Revision summary
After 1991, trade opening, flexible staffing and capital-intensive technology cut regular factory hiring. Services-led growth and a freeze on public recruitment added few mass formal jobs. Informal work absorbed labour but kept wages, social security and productivity low. A large informal sector also limits tax and social-insurance reach. Development needs formalisation of growing firms, not permanent dualism.
Model answer
Copper italics in this answer — like this — are the key facts. Each one is unpacked in the Facts & figures rail.
Introduction
Globalization after 1991 opened trade, capital and technology. Formal factory jobs did not rise in step with output. Firms met global competition by cutting regular payroll, using contract labour, and shifting work to unregistered units. Informalization can absorb people in the short run. It is detrimental to development when it becomes the main growth path, because it weakens wages, social security and tax capacity.
Body
How globalization cut formal employment
- Import competition after tariff cuts forced many small organised units in textiles, engineering and consumer goods to close or to stay below the factory-act threshold.
- Export and multinational buyers demanded flexible, low-cost labour. Firms answered with contractors, trainees and home-based chains rather than permanent staff.
- Capital-intensive technology and imported machines raised output with fewer shop-floor workers, so organised manufacturing's job elasticity stayed low.
- Growth after 1991 was services-led. Information technology and finance created some formal posts, but most new urban work was in construction, retail, transport and domestic services that sit outside provident fund and Employees' State Insurance.
- Rigid Industrial Disputes Act exit rules and inspector raj made employers avoid crossing the worker-count that triggers standing orders, so units stayed small and informal by design.
- Public-sector disinvestment and freeze on regular recruitment shrunk a historic source of formal jobs, while contract staff filled the same desks.
Is increased informalization detrimental?
- Informal work gave a livelihood cushion when farms shed labour and organised industry did not hire. That is not the same as development.
- Informal workers lack minimum wage enforcement, written contracts, maternity cover and old-age security, so household risk stays high and human capital is under-invested.
- Informal firms have weak access to bank credit, technology and export standards, so productivity stays low and India misses the manufacturing-jobs ladder seen in East Asia.
- A large informal base shrinks social-security contributions and income-tax reach, which limits the State's ability to fund health, skills and infrastructure.
- Some informalization is statistical: own-account work and micro units that GST and Pradhan Mantri Jan Dhan Yojana may later formalise. That transition is useful; a permanent dual labour market is not.
- Development needs a shift from informal survival to formal, productive jobs, with contract labour used as a bridge, not as the destination.
Way
- Ease exit and compliance for genuine firms so they grow above the informal threshold, while enforcing core labour standards on contractors.
- Use Make in India, skill missions and MSME credit so global value chains hire in India with papers, not only through unregistered suppliers.
Flow diagram
flowchart TD G[Globalization] --> T[Import competition] G --> C[Flexible contract labour] G --> K[Capital intensive tech] T --> F[Fewer formal jobs] C[C] --> F[F] K[K] --> F[F] F --> I[Informalization] I --> D[Weak security and productivity]
Conclusion
Globalization raised output and some skilled services jobs, but it also pushed employers to shed regular factory posts and to use informal chains. Informalization is a shock absorber, not a development strategy. India develops when global integration is paired with formal, productive employment.
Quick related
Students also ask
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Pradhan Mantri Jan Dhan Yojana (PMJDY) is necessary for bringing unbanked to the institutional finance fold. Do you agree with this for financial inclusion of the poor section of the Indian society? Give arguments to justify your opinion.
Next question on this syllabus topic (2016 · Q3). View answer →
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Did globalization create no jobs at all?
It created output and some skilled services jobs. The problem is that regular, protected factory employment did not grow with output.
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Is every informal job bad?
No. Own-account work can be a start. It becomes detrimental when it is the permanent, low-productivity majority of employment.
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