India has traditionally been recognised as an economy with low labour force participation (especially women), with many resorting to agriculture or allied activities. To give context, when compared with its counterparts like China, the UK, Brazil, Germany, Russia, South Korea, or the US — where labour force participation rates (for persons of age 15 years and above) have been in the range of 60-65 per cent — India has remained in the 50-55 per cent category (like South Africa).

However, the recent release of the annual estimates of the PLFS 2022-23 suggests some changes that have been taking place in the labour situation in India. The labour force participation rate (LFPR) for population in age group 15 years and above has increased from 49.8 per cent in 2017-18 to 57.9 per cent in 2022-23. Since LPFR includes both the employed and unemployed, one can argue that this increase might be only due to an increase in unemployed people. But that is not the case. The two other indicators from PLFS indicate that the worker population ratio (WPR) has increased from 46.8 per cent to 56 per cent and the unemployment rate has declined from 6 per cent to 3.2 per cent during the same period. This augurs well for the economy and ensuing positive changes.

Another often cited argument has been about agriculture continuing to remain a major job provider in the country. The present PLFS further confirms that agriculture is the largest employer of the workforce — employing almost 45 per cent of workers — but its share is slowly declining in favour of non-agricultural sectors, especially post Covid. For instance, while the percentage of workers in the construction sector has increased from 12.1 per cent to 13 per cent from 2021-22 to 2022-23, the percentage of workers in the manufacturing sector has increased from 10.9 per cent to 11.4 per cent. These changes are indicative of sectoral changes taking place in labour market, though in small measure. These trends must be watched for a longer period.

One should not just look at the increase in labour force participation, but also the quality of jobs that are being created. In other words, it is critical to analyse where the increased participation is being manifested. The percentage of self-employed persons has increased from 52.2 per cent in 2017-18 to 57.3 per cent in 2022-23, whereas the percentage of regular wage employed persons decreased from 22.8 per cent to 20.9 per cent.

Viewed from a gender lens, it also seems that majority of the increase amongst self-employed has been amongst women since self-employment rate amongst women increased from 51.9 per cent to 65.3 per cent; amongst men, this rate increased only from 52.3 per cent to 53.6 per cent. This can be due to factors like greater flexibility of working hours in self-employment and increased entrepreneurial spirit among women, something that requires further analysis.

It has been argued at various fora that formalisation of Indian economy has been taking place at a much faster pace in the last 10 years. However, in contrast the results from PLFS indicate that the percentage of workers engaged in proprietary and partnership enterprises have increased from 68.2 per cent to 74.3 per cent from 2017-18 to 2022-23. In a country where we aspire for more formal jobs, a reverse trend is being witnessed where informality is increasing over time. The ILO report (2018), ‘Women and men in the informal economy: A statistical picture’, notes that informality is pervasive. However, as compared to developed countries in Europe and Americas — where about 25 per cent and 40 per cent employment is informal — developing counterparts like Asia and Pacific (with 68 per cent informal employment) have a much larger informal employment base. Therefore, while increasing the overall number of jobs is crucial, its quality cannot be overlooked.

This is not to suggest that all jobs that are being generated should belong to the formal sector, but a larger share of formal sector employment would be a better indication of overall improvement in the conditions of employment. The country has made some progress since the percentage of salaried employees in the usual status category having no written job contract has reduced from 71.1 per cent in 2017-18 to 58.6 per cent in 2022-23.

Paid leave

Further, employees not eligible for paid leave(s) have also reduced from 54.2 per cent to 46.8 per cent during the period. However, the percentage of employees without any social security benefits has increased from 49.6 per cent to 53.9 per cent. One of the key focus areas for the government should be to extend the coverage of social security benefits beyond regular wage workers to casual and self-employed persons. This can include extending the coverage of Ayushman Bharat Yojana for health benefits, Pradhan Mantri Jeevan Jyoti Bima Yojana for insurance coverage, and Atal Pension Yojana for pensionary benefits, the three most important social security schemes of the present government which ensure dignity of labour specially to those in the unincorporated sector.

Additionally, it should be kept in mind that increasing formal employment should not inhibit creation of informal employment. In other words, formality should be induced; not perforce since the objective is to maximise value-added and ensure participation of every willing person in productive employment. The government has taken various initiatives both at the enterprise and the employment level to encourage the process of formalisation through creation of Udyam portal, GST, e-way bills, e-shram portal, or other related efforts towards digitalisation.

PLFS is an important and critical source of information of labour market, but a holistic understanding can be developed when these results are supplemented by results from other surveys like annual survey of unincorporated sector enterprises, survey on incorporated organised services along with timely release of results of annual survey of Industries. All these data sets would be immensely useful in understanding the transition taking place in the economy and can help in planning interventions to make India a developed economy by 2047.

Ashish is former DG, MoSPI, and Distinguished Fellow, Pahle India Foundation; and Rishi is Research Associate, Pahle India Foundation. Views are personal

The government has taken various initiatives both at the enterprise and the employment level to encourage the process of formalisation.

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