Value Added Article: Labour in the Indian Economy | EPW

Relevance: GS Paper III



Segmentation of labour market

  • In India, labour markets are deeply segmented along caste and gender lines.
  • Members of the Scheduled Castes (SCs) or other oppressed groups are sometimes denied entry into certain occupations.
  • There are frequent instances in which workers belonging to oppressed castes are discriminated against, being paid lower wages or made to work for long hours.
  • Thus age-old social institutions continue to have a grip on the labour market despite the relatively fast growth of the Indian economy and modernisation of many of its segments.

Capital favoured over labour

  • Globally, economic changes that have occurred during the recent decades, set in motion by globalisation and neo-liberal economic policies, have favoured capital over labour.
  • This was in contrast to the period between the 1950s and 1970s during which the Keynesian policies of stimulating domestic demand through increased government expenditures had helped the “golden age of capitalism” to thrive. The working classes had made real gains during that phase.
  • On the other hand, from the 1980s onwards, the neo-liberal policy prescription of cutting government expenditures to a minimum has hurt the interests of the working poor.
  • Governments in developing countries, including India, have been unable to increase government expenditures to stimulate demand, even in the face of the 2008 global financial crisis.
  • The inability of present-day capitalism to absorb labour without dispossessing workers of their rights is the reason for the continuing expansion of the informal sector in developing countries.

Understanding of Informal Work

  • A striking feature of India’s labour market is the domineering share of the informal sector as a source of employment.
  • More than 82% of employment in the Indian economy is in the informal sector, that is, in enterprises that employed less than 10 workers.
  • Emergence of strong linkages between the formal and informal sectors can benefit the economy as a whole, with informal sector enterprises growing as ancillaries to or in subcontracting relations with the formal sector.
  • However, the relation between the formal and informal sectors has been rather weak in India, especially in the manufacturing sector.
  • Within the factory sector or organised manufacturing sector in India, there has been a rising share of contract workers or other informal workers, especially from the 2000s onwards.
  • Increasing employment of contract workers in place of regular workers reduce plant productivity and tend to depress the wages and bargaining strength of directly employed workers.

Female labour

  • There has been low rate of female labour force participation in India (and some other South Asian countries).
  • Policy interventions both at the supply and demand side to tackle this challenge are needed.
  • The supply-side interventions include creating institutions for improving women’s education and providing facilities such as childcare to ease the burden of domestic work.
  • The society and the economy undervalue the work performed by women within their own households.
  • If the official statistical agencies recognise cooking, childcare, and other activities performed by women within their own households as “work,” then work participation rate of women in India will be significantly higher than that of men.
  • Creating more employment opportunities in the economy will be crucial to boosting demand for women’s work.

Investment in labour

  • There is no doubt that the increase in the size of the working-age population offers a huge potential for India’s future economic growth.
  • However, “demographic dividend” requires investments in education and human development.
  • A large population could form the basis for a large market and a sizeable production base. In addition, an educated population can help in the creation of new knowledge. Clearly, India’s policymakers need to invest more in its people.


It is clear that in a country like India studies on labour will remain central to any attempt to understand the economy. Economists need take up research on questions of labour and employment growth in the Indian context.