Has Labour Rigidity Slowed Down Employment Growth in Indian Manufacturing?

Abstract

AbstractThis paper contests the widely cited argument that the slow expansion of manufacturing employment in India has been on account of the rigidities in the country’s labour market. The growth of employment in India’s organized manufacturing sector, which remained stagnant at 8–9 million between the early 1980s and the early 2000s, accelerated to reach 15 million by 2017–18. Nevertheless, employment in the manufacturing sector as a whole (organized and unorganized sectors combined) decelerated, especially during the recent years (from 61.3 million in 2011–12 to 60. 2 million in 2017–18). These figures point out that there has indeed been a sharp downward fall in the growth of employment in India’s unorganized manufacturing from the mid-2000s onwards. There is little support for the argument that labour regulations had been the hurdle to the growth of manufacturing employment. In fact, even within the organized manufacturing sector, contract workers or workers who are outside the purview of the labour laws accounted for close to 70% of the net increase in employment since the 2000s. The reasons for the lacklustre performance of the manufacturing sector in India lie outside the sphere of labour. To begin with, the slowdown in the growth of investment, especially since 2007–08, created severe bottlenecks for industrial expansion, especially for the small units. The other major constraints include inadequate access to bank credit for the small firms and the increasing dependence of India’s manufacturing growth on imported components. Greater domestic investment and well-directed industrial policies are important to achieve faster generation of decent jobs in Indian manufacturing.