In 2012, after the country’s economy expanded modestly by 3.2%, the IMF found that the Indian economy estimated that India will expand by 4.6% in 2013, 5.4% in 2014, and 6.4% by 2015
A study of the Indian labor market by Staffing Industry Analysts shows that the employment situation in the country is unique, where approximately 90 percent of Indians work in the unorganized or ‘informal’ sector
As the temp staffing industry in India transitions from functioning solely in the capacity of replacing absentee workers with temporary ones to a strategic resource and partner for clients by providing a range of employment solutions and services, multiple challenges arise
India is the second largest of the BRIC countries, not only by the size of its economy but also by population. In 2012, after the country’s economy expanded modestly by 3.2 percent, the International Monetary Fund (IMF) in its annual report on the state of the Indian economy estimated that India will expand by 4.6 percent in 2013, 5.4 percent in 2014, and 6.4 percent by 2015.
Recently, investors have been cautious on making overseas investments in India. With the Indian rupee (INR) losing 13 percent against the U.S. dollar in 2013, combined with a portfolio including $500 billion in nonproductive infrastructure assets (such as unfinished roads and businesses), and political dilemma with the upcoming elections, it seems like the country is experiencing an investment slowdown.
GDP Growth Rates in BRIC Countries, %
Source: International Labour Organization, Global Employment Trends 2014
However, there are huge investment opportunities in niche areas. India has always been a leader in innovation, often skipping the traditional layered growth model. For example, the wireless revolution in India happened before fixed line. E-commerce is growing and has vast space for investment, currently at $2 billion, and comprising 0.25 percent of the overall retail industry. By comparison, e-commerce as a percentage of retail is 6 percent in China, 4 percent in Latin America, and 9 percent in the United States. Mobile banking also has been experiencing rapid growth and some experts expect it to replace credit and debit cards soon. And in healthcare, new opportunities exist in hospital growth, doctor and nurse training, medical record keeping, and ancillary businesses that support health care. India is considered a global player in pharmaceuticals, where in generic medications the country controls a significant portion of the world market.
So despite skepticism, it is expected to see investments and growth in specialized sectors of the Indian economy. And with growth comes an increasing demand for a specialized workforce.
Countries with Large Temp Workforces, 2010
Source: Indian Staffing Federation
Sustaining Growth in India
Overall, growth in India has been heavily reliant on the services sector and private consumption. However, the decline of GDP growth for India in recent years suggests that sustaining high rates of growth rests on strong output from industry and high investment rates. The International Labour Organization, in their Global Employment Trends 2014 Report, implies that poor performance in the manufacturing sector and low levels of investment might be responsible for the current economic slowdown in India. While both factors are barriers for high and sustainable growth, overcoming them will also lead to job creation.
GDP Growth in India
Source: International Labour Organization, Global Employment Trends 2014
Recently, total employment in India expanded from 2010 to 2012 by a healthy 13.9 million. The working age group population estimate was 743.8 million in 2011, roughly 61 percent of the total population. Of this, the labor force was estimated at 418.4 million in 2011.
A study of the Indian labor market by Staffing Industry Analysts shows that the employment situation in the country is unique, where approximately 90 percent of Indians work in the unorganized or ‘informal’ sector, which consists of jobs such as job-based-work, self-employment, household enterprises, agricultural work, construction work, and other forms of casual or temporary employment.
Distribution of Informal Employment, 2011
Source: Indian Staffing Industry Research, 2012
“There is nothing ominous in the temporary job market having the lion’s share of the staffing industry. This is similar to all the largest staffing markets in the world and shows the sophistication of the Indian markets. Employers understand the importance of temporary workers to aid them through the peaks and trough of the economy.” ~Adam Pode, Director of International Research at Staffing Industry Analysts.
The Temporary Workforce in India
Recruiting Percentage of Temporary Workforce, by Country
India has a highly fragmented, organized employment structure based on formal, written employment contracts. This market has been stagnant for many years, leaving room for unorganized employment, which as discussed above, provides jobs for 90 percent of the workforce.
Recently, the temporary staffing industry has been playing a key role in reducing unemployment and undeclared work by creating new, formal job opportunities every year. India currently has 1.3 million temporary workers in the organized sector. Experts predict that by 2025, 10 percent of the overall workforce would be working as contingent workers through various staffing companies.
Companies in growing industries, such as e-commerce, retail, and healthcare, are increasingly looking to bolster their workforces with temporary staff for a variety of projects.
The Indian Staffing Federation (ISF) attributes the growth of temp work in India to the changing economic scenario and the demand for talent optimization. Firms in growth sectors are starting to recognize contingent staffing as a key HR management strategy. The ISF believes that temporary staffing helps to create new jobs and boost employment by turning available work into jobs that otherwise would not exist.
“Companies across traditional sectors such as Retail, Telecom, Hospitality, Pharma, Manufacturing, and Agriculture are increasingly shifting to the flexi staffing model. The size of India’s Retail sector, one of the major sources of demand for flexi staff in India, is currently estimated at around US$ 450 billion and is expected to grow at 10-12% per annum. Given this positive future outlook, the sector is expected to witness a strong demand for flexi staff.” ~Indian Staffing Industry Research 2012
Indian Companies Primary Reasons for Flexible Staffing
Source: Indian Staffing Federation Indicus Survey, 2012
Who is this Temp Worker?
There are three main areas of staffing in India: professional, general (white collar), and general (blue collar). People with bachelor degrees, approximately 54% of the total temp population, hold the largest share of contingent work.
Approximately 79 percent of temp workers are in the age group of 21-30. A study by the Government of India Ministry of Labour and Employment for 2012-2013, found that in a group of 1000 people, 413 people are self-employed and 347 fall under the casual worker classification. Within the urban sector (U), most workers are wage/salaried employees, whereas in the rural sector (R), self-employment and casual work make up the majority.
Distribution of Works by Different Age Groups, in thousands
Source: Government of India, Ministry of Labour & Employment
Challenges for India’s Temp Staffing Industry
As the temp staffing industry in India transitions from functioning solely in the capacity of replacing absentee workers with temporary ones to a strategic resource and partner for clients by providing a range of employment solutions and services, multiple challenges arise.
“Indian industry is mired in archaic labour laws. The possible panacea for all sectors of the economy engaging human resource is through legitimate engagement of manpower through temporary or flexi engagement; while guaranteeing not only a decent wage but social security that is meaningful.” ~Michael Dias, Secretary of The Employers Association
The regulatory environment in India is ambiguous, where a multitude of labor laws on both national and state levels leads to a considerable degree of overlap, especially as many are outdated and not frequently updated. Additionally, the lack of effective monitoring of labor laws tends to decrease transparency and leads to unlawful practices and agreements. In the staffing industry, the rate of job creation is limited, as staffing companies are not recognized as the primary employer, leading to the growth of the unorganized sector and to increases in agreements that are full of risk and non-compliance.
The industry is highly fragmented, with low barriers to entry, making it easy for a wide range of providers to set up practice. The fragmented market combined with vague laws creates room for abusive practices by staffing agencies and employers, affecting growth and reputation.
“Yes the temporary workforce in India’s formal sector can grow phenomenally, but only if the existing financial and legislative roadblocks are removed. There are certain issues with regard to service tax, TDS deduction pertaining to staffing companies. Besides, there has to be a proper and structured legal framework about what can be outsources and what cannot be. Once these issues are sorted out, temporary workforce will automatically grow significantly because that makes more sense from the employers’ point of view. Because that will take overhead costs from fixed cost to variable cost and the cost of retrenchment or getting rid of people will be much lower.” ~T Muralidharan, Chairman of TMI Group
“Well run staffing companies can be a valuable institutional innovation, much needed in India, to resolve the dilemma between flexibility to adjust employee levels that companies need and the commitment to their skill development and employability that employees need.” ~Arun Maira, Member Planning Commission.