Persistence of Informal work in India

What is the issue?

The persistence and spread of informal work suggests that current official attempts at formalisation are simply not working.

What is the need for formalisation of workforce?

• The demand for formalising economic activity, or shrinking the unorganised component and expanding the organised, has been rising in recent times.
• The core reason behind is the unorganised sector, which is seen as being largely outside the direct and indirect tax net, depriving the government of much-needed resources.
• The GST regime is likely to force formalisation by requiring transactions to be recorded whenever those transactions are between the organised and unorganised units.
• Workers could also realise workplace benefits such as written contracts, legal minimum wages, paid leave and social security on formalisation.
• Framing and implementing legislation that ensures workers one or more of these benefits is seen as transforming the nature of the workplace as well.
• It can also be a process of transferring workers from low productivity units to higher productivity units.
• So anything facilitating formalisation also contributes to a rise in average productivity and growth.

What is the position of women so far?

• There is a perception that since women obtain the residual jobs in the labour market, they are the ones more likely to be involved in informal work.
• So formalisation is often seen as particularly favourable for women, improving the conditions of their work and the remuneration received.
• However, there has been a sharp fall in women’s labour force participation rates, from 42.7% in 2004-05 to 31.2% in 2011-12.
• In addition, women do not feature predominantly in a sector that accounts for the largest increases in employment in the non-agricultural sector.
• Construction accounts for a substantial share of non-agricultural employment, with the figure having risen from 14.4% in 1999-00 to 30.1% in 2011-12.
• There were 51 million construction workers in 2011–12, 93% of whom were in the unorganised sector.
• However, men constituted 82% of the construction workforce, with women contributing just 11% and children (aged 18 years or less) 7%.

What does the NSSO survey show?

• National Sample Survey Organisation’s 73rd Round survey of Unincorporated Non-Agricultural Enterprises (excluding Construction) in India provides information on the unorganised sector.
• The survey, relating to 2015-16, covered unorganised enterprises except those in construction as well as units registered under the Factories Act, Beedi and Cigar workers (Conditions of Employment) Act, and the Central Electricity Authority.
• The number of unincorporated non-agricultural enterprises (those not registered under the Companies Act, 1956), excluding construction, grew by 27% to 6.34 crore in 2015-16, compared with 5 crores in 2010-11.
• There were 111 million workers (including part-time workers) working in unincorporated non-agricultural enterprises excluding construction, or about a quarter of the workforce of 459 million workers employed in that year.
• This implies that unorganised sector employment in construction even in 2011-12 accounted for more than 40% of workers in the rest of the non-agricultural unorganised sector in 2015-16.
• Distribution - A noteworthy feature is that those employed in the unorganised non-agricultural sector were rather evenly distributed across rural and urban areas with urban workers accounting for 55% of the total.
• This shows that the units located in semi-urban and rural areas rather than in urban areas would be less advanced and unlikely to be precursors of more productive non-agricultural activities.
• Also, these activities persist and proliferate because of the absence of more ‘decent’ jobs in the organised sector.
• Sector-wise - Interestingly, these non-construction jobs in the unorganised sector were more or less equally distributed across manufacturing (32.4%), trade (34.8%) and ‘other services (32.8%).
• This would imply that there were 36 million workers engaged in unorganised manufacturing in 2015-16, as compared with just 14.2 million employees (of which 11.1 million were workers) in the registered manufacturing sector.
• Those employed in unorganised manufacturing are two-and-a-half to three times the number engaged in organised manufacturing.
• This indicates starkly the limited degree to which the transition to ‘formality’ has occurred in the manufacturing sector.
• Hence the possibilities of formalisation are likely to be the highest in the manufacturing sector.
• Gender-wise - Also, the share of female workers was the highest in manufacturing (52.67%) followed by ‘other services’ (25.91%) and trading (21.42%).

• This shows that the residual jobs accrue to women because of the gender bias in labour markets, especially in the unorganised sector.

What does it imply?

• The evidence increasingly shows that the factors stimulating growth and determining the institutional features of the organised and unorganised sectors are quite separate.
• The drivers of growth do not necessarily ensure the displacement of the unorganised by the organised.
• Of course there are strong linkages between the organised and unorganised sectors, which influence the profitability and/or survival of both.
• But these linkages are not the means through which the organised pulls the unorganised into its own fold.
• Instead, most often, organised-unorganised sector linkages reproduce and perpetuate the backward unorganised sector.
• Also, Government initiatives, such as Make in India, Skill India, Digital India and Start-Up India find it difficult to reach the vast number of unregistered enterprises.
• Hence the governmental measure to increase formalisation of workforce needs to be strengthened further in the future.

Source: Business Line