India's Labour Market Formalisation

India’s labour market is rapidly shifting from informal to formal employment. According to a Quess Corp report, the formal sector now comprises 13.1% of jobs, with the flexi/temporary segment rising to 6.8%, reflecting structural changes across states.

Formalisation of India’s Labour Market: Key Trends

Formal Workforce: 13.1% of India’s workforce is employed in the formal sector.
EPFO Expansion: Net new subscribers in FY25 stand at 139.78 lakh (highest ever).
Youth Participation: Over 61% of new EPFO subscribers under 29 years.
Female Workforce: Female Labour Force Participation Rate (LFPR) rose to 41.7% in 2023-24.

Need for Formalisation of India’s Labour Market

Job Security: Formal employment provides stable wages and contracts; casual workers fell from 24.9% in 2017-18 to 19.8% in 2023-24 (Labour Ministry, 2024).
Social Security Access: EPFO subscriptions rose from 61 lakh in FY19 to 131 lakhs in FY24, expanding pension, health, and provident fund coverage.
Regulatory Compliance: Formalisation ensures adherence to labour laws and minimum wages, reducing exploitation and improving workplace safety.
Financial Inclusion: Structured payrolls enable workers to access banking, credit, and welfare schemes, integrating informal workers into the formal economy.
Economic Efficiency: Formal sector accounts for 13.1% of jobs, flexi/temporary 6.8%, enhancing productivity and investment (Quess Corp, 2024).

Labour Formalisation due to Digitisation and Regulatory Compliance

Structured Payrolls: Digital payroll systems enable accurate wage payments, tax deductions, and social security contributions.
EPFO & ESI Integration: Digitisation facilitates enrolment and tracking of employees under provident fund and insurance schemes.
Ease of Compliance: Platforms like Shram Suvidha Portal and Udyam Assist simplify statutory reporting for MSMEs.
Transparency & Monitoring: Real-time data improves enforcement of labour laws, minimum wages, and worker rights.

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Challenges

High Informality: Nearly 85% of workers remain outside structured payroll and social protection.
Sectoral Inequalities: Agriculture still dominates employment, but non-farm sectors are not absorbing workers at the required pace.
Gender Gaps: Despite rising female LFPR, women formed only 25% of new EPFO subscribers, reflecting structural gaps.
Quality of Jobs: Rise in gig and temporary jobs (projected to 23.5 crore by 2030) raises concerns over wage security and long-term benefits.
Compliance Burden: Smaller coaching, trade, and logistics units face hurdles in adapting to GST, EPFO-ESI (Employees’ State Insurance) mandates, and digitised payrolls.

Government Initiatives

Make in India: Position manufacturing as a new growth hub, creating large-scale formal jobs.
ELI Scheme: Employment Linked Incentive Scheme encourages companies to expand workforce by linking incentives to net job creation.
Labour Codes (2020): Consolidate 29 laws into 4 codes, focusing on social security and formalisation.
PLI Schemes: Attract FDI and promote formal jobs in manufacturing and electronics.
Udyam Assist Portal: Formalising micro and small business workers in trade, logistics, and services.
Skill India & PMKVY 4.0: Industry-led skilling to enable smoother transition into formal jobs.
Shram Suvidha Portal: Unified compliance portal reducing MSME regulatory burden.
GST Reduction: From 18% to 5%, lowering costs for formal hiring via staffing agencies.

Way Forward

Inclusive Hiring: Stronger incentives for firms to employ women, with flexible work models and urban childcare infrastructure.
Youth Skilling: Expand apprenticeship programmes tied to EPFO-registered firms, linking skilling with formal jobs.
Gig Worker: Extend social security nets under the Code on Social Security to platform and gig workers with portable benefits.
Regional Growth: Encourage investment in labour-intensive industries beyond Maharashtra, Karnataka, and Delhi to reduce geographic skew.

Labour formalisation, with 139.78 lakh new EPFO subscribers in FY25, strengthens social security, aligning with Directive Principles of State Policy on decent work. Inclusive reforms for women, youth, and gig workers can ensure productive, equitable employment.

Reference: Deccan Herald | PMFIAS: Shift in India’s Employment Landscape

PMF IAS Pathfinder for Mains – Question 338

Q. Labour formalisation in India is witnessing an upward trend due to digitisation and regulatory compliance. Analyse this trend and suggest long-term reforms for inclusive and productive employment. (250 Words) (15 Marks)

Approach

Introduction: Write a contextual introduction by mentioning current data.
Body: Write how digitisation and regulatory compliance promote labour formalisation, challenges and suggest long-term reforms for inclusive and productive employment.
Conclusion: Emphasis on inclusive reform and mention of SDG goals as well.