Increasing informalisation of the city's economy and the changing employment structure
One of the major stylised facts about economic experience in India has been the increasing share of services in national income. In 1951, services constituted 33.25% of the gross domestic product (GDP), whereas manufacturing counted for a mere 10.51%. Agriculture and allied activities accounted for 51.18%. The share of services crossed 40% by 1979–80. In 1991, the year of the onset of economic liberalisation, share of services in GDP was already almost 45%, while manufacturing continued to stagnate at 16.16%. In the next 10 years, services became the single most dominant contributor, accounting for over 51% of GDP. The share of manufacturing has continued to lie between 12% and 15% over the years. Services now constitute over 60% of GDP. Agriculture’s share has fallen to about 15% over the period. Though proportion of people employed in agriculture has not dropped to the same extent, the process had been characterised by migrations of people from agriculture not to manufacturing but into services. These groups were absorbed into the service sector mostly as informal sector workers since the manufacturing sector could not absorb this surplus. The reasons for increasing informalisation of employment are now well documented (Mehrotra 2020). Some of the explanations can be characterised as demand-side explanations, while others fall into the rubric of supply-side explanations. The first of the demand-side explanations has to do with the developmental strategies followed immediately after independence. In the Second Five Year Plan (1955–56 to 1959–60), the Government of India and the Planning Commission adopted a strategy that was subsequently referred to as Import Substitution. The limited domestic savings were to be channelised into large public sector projects with a heavy capital intensity. This strategy was by definition unsuited to absorb surplus labour from agriculture on a large scale. Migrant surplus agrarian workers were then invariably absorbed in the traditional services sector or in unregistered micro-enterprises. Quite a few of them became self-employed workers. What exacerbated the situation was the reservation of several consumer goods for production exclusively for the small-scale sector. By 1990, there were 834 products whose production was reserved exclusively for the small-scale sector. Small-scale firms received many concessions. This meant that most firms had an incentive to stay small, and large firms often spawned many small firms to benefit from the policy. A third factor that contributed was the plethora of complex labour laws, both of the state and the central governments from which small-scale industries and informal sector remained exempt. Organised corporate lobbies and the state worked together to keep the vast majority of workers outside the ambit of labour law protection. As a result, a small “formal sector” with “protected” labour emerged, alongside a vast majority of workforce without any social security and only a minimal legal protection. The provisions for protecting the worker’s interests were seen as impediments to flexible labour practices, leading to investments concentrating in the “exempted” sector. The combined effect of the three factors was inevitable: a mushrooming of tiny units with two to nine workers along with own account workers. The tiny units accounted for almost 84% of the total unorganised units in the non-agricultural sector. The balance were micro-enterprises. Together, they accounted for 99% of the total non-agricultural units in the country (Basole and Chandy 2019; Mehrotra and Giri 2019).
Cities like Mumbai have been major drivers of this pattern of growth, absorbing migrant and surplus labour (Deshpande 1979). By 2005–06, the service sector was already accounting for almost 74% of total output in Mumbai. By 2012–13, this had reached 79%. Clearly, most employment was to be found in this sector. Though Mumbai did have a substantial population engaged in manufacturing, at no point, even before 1991, was it the dominant form of employment (Table 1.1).
Table 1.1 Distribution trend of sector wise employment in Mumbai 1951–1991 (%)Sector | 1951 | 1961 | 1971 | 1981 | 1991 |
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Primary | 1.4 | 1.5 | 1.1 | 1.3 | 0.7 |
Secondary | 40.1 | 44.4 | 45.4 | 44.8 | 39.5 |
– Manufacturing | 36.5 | 39.7 | 41.6 | 40.7 | 36.8 |
Tertiary | 58.5 | 54.1 | 53.5 | 53.9 | 59.8 |
Total | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 |
Source : Data from Deshpande and Deshpande (1994). |
Evidently between 1961 and 2001 the structure of employment in Mumbai has undergone a significant change (Table 1.2).
Table 1.2 Changing distribution of employment in Mumbai (%)Activity | 1961 | 1971 | 1981 | 1991 | 2001 |
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Agriculture | 1.89 | 1.26 | 1.38 | 0.84 | 1.12 |
Manufacturing: Household Industry | 1.36 | 1.33 | 2.49 | 1.48 | 3.12 |
Manufacturing other than Household Industry | 39.46 | 40.96 | 38.91 | 35.31 | 25.67 |
Construction | 2.66 | 3.05 | 3.35 | 4.24 | 6.41 |
Trade and Commerce | 18.01 | 22.36 | 21.80 | 24.90 | 32.9 |
Transport and Storage | 11.22 | 10.78 | 10.04 | 11.32 | 12.11 |
Other Services | 25.39 | 20.27 | 22.02 | 21.91 | 18.65 |
Source : Economic Survey of Maharashtra, various issues, Deshpande and Deshpande (1994). |
Services together accounted for a little over 70% of employment in Mumbai in 2001. This trend has only continued in 2011 and beyond.
Employment in the manufacturing sector of Mumbai was substantially larger than that for the country as a whole. For example, in 1991, the share of employment in the secondary sector of India was 12.7%, which by the year 2000 had increased to 17.5%. In Comparison, Mumbai’s share of secondary sector employment was three times that of all India in 1991 (Deshpande and Deshpande 1994). Though Mumbai’s employment sector has been relatively more industrial as compared to the rest of the country, manufacturing as such was never the dominant sector within Mumbai. In that sense, Mumbai reflected the experience of the country as a whole – except to a smaller extent – of services and the tertiary sector being the dominant forms of employment. However, the share of formal and informal employment in Mumbai has been undergoing structural shifts over the years. From 1961 to 1971, the share of the workforce engaged in the formal sector (defined as organisations employing more than 25 workers) increased from 58.03% to 60.52% (Deshpande 1979). This trend was reversed post the textile strike in 1982. From 1991, even the employment in the manufacturing sector tended to become more informalised with increasing use of contract labour. Existing literature attributes this to several reasons. For instance, India’s rigid employee protection laws are argued to have stifled regular employment. Secondly, contract workers are generally available at cheaper wages than regular workers. Also, firms appear to have used the availability of contract workers to keep unions at bay (Kapoor and Krishnapriya 2013). Subsequently, several activities that previously used to constitute formal employment are now in the informal sector.
By 2012, in comparison to other class-I cities (population 100,000 and above as 2011 census), employment in Mumbai was more concentrated in the tertiary sector (NSSO 2015). In 2012, for all class-I cities in the country taken as a whole, 631 out of every 1000 working men were in the tertiary sector. For greater Mumbai, this figure was 694. For women, the all-India figure for class-I cities together was 696. For Mumbai, this was 742. Moreover, that employment opportunities have become highly gendered is evident from the fact that in 2011, the unemployment rate for males in Mumbai (usual status) was 1.3% as against 2.9% for all class-I cities. For women i...