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Emergence of India's Gig Economy

IBEF, Knowledge Centre

May 05, 2021 08:56

Introduction
The COVID-19 pandemic has altered the way businesses operate as many companies have realised the advantages of remote working on stressed cash flows. The pandemic-induced remote working has blurred the age-old scepticism over the efficiency and dependability of contractual or part-time employees, with companies increasingly looking to hire gig workers. As per a report by ASSOCHAM, India’s gig sector is expected to increase to US$455 billion at a CAGR of 17% by 2024 and has the potential to expand at least 2x the pre-pandemic estimates. In another estimate, India is likely to have 350 million gig jobs by 2025, presenting a huge opportunity for job seekers to capitalise and adapt to the changing work dynamics.

At present, India has a pool of ~15 million freelance workers staffed in projects across IT, HR and designing. In addition, India’s workforce is growing by ~4 million people annually. And as most of them are young millennials, they are showing an increasing preference for gig contracts. This trend is expected to significantly impact gig economy in the near future.

Key Drivers
Unconventional work approach by millennials
Hectic lifestyles of employees in private sectors have created a negative perception of full-time employment among millennials. Factors such as growth opportunities, flexibility, better work-life balance and option to not acquire a college degree are encouraging millennials to opt for freelancing opportunities as opposed to corporate work culture.

Emergence of a start-up culture
The start-up ecosystem in India has been developing rapidly. For start-ups, hiring full-time employees leads to high fixed costs and therefore, contractual freelancers are hired for non-core activities. Start-ups are also looking at hiring skilled technology freelancers (on a per project basis) in areas such as engineering, product, data science and ML to bolster their tech platforms.

MNCs are hiring contractual employees
MNCs are adopting flexi-hiring options, especially for niche projects, to reduce operational expenses after the pandemic. This trend is significantly contributing to the gig culture in India.

Although the proportion of gig employees is relatively low (75%+ companies have <10% gig headcount) at present, this proportion is expected to increase in the near future. As per an Aon survey—'Decoding the Gig Economy’, 49% of the 145 companies have already employed gig workers and 65% plan to increase this number over the next 2-5 years.

% of companies looking to hire gig workers – by sector

Industry

2020

Future (2-5 years)

FMCG – Pharma

15%

69%

BFSI

32%

56%

Manufacturing

35%

65%

Technology & BPO

57%

60%

Services

47%

76%

 

The EdTech sector is already riding on the gig revolution and currently employs ~90,000 people. This number could significantly go up as the demand for online education services is expected to rise exponentially.

Also, companies are increasingly looking for gig workers in HR operations, customer support, transactions/operations processing, marketing & sales, software development, IT support, graphic design, etc., in addition to delivery services and other such roles that have traditionally been blue-collared jobs. Companies are not only hiring freelancers for entry-level positions, but also for management positions. For example, CFOs have been contracted for organising and auditing company finances, which has helped increase operational savings by up to 70%. 

Rise in freelancing platforms
Rise in freelancing platforms has also aided in the development of the gig economy. Many home-grown platforms such as Upwork, Truelancer and Guru provide access to high-skilled freelancers. The number of freelancing platforms has significantly increased—from 80 in 2009 to 330 in 2021. These platforms boast of a clientele comprising not only start-ups, but also Fortune 500 companies.

Also, pandemic-induced remote work patterns have erased the mental block of only hiring people from urban areas.

Business Models
Gig employees work on various compensation models such as fixed-fee (decided during contract initiation), time & effort, actual unit of work delivered and quality of outcome. The fixed-fee model is the most prevalent; however, time & effort model comes a close second.

Impact of Covid-19
A 2020 survey by Flourish Ventures highlighted that ~90% Indian gig workers lost their income during the pandemic. While they earned >Rs. 25,000 per month before the pandemic, by August 2020, ~9 in 10 were earning <Rs. 15,000 per month and >33.3% were making ~Rs. 150 per day or less.

Due to this lost income, many workers were forced to take drastic steps to make ends meet such as 44% borrowed, 45% reduced their essential expenditures and 83% used their savings.

According to the survey, India stands to lose ~135 million jobs because of the pandemic and this is likely to push the full-time workforce towards the gig economy. Moreover, many laid-off employees are focusing on developing skills to avail freelance job opportunities and become a part of this burgeoning economy.

Code on Social Security
To further aid these gig workers, the government passed the ‘Code on Social Security’, which will provide workers with life and disability cover, accidental insurance, health & maternity benefits old age protection and others. Under this code, the central and state governments will primarily fund social security measures, with a nominal contribution (1-2% of their annual turnover) by the aggregator. Also, the contribution made by the aggregator/platform will not exceed 5% of the amount payable to gig and platform workers.

In addition, the code proposed to establish a ‘National Social Security Board’, which will supervise and formulate schemes for the well-being of gig and platform workers.

Conclusion
The gig economy has been on the rise and is expected to beat the pre-pandemic estimates due the expected influx of gig workers transitioning from full-time employment.

While the government has taken the initial steps to ensure social security of gig workers, the ‘Code on Social Security’ needs to be fine-tuned. For example, the option to deduct 5% from the amount payable to gig workers should be voluntary (based upon income brackets). As most gig workers, especially delivery executives and drivers, are already facing declining income levels due to COVID-19, such deductions would not be amenable.

Further, all platform workers should be offered mandatory coverage under the Bharat Pradhan Mantri Jan Arogya Yojana, Pradhan Mantri Suraksha Bima Yojana and Pradhan Mantri Jeevan Jyoti Bima Yojana. This can be facilitated through the employer companies and will ensure employee protection; thus, guaranteeing a sustainable gig economy.

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