GS Paper: Issues relating growth and development, employment

A NITI Aayog report has identified that is expected to grow to 2.35 crore by 2029-30.

Do you know?

According to a study released by NITI Aayog, the number of gig workers in India is estimated to be 77 lakh in 2020-21. Isn’t it too low to imagine? Seems like there is huge under-reporting.

What is the Gig Economy?

• In a gig economy, temporary, flexible jobs are commonplace and companies tend toward hiring independent contractors and freelancers instead of full-time employees.
• A gig economy undermines the traditional economy of full-time workers who rarely change positions and instead focus on a lifetime career. e.g Employee models of Uber, Ola, Swiggy etc
• In this economy, tech-enabled platforms connect the consumer to the gig worker to hire services on a short-term basis.
• Gig workers include self-employed, freelancers, independent contributors and part-time workers.

Where does gig culture exist in Indian Economy?

• Sectors such as media, real estate, legal, hospitality, technology-help, management, medicine, allied and education are already operating in gig culture.
• The gig economy can benefit workers, businesses, and consumers by making work more adaptable to the needs of the moment and demand for flexible lifestyles.

Key Drivers for Gig Economy

• Unconventional work approach by millennials: Hectic lifestyles of employees in private sectors have created a negative perception of full-time employment among millennials.
• Emergence of a start-up culture: The start-up ecosystem in India has been developing rapidly. For start-ups, hiring full-time employees leads to high fixed costs and therefore, contractual freelancers are hired for non-core activities.
• MNCs are hiring contractual employees: MNCs are adopting flexi-hiring options, especially for niche projects, to reduce operational expenses after the pandemic.
• Rise in freelancing platforms: Rise in freelancing platforms has also aided in the development of the gig economy.
• Business Models: Gig employees work on various compensation models such as fixed-fee (decided during contract initiation), time & effort, actual unit of work delivered and quality of outcome.
• Impact of Covid-19: Many laid-off employees are focusing on developing skills to avail freelance job opportunities and become a part of this burgeoning economy.

Why is Gig Economy preferred by workers?

• Profit through multiple work: One can work on freelancing as well as work full-time somewhere else.
• Women empowerment: It is very beneficial for womenwho work on this concept when they cannot continue their work or take a break from career due to marriage or child birth.
• Leisure and dependency: Retired peoplecan stay active after retirement as this will keep them engaged away from loneliness and depression and can earn as well on their own.
• Flexibility and diversity to the workers: It offers flexibility when workers can work according to their convenience and schedule rather than routine like in full-time jobs.
• Work from home: The travel costs and energy to travel to the workplace is reduced.

Why is Gig Economy preferred by Employers?

• Efficiency, efficacy and productivity of workers in the gig economy are much more than that of a stable full-time job.
• More rconomical for employers-when employment givers can’t afford to hire full-time workers, they hire people for specific projects and pay them.
• Start-up companies and entrepreneurs – who do not have big financial space – can grow only if they can leverage the services of contract employees or freelancers.
• In a gig economy, businesses save resources in terms of benefits, office space and training.
• Competition and efficiency among workers is improved.

Challenges faced in Gig economy

• No perks and benefits: There are no labour welfare emoluments like pension, gratuity, etc. for the workers.
• Job insecurity: Gig workers may face unfair termination. They may also attain minimum wages and less paid leave.
• No legal protection: Workers do not have the bargaining power to negotiate a fair deal with their employers.
• Unionization of workers will be difficult.
• Confidentiality of documents etc. of the workplace is not guaranteed
• Urban nature: The gig economy is not accessible for people in many rural areas where internet connectivity and electricity is unavailable.

New classification by NITI Aayog: Platform vs. Non-platform Workers

• The NITI Aayog report broadly classifies gig workers into platform and non-platform-based workers.
• The consequent platformisation of work has given rise to a new classification of labour — platform labour — falling outside of the purview of the traditional dichotomy of formal and informal labour.
• While platform workers are those whose work is based on online software applications or digital platforms.
• Non-platform gig workers are generally casual wage workers and own-account workers in the conventional sectors, working part-time or full time.

Recommendations made by NITI Aayog

• The NITI Aayog has recommended steps to provide social security, including paid leave, occupational disease and accident insurance, support during irregularity of work and pension plans for the country’s gig workforce.
• It has also recommended introducing a ‘Platform India initiative’ on the lines of the ‘Startup India initiative’.

 

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A study by the Reserve Bank of India (RBI) has spoken about the possibility of capital outflows to the tune of $100 billion (around Rs 7,80,000 crore) from India in case of a major global risk scenario or a “black swan” event.

What is a ‘black swan’ event?

• A black swan is a rare, unpredictable event that comes as a surprise and has a significant impact on society or the world.
• These events are said to have three distinguishing characteristics –

1. they are extremely rare and outside the realm of regular expectations
2. they have a severe impact after they hit and
3. they seem probable in hindsight when plausible explanations appear

When did the term originate?

• The black swan theory was put forward by author and investor Nassim Nicholas Taleb in 2001, and later popularised in his 2007 book – The Black Swan: The Impact of the Highly Improbable.
• It is described as one of the 12 most influential books since World War II.
• In his book, Taleb does not try to lay out a method to predict such events, but instead stresses on building “robustness” in systems and strategies to deal with black swan occurrences and withstand their impact.

Behind the metaphorical name

• The term itself is linked to the discovery of black swans.
• Europeans believed all swans to be white until 1697, when a Dutch explorer spotted the first black swan in Australia.
• The metaphor ‘black swan event’ is derived from this unprecedented spotting from the 17th century, and how it upended the West’s understanding of swans.

When have such events occurred in the past?

• Interestingly, Taleb’s book predated the 2008 global financial crisis – a black swan event triggered by a sudden crash in the booming housing market in the US.
• The fall of the Soviet Union, the terrorist attack in the US on September 11, 2001, also fall in the same category.

Is the Covid-19 pandemic a black swan event?

• Taleb does not agree with those who believe it to be one.
• Rather, he called it a “white swan”, arguing that it was predictable, and there was no excuse for companies and governments not to be prepared for something like this.
• While the outbreak of any pandemic is difficult to individually predict, the possibility of one occurring and having a major impact on systems around the world was known and documented.

 

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India is likely to implement four new labour codes on wages, social security, industrial relations, and occupational safety by the next fiscal year beginning 2022.

Must read:

[Burning Issue] New Labour Laws

New Labour Codes

The four codes likely to be implemented in FY23 are:

1. Code on Wages
2. Industrial Relations Code
3. Social Security Code, and
4. Occupational Safety, Health and Working Conditions Code

Objectives of the Labour Code

• The new labor codes are aimed at facilitating ease of doing business in the country and seek to replace 29 cumbersome laws.
• The objective is to encompass over 500 million organized and unorganized sector workers—90% of the workforce which has been outside labour laws.
• The idea is to ensure that they receive wage security, social security and health security, gender equality in terms of remuneration, a minimum floor wage, make the lives of inter-state migrant workers easier.

What is the current status of the codes?

• The central government has completed the process of finalizing the draft rules, state governments are in the process of drafting the same.
• With labor being a concurrent subject, states are in the process of pre-publishing draft rules for these reforms.

How many labour laws do Indian states have?

• The simplification of 29 labour laws into the four labour codes is expected be a watershed moment for labour reforms.
• India currently has a web of multiple labour legislations, over 40 central laws and 100 state laws involving labour.
• The Second National Commission on Labour (2002) recommended simplification to bring about transparency and uniformity.

What are the major goals in these codes?

• Social security benefits: With organized sector workers being approximately 10% of the total workforce, the new codes may ensure that social security benefits are for all.
• Take-home salary: As per the proposed labour codes, total allowances such as house rent, leave, travel etc. are to be capped at 50% of the salary, while basic pay should account for the remaining 50%.
• Four days work: There could also be a permissible four-day work week of 12 hours per day.

How will it affect ease of doing business?

• Labour productivity: It is likely to improve with both employees and employers developing a sense of being partners in wealth creation.
• Labour reform: A transparent environment in terms of workers’ compensation, clear definition of employee rights and employer duties.
• Compliance un-burdening: Simplified labour codes making compliance easier are likely to attract investments.
• Formalization of the economy: With more workers in the organized sector, leakage in terms of direct as well as indirect taxes may be plugged.

 

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PM has yet again underscored the importance of a skilled workforce for achieving the goal of becoming Atma-nirbhar Bharat.  India still continues to be a country that faces one of the highest shortages of skilled workforce.

Unemployment vs Skills

• On one hand, companies in India face an acute shortage of skilled manpower and, on the other, India has millions of educated unemployed.
• The data for this chart is for the January to April 2021 period, when the overall unemployment rate in the country was 6.83%.
• In comparison, those with graduation (or even higher degrees) face almost three times the unemployment level.
• At over 19% unemployment rate, one in every five Indians who graduate (or even better) is unemployed.

What explains this contradiction?

• The lack of skill is definitely the only answer.

What is Skilling?

• National Council of Applied Economic Research, 2018 — aptly titled “No time to lose”.
• This report explains that there are three types of skills.

1. Cognitive skills: basic skills of literacy and numeracy, applied knowledge and problem-solving aptitudes, and higher cognitive skills such as experimentation, reasoning, and creativity.
2. Technical and vocational skills: physical and mental ability to perform specific tasks using tools and methods in any occupation.
3. Social and behavioral skills include working, communicating, and listening to others.

• Different levels of these three types of skills can be combined to further classify skills into foundational, employability, and entrepreneurial skills.

What is the scale of the skilling challenge facing India?

According to the 2018 report by NCAER, India had about 468 million people in its workforce.

• Informal sector: Around 92% of them were in the informal sector.
• Illiteracy: Around 31% were illiterate, only 13% had primary education, and only 6% were college graduates.
• No vocational training: Further, only about 2% of the workforce had formal vocational training, and only 9% had non-formal vocational training.
• Out of more than 5 lakh final year bachelors students aged 18–29 who were surveyed, around 54% were found to be “unemployable”.

Opportunities for India

• India has entered a demographic sweet spot that will continue for another two to three-decade.
• There is a great opportunity for India to improve both its social and economic outcomes if a higher number of workers are productively employed.

What is at stake?

• If the skilling issue is not resolved, India risks forfeiting its so-called “demographic dividend”.
• But whether this will turn into a demographic dividend or not will depend entirely on how many of those in the working-age bracket are working and becoming prosperous.
• If they are not in well-paying jobs, the economy would not have the resources to take care of itself since with each passing year, the proportion of dependents will continue to rise after 2040.
• To put it simply, to attain its rightful place and realize its aspirations, India must become rich before it gets old.

The skilling paradox

• Indians have excelled in technical expertise at the global level — be it medicine or engineering. Then what explains India’s domestic skilling paradox?
• A big part of the trouble is the starting condition. Over 90% of India’s workforce is in the informal sector.

India is trapped in a vicious cycle:

1. Greater workforce informality leads to lower incentives to acquire new skills. Faced with inadequately skilled workers, businesses often choose to replace labor with machinery.
2. That’s because “skilled labor and technology are complementary, but unskilled labor and technology are substitutes”.
3. This, in turn, leads to still fewer formal jobs.

What can be done to break this cycle?

• A distinct disadvantage with India’s approach towards skilling has been to ignore and match the demands of the market.
• For the most part, skills have been provided in a top-down fashion.
• Given the way market demands fluctuate — for instance, how the Covid pandemic has upended supply chains — skilling efforts must try to anticipate the needs of the market.

The State of Working India (SWI) 2021 has documented the impact of one year of Covid-19 in India, on jobs, incomes, inequality, and poverty.

Highlights of the SWI 2021

• The SWI 2021 showed that the pandemic had forced people out of their formal jobs into casual work, and led to a severe decline in incomes.
• There is a sudden increase in poverty over the past year.
• Maharashtra, Kerala, Tamil Nadu, Uttar Pradesh, and Delhi, contributed disproportionately to job losses.
• Unsurprisingly, these are also the states that suffered the maximum Covid caseload.

Labour Participation Rate (LPR) is the ratio of the labour force to the population greater than 15 years of age. It is defined as the section of working population in the age group of 16-64 in the economy currently employed or seeking employment.

Worsened with COVID

• It pointed to an ailment of the Indian economy that has not only been a longstanding one but also one that has gotten worse over the past few years even without the help of Covid.
• Agriculture, mines, manufacturing, real estate and construction, financial services, non-financial services, and public administrative services sectors account for 99% of total employment in India.
• The number of people employed in the manufacturing sector of the economy has come down from 51 million to 27 million — that is, almost halving in the space of just four years!
• For instance, the number of people employed in agriculture is going up.
• Equally disheartening is that employment in non-financial services (such as providing education and entertainment industry etc.) has fallen sharply.

Why are these trends worrisome?

• It is important to understand that traditionally Indian policymakers have been of the view that the manufacturing sector is our best hope to soak up the surplus-labour otherwise employed in agriculture.
• Manufacturing is well suited because it can make use of the millions of poorly educated Indian youth, unlike the services sector, which often requires better education and skill levels.
• For the longest time, India has struggled to get its manufacturing industries to create a growing bank of jobs.
• But, and this is what the CMIE data shows, what is happening in the past 4-5 years is that far from soaking up excess labour from other sectors of the economy, manufacturing is actually letting go of workers.

Return to Agriculture

• India has seen a hike in the number of people “employed” in agriculture over the past year.
• This is nothing but disguised unemployment.
• Essentially, labourers and workers are returning to their rural homes in the absence of jobs either in manufacturing or services.

Why is Indian manufacturing failing to create jobs?

• On the face of it, every past government has come out with a policy to boost manufacturing jobs. But still, the situation is getting worse.
• There are different ways to look at this question.

1. One is to look at why manufacturing has struggled to create as many jobs in the past
2. The second is to look at the specific reasons why manufacturing has been bleeding jobs, instead of creating them, since 2016-17.

Let’s tackle the historical question first.

• If one looks at any of the sectors in the economy — agriculture, industry, services — starting a manufacturing unit requires the highest amount of fixed investment upfront (relative to the output that may be generated later).
• In other words, it is a big commitment on the part of an entrepreneur to put up a huge amount of money without necessarily knowing how it will all pan out.
• What has traditionally made this truly risky is the highly extractive nature of governments.
• In simpler terms, far too often governments have been corrupt, with officials and politicians extracting bribes.

Less focus on manufacturing goods

• As regards the demand for manufacturing goods, experts point out that Indians have always consumed relatively less of manufacturing goods and relatively more of food and services.

There are two possible reasons for this.

1. One, most Indians are quite poor and hence most of the income is spent on food.
2. Two, repairs and maintenance are a very high part of our consumption choice.

• In other words, when Indians buy a manufactured product — say a refrigerator — they tend to use it for much longer than in developed countries.

Core of the problem

• The trouble lies with policymakers repeatedly neglecting the labour-intensive industries.
• Since the second five year plan, the P C Mahalanobis strategy was to gain self-reliance by investing in capital intensive industries so that India does not have to import machines etc. from other countries.
• The hope was that the demand from Indian consumers will make the domestic industry viable.
• But Indian domestic demand was quite anaemic due to poverty levels.

Other policy lacunas

• As against the capital intensive industries, which were involved in making heavy machines, the labour-intensive ones (such as leather, handicrafts, textiles etc.) were reserved for the small-scale industry framework.
• But while the labour-intensive manufacturing firms could not match the capital-intensive firms in terms of GDP value or growth of output, they did have a distinct advantage of creating more jobs.
• But, by treating them as small-scale industries, policies held back their growth.
• Moreover, India did not push for integrating its labour-intensive manufacturing in the global supply chains by aggressively following exports.
• Instead, the idea was to substitute imports in the name of self-reliance.

What has happened since 2016-17?

• Things have become worse over the past five odd years despite the Indian government unveiling its ambitious Make in India (MII) initiative and the latest Production-Linked Incentive (PLI) scheme.
• For one India is repeating the same mistakes with MII and PLI schemes.
• They are again aimed more at capital intensive manufacturing, not labour intensive ones.
• Moreover, India is reverting to the protectionist approach, aimed at self-reliance, yet again in recent years.
• Further, much like in the past, this time, too, the domestic demand is weak for aggressively boosting labour-intensive industries aimed at capturing the export markets.

Conclusion

• The growing rift in the fortunes of informal and formal manufacturing could be the reason why India is seeing such a massive decline in manufacturing jobs.
• The government has tried its level best to push for greater formalization but it has often been accused of not understanding the nature and functioning of India’s informal economy.

Way forward

• For the same level of employment, formality is good.
• But if there is a trade-off between formality and employment generation, choosing formality may not be so beneficial. And this trade-off appears to be quite sharp in India.
• Indian manufacturing is still at best hope for creating new jobs and soaking up excess unskilled labour through better infrastructure and easier regulatory support — to create millions of new jobs.