How globalization has led to the reduction of employment in the formal sector of the Indian economy? Is increased informalization detrimental to the development of the country?
Approach · directive: “how / is … detrimental”
What it asks · Explain the channels through which opening to global competition held back formal-sector jobs, then take a reasoned position on whether the rise of informal work harms development.
The question has 2 parts — answer each
- Explain how globalisation has reduced employment in the formal sector of the Indian economy
- Is increased informalisation detrimental to development: take a reasoned position with both sides
Open with · Since 1991 output has grown faster than secure, contract-based jobs, and most Indian workers now work without written contracts or social security.
Cover
- Capital-intensive growth: import competition and new technology let organised firms raise output with fewer workers, so growth outran formal job creation.
- Contractualisation: to match global prices, firms hire contract and casual labour through contractors, so informal workers now sit inside organised units too.
- Restructuring: weak units closed or shrank under import competition, public sector jobs were pruned, and services growth favoured skilled work in IT and finance.
- Value chains and outsourcing: production is pushed down to small units, home-based and piece-rate workers, with lower wages and little protection.
- Detrimental: low productivity and wages, no social security, a narrow tax base, weak skill formation, little bargaining power and heavy exposure to shocks.
- Counterview: informal work absorbs surplus labour and supports livelihoods; the problem is low productivity and lack of protection, not informality as such.
- Way forward: labour-intensive manufacturing, formalising MSMEs, skilling, portable social security for all workers, and reform of rigid labour rules with safeguards.
Close with · The aim should be more formal jobs together with decent, protected informal work, so that workers gain from globalisation instead of only bearing its costs.
Add value (verified)
- NCEUS (2007): informal workers, inside and outside the organised sector, made up 92 per cent of India's total workforce. ↗“These workers are engaged not only in the unorganised sector but in the organised sector as well. This universe of informal workers now constitutes 92 percent of the total workforce.”
Question: UPSC's CS (Main) 2016, GS Paper III — paper ↗. Approach: Minimalist IAS, checked 30 Sept 2026 (how we verify) — UPSC publishes no model answers. ·
Model answer · 267 words (UPSC limit 200) · Minimalist IAS
Since the 1991 reforms output has grown far faster than secure, contract-based jobs. The National Commission for Enterprises in the Unorganised Sector (2007) found that informal workers made up 92 per cent of India's workforce, and a growing number of them work inside organised firms.
How globalisation cut formal jobs
- Capital-intensive growth: import competition and easy access to imported machinery let organised firms raise output with fewer workers, so growth outran formal job creation.
- Contractualisation: to match global prices while avoiding the retrenchment rules of the Industrial Disputes Act, 1947, firms hire casual and contract labour through contractors; informal workers now sit inside organised units.
- Restructuring: weaker units closed or shrank under import competition, public sector employment was pruned, and services growth favoured skilled work in IT and finance rather than mass employment.
- Global value chains: production is pushed down to small units, home-based and piece-rate workers, with lower wages and little protection.
Is informalisation detrimental?
Largely, yes.
- Low productivity and wages, no social security, little bargaining power and heavy exposure to shocks keep workers poor even when the economy grows.
- A narrow tax base, weak skill formation and thin domestic demand slow the shift to higher-value activity.
- Counterview: informal work absorbs surplus labour and sustains livelihoods; the real problem is low productivity and lack of protection, not informality as such.
Way forward
- Labour-intensive manufacturing and exports, formalising MSMEs, skilling, portable social security for all workers, and labour law reform with safeguards.
Globalisation can raise incomes only if its gains reach workers: more formal jobs, and decent, protected work for those who remain informal, must go together.
Written by Minimalist IAS from facts checked at source (how we verify) — a little fuller than exam length, so every part of the question is covered; in the hall, keep the structure and trim the detail. UPSC publishes no model answers: compare your structure and coverage with this, then write your own.