On the rise: Share of contract labour at 42%, highest in over 25 years

Annual Survey of Industries shows 10th straight year of increase

Persons on contract now account for 42 per cent of India’s organised manufacturing sector workers, the highest it has been in at least 27 years in data going back to 1997-98.

 

It has risen nearly 8 percentage points in the last 10 years, shows an analysis of data from the Annual Survey of Industries (ASI). The last time it had degrown was in 2013-14 when it declined by around 0.6 percentage point. Contractualisation has risen every year since then, and in 2023-24, it was more than twice the 20 per cent share seen in 1999-2000.

 

A contract worker is often paid lower remuneration and has fewer social security benefits such as a provident fund and insurance. The ASI report enumerates employment in the formal manufacturing sector. The data for 2023-24 was released on August 27.

 

Increased contractualisation can be seen as an outcome of legacy labour laws being slowly eased at the central and state levels, noted Amit Basole, professor of economics at Azim Premji University. This has resulted in companies slowly replacing legacy permanent workers with a contractual labour force. Slackness in the labour market also ensures that companies have enough supply of labour willing to work on contractual basis. There is an argument that companies spending less per worker may also mean that they are able to hire more workers, though at a lower wage, noted Basole. 

 

Higher productivity and growth can also result in increased demand for labour, which can be as effective as a legal mandate in creating a better deal for workers.

 

"That process has to happen through job creation," he said. 

 

There is an increasing prevalence of contractual work and a stagnant real wage, noted Bino Paul, professor, School of Management and Labour Studies at the Tata Institute of Social Sciences (TISS) in Mumbai. While this is a positive for profitability, it adversely impacts inclusive growth because of a contraction in purchasing power, he suggested.

 

“Unless Indian manufacturing shifts from the comparative advantages of cheap labour to real economies of innovation and productivity, the contractual labour force will continue to expand. Perhaps the recently announced employment-linked incentives (ELI) policy will provide incentives for expanding formal employment,” he said.

 

The Cabinet cleared the ELI scheme in July. First-time employees will get one month’s wage of up to ₹15,000 under the policy, according to a government statement. Employers can get incentives for two years with extended benefits for another two years for the manufacturing sector.

 

Global studies have shown varying levels of contract employment in different countries. A 2023 study pegged it at 10.8 per cent in the US. Latin American countries like Brazil and Argentina have seen numbers ranging from under 10 per cent to 20 per cent at various times, according to a 2016 study, which pegged the number in Europe at 12.3 per cent.

 

India’s Industrial Disputes Act 1947 imposes large costs on companies with more than 100 workers firing anyone, and also subjects owners to fines and potential jail time. This is said to have contributed towards keeping firms small in India, according to an August 2021 paper, “Contract Labor and Firm Growth in India”, from authors including University of Chicago’s Marianne Bertrand and Chang-Tai Hsieh, and Nick Tsivanidis from the University of California at Berkeley.

 

A Supreme Court decision clarifying that those on contract do not necessarily become eligible for regular employment is said to have contributed to increased use of contract labour.

 

“…there was a discrete change in the use of contract workers by large firms, in the employment share of large firms, and in the gap in labour productivity between large and small firms after 2001,” it said.