What is it that ails our informal sector?

The Union government needs to define the informal sector properly and provide labour legislation to protect employment and wages
What is it that ails our informal sector?

What was done to migrant labourers all over India during Covid-19 should never have happened. However, this is part of a larger malaise. We need to examine why it happened and what needs to be done if the industry and informal sector are to have a symbiotic relationship.

Let us dissect the problems of the informal sector. They effectively constitute 90% of the workforce and about 50% of the national product. As per Government of India statistics, the unorganised sector contributes almost 50% of the total GDP. We shall examine three aspects.

The definition and percentage of unorganised labour in the informal sector are blurry and confusing. The Economic Survey of 2018-19, released on 4 July 2019, said “almost 93%” of the total workforce is “informal”. But NITI Aayog’s Strategy for New India at 75, released in November 2018, said: “By some estimates, India’s informal sector employs approximately 85% of all workers.”

What is the source of such information? The Economic Survey of 2018-19 does not mention it. The NITI Aayog does, and cites a 2014 report, “OECD India Policy Brief: Education and Skills”, which, in turn is silent on its source of information.

Further, in the Indian context, about 52% of workers who are engaged in agricultural activities are outside the coverage of employment-unemployment surveys for measurement of workers in informal sector or informal employment and about 65% of the rural casual status workers are excluded from the coverage. Thus, from the employment and unemployment surveys of NSS, information on informal sector and informal employment cannot be generated for all those engaged in the agricultural sector.

It is increasingly realised that “lack of reliable statistics on the size, distribution and economic contribution of the sector has been a major constraint in providing a realistic understanding of the significance of the informal sector to the Indian economy, leading to its neglect in development planning”. (NCEUS report on Definitional and Statistical Issues relating to the Informal Economy, 2008, P. 64).

The National Commission for Enterprises in the Unorganised Sector (NCEUS) was set up by the Government of India in 2004 to “review the status of unorganised/informal sector in India including the nature of enterprises, their size, spread and scope, and magnitude of employment”. They said: “One of the fundamental issues in conceptualisation of unorganised sector is the definition itself. The time has come to take a holistic and comprehensive view of the data base of the informal/unorganised sector.”

The second area of concern is the employment statistics. It appears from reports of the NCEUS based on NSS survey on Employment and Unemployment that informal employment in the informal sector constitutes 86% of employment as of 2004-2005. It further states in another report that the percentage of the informal employment in the informal sector has grown by 2019 and not reduced.

Thus, 86% of the 90% of people working in the unorganised sector are not covered under labour legislation and they have absolutely no protection in terms of employment as they do not have an appointment letter, contract, guarantee for wages, health facilities, insurance, etc. They are at the mercy of the employer. Lately, some states have suspended even the labour laws in the formal sector. The direction of these states is worrying.

The reason why the migrant labour that works in the informal sector feels so vulnerable is because of the very nature of their employment. Therefore, when Covid-19 struck and the employers stopped paying the wages and asked them to leave the job, they were put on the brink of starvation. To make matters worse, the Centre stopped all trains, buses, etc., for them to even go home. Therefore, they had no option but to start walking back to their homes.

The industrialists/employers are likely to be badly hit, as the share of the unorganised sector is quite overwhelming. For eg: in agriculture and forestry, they constitute 99.9%, in fishing 98.7%, mining 64.4%, manufacturing 87.7%, construction 92.4%, wholesale and retail trade, 98.3%, hotel and restaurants 96.7%, and transport, storage and communication 82.2%. Many of the industries may get crippled without the migrant workers. Reverse migration is a direct fallout of badly treating the informal sector for 70 years.

A third dimension has also emerged in the last few years. Many of the states such as Bihar, Chattisgarh, Rajasthan and West Bengal have started developing economically. These are the states from where the majority of the migrant labourers come. The migrant labour, possibly, now can find jobs near home.

If the Centre realises the importance of the informal sector and its contribution to the economic growth of the country, it will need to define the sector effectively, provide labour legislation to protect employment, wages and treat them on par with the formal sector.

Ashoke K Maitra

HR and Strategy Adviser to industries


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