The cost to the country just for savings in CTC

Source– The post is based on the article “The cost to the country just for savings in CTC” published in The Indian Express on 20th December 2022.

Syllabus: GS3- Indian economy and employment

Relevance– Issues related to informal economy

News– The article explains the issue of increasing casual and contractual employment in India.

What is the status of the casual workforce in India?

According to the Periodic Labour Force Survey 2021, India has about 100 million casual workers and 50 million salaried workers with no written job contract. This gives us an estimate of 150 million contract workers. It is about 30% of the total labour force in the country.

In the Annual Survey of Industries, the share of contract employment in total industrial employment incThe cost to the country just for savings in CTCd from 24% in 2004 to 38% in 2017.

After 2001, the public sector also started outsourcing many vacancies, citing them as non-core activities. In the Public Enterprises Survey 2021, the share of contract workers in PSUs was 17.1% in 2011-12. It increased to 19% in 2015-16 and 37.2% in 2020-21.

Why is contract employment considered better by the firms?

The cost to the company (CTC) is lower for contract employment when compared to permanent employment. This is considered beneficial for the economy as reduced CTC has also attracted foreign investment.

Besides wages, there are five typical human resource costs: hiring costs, induction costs, career progression costs, severance and superannuation costs.

Hiring costs are higher for the public sector when compared to the private sector. Millions apply for a few hundred vacancies in the public sector. Conducting examinations on this scale becomes a nightmare for the state machinery. Hiring through manpower suppliers is cost and time efficient.

As contract labour requires minimal training, it reduces CTC. Management prefers contract labour as they are not entitled to the generous paid leave enjoyed by a permanent employee.

Saving comes from no commitment to promotion or post-retirement benefits to contractual workers.

The flexibility of firing contractual employees is considered to be positively impacting labour productivity.

What are the negative impacts of casualisation of the workforce?

A major saving in CTC comes from wage suppression. It hurts on account of reduced consumption and saving.

Corners cut in hiring and training lead to a deterioration in service quality. It results in second-order losses, and sometimes accidents. According to a recent study published in The Lancet, an annual increase in outsourced spending of 1% in the National Health Service in England is associated with a rise in treatable mortality of 0.38%.

Underpaid contractual workers cannot afford adequate health care for themselves and their family members. It leads to decline in overall human capital.

As nobody invests in the upskilling of contractual workers, the labour productivity of the economy is also adversely impacted. Contractual workers are not as interested in improving the quality of the product and services. It is affecting the export competitiveness of the economy.

What are innovative ways used by companies to get around the legal provisions of labour acts?

Some are designating employees as business partners in the case of online cab booking and food delivery companies. Others are segmenting core activity as tech business in the case of most of the service aggregators.

What is the way forward to overcome the challenges related to casualisation of the workforce?

More research is required to quantify the adverse impact of replacing permanent jobs. The well-being of contract workers and their family members should not be the price the country should pay for savings in CTC.

The argument that permanency of employment breeds inefficiency has its own merit and should be dealt with for its root causes.

The public sector should reform its appraisal mechanism so as to reward the efficiency of permanent workers.

The private sector should realise that outsourcing’s cost to the country might be much more than the cost to the company in the long run.