[Answered]How globalisation has led to the reduction of employment in the formal sector of the Indian economy? Is increased informalisation detrimental to the development of the country?

Demand of the question

Introduction. Contextual Introduction.

Body. Discuss how globalisation has led to the reduction of employment in the formal sector? Argue whether increased informalisation is good or bad for the development of the country?

Conclusion. Way forward.

With the 1991 economic reforms India opened its door for the world and embraced globalisation that allowed Indian economy to engage with others. It enabled the global integration of production and markets across nations. It is said that globalisation has led to the informationization of the economy and reduced formal employment. Although informalisation has provided livelihood to many, it has not raised the living standard as was expected.

How globalisation has led to the reduction of employment in the formal Indian sector?

  1. Decline in public employment! The most stable source of formal employment has been the public sector. Because a major focus of liberalisation is a reduction in size of the public sector. The proportion of formally employed workers fall as governments cut their work force unless.
  2. Restrictive labour laws: With restrictive labour laws and lack of labour reforms after liberalisation, industries went for contract hiring. It was done in order to circumvent rigid hiring and firing provisions. This led to reduction of formal jobs and more contractual jobs of short term nature.
  3. GlobalCompetition: The impact of global competition encouraged formal firms to shift formal wage workers to informal employment arrangements without minimum wages, assured work or benefits.
  4. Service-sector led growth: Globalisation led to growth of service sector in India. Service sector requires skilled labour that was not available as required. As a result many sectors lacked skilled manpower and formal jobs were not created.
  5. Women employment: As the decent formal jobs declined and economic growth slowed many men remain unemployed. As a result, women increasingly seek paid employment in the informal economy as a means to ensure the living standards for households that are already living in poverty. Further, with responsibility to manage home, more women seek informal employment.
  6. Capital intensive industries: The newer industries were capital intensive rather than labour intensive, thus absorbing lesser workforce. Due to this labour remained out of formal sector employment.
  7. Informalisation: Due to rise in the service sector many jobs were outsourced which were fulfilled by the informal sector. Further, contractual jobs led to insecurity in the labour sector and formal sector. Thus, many people took up informal jobs.
  8. Mechanisation: With globalisation and growth of internet and automation, many jobs were replaced by machines. Industries in order to increase their production went for automation and this was supported by technology transfer through liberal policies. Further, most of the inflowing FDI went into technology and capital intensive sectors like information technology, engineering, automobile etc. which mostly are automatic requiring less human resource.

How is the informal sector important for development?

  1. Livelihood: The Informal economy contributes significantly to production, employment and income generation in developing countries. It is a source of livelihood to a majority of poor and is an important means of survival for people in countries lacking proper social safety nets and unemployment insurance especially those lacking skills for formal sector jobs.
  2. Economic growth: Informal sector also contributes significantly to the output of developing countries.The informal economy is very large in developing countries, as formal sectors are not well developed and unable to absorb their available working population.
  3. Working conditions: Over recent decades, conditions for working people have undergone a major transformation. This has been due to the substantial rise in the proportion of people engaged in informal employment.
  4. Women empowerment: Due to the growth of the informal sector, many women have been employed. Informal sector provides flexibility to work. Due to the responsibilities of managing a house, women seek and find informal jobs best as it provides them with flexibility to work. At the time of pregnancy they can leave their job, if they want to focus on themselves. This flexibility allowed many women to get work.

How informalisation is detrimental to development?

  1. Hurdle to inclusive growth: Informal jobs often have low productivity and of low general quality. Informal workers lack proper wages and their wages are also less. Lower wages lead to increasing inequality, which is detrimental to inclusive growth.
  2. Lack of protection: Informal jobs are not under government supervision. Thus, they are not protected wrt the working hours, health and safety at the workplace. There is no guarantee that they would get wages on time and in full, as it is not embedded in any formal document that would ensure its validity.
  3. Lack of formal benefits: Informal workers lack welfare benefits such as healthcare, insurance, and education facilities. This leads to increased out of pocket expenditures on those things and extra burden on the poor.
  4. Reduces government revenue: Informalisation also reduces the tax base based on incomes of the employees. This reduces overall revenue and thus hinders public investment in infrastructure, economy and social welfare. This hinders the development of an economy.
  5. Reduced productivity: Contract labour has no affinity or loyalty towards the company. Therefore, it hampers productivity and economic development. Productivity of the economy decreases as a whole since companies lose the incentive to skill the employees, and focus on contractual workforce.

From above it can be concluded that informal employment although provides badly needed jobs for the poor, but it harms workers’ protection, earning predictability and social benefits. Arab spring is such an example, which began when a young street trader set fire to himself due to continued harassment and humiliation by the police. Thus, increased informalisation is detrimental as it impacts the long term goals. Steps must be taken to create more formal jobs.

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