Contractual Employment in India's Organised Manufacturing Sector

Contract workers have become a significant part of India's organised manufacturing sector, accounting for 42% of the workforce, the highest since 1997-98. This marks an increase of nearly 8 percentage points over the past decade.

Trends and Data

• Contractualisation has been on the rise, doubling from 20% in 1999-2000.
• Data from the Annual Survey of Industries (ASI) highlights this trend, with the latest figures released on August 27, 2023.

Implications of Contractualisation

• Contract workers often receive lower remuneration and fewer social security benefits compared to permanent employees.
• This trend is partly due to the easing of legacy labour laws at central and state levels, allowing companies to replace permanent workers with contract labour.
• According to Amit Basole from Azim Premji University, companies might hire more workers at lower wages, though it affects overall purchasing power negatively, as noted by Bino Paul from TISS.

Economic Perspectives

• The increased use of contract labour may hinder inclusive growth due to reduced purchasing power.
• There's a need for Indian manufacturing to shift from relying on cheap labour to focusing on innovation and productivity.
• The Employment-Linked Incentives (ELI) scheme aims to expand formal employment by providing incentives to employers and benefits to first-time employees.

Global Context and Comparison

• Globally, contract employment varies: around 10.8% in the US, 10-20% in Latin America, and 12.3% in Europe.

Legal and Historical Aspects

• The Industrial Disputes Act 1947 in India imposes significant costs on companies with over 100 employees for dismissals, influencing firms to remain small.
• A Supreme Court decision clarified that contract workers aren't automatically eligible for regular employment, increasing the use of contract labour.