Understanding Labour Market Flexibility in India: Exploring Emerging Trends in Employment (Report‪)‬

Abstract The debate on labour market flexibility has received a lot of attention in recent years. It is argued that rigidity in the labour market affects economic growth and, perhaps, is the reason for unemployment. Some contend that the inflexibility pervading the Indian manufacturing sector is due to strict labour laws, which affects the growth of firms and, thus, obstructs the prospects of overall growth of the Indian economy. According to this view, bringing more flexibility to the labour market may generate two results: more jobs and significantly higher economic growth. On the other hand, some doubt the veracity of the pro-flexibility argument, finding little evidence to substantiate the claim that labour protection leads to unemployment. According to the critics of the proflexibility view, labour market flexibility has no significant effect on output and employment creation; but, instead, it results in redistribution of income in favour of the capitalist class. Moreover, they point out, contract labour and casualisation of work have become ways in which employment is created in India, leading to redistribution of income from workers to employers. Further, trends indicate that there is a steady decline in organised sector regular employment while informal workforce in the sector is on the increase, clearly pointing to the phenomenon of informalisation of organised sector. Interestingly, across almost all Indian states, there is an increase in employment through contractual arrangements in the Indian factory sector, indicating increased flexibility in the Indian labour market. In the backdrop of the debate, this paper views that the need for reforms to have more flexibility in Indian labour market is devoid of a rigorous factual base. It appears that the Indian labour market is already rendered flexible due to core phenomena, such as presence of vast informal sector, continued informalisation of formal sector and lack of strict imposition of labour laws.