Introduction

Modern civilisation cannot grow without technological improvement and this has compelled most world economies to undertake appropriate strategies and policies to gear up technological change and to reap its resultant benefit for the economic growth derived from the productivity growth. Technological progress, therefore, plays the most vital role in accelerating the economic growth of an economy in the long run, but its favourable impact on the labour market has been ambiguous, uncertain and controversial for a long time. According to conventional development theories, an economy grows along with the growth of the modern sector. Underdevelopment and unemployment are considered to persist in an economy when the modern sector is either growing at a slow rate and/or unable to generate sufficient job opportunities for the entire working population. A large section of the working population in the developing world does not find employment in the formal sector and is forced to work in the traditional or informal sector for their survival. That unofficial sphere is very large in the developing and emerging economies and constitutes more than 80 per cent of the Indian economy. India is one of the largest democratic countries in the world. It has grown sharply in recent years but still hosts the largest share of poverty in the world. During the last one or two decades, the economy has shown substantial improvement in the growth rate and has been maintaining a rate closer to two digits, next to China. High rates of growth in recent years have encouraged scholars to explore whether such growth has contributed to the reduction in poverty ¹ and benefited the labour market conditions in the country. As mentioned earlier, the conditions of the working population in the country happened to be predominantly poor in the pre-independence period, because of exploitative practices adopted by the previous regime. During the initial 40 years after independence was gained in 1947, the country pursued policies for achieving self-reliance, by putting particular focus on import substitution and large-scale industrialisation strategies. It was expected that such industrialisation would improve productivity and thereby accelerate employment growth to a significant level so that poverty can be arrested substantially. But, such an approach and strategy for industrialisation, by protecting the national economy from the outside world, have been condemned and criticised vigorously by many scholars and hence have been identified as the root cause of the poor performance of economic growth and development during the first few decades after independence (e.g. Bhagwati and Srinivasan, 1975; Mookherjee, 1997; Bhalotra, 1998). Gradually, the economy started liberalising the industrial, trade and national development policies since mid-1985. When foreign exchange reserves gradually came down to an abnormally low level, the crisis hit badly in the early 1990s and inflation crossed the double-digits, the economy had to start liberalising economic policies on all fronts, considering gradual reduction of trade barriers, disinvestment in the public sector, de-reservation of small-scale industries, de-licensing of industrial activities, private sector expansion, reduction of the barriers on foreign capital, financial sector autonomy, exchange rate convertibility, etc. The principal philosophy behind such reform policies has been to promote competitiveness so that it would enhance economic activities, resulting in an acceleration of productivity with its resultant effect on employment growth and poverty reduction. Market forces without much intervention from the government are assumed to play a pivotal role in overcoming the bottleneck of growth problems and thereby raise the labour market condition of the country. It can be broadly argued that the increased international competition would raise domestic production for export and push up the incentive to invest more on productivity improvement, and this would further generate additional employment in the economy from forward and backward linkage effects. It is very important to investigate the impact of such economic reform on productivity improvement in the formal sector employment and its resultant impact on labour market dynamics. The book attempts to address this issue with a particular focus on the Indian economy. The rest of this chapter will provide an overview of planning and economic reform, growth and employment trends of the economy, labour legislation and related issues of labour market rigidity, and an epilogue of conceptual debate between productivity growth and employment. Chapter 2 raises measurement problems of productivity estimation and provides an alternative estimation procedure. Chapter 3 investigates the effect of trade openness on productivity growth using the alternative method. Since labour rigidity has a favourable impact on productivity growth, Chapter 4 examines the effect of contract labour use on the same and Chapter 5 investigates the implication of the informal sector existence on RampentityD behaviour of formal sector firms and the resultant labour productivity. Chapter 6 tries to understand the implication of trade openness and its indirect effect on labour market rigidity in a dual-market setting both theoretically and empirically using Indian experiences. Chapter 7 attempts to understand the effect of the recent financial crisis on the labour market adjustment. Chapter 8 investigates the extent of integration, types of intermediation for the use of contract workers, the condition of contract workers and the role of unions in this regard, based on detailed primary survey conducted in two states, Gujarat and West Bengal, which are quite different from each other in terms of investment climate and labour market rigidity. Chapter 9 investigates the institutional problems and obstacles for industrialisation in India and tries to understand the relative importance of labour market rigidity in this context. Chapter 10 ends with concluding observations and a summary, and provides policy suggestions including some comments on the ongoing debate relating to labour market reform.