Subject: Economy

Globalization's impact on India's formal employment sector and the implications of increasing informalization present a complex economic challenge requiring careful analysis.

Impact of Globalization on Formal Employment

• Technological Disruption: Introduction of automation and AI through globalization has led to job displacement in traditional manufacturing sectors, pushing workers towards informal employment.

• Competitive Pressures: Global competition has forced companies to adopt cost-cutting measures, leading to:

  • Outsourcing of non-core activities to informal contractors.
  • Contract-based employment replacing permanent positions.
  • Reduction in formal workforce to maintain competitiveness.

• Structural Changes: The economy has witnessed:

  • Shift from labor-intensive to capital-intensive production.
  • Growth of gig economy platforms replacing traditional formal employment.
  • According to recent data, over 90% of India's workforce is now employed in the informal sector.

Implications of Increased Informalization

Negative Impact

• Economic Vulnerability:

  • Limited social security and worker protection.
  • Irregular income patterns affecting consumption and savings.
  • Higher poverty rates among informal workers, particularly in urban areas.

• Productivity Challenges:

  • Informal sector contributes only 44-50% to GDP despite employing majority workforce.
  • Limited access to credit and technology hampering growth.
  • Reduced tax base affecting government revenues.

Positive Aspects

• Employment Generation:
  • Acts as a buffer during economic downturns.
  • Provides livelihood opportunities to unskilled workers.
  • Enables entrepreneurship at grassroots level.

Way Forward

• Policy Interventions Required:
  • Implementation of e-Shram portal for better informal sector mapping.
  • Strengthening Skill India Mission for workforce upskilling.
  • Expanding social security coverage through schemes like PMJJBY and PMSBY.

The increasing informalization, while providing employment flexibility, poses significant challenges to India's developmental goals. A balanced approach focusing on formalization through digitalization, skill development, and social security expansion is crucial for sustainable economic growth and worker welfare.