CONDITION OF WORK AND PROMOTION OF LIVELIHOODS IN THE UNORGANIZED SECTOR

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INDIAN ECONOMY: TERM PAPER

Submitted By: Group I Topic III

PGP/14/260 NITESH KUMAR GUPTA PGP/14/280 MAHTAAB KAJLA PGP/14/287 PRACHI CHAWLA

PGP/14/290 RAHUL MITTAL PGP/14/313 VINNY ARYA PGP/14/315 VISHAD DUBEY

Submitted to: Prof. Sthanu R Nair

Indian Institute of Management Kozhikode

CONDITION OF WORK AND PROMOTION OF LIVELIHOODS IN THE

UNORGANIZED SECTOR

[INDIAN ECONOMY]

Indian Institute of Management Kozhikode 2

Contents

Organized and Unorganized sector............................................................................................................... 3

Size of the population/workforce in the Unorganized Sector ...................................................................... 3

Categories of workers under Unorganized Sector ........................................................................................ 3

Need for uplifting the condition of work and livelihoods of unorganized sector workers ....................... 4

Comparison of organized and unorganized sector - working conditions ..................................................... 5

The government’s stand on the issue and initiatives undertaken................................................................ 5

Constraints on effective implementation ................................................................................................. 6

Findings & Recommendations of Committees appointed by GOI ................................................................ 6

The First National Commission on Labour (FNCL 1969) ....................................................................... 6

The National Commission on Rural Labour (NCRL) ............................................................................... 6

National Commission on Self-employed Women and Women Workers (NCSEW ............................... 7

Social Security Act, 2008 ............................................................................................................................... 8

Differentiating features of Act .................................................................................................................. 8

Administrative Structure ........................................................................................................................... 8

Criticism .................................................................................................................................................... 8

International Unorganized Sector ................................................................................................................. 9

International Labour Organization (ILO) ................................................................................................... 9

Low Wage Employment ...................................................................................................................... 10

Organizing Informal Sector ................................................................................................................. 10

Child Labour – Case of Thailand .......................................................................................................... 10

Salient Features of Successful policies ................................................................................................ 10

Recommendations ...................................................................................................................................... 11

References .................................................................................................................................................. 12

Annexure - A ............................................................................................................................................... 13

Annexure - B ................................................................................................................................................ 17

Annexure - C ................................................................................................................................................ 21

[INDIAN ECONOMY]


Organized and Unorganized sector

Organized Sector/ Formal sector: The sector which is registered; follows Government rules and

regulations have employees and employers union is called organized sector. Regular wages and

hours, which carry with them employment rights, and on which income tax is paid.

Unorganized/ Informal Sector: The informal sector or informal economy is the part of an

economy that is not taxed, monitored by any form of government or included in any gross

national product (GNP), unlike the formal economy.

Size of the population/workforce in the Unorganized Sector

India’s workforce comprises of 86% in the unorganized segment in 2004-05, out of which

agriculture sector accounted for 64% of the unorganized sector (Reference: Fig I,II and IV of

Annexure A). The proportion of non-agricultural worker in the unorganized sector rose from

32% to 36% between 1999-2000 and 2004-05. In non-agriculture sector, 72% of the workforce is

in unorganized nature. In non-agricultural workers, 50% of the workforce is struggling in

Production, Transport and related activities (Reference: Fig. V, Annexure A). Kerala, Delhi,

Nagaland and Goa are among the states having high density of unorganized workers in India

(Reference: Fig III, Annexure A). In rural areas, 96.89% of the overall women workforce comes

under non-organized sector in comparison to 93.60% male workforce.

Categories of workers under Unorganized Sector

WAGE WORKERS IN THE UNORGANIZED SECTOR

Wage workers are persons employed for remuneration unorganized workers, directly by

employers or through agencies or contractors.

SELF-EMPLOYED IN THE UNORGANIZED SECTOR

They operate farm or non-farm enterprises or engage in a profession or trade, either on

own account, individually or with partners, or as home-based workers.

UNPROTECTED WAGE WORKERS IN THE ORGANISED SECTOR

They are mainly regular, casual and contract workers who are unprotected because of

non-compliance of the provisions of the existing laws. This is a growing segment in the

organized sector.

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REGULAR UNORGANIZED WORKERS

They are the workers who work for others and getting in return salary or wages on a

regular basis.

Need for uplifting the condition of work and livelihoods of unorganized sector

workers

There is a high congruence between the poor and the vulnerable segments of the society (who

may be called the common people). The population has been divided based on monthly per

capita consumer expenditure as follows:

1. Extremely Poor : up to three-fourths of the official poverty line

2. Poor: up to the official poverty line

3. Marginally Poor: 1.25 times the poverty line

4. Vulnerable: two times the poverty line

79% of the informal or unorganized workers, 88%of the Scheduled Castes and Scheduled Tribes,

80%of the OBC population and 84% of the Muslims belong to the poor and vulnerable group

(Reference Table 1, Annexure A). The high congruence between informal work status and

poverty/vulnerability becomes almost complete in the case of casual workers, 90% of them

belong to the group of poor and vulnerable (Reference: Table 2, Annexure A).

The main problems in unorganized non-agricultural sector are unequal distribution of land and

absence of education opportunities. 7.5% of the agricultural workers and 15.4% of the non-

agricultural workers are totally landless. Landlessness is the highest among Hindu SCs and

Muslim OBCs and Others and the least among Hindu upper castes.

In the case of Own Account Enterprises (OAEs), the proprietors/owners have to face problems

like absence of location for their work, shortage of credit, inadequate marketing and

infrastructural facilities. The condition of women particularly in unorganized nature is very

miserable. A women worker has to face gender discrimination at the workplace which is

reflected in the nature of work performed, valuation of the skills and the technology used by men

and women. The women are placed in the bottom in the hierarchy of job; because they are

considered as low skill. Their participation in OAEs are also very less as only about 12% of

OAEs are operated by women. Nearly 83% of the female proprietary OAEs had incomes lower

than the notional minimum compared to 41% of the male proprietary OAEs.

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Comparison of organized and unorganized sector - working conditions

The organized sector has been growing at a faster pace than the unorganized sector. However,

there are significant differences of working conditions and benefits for workers in the organized

and unorganized sector. The first prominent issue is regarding ensuring of minimum wages for

the workers. As compared to the organized sector the wages in the informal sector are not

regularized. This has a negative impact on the productivity by increasing transaction and training

costs. The second major difference regulation of maximum working hours and number of

holidays. Non-payment of overtime work is a very common phenomenon in the informal sector.

Another key differentiating factor in formal and informal sector is the healthy working

conditions. Most of the industries employing the informal workforce lack even the minimal

requirement of a first aid kit. Further, industries which are involved in hazardous working

conditions such as carpet weaving, beedi rolling, marine fishing, and metal ware ideally need to

ensure minimum healthy working conditions. The unorganized sector clusters face extremely

limited facilities for sanitation. Unorganized workers are provided with temporary residential

sheds which lack minimum facilities.

Debt bondage is common in the informal sector. Migrant, bonded and child labor often suffer

from social exclusion of one kind or another. As a net outcome of these drawbacks, the

workforce of the informal sector does not have any bargaining power.

While labor market discrimination is often manifested in job typing and lower remuneration,

discrimination outside the labor market takes the form of lower work participation rate.

The challenge is to transform the informal sector and reduce the gap between the formal and

informal by 'leveling up' the informal sector rather than 'leveling down' the formal sector.

The government’s stand on the issue and initiatives undertaken

The Fundamental Rights in the Indian Constitution guarantee:

Prohibition of exploitation of labour through use of forced labour or child labour

Nondiscrimination by the state and equality of opportunity in matters of public

employment

Right to form associations and unions

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The laws by the government that are applicable to unorganized workforce are mentioned

in Annexure - C

Constraints on effective implementation

Smaller size of the enforcement machinery in comparison to the large and dispersed

workforce; also inadequate infrastructure

Lack of representation of the unorganized workers and no participation of their

representatives in ensuring effective implementation of central and state laws

Lack of or inadequate sensitivity among those responsible for implementation

Inability of the self-certification scheme to bear an impact on the unorganized sector

Findings & Recommendations of Committees appointed by GOI

The First National Commission on Labour (FNCL 1969) was headed by Justice P. B.

Gajendragadkar in 1969. The findings were primarily about the labour conditions in unorganized

sector. The recommendations included:

First hand detailed surveys from time to time to understand the problems of different

categories of unorganized labor.

Legislative protection by the state for unorganized/ unprotected labor.

Simplification of legislative and administrative procedures applicable to small

establishments.

Expediting education and organization in the field of unorganized labor.

Reinforcement and strengthening of the inspection system as there is no alternative to the

existing implementation machinery

The National Commission on Rural Labour (NCRL) was another commission appointed in 1987

which focused its findings on the labour conditions in unorganized sector. The recommendations

included:

Multi-dimensional strategy to lift rural laborers out of poverty.

Recommendations according to categories of workers – Change in Beedi Cigar Workers

Act (1966)

Minimum wage limit Rs. 20/-

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Changes in the existing Inter State Migrant Workmen (Regulation of Employment and

Conditions of Service) Act, 1979 (ISMW).

National Commission on Self-employed Women and Women Workers (NCSEW) was headed

by Smt. Ela Bhatt in year 1988. The following are the recommendations of this committee

Introduction of a system of registration - fix a minimum wage, regulate conditions of

employment - Piece rates should be fixed or converted into daily wages

Setting up of Equal Opportunities Commission under a Central law, - investigation,

direction, advice and monitoring.

Establishing a Tripartite Board – regulate implementation of the legislation - making

women workers visible

Introduction of an extended system of childcare throughout the country to reduce the

burden on women and to facilitate the all-round development of the child.

The Second National Commission of Labour (SNCL) submitted its report in 2002 which has its

findings including that it is in general a low wage and low earning sector, workforce was not

having any bargaining power, industry was not following the Various Acts that are applicable

(Refer: Annexure C), first time they agreed that there is a need for Comprehensive legislation,

debt bondage is very common among the employed as well as the self-employed workers in the

unorganized sector. Workers are not often organized into trade unions. The self– employed is

seldom organized into associations. The recommendations of this committee are as given as:

Multi-dimensional strategy to lift rural laborers out of poverty.

Proposed an Act to consolidate and amend the laws relating to the regulation of

employment and workers.

• Covering both agricultural and non-agricultural workforce

Umbrella legislation

• Improving their productivity, quality of work, enhancing income earning abilities,

increasing their bargaining power.

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Social Security Act, 2008

The conditions of workers discussed till now have been the state of affairs of workers in

unorganized sector in India. Social Security Act passed in 2008 (Ref. Figure 1&2 Annexure B)

have come as a ray of hope for around 300 million such workers but will it really work or not

needs to be analyzed.

Differentiating features of Act

There has been a lot of debate over how different is this act from the older schemes.

Firstly, it’s an Act which means that it is legally enforceable and accountable to the beneficiaries.

Secondly, it is an umbrella provision for the first time which talks about a whole gamut of issues

related to health insurance to health and maternity benefits. Lastly, it gives enough flexibility to

the state government to enact their own schemes and carry on with the already existing ones.

Administrative Structure

The Act provides for two parallel administrative frameworks, one at the State level and the other

at Central level. Also Worker’s facilitation centres and District Committees will be set up for

ground level implementation and worker engagement (Ref. figure 3 Annexure B).

The participation of the local governance and Institutions is conspicuous by its absence in the

implementation of this Act.

Criticism

Even though most of the people see this act as a sign of situation improving in this sector, strong

criticism both informed and uninformed comes from a large section of society. The Act has been

criticized on the following grounds:

Heterogeneous Character of Workforce ignored:

The needs and priorities of workers in unorganized sector are quite different from each

other. This Act does not take into consideration these differences and provides the same

level of benefits to everyone.

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Discouraging local initiatives:

Even though the Act provides for state government coming up with its own welfare

schemes, it is seen by many people as a safe haven for employers and government to

limit themselves to the provisions of this Act and not strive for better schemes.

Charity, Not Rights:

Overall, the Act is seen as not giving rights but rather to confine the workers’ status as

beneficiaries of government schemes.

International Unorganized Sector

The unorganized sector has been the safe haven for people in developing countries which do not

have enough Social Security Nets. The international definition of unorganized sector worker is:

The contribution of this sector to GDP is close to 50% in most of the developing countries (Ref.

Table1 of Annexure B)

International Labour Organization (ILO)

During International Labour Conference in 2002, the ILO for the first time addressed this issue

of the Informal Sector and came up with the concept of “Decent Work Agenda” which talked

about 4 aspects which are 1) Respect for fundamental worker’s rights and international labour

standards, 2)Employee Protection, 3) Social protection, and 4) Social Dialogue. The primary aim

was to improve the working conditions of workers irrespective of the industry they are in.

We analyzed a lot of countries and some of the characteristics were common in most of

them namely Low wages, Inactive trade unions, Child labour etc. Let’s see some of these cases:

The major reasons for fostering of this sector have been: 1. Restructuring of formal sector leads to

subcontracting and outsourcing encouraging

unorganized sector.

2. High Transaction costs for formalizing like

high tax rates, administrative costs etc

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Low Wage Employment

In most of the developing countries, the informal sector was prominently characterized by low

wage incidences. The case in point is Brazil where around 65% of low wage incidences were

observed in the informal sector (Ref. Table 2 Annexure B).

Governments in many such countries have introduces direct income support policies for

poor families where in-work benefits are not a feasible option as is the case with informal sector

(Ref Figure 4 Annexure B).

Organizing Informal Sector

Any real guarantee for implementation and enforcement of labour standards in the informal

economy depends on the organisation of informal workers into trade unions. Many efforts on

global arena can be observed like Women in Informal Employment Globalising and Organising

(WIEGO) and the Committee for Asian Women (CAW).

Child Labour – Case of Thailand

The elimination of child labour from the formal sector has pushed them into the informal sector

where the employers are hidden from the eyes of the law. This is a huge problem since this

effects the education level in the country and thus the poverty alleviation still remains a distant

dream in most of these countries.

In Thailand, the official figures show that 300,000 children aged 15-17 years legally employed in

registered establishments in 2005 (60 per cent male and 40 per cent female). But when the

informal sector is taken into account, there are around 1.7 million 15-17 year-olds engaged in

different types of work

Salient Features of Successful policies

Created an environment to reduce transactions costs in formal sector

Appropriate, Effective and properly implemented macroeconomic and social policies,

adopted with tripartite consultation were central to good governance in the informal economy

Cooperatives as important in improving the living and working conditions of women and

men

Literacy promoted through non-formal means, and/or as part of skills development

programs

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Recommendations

Reduce the transaction costs to incentivize formalization of the informal sector

Decentralization for better governance

• NGOs, experts, professionals, local institutions need to be involved for

implementation of Social Security act

Introduction of IT in the execution of programmes and schemes- increases transparency-

Social Security No., Smart Cards

Heavy penalization for defaulting or misappropriating officials

Creation of supportive infrastructure before formalizing the social security bill into an

Act

Compilation of existing BPL schemes

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References

http://labour.nic.in/lcomm2/nlc_report.html

“A Critique of Unorganised Workers Securities Act” by Paromita Goswami

“Report on Unorganised Sector” of National Commission for Enterprises in unorganized

Sector

“Unorganised Sector Workers Social Security Bill 2007”

“Unorganised sector workforce in India” by S Sakthivel, Pinaki Joddar

“Unorganised workers bill” - In Aid of the Informal Worker by Renana Jhabvala

“Unorganised workers social secutity bill” by Indira Hirway

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Annexure - A

Size of Workforce in Organized and Unorganized Sector

Fig. I Fig. II

State-wise Employment in Organized and Unorganized Sector

Fig. III

1983 1987-88 1993-94 1999-00 2004-05

24 25.4 27.4 27.8 62.6

275.6 301.9

348.8 371.2

394.9

299.6 327.3

376.2 399

457.5

Organised Unorganised All

0% 25% 50% 75% 100%

1983

1987-88

1993-94

1999-00

2004-05

Unorganised organised

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Percentage Distribution of Expenditure Classes by Social Identity: Informal

Work Status and Education, 2004-05

Table - I

79% of the informal or unorganized workers, 88%of the Scheduled Castes and Scheduled

Tribes, 80%of the OBC population and 84% of the Muslims belong to the poor and

vulnerable group

Percentage Distribution of Unorganized Workers across Expenditure Classes

Table - II

21% belonging to Middle and High Income groups are mostly self-employed or regular

workers

The high congruence between informal work status and poverty/vulnerability becomes

almost complete in the case of casual workers, 90% of them belong to the group of poor

and vulnerable

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Sector Wise Break- up of Unorganized Sector

Fig. IV

The proportion of non-agricultural worker in the unorganized sector rose from 32 per

cent to 36 per cent between 1999-2000 and 2004-05.

In non-agriculture sector, 72% of the workforce are in unorganized nature

Only about 0.4 per cent of the unorganized sector workers were receiving social security

benefits like Provident Fund

Distribution of Non-agricultural Workers across Occupational Groups (2004-05)

Fig. V

Series1, AGRICULTURE

, 253, 64%

Series1, NON-AGRICULTURE

, 142, 36%

AGRICULTURE NON-AGRICULTURE

PROFESSIONALS, TECHNICALS etc, 4.9,

5%

ADMINISTRATIVE,MA

NAGERIAL, 9, 9%

CLERICAL, 1.7, 2%

SALES, 24.2, 24%

SERVES, 9.6, 10%

PRODUCTION, TRANSPORT &

Related, 50.4, 50%

Unorganised Sector

[INDIAN ECONOMY]


Fig. VI

PROFESSIONALS, TECHNICALS etc,

19.6, 20%

ADMINISTRATIVE,MANAGERIAL, 5.6, 6%

CLERICAL, 18.1, 18%

SALES, 3.1, 3% SERVES, 9.8, 10%

PRODUCTION, TRANSPORT &

Related, 43.1, 43%

Organised Sector

[INDIAN ECONOMY]


Annexure - B

Figure 1 Social Security Act – Benefits

Figure 2 Social Security Act - Sources of fund

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Figure 3 Social Security Act - Administrative Setup

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Table 1 Informal Sector - Contribution to Employment

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Table 2 Incidence of Low wage employment by Demographic characteristics

`

Figure 4 Income Support Policies implemented in different countries

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Annexure - C

Documents

CONDITION OF WORK AND PROMOTION OF LIVELIHOODS IN THE UNORGANIZED SECTOR