Formal Employment in India

Formal Employment in India

India is becoming one of the star economies. It is growing faster than many of its peers both in size as well stage of development. On many financial aspects, India is doing very well. This article/blog attempts to measure this performance keeping in mind Generation of Formal Employment Opportunities in India. 

Many times, we see in the media that even for menial jobs such as sweepers, we see many graduates as well as even master degree holders, line up. At the same time, we see that our cities’ footpaths are encroached upon hawkers and other vendors. All these point to issues regarding generating formal employment opportunities. We will first check the current situation across many sectors of the economy and then we will try and propose solutions for many of the problems.

So, what’s formal employment – This is the employment that allows benefit such as Medical Plans, Travel allowance, EPF and other pensions investments, etc. Additionally, the salaries are at a level that is consistent with standards set by the government. In contrast, informal employment does not have any such benefit.

India has traditionally been an economy that is reliant on agriculture for employment. Although the share of the economy has been tilting away from agriculture (According to recent data, At, 2011-12 prices, the Agriculture & Allied, Manufacturing, and Services sector's composition is 14.45%, 30.82%, and 54.73%, respectively.). And this share is continuously falling as services and manufacturing picks up. We will take each of these sectors and see the trends in employment opportunities it provides.

Agriculture and Fisheries: As mentioned before, the agricultural and allied sub-sectors are contributing less and less to the overall GDP. However, it is a very important sectors for varied reasons. The most important factor is that it is the sector where most of the people are directly and indirectly employed. (45.76% of the total workforce is engaged in agriculture and allied sector during 2022-23). Not just in the obvious rural areas, where it is the dominant sector, but agriculture also covers many urban and semi-urban areas. The nature of work includes crop growing, seed trading, commodity trading, water dispensation industry (including both Government and Private) and many more. Employment here is mostly informal as big farmers hire laborers on short term contracts. Also work may not available throughout the year.  Most of the employment also falls out of the ambit of government overreach and rules. So, the laborers end up getting less than what is the minimum pay.

Manufacturing: Even the manufacturing sector has varied employment opportunities. Here the most important factors are whether the industry/company is government owned or private. Additionally, it also depends on the size of the company. If the company is government owned or is medium or large sized, then the employment tends to be formal. Manufacturing is the sector that is well covered by the labor Unions.  At the same time, there are many industries that are dominated by small units. These include recycling, meat and leather processing, furniture and other household goods, and many more. These small units hire from anywhere between 10 to 100 employees. These employees are in many cases receiving lower salaries. At the same time, they also don’t get benefits such as medical, travel allowance and such.

Service: The service sector is the biggest and is also the biggest formal employment generator. The industries here include software (the world’s biggest in manpower), financial & banking, trade, tourism, education and many more. In add to the formal employment generated by this sector, many professionals also run their small or medium sized businesses. These includes doctors, accountants, freelancers, educationist, etc. The professionals hire full term resources for marketing, operations, etc. The employment here is semi-formal in that the salaries are comparable but other allowances are lesser or non-existent in some cases.

So now, we come to the most important part that what can be done to make India churn out more formal employment opportunities. This topic is very close to what we want to help address with our training courses that are geared towards direct employment. Some of the things, India can immediately do are:

• Increase share of large-scale manufacturing – Each new factory or industrial areas in a particular community leads to immediate increase in both direct as well as indirect employment. Small and Medium sized manufacturing industries should be encouraged to increase their size as well as product mix. Easy Financial means should be provided for this purpose. At the same time, India also needs to make it easier to close a business. This will lead to increase in productivity as well as the most efficient ideas will be preferred.
• Liberalize labor laws – The current labor laws penalize the companies/plants that have above a certain number of employees. Additionally, the unions get politically motivated and the company has to employ certain individuals based on their political connections.
• Liberalize the agriculture industry: Being employment intensive, use of more efficient technology and increase in crop yields can lead to more in number and more skillful people getting employment. Additionally, many new high-tech jobs can be generated in fields such as in research, bio-engineering, gene modification and others. Also, by increasing the efficiency can lead to less land requirement for the same or better crop yields. Ways should also be found to make dual or multi use of agricultural farms such as Solar and Wind energy farms, food processing industries and others such.
• The Service industry should be broadened: Already generating the bulk of economic input, the scope of the service industry should be broadened to include more sun sectors where India has been a laggard. This includes the tourism industry, especially catering to international travel. This also includes the sports management industry. Each of these are capable of generating tens of billions of economic output and can be great way to increase formal employment. Additionally, local centers should be setup to cater to these industries. For example, the north east of India can be a great place to setup infrastructure for Sports.

• Train!Train!Train! – Each person whether employed or not should be given incentives to get trained on newer and higher skills. This allows constant progression of that employee as well as other get chance to obtain employment at their previous level. Legofi is doing exactly this in that our programs can be used to quickly scale up in skills. Explore our courses and see if there is something that you think can help you immediately skill up!