Current structure of India’s labor force

Source : The article on Current structure of India’s labor force has been based on article “How to make self-employment count” published in Indian Express on 11^th December 2024.

UPSC Syllabus topic: GS Paper 3- Indian economy

Context: The article critically examines the challenges and potential of self-employment in India. Current Structure of India’s Labor Force.

What is the current structure of India’s labor force?

India has a high rate of self-employment, with a larger share of self-employed workers compared to other middle-income countries. Over half of the working population is self-employed, with rural areas (60%) and women seeing a significant rise in self-employment between 2017-18 and 2023-24.

What are the challenges of self-employment in India?

Self-employment in India faces several challenges, including low earnings, underemployment, poor quality of work, and informality. Most self-employed individuals lack formal contracts, social security benefits, and access to paid leave, leading to precarious work conditions. Self-employed women are particularly affected by these challenges, often working in household enterprises with very low earnings.

What is the gender disparity in self-employment?

1. There is a stark gender gap in self-employment. While men are mostly own-account workers, women are more often categorized as “helpers in household enterprises.” Though the gender gap in own-account work is shrinking, women still face higher informality and lower earnings in self-employment, especially in rural areas.

What factors limit the quality of self-employment?

The key constraints to improving the quality of self-employment are:

1. Low education and skills: Only 20.6% of self-employed individuals have completed grade XII or higher, with a very low percentage receiving formal vocational training (3%).
2. Poor access to formal credit: Many self-employed individuals lack access to financing, limiting the scope and scale of their businesses. Over 40% of unincorporated, non-agricultural establishments operate on a small scale without hired workers.
3. Inadequate legal and administrative support: Despite improvements in the ease of doing business, starting a formal enterprise is still challenging due to complex legal frameworks and lack of professional managerial support.

How does vocational training help self-employment?

1. Vocational training is crucial in improving self-employment by enhancing skills, expanding work opportunities, and increasing productivity.
2. However, there is a significant gap in vocational training accessibility.
3. For example, the National Institute of Technical Education (ITIs) does not adequately link training to financing options like the PM Mudra Yojana, limiting entrepreneurial opportunities for graduates.

What is the role of access to formal credit in improving self-employment?

1. Access to formal credit is essential for the growth and scalability of self-employment ventures.
2. Without it, entrepreneurs face higher borrowing costs and limited loan sizes, hindering their ability to expand their businesses. Small-scale operations (like Own Account Establishments) are less productive, earning half the Gross Value Added per worker compared to Hired Worker Establishments (Rs 1 lakh vs. Rs 2 lakh).

How do legal and administrative challenges affect self-employment?

1. Legal and administrative barriers limit the growth of self-employed enterprises. Poor contract enforcement and access to legal recourse for business disputes lower productivity.
2. In particular, minority and SC/ST entrepreneurs face disproportionately negative impacts from inefficient courts, further inhibiting growth and job creation in informal establishments.

What policy recommendations can enhance the quality of self-employment in India?

To improve self-employment, India should focus on:

1. Expanding vocational training linked to entrepreneurship.
2. Ensuring better access to formal credit and financial support for self-employed individuals.
3. Simplifying the legal and administrative landscape for starting and running businesses.
4. Providing targeted support to women and marginalized communities to reduce the gender gap and improve earnings in self-employment.