Job Loss in India's Informal Sector

With an estimated half a million to two million jobs lost among blue-collar and informal sector workers, the magnitude and consequences are way higher than white-collar layoffs.

Job security has always been a luxury of the white-collar urban worker, who comprises less than 5 per cent of the total workforce. For the vast majority of Indian workers – like temporary workers in factories, contract workers with exporting units—losing a job is an ever-alive threat. But even these workers had witnessed 4-5 years of unprecedented boom in jobs and income. Now, given the severity of slowdown, businesses are laying off workers in hordes. A recent survey by the Ministry of Labor and Employment found that almost half a million jobs were lost in the three-month period from October to December 2008. The sectors that got rid of the maximum number of workers are mining, textiles, metals, gems & jewelery, automobiles and transport. The worst affected among these were gems & jewelery, transport and automobiles where employment has declined by 8.5, 4 and 2.5 per cent, respectively.

The virtual disappearance of demand for Indian exports has impacted the export-oriented units, which employ an estimated 150 million people. The majority of labor intensive export industries like textiles, handicrafts and gems & jewelery are reporting a fall in turnovers. The Federation of Indian Export Organizations (FIEO) actually pegs the job losses in the exporting units at much higher levels than estimated by the government. A.Sakthivel, President, FIEO, estimates that almost 2.5 million workers have already been laid off by exporters. If you factor in indirect job losses, including ancillary units, the number would be almost double at around 5 million, he says. The economists feel that while FIEO’s projections are on the higher side, a more accurate estimate of informal sector job loss could be two million, which will go up in the weeks to come.

Job losses of such magnitude not only have social implications, but could also add to the dampening of demand that is already evident among more prosperous urban consumers. This could also jeopardize the prospects of relative buoyancy in rural demand, given that agricultural production is set to register a positive growth for the fourth consecutive year in 2008-9. Abheek Barua, Chief Economist, HDFC Bank says that the rural economy has picked up in recent times with even some reverse migration from the urban industrial centers. But if the job losses continue to mount, particularly in manufacturing, it would definitely have a detrimental impact on demand.