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Employment, Unemployment And Labour Laws in India-Emerging Issues and Challenges
 DR. TARUN DAS, Economic Adviser, Ministry of Finance, India.
 Abstract  Despite various studies done in India indicating tangible benefits from liberalisation of labour markets, Indian labour laws still remain highly restrictive due to political economy constraints. India has not achieved remarkable improvement in manufacturing  growth. Although industrial output has grown at a faster rate than before, employment  growth has decelerated in the recent years. This suggests that labour reforms arenecessary to allow for larger investments in manufacturing. Manufacturing growth iscrucial for the absorption of semi-skilled and unskilled workers and to reduce thedependency of labour on agriculture, which employs 58% of labour force but contributesonly 20% of GDP.
1.
Labour Force and Unemployment
India’s labour force is estimated to be approximately 375 million in 2002 and is expectedto increase by 7 to 8.5 million per year in the first decade of this century and will increase by a total of about 160-170 million by 2020, i.e., 2.0 percent per annum. Approximately35 million persons in 2002 are unemployed of which approximately three-fourth of theunemployed is in rural areas and three-fifth among them are educated. (PlanningCommission: Vision 2020).As per the estimates made by the Planning Commission on the basis of NSSO surveys,overall unemployment rate declined from 8.3 percent in 1983 to 6 percent in 1993-94 butincreased to 7.3 percent in 1999-2000 (
Table-1).
There were similar trends in both ruraland urban sectors with urban unemployment rates being higher than rural unemploymentrates every year. During 1993-2000, the rate of increase of unemployed persons in therural areas at 5.3 percent was significantly higher than that at 3.5 percent in urban sector.This was due to basically stagnation of agricultural employment during this period.
Table-1: Past and present macro-scenario on employment and unemployment(CDS Basis) (Person years)
(Million)Growth per annum (%)19831993-941999-20001983 to 1993-941993-94 to1999-2000All IndiaPopulationLabour ForceWorkforceUnemployment Rate (%) No. of unemployed7182612398.3228943363166.02010043633377.3272.02.42.7-0.12.01.31.14.7Source: Planning Commission
 1
 
Persons employed are categorized into three main groups viz. self employed, regular wage/ salaried and casual labour.
Table-2
indicates that more than half of the employedin the rural areas are self-employed, and the proportion of self-employed in the ruralsector increased for both males and females in 1990-2000, while casual employmentremains more or less invariant. In the urban area, the proportion of self employed slightlyincreased for males but decreased appreciably for females. On the other hand, the proportion of the regular wage earners decreased for the males but increased for females.
Table-2 Percentage distribution of usually employed by status of employmentMalesFemales1990-91 2000-01 1990-91 2000-01Rural
Self-employed 55.7 58.9 58.6 59.3Reg.wage/ salaried 12.8 9.5 3.8 3.2Casual labour 31.5 31.6 37.6 37.5Total 100.0 100.0 100.0 100.0
Urban
Self-employed 40.7 41.4 49.0 44.4Reg.wage/ salaried 44.2 41.1 25.9 31.5Casual labour 15.1 17.5 25.1 24.1Total 100.0 100.0 100.0 100.0
2.
Open unemployment and underemployment
Open unemployment is not a major problem in India. Out of a labour force of 406million, 397 million were employed leaving 9 million openly unemployed in 2000.However, employment is characterized by very low quality of employment and lowlevels of productivity. About 31 percent of the employed live blow the poverty line. Thereis no significant growth of regular employment. Organised employment as a proportionof total employment declined from 9 percent in 1993-94 to 7 percent in 1999-2000.Significant employment is taking place in services sectors and small and mediumenterprises. Main growth was observed in casual or contractual employment. Self-employment has not also increased significantly during 1993-2000. Educatedunemployment at 14.7% is much higher than normal unemployment at 2.2%.3.
Sectoral composition of employment
As per the results of the latest full survey (55
th
Round in 1999-2000), the rate of employment growth decelerated from 2.7 percent per annum in 1983-1994 to 1.1 percent per annum in 1994-2000 (
Table-3
). The decline in the employment growth rate in the1990s was associated with a higher growth in GDP indicating a decline in the labour intensity of production. Some of the important findings emerging from the 55
th
Round(1999-2000) are:2
 
(a)The decline in the growth rate of employment was associated with a sharp decline inthe growth rate of the labour force.(b)As in the past, the share of casual labour in total employment went up.(c)The number of unemployed increased from 20 million in 1993-94 to 27 million in1999-2000.(d)The decline in the employment growth in 1994-2000 was attributable to a stagnationof employment in agriculture, resulting in a drop of the share of agriculture in totalemployment from 60 percent in 1993-94 to 57 percent in 1999-2000.(e)On the other hand, employment growth in all the sub-sectors within services, such astrade, hotels, restaurant, transport, storage, communication and financial and business services, (except community, social and personal services having negativegrowth rate) exceeded 5 percent per annum (
Table-4)
. This refutes criticisms bysome economists that the substantial growth of the service sectors have createdunemployment. In fact, services are not only fastest growing, but also moreemployment generating. Consequently, the share of service sectors in employmentincreased from 21 per cent in 1983 to 26 percent in 1999-2000.
Table-3: Employment growth rates in 1972-2000 (percent)
Average Annual Growth rate (percent)PeriodPopulation Labor forceEmploymentGDPEmploymentElasticity w.r.t.GDP1972-19782.272.942.733.90.711977-19832.192.042.17
4.0
0.541983-19882.141.741.544.90.311987-19942.102.292.43
5.6
0.441994-20001.931.031.076.00.18
 Source:
Planning Commission, Government of India.
Table-4 Sectoral Employment in 1983 to 2000
Employment (percent to total)Annual growth rate (%)Sector 
19831987-881993-941999-001983to1987-881987-88to1993-941983to1993-941993-94to1999-00
Agriculture63.260.160.456.71.82.62.20.02Mining & quarrying0.70.90.80.77.41.03.7-1.9Manufacturing11.611.911.112.13.61.22.32.6Electricity, gas, water0.30.30.50.32.97.25.3-3.6Construction3.04.43.54.412.1-1.44.25.2Trade, hotels, restaurant7.68.38.511.14.93.03.85.7Transport, communication2.93.03.14.13.23.53.45.5Financial, real estate0.91.01.11.44.74.54.65.4Community/social services9.810.111.19.23.64.13.6-2.1All Sector1001001001002.92.52.71.1
 Source:
Planning Commission, Government of India.
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