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?

Globalisation exposed Indian firms to competition and shifting demand, and while it expanded output and services, it also reshaped employment towards contractualisation and informality within the formal sector.

How globalisation reduced formal employment

• Competitive pressure pushed firms toward automation and capital-intensive, jobless growth.
• Firms adopted contract, outsourced and temporary labour to retain flexibility and cut costs, blurring the formal-informal line.
• Rigid labour laws incentivised firms to stay small or hire informally to avoid compliance thresholds.
• Import competition and volatility led to downsizing in some manufacturing segments.

Is informalisation detrimental?

• Yes, largely: informal workers lack job security, minimum wages, social security and collective bargaining, keeping productivity and incomes low.
• It weakens the tax base and consumer demand, and traps workers in low-skill, low-mobility work.

The other side

• The informal sector absorbs surplus labour, offers entry-level work and entrepreneurial flexibility.
• The problem is not informality itself but the absence of protection and productivity.

The way forward is formalisation with flexibility: extend social security (e-Shram, PM-SYM) to informal workers, use the Labour Codes to universalise minimum wages, and raise skills so that jobs move up the value chain rather than merely proliferate at the bottom.