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.
It asks 2 things — 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 · India's workforce is overwhelmingly informal: 92 per cent by the NCEUS count (2007), and PLFS 2022-23 still finds 57.3 per cent self-employed and 18.3 per cent unpaid family helpers; since 1991 output has grown far faster than secure, written-contract jobs.
Cover
- Capital-intensive growth: import competition and imported machinery let organised firms raise output with fewer workers, so growth outran formal job creation.
- Contractualisation: to match global prices and avoid retrenchment rules of the Industrial Disputes Act, 1947, firms hire through contractors; informal workers now sit inside organised units.
- Restructuring: weaker units closed under import competition, public sector jobs were pruned, and services growth favoured skilled IT and finance work.
- Global value chains: production is pushed down to small units, home-based and piece-rate workers, with low wages and no protection.
- Detrimental: low productivity and wages, no social security, a narrow tax base, weak skill formation; agriculture still held 45.8 per cent of workers in 2023 (Economic Survey 2023-24).
- Counterview: informal work absorbs surplus labour; the problem is low productivity and lack of protection, not informality as such.
- Way forward: about 78.5 lakh non-farm jobs a year till 2030 (Economic Survey 2023-24); Labour Codes including the Code on Social Security, 2020 (effective 21 November 2025); e-Shram (31.89 crore registrations); skilling and portable benefits.
Close with · Globalisation serves development only when its gains reach workers: more formal jobs and protected informal work together meet SDG 8's call for full and productive employment and decent work for all.
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.”
- Economic Survey 2023-24 (para 8.7, PLFS 2022-23): 57.3% of the workforce is self-employed and 18.3% are unpaid workers in household enterprises. ↗“57.3 per cent of the total workforce is self- employed, and 18.3 per cent is working as unpaid workers in household enterprises. Casual labour comprises 21.8 per cent of the total workforce and regular wage/salaried workers are 20.9 per cent”
- Economic Survey 2023-24: India needs about 78.5 lakh non-farm jobs a year until 2030. ↗“Indian economy needs to generate an average of nearly 78.5 lakh jobs annually until 2030 in the non-farm sector to cater to the rising workforce”
- PIB (November 2025): the four Labour Codes, including the Code on Social Security, 2020, took effect from 21 November 2025, rationalising 29 labour laws. ↗“the four Labour Codes - the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020 and the Occupational Safety, Health and Working Conditions Code, 2020 are being made effective from 21st November 2025 , rationalising 29 existing labour laws”
- PIB (August 2026): e-Shram has over 31.89 crore registrations of unorganised workers. ↗“With over 31.89 crore registrations, e-Shram has improved benefit delivery, portability and evidence-based policymaking”
- UN SDG 8: promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all. ↗“Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all”
Question: UPSC's CS (Main) 2016, GS Paper III — paper ↗. Approach: Minimalist IAS, checked 3 Oct 2026 (how we verify) — UPSC publishes no model answers. ·
Model answer· 295words · Minimalist IAS
India's workforce is overwhelmingly informal: the NCEUS (2007, on 2004-05 data) counted informal workers at 92 per cent, and PLFS 2022-23 finds 57.3 per cent self-employed and 18.3 per cent unpaid helpers (Economic Survey 2023-24). Since 1991, output has grown much faster than secure jobs.
How globalisation reduced formal-sector employment
- Capital-intensive growth: import competition and imported machinery let organised firms raise output with fewer workers.
- Contractualisation: to match global prices and avoid retrenchment rules of the Industrial Disputes Act, 1947, firms hire through contractors, even inside organised units.
- Restructuring: weaker units closed, public sector jobs were pruned, and services growth favoured skilled work.
- Global value chains: production is pushed down to small units and home-based piece-rate workers with low wages and no protection.
- Trade opening
- cost competition
- contract and outsourced work
- informal jobs inside formal firms
Is increased informalisation detrimental? Largely yes
- Low productivity: informal units lack credit, technology and scale, so wages stay low.
- No social security: illness, old age or a shock pushes families into debt; the tax base stays narrow.
- Counterview: informal work absorbs surplus labour: agriculture still held 45.8 per cent of workers in 2023 (Economic Survey). The real problem is low productivity and lack of protection.
Way forward
- Formal job creation: India needs about 78.5 lakh non-farm jobs a year till 2030 (Economic Survey 2023-24): labour-intensive manufacturing and MSME formalisation.
- Universal social security: the Code on Social Security, 2020 took effect on 21 November 2025 with the other Labour Codes, rationalising 29 laws; e-Shram has registered 31.89 crore unorganised workers (2026).
- Skills and portability: industry-linked apprenticeships and portable benefits for migrants.
Globalisation serves development only when its gains reach workers: more formal jobs and protected informal work together meet SDG 8, full and productive employment and decent work for all.
Prepared by Minimalist IAS to the answer standard of Shivam Singh (mentor, 7 years) · facts checked against official sources (how we verify) · updated 3 Oct 2026. UPSC publishes no model answers: compare your structure and coverage with this, then write your own.
