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
