Self-employment and its precarity in India

The rise in self-employment, especially among women, hides a grim reality of low-quality jobs, economic distress, and a lack of opportunities

Various estimates suggest that India is the fastest-growing major economy in the world, but is this growth reflected in employment generation and the quality of jobs? The headline numbers from the recently released Periodic Labour Force Survey (PLFS) 2023–24 suggest that the labour force and workforce participation rates are increasing. For example, the workforce participation rate has risen to 43.7 per cent from 41.1 per cent in 2022–23, while the Labour Force Participation Rate (LFPR) has increased from 42.2 per cent in 2022–23 to 45.1 per cent in 2023–24. 

However, a closer look at the data reveals a decline in the quality of employment in India. Most workers are self-employed, and their share has risen continuously from 52.2 per cent in 2017-18 to 58.4 per cent in 2023-24. Although the share of regular workers, which is considered better job quality, has increased to 21.7 per cent in 2023-24 from 20.9 per cent in 2022-23, it remains well below the pre-pandemic level of 23.5 per cent in 2018-19.

There is a need to examine this rising share of self-employment in India. In policy circles, self-employment is misunderstood as entrepreneurship and used interchangeably. For instance, former Union Minister Smriti Irani recently pointed out that over 67 per cent of women are self-employed, framing this as “showcasing true entrepreneurial spirit”. While this may seem like an empowering shift, the reality is that a large portion of these self-employed women are pushed into so-called entrepreneurship out of necessity, not opportunity.

The share of women in self-employment is significantly higher in both rural and urban areas. In rural areas, 73.5 per cent of women are self-employed; in urban areas, their share is 43.2 per cent.The corresponding figures for their male counterparts are 59.4 per cent and 39.8 per cent in rural and urban areas, respectively. Self-employment is also considered the worst form of employment in the Indian context.

Self-employment in India is measured in three categories according to the NSS (National Sample Survey): Own Account Workers, who run the enterprise without hiring any wage workers for more than a month, although they can get the help of family members without pay; second are employers, who run enterprises by hiring at least one worker to run their enterprise; and third are helpers in household enterprises who are counted as workers without pay.

Research shows that most self-employment in developing countries, including India, is necessity-driven, i.e., people become self-employed when they do not have any other opportunities. They cannot afford to remain unemployed. This is reflected in the fact that most self-employed workers in India fall into the category of own-account workers, who run the enterprises without hiring any workers. At the same time, around one-fifth (19.4 per cent) of the self-employed workers in India are helpers in household enterprises working without wages. The employers in India are not even one-tenth of the total self-employed workers. The share of helpers in household enterprises is remarkably higher for females (36.7 per cent) than males (10.1 per cent).

Rural women are more vulnerable to this phenomenon due to social constraints, lower educational attainment, and limited access to job markets, making self-employment a survival strategy rather than a conscious business choice, pushing them into sectors like agriculture, handicrafts, or informal retail, where earning potential is limited and the risks of financial insecurity are high. This is reflected in the fact that in rural areas, 43.2 per cent of the females are working as helpers in household enterprises in 2023-24.

So, the emphasis given to the point that women are becoming entrepreneurs is not based on data and research; instead, the women in India are joining the workforce, particularly self-employment, due to a lack of wage employment reflecting economic distress.
Further, the point that self-employment in India is not by choice but a last resort for people can also be argued from the earnings data.

People will choose self-employment only if it pays more than wage employment. However, data on earnings suggests otherwise. The average earnings of self-employed workers in India are significantly lower than those of regular/salaried workers. For example, in the July-September quarter of 2023-24, the average monthly earnings of the regular workers were Rs 2005, while that of the self-employed workers was only Rs 12,685, and this significant difference remains for other quarters as well. So, given the choice between wage and self-employment, people will choose wage employment. Further, the gross monthly income of self-employed people is significantly less than what they were in pre-pandemic years.

So, this paradox of high growth of the economy and declining employment quality further strengthened the view of the K-shaped recovery of the economy. The majority of the gains in the last few years have come from big business, while the large chunk of the informal sector, which employs most workers, is facing precarious working conditions. 

The inability of the state to provide well-paid jobs is forcing people to choose self-employment for survival. At the same time, the unavailability of jobs is forcing people to choose agriculture, as employment in agriculture is also increasing, reversing the structural transformation that the economy witnessed until 2011-12.

The government has implemented various schemes to promote self-employment and entrepreneurship in India, such as Startup India, Standup India, Mudra Yojana, Pradhan Mantri Kaushal Vikas Yojana (PMKVY), and more recently, Pradhan Mantri Employment Guarantee Schemes (PMEGS) and employment-linked production-linked incentive (PLI) schemes. However, these schemes have not generated sufficient well-paid jobs for the growing workforce. Therefore, the government needs to realign its policies and employ a comprehensive employment policy to deal with the chronic unemployment problem in India. Instead of focussing solely on self-employment as a way to generate employment, the government should focus on micro, small and medium enterprises (MSMEs) and labour-intensive industries on creating wage employment in both rural and urban areas that are better paid and provide some level of social security.

(Amit Kumar is an assistant professor in Economics Department, and Kriti Sharma is pursuing MSc (Economics & Analytics), Christ University, Delhi NCR; Puja Pal is an assistant professor at Govind Ballabh Pant Social Science Institute, Prayagraj)