India’s suboptimal use of its labour power

Source-This post on India’s suboptimal use of its labour power has been created based on the article “India’s suboptimal use of its labour power” published in “The Hindu” on 7 March 2024.

UPSC Syllabus–GS Paper- 3 – Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

News – The article highlights the issues of underutilization of labour force which has the potential to endanger India’s demographic dividend.

Background– About 90% of the working Indian population earns its livelihood through informal employment. The informal employment is characterized by little or no job security, no employment benefits, no social protection, and lower earnings.

What is the status of labour force participation in India?

1) As per Periodic Labour Force Survey (PLFS), the Labour Force Participation Rate (LFPR) has gone up steadily to 58.35% in 2021-22, starting at 52.35% in 2017-18. This improvement is largely driven by enhanced participation of women in labour force in rural areas.

2) The overall unemployment rate has also declined from 6.2% in 2017-18 to 4.2% in 2021-22. For the youth, the unemployment rate numbers are higher -12% in 2017-18 to 8.5% in 2021-22.

Read more- India’s informal economy: Challenges and solutions

What are the different categories of employment in India?

There are 3 types of employment in India.

A) Regular wage/salaried work
B) Casual work
C) Self-employment.

Further, the self-employed come in three categories — own-account workers, unpaid family workers, and employers who employ outside labour.

What are the issues in labour market despite increase in labour force participation in India?

1) Rise of unpaid work-Improvements in LFPR and the drop in the unemployment rate are largely driven by self-employment.  However, bulk of the growth in self-employment has come from the rise of unpaid family workers, which has increased from 26% to 31.4% over the period.

2) Decline in regular wage employment– The proportion of other subcategories within the employed (regular wage/salaried employee, casual labour, employer, and own-account worker) has dropped between 2017-18 and 2021-22. This reflects a worsening of the quality of work being done by the workforce.

3) Uneven increase in wage earnings– Both rural and urban daily earnings have increased in the past few years. However, this overall increase was not uniform for workers. Here, salaried workers received the highest increase among different categories of workers, followed by the self-employed and then the casual workers.

4) Low productivity work– Own-account workers, casual workers, and unpaid family workers form around 75 % of total workforce. They are mainly engaged in low productivity work.

What are the ramifications of this trend?

1)The economy is wasting its labour capital by engaging a majority of the workforce in low quality work. This may hamper India’s potential to reap its rich demographic dividend.

2) Poorer sections have low savings, and there is not much rise in their earnings. This trend is detrimental for the demand-side of the economy as there would not be much demand for products due to the low purchasing power of the population.

Question for practice

What are the issues in India’s labour market?