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
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 --> F K --> 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
-
Women empowerment in India needs gender budgeting. What are the requirements and status of gender budgeting in the Indian context?
Next question in the 2016 paper (Q2). View answer →
-
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.
-
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.
PYQ trend
When UPSC asked this
Related PYQs from other years, newest first. Open a question to read it.
-
2016 · Q3 · GS III · 12 marks
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. -
2016 · Q4 · GS III · 12 marks
What are 'Smart Cities'? Examine their relevance for urban development in India. Will it increase rural-urban differences? Give arguments for 'Smart Villages' in the light of PURA and RURBAN Mission. -
2016 · Q5 · GS III · 12 marks
Justify the need for FDI for the development of the Indian economy. Why there is gap between MOUs signed and actual FDIs? Suggest remedial steps to be taken for increasing actual FDIs in India. -
2016 · Q12 · GS III · 12 marks
Discuss India's achievements in the field of Space Science and Technology. How the application of this technology has helped India in its socio-economic development? -
2016 · Q13 · GS III · 12 marks
Why is nanotechnology one of the key technologies of the 21st century? Describe the salient features of Indian Government's Mission on Nanoscience and Technology and the scope of its application in the development process of the country. -
2016 · Q20 · GS III · 12 marks
Use of internet and social media by non-state actors for subversive activities is a major security concern. How have these been misused in the recent past? Suggest effective guidelines to curb the above threat. -
2015 · Q1 · GS III · 12 marks
The nature of economic growth in India in recent times is often described as a jobless growth. Do you agree with this view? Give arguments in favour of your answer. -
2015 · Q2 · GS III · 12 marks
Livestock rearing has a big potential for providing non- farm employment and income in rural areas. Discuss suggesting suitable measures to promote this sector in India.
More from this paper
Q2 · UPSC Mains 2016 · GS III · 12 marks
Women empowerment in India needs gender budgeting. What are the requirements and status of gender budgeting in the Indian context?
Government Budgeting
Gender budgeting tags and tracks public money so women actually benefit from general and specific schemes. Requirements are sex-disaggregated data, a Gender Budget Statement, trained cells, outcome targets and audit. India began a Union Gender Budget Statement in 2005-06; States have followed unevenly. Part B allocations are often notional and beneficiary data remain weak. Empowerment will follow when outcomes, not only rupee annexes, are audited.
Q3 · UPSC Mains 2016 · GS III · 12 marks
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.
Indian Economy
PMJDY (2014) gives a zero-balance account, RuPay card, overdraft and basic insurance to the unbanked. It is necessary because Direct Benefit Transfer and later credit need a bank identity. It helps the poor by cutting leakage and offering a cheaper alternative to informal lenders. Dormant accounts and weak last-mile cash-out remain the main gaps. Inclusion is complete only when the account is used and credit and insurance actually work.
Q4 · UPSC Mains 2016 · GS III · 12 marks
What are 'Smart Cities'? Examine their relevance for urban development in India. Will it increase rural-urban differences? Give arguments for 'Smart Villages' in the light of PURA and RURBAN Mission.
Indian Economy
Indian Smart Cities combine area-based works and pan-city ICT for water, mobility, housing and e-governance. They are relevant because cities are congested, under-serviced and economically central. If capital stays in 100 cities, rural-urban differences will widen. PURA sought urban amenities in rural clusters through four connectivities. The 2016 Rurban Mission is the present cluster vehicle for Smart Villages alongside city Missions.
Toppers' copies
Toppers' copies for this question will be uploaded soon.