Why In News: A recent report based on the Annual Survey of Industries (2022–23) highlighted that contract workers now make up over 40% of the formal manufacturing workforce in India—double the share from 1999–2000.
Introduction :
- India’s manufacturing sector has increasingly shifted to contract labour in recent decades.
- Though aimed at flexibility, over-reliance on such labour affects worker welfare and long-term productivity.
What is Contract Labour :
1.Under the Contract Labour (Regulation and Abolition) Act, 1970, contract labour refers to workers hired through a contractor for tasks in an establishment.
2. They may be unskilled, semi-skilled, skilled, or highly skilled. Contract labour falls into two broad categories:
- 1. Job-based contracts for specific tasks
- 2. Supply-based contracts for general labour
Consequences of Rising Contractualisation in the Formal Manufacturing Sector
1. Erosion of Worker Rights and Welfare
- No access to legal protections under national/international labour laws
- Denial of benefits like overtime pay, sick leave, holiday pay, social security, and pensions
- No continuity of employment or skill-building opportunities
- Lack of access to training, leading to lower workforce quality
2. Wage Disparities and Cost-Cutting
- Contract workers earn significantly less (e.g., 31% less in large enterprises)
- Employer labour costs are much lower (24% on average; up to 85% in some sectors)
- Rising contractualisation depresses wages of regular employees too
3. Decline in Productivity and Safety Standards
- Short-term contracts create high turnover and low investment in training
- CLI firms show 31% lower productivity than RLI firms (up to 42% in labour-intensive sectors)
- Safety issues more prevalent among contract workers, causing higher risks of accidents and illness
4. Structural Concerns
- Principal-agent problem: Employers and contractors have misaligned interests
- Tax and social contribution evasion is easier under contract labour arrangements
Policy Suggestions
Industrial Relations Code, 2020
- Allows direct hiring of fixed-term contract workers without intermediaries.
- Mandates basic employment benefits for non-regular workers.
Incentivising Longer-Term Contracts
- Offer concessions in social security contributions to firms using longer fixed-term contracts.
- Provide subsidised access to government skill programmes to boost worker retention and productivity.
Revive PMRPY Scheme
- Pradhan Mantri Rojgar Protsahan Yojana (PMRPY) supported formal job creation by covering the employer’s 12% contribution to EPF/EPS.
Effective implementation of law:
- The government must ensure effective regulation of contractual labour law.
UPSC Relevance
GS Paper 3 – Indian Economy:
- Employment trends and informalisation in the formal sector
- Labour reforms and regulatory frameworks (e.g., Industrial Disputes Act, CLRA Act, Labour Codes)
Q. “Contractualisation in India’s formal manufacturing sector is driven more by cost-cutting than by flexibility, leading to erosion of worker rights and stagnation in productivity.” Critically examine. (250 words)