Formalisation of India’s Labour Market
India’s vast working-age population presents a remarkable opportunity for economic growth and development. To fully capitalise on this demographic dividend, we must focus on creating formal jobs that are safe, productive, and well-paying. Currently, sectors such as agriculture, construction, wholesale and retail trade, manufacturing, and transport dominate India’s informal economy, accounting for 87% of all informal employment. The NITI Aayog, in its voluntary reporting of Sustainable Development Goals, has stated that approximately 80% of India’s workers are employed in the unorganised sector and more than 90% in informal employment.
Expanding formal employment can be achieved by addressing three critical areas in salaries: (i) the gap between gross and net wages; (ii) the disparity between real and nominal wages; and (iii) the differences between government and private sector wages. The government has launched several initiatives aimed at transitioning to a more formal labour market, including but not limited to— facilitating faster structural transformation and making the manufacturing sector the new growth hub under the ‘Make in India’ initiative; ramping up investments in connectivity, digital, logistics, and other infrastructure; nourishing MSMEs to enhance their productivity, competitiveness, and sustainability to create more jobs; reducing the cost of capital and implementing regulatory reforms to promote ease of doing business; enhancing the employability of youth and informal economy workers, alongside increasing the focus on fostering entrepreneurship, innovation, and startups.
Formalising the blue-collar sector
Formalising the blue-collar sector is essential for ensuring economic stability and growth. It brings numerous benefits for blue-collar workers, including:
- Legal Protection and Job Security: Formal employment ensures that workers are protected by labour laws, which safeguard their rights and provide job security. This reduces exploitation and unfair treatment in the workplace.
- Better Wages and Benefits: Formal jobs offer better wages and benefits such as health insurance, pensions, and provident funds. This improves the overall standard of living for blue-collar workers and their families.
- Skill Development and Career Advancement: Formal employment provides opportunities for skill development and career advancement. This enhances workers’ productivity and allows them to move up the career ladder, contributing to overall economic productivity.
- Social Security: Formalisation ensures that workers have access to social security benefits, which are crucial for their well-being and financial stability, especially during times of illness, injury, or retirement.
Government Initiatives
The government has launched several initiatives aimed at transitioning to a more formal labour market:
- Make in India: This initiative aims to make the manufacturing sector the new growth hub. By encouraging investment in manufacturing, the government seeks to create millions of formal jobs. This not only enhances productivity but also ensures better working conditions and wages for workers.
- Infrastructure Investments: Ramping up investments in connectivity, digital, logistics, and other infrastructure is vital. Improved infrastructure facilitates business operations, reduces costs, and attracts investments, leading to job creation in formal sectors.
- Nourishing MSMEs: Micro, Small, and Medium Enterprises (MSMEs) are crucial for job creation. Enhancing their productivity, competitiveness, and sustainability can generate more formal jobs. Providing MSMEs with access to capital, technology, and markets is essential for their growth.
- Regulatory Reforms: Reducing the cost of capital and implementing regulatory reforms to promote ease of doing business is necessary. Simplifying business regulations, reducing compliance costs, and providing incentives for formalisation can encourage businesses to transition from the informal to the formal sector.
- Enhancing Employability: Focusing on skill development is crucial for enhancing the employability of youth and informal economy workers. Initiatives like Skill India aim to provide training and certification to millions of workers, making them suitable for formal employment.
- Fostering Entrepreneurship and Innovation: Promoting entrepreneurship, innovation, and startups can create new job opportunities. Encouraging young entrepreneurs and providing them with the necessary support can drive economic growth and formal job creation.
As we continue to navigate these transformative times, our commitment remains steadfast in supporting the formalisation of India’s labour market. Formalisation of the labour market is not just a pathway to economic growth; it is a means to ensure social justice, equity, and improved living standards for millions of workers. By addressing salary disparities, implementing strategic initiatives, and fostering a conducive environment for business and innovation, we can create a prosperous future for all. Formalising the labour market is a critical step towards harnessing India’s demographic dividend and ensuring sustainable development. We look forward to partnering with stakeholders to drive this change and create a prosperous future for all.
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