benefits the most from the presence of thekedars in the labour market?

• Employers Benefit from Lower Labour Costs: Thekedars help employers negotiate lower wages and better terms by creating a competitive environment among workers. This allows employers to maximize profits by minimizing labor costs. Example: In urban labour chowks, employers can select workers at the lowest possible wage due to the high competition among workers, which benefits the employer financially.
• Thekedars Themselves Profit from Commissions: Thekedars earn commissions or fees from both workers and employers for their services. This financial gain is a direct benefit to them. Example: In the construction industry, thekedars often receive a percentage of the workers’ wages as a commission for facilitating the hiring process.

How do digital platforms replicate the role of thekedars in modern gig work?

• Acting as Middlemen Without Responsibility: Just like thekedars, digital platforms connect workers to employers but do not recognize them as formal employees, avoiding obligations like job security or benefits. Example: Ride-hailing apps like Uber and Ola classify drivers as “partners” rather than employees, denying them benefits like PF or health insurance.
• Downward Wage Bidding: Workers must accept the lowest possible payment, as platforms set rates based on demand and supply, just like the daily wage auctions in mazdoor mandis. Example: Food delivery workers on Swiggy and Zomato have seen their per-delivery payments decrease over time as competition increases.
• Algorithm-Controlled Work Allocation: Platforms use algorithms to decide which worker gets a task, replacing the manual selection process of thekedars. Workers have no bargaining power over wages or work hours. Example: Freelancers on Upwork or Fiverr depend on algorithms that prioritize clients, making workers compete for lower pay.
• Lack of Collective Bargaining: Gig workers are isolated, just like daily wagers in urban labour markets, making unionization and collective bargaining difficult. Example: Amazon Flex workers have no union representation and must accept whatever delivery rates the company offers.
• Exploitative Rating Systems: Workers must maintain high ratings to get work, forcing them to accept low wages and poor conditions, similar to how thekedars exploit labour desperation. Example: “Insta Maids” service offers house help for ₹49 per hour, making workers compete for ratings instead of fair wages.

What are the challenges for gig workers in India? 

• Lack of Job Security and Social Benefits: Gig workers are classified as “independent contractors,” denying them benefits like health insurance, provident fund, and paid leave. Example: Delivery partners for Swiggy and Zomato receive no compensation if injured while working.
• Low and Unstable Earnings: Payment structures are unpredictable, with fluctuating wages and reduced per-task payouts over time, making financial planning difficult. Example: Uber and Ola drivers often struggle as their earnings depend on peak-hour incentives, which companies frequently revise.
• Exploitation Through Rating Systems: Workers must maintain high ratings to secure jobs, forcing them to accept unreasonable customer demands and work long hours. Example: Urban Company service providers risk lower earnings or job loss if they receive poor ratings from customers, regardless of actual service quality.

Way forward: 

• Strengthening Legal Protections & Social Security: Enforce minimum wages, accident insurance, and pension benefits for gig and informal workers. Example: Amend the Code on Social Security, 2020 to ensure mandatory employer contributions.
• Collective Bargaining & Fair Work Standards: Facilitate unionization and introduce fair algorithmic policies to prevent wage suppression. Example: Implement transparent rating and payment systems on digital platforms like Swiggy and Uber.

Mains PYQ:

Q Examine the role of ‘Gig Economy’ in the process of empowerment of women in India. (UPSC 2021)

Reason: The article explores “insta-commerce,” where gig workers, including women, sell via social media. While the PYQ focuses on empowerment, the article highlights challenges like job insecurity, unfair wages, and the lack of grievance redressal. This perspective offers a nuanced view of the gig economy’s impact, including its dual role in both enabling and potentially disempowering women.

Why in the News?

The rise in the services Purchasing Managers’ Index (PMI) to 59 in February has brought relief to investors and policymakers.

What is the significance of the sharp rise in the services Purchasing Managers’ Index (PMI)?

• Indicator of Economic Expansion: A PMI reading above 50 signifies sectoral growth. The rise to 59 in February reflects a strong rebound in the services sector. Example: Increased demand for financial services and hospitality indicates higher consumer spending and business confidence.
• Boost to Investor Confidence: A higher PMI suggests a positive business environment, encouraging domestic and foreign investments. Example: Global investors may increase FDI in India’s technology and telecommunication sectors due to sustained growth signals.
• Job Creation and Income Growth: Growth in the services sector leads to higher employment opportunities and better wages. Example: The rise in IT services and healthcare sectors can create new jobs in software development and medical support.
• Balancing Manufacturing Weakness: A strong services PMI can offset slowdowns in manufacturing, ensuring overall economic stability. Example: Despite the manufacturing PMI falling to a 14-month low, growth in financial services has maintained economic resilience.
• Improved Fiscal Outlook: Higher activity in services increases tax revenues, improving the government’s ability to fund infrastructure and social programs. Example: Growth in e-commerce and logistics boosts GST collections, strengthening public finances.

Which major challenges to India’s services and manufacturing sectors? 

As per the industry leaders and NASSCOM’s 2025 Strategic Review report, the major challenges are :

• Technological Disruption from Artificial Intelligence (AI): AI-driven solutions are transforming traditional business models, reducing revenue from new contracts, and reshaping hiring and training practices. Example: Automation in IT services is reducing the need for entry-level jobs, impacting employment growth.
• Global Protectionism and Rising Tariffs: Increasing reciprocal tariffs and trade barriers, particularly from major economies like the United States, pose a threat to export-oriented industries. Example: U.S. tariffs on Indian textiles and pharmaceuticals may reduce market competitiveness and profit margins.
• Slowdown in IT Sector Growth: India’s IT sector growth is expected to be 5.1% in FY25, a decline from its historical 16% CAGR, due to reduced demand and shifting client priorities. Example: Major IT firms report fewer large-scale outsourcing contracts as clients adopt in-house AI solutions.
• Geopolitical Uncertainty: Geopolitical tensions and supply chain disruptions increase business risks and operational costs. Example: Disruptions in the Red Sea trade route affect electronics and automotive supply chains.
• Potential U.S. Recession Risk: A U.S. economic slowdown could reduce export demand, significantly impacting both manufacturing and services, as the U.S. is India’s largest trading partner. Example: A U.S. recession may lead to fewer orders for Indian IT services, pharmaceuticals, and automotive components.

How could the reciprocal tariffs announced by the U.S. impact India’s manufacturing sector?

• Reduced Export Competitiveness: Higher import duties on Indian goods will increase prices in the U.S. market, making Indian products less competitive against local and other global manufacturers. Example: Indian textile exports to the U.S. could decline as higher tariffs make them more expensive compared to those from Vietnam or Bangladesh.
• Disruption of Supply Chains: Tariff barriers may affect cross-border supply chains, increasing production costs and causing delays in delivery. Example: Indian automotive components exported to U.S. manufacturers may face disruptions, affecting just-in-time production systems.
• Reduced Investment and Market Access: Tariffs create uncertainty, discouraging foreign direct investment (FDI) and limiting India’s access to the lucrative U.S. market. Example: Electronics manufacturers considering India as a production hub may shift investments to low-tariff countries to maintain U.S. market access.

Way forward: 

• Diversify Export Markets: Strengthen trade ties with emerging economies (e.g., Africa, Southeast Asia) and regional blocs to reduce dependence on the U.S. market.
• Enhance Domestic Manufacturing Competitiveness: Promote Make in India, invest in advanced technologies, and offer export incentives to reduce costs and improve global market access.

Mains PYQ:

Q Do you agree that the Indian economy has recently experienced V-shaped recovery? Give reasons in support of your answer.  (UPSC IAS/2021)

Why in the News?

Indian industry leaders are hurting their future by depending too much on cheap labour for growth.

What are the issues related to cheap labour in India? 

• Long Working Hours: Migrant industrial workers often work 11-12 hours a day without breaks during peak demand, compromising their physical and mental well-being.
• Informal Employment: As per the 2023-24 Periodic Labour Force Survey, only 21.7% of workers hold regular jobs with salaries. Even within this group, nearly half face informal conditions (no contracts, paid leave, or social security).
• Exploitation via Contract Work: 56% of workers joining the factory sector since 2011-12 are contract workers, lacking legal protection and receiving lower wages.
• Migrant Worker Vulnerability: Migrant workers face multiple disadvantages due to social position, lack of assets, and inadequate access to social security.
• Profit Maximization: Industries prioritize profit over worker welfare, with profit shares rising from 31.6% in 2019-20 to 46.4% in 2021-22 in the factory sector.

What is the current situation of the garment industry in India?

• Stagnant Share in Global Exports: India’s share in global garment exports has remained stagnant at 3.1% over the past two decades. Example: In contrast, Bangladesh (7.9%) and Vietnam (6.4%) have increased their market share by investing in modern technologies and efficient supply chains (Economic and Political Weekly, August 2024).
• Over-Reliance on Cheap Labour: The industry depends heavily on low-cost, unorganized labour rather than technology and automation, limiting productivity. Example: Over 70% of the workforce in garment manufacturing operates in small, unregistered enterprises with poor working conditions and low wages (PLFS 2023-24).
• Declining Competitiveness: Rising competition from China, Vietnam, and Bangladesh has reduced India’s competitiveness in both mass-market and premium garment segments. Example: India’s textile and garment exports dropped by 13.3% to $32 billion in 2023-24, while Vietnam’s exports rose to $44 billion (Ministry of Commerce data, 2024).
• Lack of Innovation and Modernization: Indian firms lag in adopting advanced production technologies, affecting product diversity and design innovation. Example: While countries like Vietnam invest in smart textiles and sustainable practices, Indian firms focus primarily on basic, low-margin garments.
• Impact of Policy and Infrastructure Gaps: Inadequate government support, high logistics costs, and delayed payments to small firms hinder sectoral growth. Example: The Textile PLI Scheme launched in 2021 aimed to boost manufacturing but has had limited uptake, particularly among smaller manufacturers due to complex compliance issues.

How can India benefit from its cheap labour?

• Investing in Skill Development and Training: Enhancing workers’ skills can increase productivity while maintaining cost advantages. Example: The Skill India Mission has trained over 50 million workers since its launch in 2015, improving output quality in sectors like textiles, automotive, and electronics.
• Promoting Labour-Intensive Industries: Expanding labour-intensive sectors (e.g., textiles, leather, and electronics assembly) can maximize employment and exports. Example: The Apparel Park Scheme in Tamil Nadu supports garment clusters, increasing job opportunities while improving global competitiveness.
• Strengthening MSMEs and Local Supply Chains: Supporting Micro, Small, and Medium Enterprises (MSMEs) through policy incentives and better access to credit can utilize cheap labour efficiently. Example: The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme has provided ₹3.7 lakh crore in credit to over 65 lakh MSMEs (as of 2024).
• Encouraging Export-Oriented Production: Facilitating exports through simplified regulations and logistical improvements can enhance global market access. Example: The Remission of Duties and Taxes on Exported Products (RoDTEP) scheme helps Indian exporters by reimbursing embedded taxes, making Indian goods more competitive.
• Adopting a Hybrid Model of Labour and Technology: Combining low-cost manual labour with affordable automation can balance efficiency with cost advantages. Example: Maruti Suzuki uses a man-machine hybrid system for auto production, reducing costs while maintaining high output, making it India’s largest car exporter.

Way forward: 

• Enhance Technology Adoption and Innovation: Encourage investment in advanced manufacturing technologies and R&D through better policy incentives and stronger industry-academia collaboration to improve productivity and global competitiveness.
• Support Labour Welfare and Formalization: Implement policies to improve working conditions, ensure social security for informal workers, and promote skill development programs to balance cost efficiency with worker well-being.

Mains PYQ:

Q Can the strategy of regional-resource based manufacturing help in promoting employment in India? (UPSC IAS/2019)