The correct option is Reduction in the workforce employed in the formal sector.
Explanation
The economic reforms of 1991, characterized by Liberalization, Privatization, and Globalization (LPG), aimed to accelerate economic growth and efficiency. While these reforms successfully boosted India's GDP, their impact on employment generation, particularly within the formal (organized) sector, was distinct and often described as "jobless growth."
Analysis of the Impact:
- Decline in Formal Employment: Contrary to the expectation that rapid economic growth would generate massive formal employment, the number of workers employed in the formal sector actually witnessed a decline or stagnation during the post-reform period.
- Public Sector Contraction: The formal sector in India was historically dominated by the public sector. The reform process involved rationalization, disinvestment, and hiring freezes in Public Sector Undertakings (PSUs), leading to a reduction in the workforce.
- Capital-Intensive Growth: The private sector, exposed to global competition, adopted modern, capital-intensive technologies rather than labor-intensive methods, limiting job creation.
- Informalisation of Workforce: Even within the formal sector, there was a shift towards outsourcing and hiring contract laborers to bypass rigid labor laws. These workers, despite working in organized enterprises, often lack social security benefits, effectively pushing them into the informal category.
Conclusion on Options:
- Significant expansion of employment in the formal sector is incorrect: There was no massive increase; employment elasticity (jobs created per unit of growth) fell significantly.
- Reduction in the workforce employed in the formal sector is correct: As noted in standard economic texts , the reform process resulted in a decline in the number of workers employed in the formal sector due to the factors mentioned above.
- No noticeable change in formal sector employment is incorrect: The reforms had a significant structural impact, specifically leading to informalisation.
- Complete absorption of informal workers into the formal sector is incorrect: The trend was the opposite; formal jobs were often replaced by informal arrangements, not vice versa.
Key Takeaway:
The post-1991 economic reforms led to "jobless growth" in the formal sector, characterized by a decline in secure, regular salaried employment and a rise in informalisation (casual and contract labor).