On the factory floor, off the payroll: Contract work in formal manufacturing

In the Annual Survey of Industries (ASI), workers are classified into two broad categories based on their employment arrangement: directly employed workers and contract workers. Directly employed workers are those engaged by the factory and paid directly by the factory management. Contract workers, on the other hand, are workers engaged through a contractor to perform work connected with the factory’s production or related activities. They are not directly employed or paid by the factory, but may work within the factory premises or elsewhere under arrangements linked to the factory. Contract workers can be engaged in production as well as ancillary activities such as cleaning, maintenance, loading and unloading, or watch and ward. Thus, while both categories contribute to the functioning and output of industrial establishments, they differ in who formally employs and pays them.

This distinction in employment arrangement corresponds to a marked divergence in job quality and access to statutory protections. Directly employed workers are typically covered under the Factories Act, 1948, and are more likely to receive benefits mandated for regular workers, including provident fund contributions, employees’ state insurance, paid leave, and, where applicable, bonus payments. Their wages are also more likely to be governed by sector-specific minimum wage regulations and determined through direct engagement with management, including collective bargaining where unions are present. Contract workers, by contrast, are less likely to receive provident fund coverage, health insurance, or paid leave; where such benefits are notionally available, access is often inconsistent owing to the intermediary role of the contractor. They also tend to face greater job insecurity, shorter and more frequently renewed contracts, and limited recourse to grievance-redressal mechanisms available to directly employed workers, since their formal employer of record is the contractor rather than the factory management.

This article examines the changing composition of contract employment in India’s formal manufacturing sector. It first traces the share of contract workers in the manufacturing workforce between 2000 and 2024, before examining where these workers were concentrated across states and industries in 2024. It then looks at how the composition of the contract workforce has evolved across sectors over the past two decades, alongside changes in its industrial composition over the same period. The analysis draws on data from the ASI, the principal source of official statistics on India’s organised manufacturing sector, conducted annually by the Ministry of Statistics and Programme Implementation (MoSPI), and accessed through CEDA’s Economic Enterprise Tracker.

Contract employment doubled in formal manufacturing over 25 years

Figure 1 shows that the share of contract workers in India’s formal manufacturing workforce has more than doubled over the past two decades, rising from 19.8 percent in 2000 to 41.6 percent in 2024. The increase has been particularly pronounced in the past decade, with the share crossing 35 percent in 2015 and 40 percent in 2022. By 2024, more than two in five formal manufacturing workers were contract workers.

Six states accounted for 60 percent of India’s contract workforce in formal manufacturing in 2024

Figure 2 depicts regional concentration of India’s contract workforce in formal manufacturing. In 2024, Maharashtra accounted for the largest share at 15.7 percent, followed by Gujarat (11.5 percent) and Tamil Nadu (10.5 percent). Together, these three states accounted for nearly four in ten (37.7 percent) of the country’s contract workers. With Telangana (7.8 percent), Haryana (7.5 percent) and Uttar Pradesh (7.3 percent), the combined share of these six states reached six in ten contract workers nationwide (60.3 percent).

Contract work has largely stayed near rural-urban parity

Figure 3 traces how the rural and urban composition of India’s contract workforce in formal manufacturing has evolved over the past two decades. In 2000, contract work was predominantly urban, with nearly two-thirds of contract workers (62.8 percent) employed in urban areas. The rural share rose steadily through the decade, reaching 51.9 percent in 2009 and briefly overtaking the urban share. Although the shares fluctuated after 2009, they gradually converged from 2014 onwards, resulting in an almost even split between rural and urban areas.

In 2024, four industries accounted for more than half of India’s contract workforce

Figure 4 shows the concentration of contract employment in a few major formal manufacturing industries. In 2024, food, beverages and tobacco accounted for the largest share (15.7 percent), followed by basic metals and fabricated metal products (14.5 percent), transport equipment (12.5 percent) and chemicals (10.5 percent). Together, these four industries accounted for more than half (53.2 percent) of India’s contract workforce.

Share of contract workers in food, beverages and tobacco declined by more than half in 25 years

Figure 5 shows how the share of contract workers across manufacturing industries has evolved between 2000 and 2024. Over more than two decades, the food, beverages and tobacco industry remained the largest employer of contract workers. However, its share fell by more than half, from 40.8 percent in 2000 to 15.7 percent in 2024. In contrast, the other three leading industries identified in Figure 4 also increased their shares over the period: transport equipment rose from 3.3 percent to 12.5 percent, basic metals and fabricated metal products from 11.8 percent to 14.5 percent, and chemicals and chemical products from 8.4 percent to 10.5 percent. Beyond these four industries, electrical and optical equipment too registered a notable increase, from 2.3 percent in 2000 to 8.9 percent in 2024. Meanwhile, industries such as wood and cork (0.3 percent to 0.5 percent), coke, refined petroleum and nuclear fuel (1.2 percent to 1.6 percent), and pulp, paper and paper products, and printing and publishing (2.7 percent to 1.7 percent) continued to account for a relatively small share of contract workers, with little change over the period.

The growing role of contract employment highlights an important dimension of India’s manufacturing transition: the expansion of jobs does not always mean an expansion of direct employment. As contract work becomes more widespread across industries and regions, the terms on which workers enter and remain in formal manufacturing become increasingly important. The shift therefore calls for greater attention to the quality, security and protections associated with different forms of employment, alongside the overall growth of the manufacturing workforce.

CEDA’s Economic Enterprises Data Tracker brings India’s formal and informal enterprises into a single, comparable view. Drawing on ASI, ASUSE, and earlier NSS rounds, it standardises key indicators on investment, productivity, credit, employment, and enterprise characteristics. Users can explore each survey separately or compare trends across sectors using harmonised data. With interactive charts, state-level insights, and downloadable datasets, the tracker provides a clearer, consolidated view of India’s enterprise economy for research and policy use