General Studies Paper 3 (Indian Economy): Fixed Term Employment

Fixed Term Employment

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Syllabus: General Studies Paper 3 (Indian Economy)


Examine whether Fixed Term Employment will be able to achieve the objectives of ease of doing business, achieving labour welfare and job creation.



Labour market has three different participants, which have seemingly conflicting interests. It consists of employers, employed persons and those seeking employment. Employers seek ease of doing business and low costs, the employed seek to maximise labour welfare, whereas those who seek employment would want that there be more number of jobs in the economy. The government, as the policy maker, desires to achieve the interests of all three. FTE is a means through which it aims to ease the ability to do business, maximise job creation while protecting basic rights of labour.



Fixed Term Employment (FTE) is a contract in which a company or an enterprise hires an employee for a specific period of time. In FTE, the employee is not on the payroll of the company. Recently, the government under The Industrial Employment (Standing Orders) Central (Amendment) Rules, 2018 has extended the facility of hiring workers on FTE to all sectors. The move is aimed at improving the ease of doing business, achieving labour welfare and job creation.

FTEs can improve ease of doing business in the following ways:

  • It provides clarity to the companies about the nature of employees it seeks. This will help them plan better regarding investing in capital and/or labour.
  • Rigid labour laws have been often cited by industries as the biggest hurdle in setting up a manufacturing base in India. FTE rules are easy to comply with as they impose less cost of compliance.
  • FTE rules ease the process of hiring and retrenchment of workers according to needs of the company while providing a basic security to the workers. Companies retain the right to fire workers for fraud and non-performance.
  • It will depend on companies to renew the contract or not.

FTEs can improve labour welfare in following ways:

  • According to Labour Bureau’s Annual Survey 2015-16, in India around 33 percent are casual workers.
  • More than 95 percent of casual workers do not even have a written job contract. FTEs will help in formalization of labour force.
  • Fixed term workers would be entitled to same benefits as permanent one, which includes work hours, wages and other statutory benefits.
  • The rules also made it difficult to fire temporary employees. If the worker has completed three months of continuous service, he/she should be given a two-week notice before terminating his or her service.
  • It will help labour getting permanent jobs as companies may hire them on payroll based on their performance.
  • Role of middlemen will be minimized thus extending maximum benefits to workers.

FTEs can help in job creation:

  • By providing clarity on labour policy, FTE rules will help optimise the decisions on proportional deployment of capital and labour, as opposed to current trend of going for capital intensive manufacturing because of rigid labour laws.
  • FTEs will be helpful for those sectors, which are seasonal in nature. Their growth will spur other sectors like infrastructure, logistics etc. and in turn will increase employment.
  • As FTEs will be a short-term contract, it can encourage workers as well as enterprises to get into contract.
  • MSMEs and SMEs will be encouraged, as they are major job creator in the economy.
  • However, there are various challenges with regards to FTE’s implementation:
  • Industries are reluctant to go ahead citing rising costs and obligations, as workers need to be treated at par with permanent ones. New rules will increase administrative cost and statutory workload for the companies.
  • Labour is under concurrent list, so effort is required to bring all the states on the same footing in this regards.
  • The rules are also silent about the Appellate Authority, which can be approached for clarification, escalation and grievance handling.
  • Since hiring and firing is easy, it may lead to exploitation of workers and thus not encouraging them to go under such contracts. The government also needs to clearly specify the provisions related to Pension and other Retirement Benefits.



With universal adoption of the rules across all the states, it is expected to be a game changer as far as labour welfare and formalization of labour is concerned. By streamlining the hiring process, it will also improve ease of doing business in India.


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