Trends in Contract Labour in India's Manufacturing Sector
India's formal manufacturing sector has seen a substantial shift in employment structure over recent decades, with contract labour becoming increasingly prevalent.
Key Findings
- The share of contract labour in manufacturing has doubled from 20% in 1999-2000 to 40.7% in 2022-23.
- Contractualisation, while intended for flexibility, is often driven by cost avoidance, not genuine flexibility or skill access.
- Contract workers are excluded from core labour laws, weakening their bargaining power and making them vulnerable to exploitation.
- In 2018-19, contract workers earned 14.47% less than regular workers, with disparities more pronounced in large enterprises (31%).
- Contract workers' daily labour cost to employers was 24% lower than that of regular workers.
Impact on Productivity
- Contract labour-intensive (CLI) enterprises have 31% lower labour productivity compared to regular labour-intensive (RLI) enterprises.
- The productivity gap is more pronounced in small enterprises (<100 workers) at 36%.
- High-skill CLI enterprises have a productivity advantage of 5% to 20% over low-skill counterparts.
- Large capital-intensive CLI enterprises see a 17% gain in labour productivity.
Policy Recommendations
- The 2020 labour code aims to provide more hiring flexibility but faces criticism for potential job quality erosion.
- Incentivising longer fixed-term contracts and reviving the Pradhan Mantri Rojgar Protsahan Yojana (PMRPY) could reduce contract labour misuse.
- PMRPY had previously benefited over one crore employees by supporting employer contributions to pension and provident funds.
