Article: The state of contract labour in India

Employee Relations

The state of contract labour in India

Many companies in India often resort to contractual labour to bring down their employee costs. But what has been the impact on contract workers due to such a change?
The state of contract labour in India

The efficient and smooth functioning of the labor markets in an economy is a vital macroeconomic phenomenon which ensures wage growth while allowing businesses to have access to quality talent. In India, this is ensured through multiple laws and legislatures that are in place to regulate the labor markets today.

But as external conditions evolve, so do business processes and in turn their human capital structure. In the recent few years, Indian companies have had to undergo similar changes. Increasing competitiveness along with the evolving application of newer technologies have significantly revamped business models. One of the key features over the last decade has been the increasing dependence of the formal sector on contract laborers to ensure profitability and sustenance.

The rise of contract labor

With the tightening nature of business performance, the use of contract labor has gone up in various industries. Labor costs often become a significant amount, directly influencing the bottom line performance of the company. And with many sectors of the economy facing disruptions and a certain level of unpredictability, many opt for contract labor rather than hiring permanent workers. Treating labor costs as a variable rather than a fixed expenditure every year has partly been the reason behind why industries have increasingly been preferring contract laborers.

Companies, both private and government-run, have certain advantages when it comes to employing workers on a contractual basis. According to a PTI report, the share of contract workers in Maruti Suzuki’s total workforce has grown from 32 percent in 2013-14 to 42 percent in 2015-16. In government-owned bodies like Coal India, around 55 percent of the 537 million tonnes of coal mined during 2015-16 was done by 65,000 contractual workers. This ratio is poised to only go up in the coming years.

Besides paying significantly low wages as compared to permanent workers, companies don’t have to offer any other benefits that it would have to give their full-time employees as stipulated by various laws. It also helps companies bypass dealing with trade unions and provides them with an agile talent pool that can be used whenever required.

Contract labor in India, according to many has also grown in recent times due to stringent labor laws in Indian that made it difficult for them to fire workers. Many experts have pointed out how acts like the Industrial Disputes Act provided workers and unions certain job guarantees that the company by-passes by going for contract labor. But such an uncharted growth has repercussions of its own: every year a larger percentage of the working population finds itself employed in conditions that are unregulated with little to no job satisfaction.

To offset the negative impact of excessive dependence on contract labor in its current unregulated state, the government in 2016 proposed to extend the option of “fixed-term employment” to all the sectors. An option initially limited solely to the apparel manufacturing industry was recently amended by the Labour ministry to be available for all sectors.

Is fixed-term employment the solution?

The concept of fixed-term employment defines the tenure of employment as well as other associated conditions of service and remunerations, which are provided to regular employees under various labor laws. The worker gets employed for a short period and will have access to better working and service conditions as compared to a contract worker. With this move, the government has sought to provide some structure to the way workers are hired.

Aimed at formalizing the interaction between them and their prospective employers, the benefits of such a move remain debatable. With permanent employment becoming a hindrance to easy access to talent on a project basis, fixed-term employment is looked on by many as a solution. It stipulates a limited period of employment and can only be given out for jobs which are deemed temporary. The contract clearly defines details of employment like tenure, nature of service and remuneration which might be similar to the ones provided to full-time employees of the company. It also provides certain guarantees to workers like a two-week notice, depending on the nature of the contract. But it also provides companies with the flexibility to not renew contracts, which would lead to automatic termination, is not applicable for temporary workmen. Although many have welcomed the move, the impact of such a transition is yet to be felt. Contractual employees still remain a forgotten statistic in many employment debates and surveys. 

It is also important to note that the rise of an agile workforce across the world is playing out quite differently in India.  A superficial look might indicate similarities between the current conditions and the much-touted advent of ‘gig economy,’ but the reality seems to be far from it. Gig economy is based on the principle that an educated, skilled, and healthy workforce should be able to take any job role or ‘gig’ and contribute to economic growth, many of such gigs being contractual or temporary. But that is far from the case here. Majority of India’s workforce remains low-skilled and as a result are only able to access contractual jobs which remain transactional and low paying. Policies promoting social security and job security are required. These should be supplemented by policies supporting skill creation and improvements in health and education.

Increasing the percentage of the contractual workforce in the formal sector also raises doubts about the nature and sustainability of employment growth. Because contract workers are fired easily, its increasing numbers reflect deterioration in the standard of jobs generated in India.

In addition to creating policies that benefit the contractual workforce to build their skill and live healthy lives, monetary implementations, like the recent enforcement of minimum wage payment in the states of Delhi and Karnataka would help ensure that contract labour working within the formal sector have ways to mitigate the uncertainty that comes with the nature of their work while also helping companies to have access to a well-trained contractual workforce.


Image Credits: Optimy Wiki

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Topics: Employee Relations, Skilling, #IndustrialRelations

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