Labour Force and Indian

Economy
By
Dr. Shekhar
krishna.shekhar@imsgzb.com
9868729476
 The Indian economy
• The history of economy and its labour force in
the post-independence period can be divided
into two phases:
i. The import substitution era post
independence (1947 to 1991), and
ii. The era of economic liberalization (1991 - ).
• At the time of independence existing industrial
base was substantially diversified under the
government’s heavy industrialization strategy –
particularly form the mid 1950’s to end of 1960s.
• This period saw the public sector being accorded
the dominant role in the growth of the economy.
• Then followed the government’s policy of self-
reliance and import substitution in the 1970 and
early 1980s.
• In this period several east Asian and south –east
Asian countries pursued export-oriented
industrialization strategies.
• In India domestic industry was protected in product
markets and labour in labour markets.
• India, therefore, did not grow as fast as the rest of
Asia. India’s economic, industrial, and political
significance in the region and in the world declined.
• The changes in government policies can be seen in the
references of First National Commission on Labour and
Second National Commission on Labour appointed in
1966 and 1999 respectively.
• In the 1st NCL it was asked to recommend measures to
improve the conditions of labour, the 2nd NCL was
asked to suggest labour law reform to align labour
policies with the requirements of the product market
and to recommend an umbrella legislation for the
unorganized labour.
• Post – 1991, the rate of economic growth,
particularly in the industrial and service sectors,
has picked up while employment in the organized
sector has stagnated in relative terms.
• With economic liberalization, both labour and
capital feel less protected or even unprotected.
• The next table reflect some of the major changes
in the economy that influenced the dynamics of
the labour-management relations.
• The Indian economy is still characterized by a
sharp rural - urban divide in terms of its
structure and composition of both industries and
workforce.
 Changes in the scenario, before and after economic liberalization
Before liberalization
• State sponsored and state-mediated
development
• Protected domestic market
• Budgetary and directed institutional
resource allocation
• Subsidies and administered price
regime
• Welfare state active in labour market
• Systematic de-casualisation of jobs
• Largely govt. funded social security
and welfare programmes for a few
• Stable governing structure and policy
regime
• Stable, though obsolete, labour-
intensive technologies
• Dominant status of manufacturing
After liberalization
• Market led and private enterprise
dominated
• Competitive market
• Competitive capital market-led
resource allocation
• Rational pricing, including user
charges
• Labour –neutral and investment-
friendly state policies
• Fast re-casualisation and
contractualization of jobs
• Crisis of sustainability of social
security welfare programmes and
pressure for security measures for all
• Crisis in governance and fear of
political and economic instability
• Micro-electronics-led new generation
capital and skill intensive
technologies
• Threat of deindustrialization and
rapid growth of the service sector
 Labour & economic planning
• The objective of the labour policy in economic planning can be
classified into two categories : i. plan era; ii. Transition-to market
era.
• In the first seven Five Year Plans (1951-1991) focused on the
following objectives in relation with labour: - Plan era
• improving the condition of labour and the welfare of workers
• Prevention and settlement of industrial disputes and
maintenance of industrial peace and harmony.
• Controlling industrial growth to prevent concentration of
economic power in the hands of a few and reducing income
disparities among individuals and regions
• Workers education
• Workers participation in management
 Transition to market era
With the transition to a market economy (1991 – to date), the
need has arisen for aligning industrial relations policies with
industrialization strategies. This calls for:
• Facilitating the growth of enterprise and entrepreneurship and
aligning labour policies with economic policies
• a shift in policy focus from organized labour (7%) to
unorganized labour (93%)
• reform of labour laws and labour policies in the wake of
globalization – 2nd NCL reference
• A shift in emphasis from job security to income security and
social safety measures
• Concern for skills development, productivity, and
competitiveness
• a shift in government role from control to facilitation
 Tertiarization of the Economy
• Economic activities are classified into three sector: primary,
secondary, and tertiary.
• To begin with most economies are engaged in primary
(agricultural) activities.
• As industrialization takes place the secondary
(manufacturing) sector comes to account for the bulk of
employment and GDP.
• Post –industrialization, the tertiary (service) sector become
the major provider of jobs and the main source of GDP and its
growth.
• In India, since the mid-1980s, the service sector has been
growing fast.
 .

• Tertiary sector currently account for the bulk of employment

and GDP.
• In India, the workforce is an estimated 400 million in which
still 58% are engaged in agriculture and contributes merely
quarter of GDP.
• Nearly 18% are engaged in industry and contributes 26% of
GDP.
• The remaining 23% of the workforce is in the tertiary sector –
steadily growing – contributes roughly half of the GDP.
• The tertiarisation of the economy requires new skills and new
work values and, in some cases, new forms of employment
and work organisation.
 Sector-wise share in employment
and GDP, 1983 and 2000
Sector Share in Share in GDP Share in Share in GDP
employment 1983 employment 2000
1983 2000
Primary 69 38 60.4 25
(Agriculture
Secondary 13.8 26 16.8 26
(Manufacturing)
Tertiary 17.2 36 22.8 49
(Service)
Total 100 100 100 100
 Labour force in India: structure,
composition, and trends
• The diversity of the Indian industrial workforce makes
it difficult to generalize its profile.
• Only 13% of the labour force is in regular wage
employment and barely 7% in the organized sector
and 4% in unionized.
• The growing tertiarization of the economy is
accompanied by casualization.
• Thirty-six percent of population is not literate.
Therefore, substantial proportion of labour force is
illiterate.
 Labour Force Profile, 2001
2001
Population  1 billion
Labour force/ workforce  400 million
Organised sector / formal sector 7%
Unorganised sector/ informal sector 93%
Self-employed 55%
Regular workforce 13%
Casual workforce 32%
Employment in government and public sector 18 million
Employment in private sector 9 million
Unionized workforce/ union density 4%
Workforce covered by collective bargaining 2%
 .
• 93% of India’s labour force is in the unorganized
sector
• 55% is self employed and only 13% is in regular
wage employment
• About a third of the labour force is in casual
employment
• Casualisation of labour is growing due to
economic leberalization, changes in ownership
and technology, cost-cutting competitive
strategies of employers and the government’s
investor-friendly orientation.
 Trends in employment
The following are the most common trends in the
employment pattern:
• Declining stability and security in employment
• Declining labour intensity
• A growing irregular labour force due to extensive use
of casual, contract, contingent, part-time, temporary,
fixed term, job-sharing, a typical non-core/
peripheral labour
• Increase in home-based work and the consequent
blurring of the gap between work and home when
work is home and home is work
• Declining influence of trade unions
 Trends in the labour market
The major trends in labour market are:
• Recruitment ban/ squeeze in public sector and government
employment
• Increasing open unemployment
• Growing causalisation and contractualisation of labour
• Emergence of global chains splitting production processes
into different parts dispersed over several locations
• Mergers, acquisitions, divestures, and other ownership
changes and consequential pressure on doing more with less
• Significant workforce reduction in both the public and private
sectors.
 Labour in the Old Economy & the New Economy
• In discussions on labour issues often a distinction is
made between the old economy (offshoot of the
industrial revolution) and the new economy
(offshoot of IT revolution).
• People power is assessed not by their number but by
their quality.
• Increasingly, brawn power is being replaced by brain
power.
• The transition warrants a changes in the
management philosophy based on the direction and
control of consensus and commitment
 Paradigm shift in Labour Power and
Management Control
Aspect Primary/ Secondary/ Tertiary Service/
Agriculture Manufacture High Tech
Wealth base Land Money/Capital Mind/Knowledge

Human energy Brawn/Muscle Machine tending skill Brain/Mind

Relationship Master and Servant Employer-employee Partnership

Leadership authoritarian paternalistic Consultative/partnership

Motivation Fear Favour Fairness

Communication Top down/ one way Two way Open/transparent

Productivity Hard work/ control over Hard work/ control over Smart work/ control over
work and worker worker work result/
empowerment
Employment development Inducement Investment Involvement

Management approach Direction and control Direction and control Consensus and
commitment