Has Labour Rigidity Slowed Down Employment Growth in Indian Manufacturing?

This paper contests the widely cited argument that the slow expansion of manufacturingManufacturing employmentEmployment in India has been on account of the rigidities in the country’s labourLabour marketMarket. The growthGrowth of employmentEmployment in India’s organized manufacturingManufacturing sector, which remained stagnant at 8–9 million between the early 1980s and the early 2000s, accelerated to reach 15 million by 2017–18. Nevertheless, employmentEmployment in the manufacturingManufacturing sector as a whole (organized and unorganized sectors combined) decelerated, especially during the recent years (from 61.3 million in 2011–12 to 60. 2 million in 2017–18). These figures point out that there has indeed been a sharp downward fall in the growth of employmentEmployment in India’s unorganized manufacturing from the mid-2000s onwards. There is little support for the argument that labour regulationsLabour regulations had been the hurdle to the growthGrowth of manufacturingManufacturing employmentEmployment. In fact, even within the organized manufacturingManufacturing sector, contract workersContract workers or workersWorkers who are outside the purview of the labourLabour laws accounted for close to 70% of the net increase in employmentEmployment since the 2000s. The reasons for the lacklustre performance of the manufacturing sector in India lie outside the sphere of labourLabour. To begin with, the slowdown in the growthGrowth of investmentInvestment, especially since 2007–08, created severe bottlenecks for industrial expansion, especially for the small units. The other major constraints include inadequate access to bank creditCredit for the small firms and the increasing dependence of India’s manufacturingManufacturing growth on imported components. Greater domesticDomestic investmentInvestment and well-directed industrial policiesIndustrial policy are important to achieve faster generationGeneration of decent jobs in Indian manufacturingManufacturing.