Themes > Features
26.06.2006
Providing Social Security to Unorganised Workers
C.P. Chandrasekhar and
Jayati Ghosh
Among
the several important failures of the Indian development process so far,
the complete neglect of working conditions and social security for most
of our citizens is one that is especially marked. Yet, until recently,
this issue received almost no attention from policy makers and certainly
very little attention from the media, which has never extended itself
to highlight the everyday problems of ordinary people. The National Labour
Commissions, both the first and second, did highlight the special and
continual problems faced by workers in unorganised activities, but these
have mostly been treated as reflecting a depressing reality rather than
as objects of policy intervention.
Of course, there have been some minor measures by central and state governments towards some social security provision to deprived and marginalised categories, such as pensions for widows, but these have been so limited in scope and so paltry in amount that they have amounted to almost nothing. That is why the concern expressed in the UPA government's National Common Minimum Programme, and the subsequent setting up of a high-level Commission to look specifically into these and other issues relating to enterprises and employment in the unorganised sector, was greatly to be welcomed.
The first report of this Commission has just been released (''Social Security for Unorganised Workers: Report of the National Commission for Enterprises in the Unorganised Sector'', Government of India, May 2006) and it makes far-reaching but workable proposals to provide some minimal social security to the vast majority of our workers. It also provides the framework for important and necessary legislation to ensure that this is provided, which should become an immediate priority of this government.
The first issue of course is defining the universe which is covered by the term ''unorganised''. The unorganised sector is defined by the Commission as referring to all unincorporated enterprises owned by individuals or households, employing less than ten people. However, it is also recognised that even in the so-called formal sector, there are many workers who do not have the rights and privileges of ''organised'' workers, and therefore includes in its purview not only all those working in the unorganised sector, but also those workers who are in the formal sector, but without any employment security and social security provided by the employer. Table 1 indicates the inter-relationship between the two categories.
The Commission divides the social security problems of all informal workers into two categories. The first is seen to arise out of capability deprivation, and essentially relates to the terms, conditions and remuneration of employment. This creates such problems as inadequate work availability, low earnings from work, insecurity of contract and possibility of termination, low health and educational status leading to access to only low productivity jobs. The second category of problems belongs to those arising from both predictable and unforeseen adversity, because of the absence of any safety nets to meet ill health, accidents, old age and death.
The first set of problems clearly require more than social security measures, since they reflect broad development processes and macroeconomic strategies that have involved the persistence of poverty, low levels of education, aggregate low productivity and so on. It is clearly unrealistic to expect social security measures to address these larger problems in any meaningful way. Instead, this Report focuses on measures to alleviate to some extent at least, the second set of problems, and to provide to the bulk of citizens in India who have hitherto been excluded, at least a modicum of basic protection against adversity.
It is clear that there is no alternative to a very proactive role of the state in providing such security. The Report provides some very interesting international experience, both historical of some developed countries and current of some developing countries such as China, Indonesia, Tunisia and Brazil, to show how such measures to provide social security can be combined with measures to increase aggregate economic growth. The important lesson from all this international experience is that a country need not wait until it is fully ''industrialised'' with high levels of per capita income, to extend social security to those who have so far been excluded.
Various such schemes have indeed been suggested, for example by the National Commission on Rural Labour and the Second National Labour Commission. However, this particular Commission has suggested a bold new scheme which departs from these earlier proposals in some significant ways. There are several major differences, and important features of these recommendations, which make this a very different proposal which is intended to lead to landmark legislation:
Of course, there have been some minor measures by central and state governments towards some social security provision to deprived and marginalised categories, such as pensions for widows, but these have been so limited in scope and so paltry in amount that they have amounted to almost nothing. That is why the concern expressed in the UPA government's National Common Minimum Programme, and the subsequent setting up of a high-level Commission to look specifically into these and other issues relating to enterprises and employment in the unorganised sector, was greatly to be welcomed.
The first report of this Commission has just been released (''Social Security for Unorganised Workers: Report of the National Commission for Enterprises in the Unorganised Sector'', Government of India, May 2006) and it makes far-reaching but workable proposals to provide some minimal social security to the vast majority of our workers. It also provides the framework for important and necessary legislation to ensure that this is provided, which should become an immediate priority of this government.
The first issue of course is defining the universe which is covered by the term ''unorganised''. The unorganised sector is defined by the Commission as referring to all unincorporated enterprises owned by individuals or households, employing less than ten people. However, it is also recognised that even in the so-called formal sector, there are many workers who do not have the rights and privileges of ''organised'' workers, and therefore includes in its purview not only all those working in the unorganised sector, but also those workers who are in the formal sector, but without any employment security and social security provided by the employer. Table 1 indicates the inter-relationship between the two categories.
Table
1: Employment, 1999-2000 (in millions) |
|||||||||||
Sector |
Employment
Category
|
||||||||||
Formal
|
Informal |
Total
|
|||||||||
| Organised | 30.66
|
25.79 |
56.45 |
||||||||
| Unorganised | 4.02 |
336.29 |
340.31 |
||||||||
| Total | 34.68 |
362.08 |
396.76 |
||||||||
The
nature and extent of the problem then immediately become obvious. Using
these definitions, the Commission estimates the number of workers in
the unorganised sector to stand at 340 million in January 2000, and
the total informal workers (including those working without protection
in the organised sector) at 362 million. This amounts to 86 per cent
and 91 per cent respectively of total employment in India at that time.
It is often thought that informalisation is a feature that is predominant
in agriculture and some services, with more ''modern'' sectors exhibiting
less of it. In actual fact, most formal or organised economic activities
also rely on the use of ''informal' – that is, unprotected, workers to
different degrees, so that their prevalence is much more widespread
than is commonly supposed in almost all the sectors. Chart 1 provides
an indication of the share of informal workers to total workers across
sectors. Barring the utilities, that is electricity, gas and water supply,
informal or unprotected workers account for more than half of workers
in all the sectors, and two-thirds or more in all other sectors except
mining and quarrying.
The Commission divides the social security problems of all informal workers into two categories. The first is seen to arise out of capability deprivation, and essentially relates to the terms, conditions and remuneration of employment. This creates such problems as inadequate work availability, low earnings from work, insecurity of contract and possibility of termination, low health and educational status leading to access to only low productivity jobs. The second category of problems belongs to those arising from both predictable and unforeseen adversity, because of the absence of any safety nets to meet ill health, accidents, old age and death.
The first set of problems clearly require more than social security measures, since they reflect broad development processes and macroeconomic strategies that have involved the persistence of poverty, low levels of education, aggregate low productivity and so on. It is clearly unrealistic to expect social security measures to address these larger problems in any meaningful way. Instead, this Report focuses on measures to alleviate to some extent at least, the second set of problems, and to provide to the bulk of citizens in India who have hitherto been excluded, at least a modicum of basic protection against adversity.
It is clear that there is no alternative to a very proactive role of the state in providing such security. The Report provides some very interesting international experience, both historical of some developed countries and current of some developing countries such as China, Indonesia, Tunisia and Brazil, to show how such measures to provide social security can be combined with measures to increase aggregate economic growth. The important lesson from all this international experience is that a country need not wait until it is fully ''industrialised'' with high levels of per capita income, to extend social security to those who have so far been excluded.
Various such schemes have indeed been suggested, for example by the National Commission on Rural Labour and the Second National Labour Commission. However, this particular Commission has suggested a bold new scheme which departs from these earlier proposals in some significant ways. There are several major differences, and important features of these recommendations, which make this a very different proposal which is intended to lead to landmark legislation:
-
It is a national initiative proposing universal coverage of all informal workers in both rural and urban areas, and in both unorganised and organised sectors.
-
It is a rights-based scheme, proposing a legally enforceable entitlement.
-
All informal workers are eligible to join, irrespective of occupation or duration of employment.
-
It is a voluntary and contributory scheme, whereby the worker, the employer and the government each pays Rs. 1 per day per worker. (In the case of BPL workers, the worker's contribution is to be borne by the central government.)
-
It is designed to provide a minimum combination of health, life and old age benefits at the national level. State governments are free to add to this as they choose, in terms of contributions or additional benefits.
The
basic benefits that are recommended by the Commission consist of the
following:
Health
insurance:
-
Hospitalisation costs for member and family up to Rs. 15,000 per year.
-
Maternity benefits up to Rs. 1000 per delivery for member or spouse.
-
Sickness cover for earning head of family at Rs. 15 per day for a maximum of 15 days.
-
One time grant of Rs. 25,000 in case of accidental death or Rs. 15,000 for permanent disability of breadwinner.
Life
insurance:
-
Rs. 15,000 for natural or accidental death.
Old
age security:
-
All BPL workers to get pension of Rs. 200 per month after the age of 60 years.
-
All non-BPL workers to be entitled to a Provident Fund accumulating from the date of registration into the scheme and earning a guaranteed return of 10 per cent per year.
-
Provident Fund scheme can also be used a unemployment relief – after 10 year's contribution, if the worker becomes unemployed, s/he would be entitled top draw up to 50 per cent of the accumulated sum as unemployment benefit for a period of 6 months. When the worker becomes employed again, s/he can continue with the scheme by renewing the contribution.
Of
course these are not huge amounts that are being provided under the
proposed scheme, and the amount of coverage is still so low that it
would still leave most families with need to look elsewhere to finance
the total costs of these contingencies. But in a context where thus
far there has been nothing at all in terms of either state provision
or even access to pension funds and insurance schemes for most of the
poor, these are likely to play an extremely important role in providing
some degree of relief from uncertainty and fear of the future which
are currently such a constant feature of the material life of informal
workers.
Another criticism could be that this kind of scheme will be very expensive and put a huge and unmanageable burden upon the government. But in fact the costs are relatively little in relation to the huge benefits in terms of providing some social security coverage to some many millions of workers. Estimates by the Commission, described in Table 2, indicate that even if the scheme covers as many as 343 million workers, as projected for 2010-11, the estimated costs for Central and State government combined with administrative costs of implementing the scheme, are not likely to exceed even half a per cent of GDP. In the next few years the scheme would cost only around 0.3 per cent of GDP, which is a negligible amount.
There are clearly very pressing economic and political reasons why this proposal should be taken extremely seriously by the Central Government, and why the enabling legislation should be placed as soon as possible in Parliament. There is first of all the obvious issue of justice and socio-economic rights, which implies that the denial of basic protection to the vast majority of workers is simply unacceptable and should be remedied as soon as possible.
In addition, there is the economic argument in favour of such protection – it is now widely accepted internationally that the absence of social security debilitates workers, affects labour productivity and thus has implications that extend far beyond the workers and their families themselves. The indirect costs of the absence of social security, as pointed out in the Report, might well be expressed in the greater social costs of policing and management of illegal and criminal activities, widespread ill-health and various other social problems.
But there are also political reasons, which no government in a democracy can afford to ignore. It is increasingly clear that the process of development in India must become more socially and economically inclusive if it is not to generate very severe social tensions that can lead to disruption and violence. This proposal, along with the National Rural Employment Guarantee Act, provides important steps in the direction of a more inclusive economy, which is the necessary underpinning of a stable and democratic society.
Another criticism could be that this kind of scheme will be very expensive and put a huge and unmanageable burden upon the government. But in fact the costs are relatively little in relation to the huge benefits in terms of providing some social security coverage to some many millions of workers. Estimates by the Commission, described in Table 2, indicate that even if the scheme covers as many as 343 million workers, as projected for 2010-11, the estimated costs for Central and State government combined with administrative costs of implementing the scheme, are not likely to exceed even half a per cent of GDP. In the next few years the scheme would cost only around 0.3 per cent of GDP, which is a negligible amount.
Table
2: Phasing of coverage and expenditure of central and state governments |
|||||||||||||
Number
of workers covered (crore) |
Central
government expenditure |
Costs
as per cent of GDP |
|||||||||||
APL |
BPL |
BPL
old aged |
Contri butory |
Pension |
State
government expenditure |
Admin
costs |
Centre
+ admin |
Centre + States + admin |
|||||
| 2006-07 | 4.62 |
1.38 |
1.35 |
3140 |
3244 |
964 |
290 |
0.17 |
0.2 |
||||
| 2007-08 | 9.24 |
2.76 |
1.37 |
6280 |
3292 |
1928 |
579 |
0.24 |
0.29 |
||||
| 2008-09 | 13.86 |
4.14 |
1.39 |
9420 |
3340 |
2892 |
869 |
0.3 |
0.36 |
||||
| 2009-10 | 18.48 |
5.52 |
1.41 |
12560 |
3387 |
3856 |
1158 |
0.35 |
0.43 |
||||
| 2010-11 | 23.1 |
6.9 |
1.43 |
15701 |
3434 |
4819 |
1448 |
0.39 |
0.48 |
||||
There are clearly very pressing economic and political reasons why this proposal should be taken extremely seriously by the Central Government, and why the enabling legislation should be placed as soon as possible in Parliament. There is first of all the obvious issue of justice and socio-economic rights, which implies that the denial of basic protection to the vast majority of workers is simply unacceptable and should be remedied as soon as possible.
In addition, there is the economic argument in favour of such protection – it is now widely accepted internationally that the absence of social security debilitates workers, affects labour productivity and thus has implications that extend far beyond the workers and their families themselves. The indirect costs of the absence of social security, as pointed out in the Report, might well be expressed in the greater social costs of policing and management of illegal and criminal activities, widespread ill-health and various other social problems.
But there are also political reasons, which no government in a democracy can afford to ignore. It is increasingly clear that the process of development in India must become more socially and economically inclusive if it is not to generate very severe social tensions that can lead to disruption and violence. This proposal, along with the National Rural Employment Guarantee Act, provides important steps in the direction of a more inclusive economy, which is the necessary underpinning of a stable and democratic society.
© MACROSCAN 2006