More than a decade after the world coined a definition of the informal sector workers, nothing seems to have changed for these poor people who work on the fringes of the so-called organised labour. Informal activity in the developing world consists primarily of unregulated but productive work on which, depends the survival of millions. The data on labour force currently collected through the official statistical systems in India and at the international level in most countries, are not able to capture the new processes of informalisation of the workforce.  The need of the hour is fresh and improved understanding of this new dimension of informalisation of the workforce.

More Inclusive Definition of Informal Workforce

At the international level, after several years of negotiations, an agreement was reached on the definition of the informal sector, in the Fifteenth International Conference of Labour Statisticians (ICLS), 1993 and which was adopted in the new System of National Accounts, 1993 (SNA). The informal sector is characterized as consisting of unincorporated enterprises owned by households engaged in the production of goods or services with the primary objective of generating employment and incomes to the persons concerned. They are distinguished from corporations and quasi-corporations on the basis of their legal status and the type of accounts they hold. These household enterprises do not have a legal status independently of the households or household members owning them.

This definition of the informal sector, focusing on the legal status of the enterprise, hides the heterogeneity in the status and working conditions of the workers in them. The ICLS definition is useful for National Accounts and in estimating the gross value added accruing from the two sectors, formal and informal. A second problem with the enterprise-based definition arises when it is used in an establishment/enterprise survey to distinguish the unit, such as the unorganised manufacturing sector surveys in India. This definition tends to leave out more invisible groups of own-account enterprises such as those operating on the streets or in their homes. Thirdly, it assumes that all workers in formal enterprises are formal workers and does not focus on the casual, contract and sub-contract workers in such enterprises who do not receive the level of wages and any of the other benefits of the formal workers.

Within a wider concept of the informal economy, we define informal employment as employment created outside the recognized institutional framework, including workers without social security and other benefits received by the formal workers. The concept of informal employment characterizes the workers depending on the degree of informality of their work status. This is a more useful definition to focus on concerns with wages, working conditions and access to social protection to workers.

In recognition of the new forms of informal work, the Seventeenth International Conference of Labour Statisticians (ICLS), 2002, developed a framework to distinguish informal employment. This framework used a two-fold classification to classify workers by the formality of the enterprise in which they worked and the activity status of their work. This framework recognizes the new forms of informal work, casual, contract, sub-contracted, homework, street work etc. Efforts are now on at the international and national level to see how this framework can be implemented to identify and statistically capture all informal employment. The new concept of informal employment will be useful to help promote social protection for all informal workers.

Recent State Focus on Policies for Informal Workers

Since independence, many political and economic issues fostered the protection of formal sector workers. The thrust of the early planning on the public sector in core industries (coal, steel), transport and services such as banking and professional education (medical colleges) led to a large, often more urban and vocal formal work force. There was a predominance of large private industries, like the textile industry, concentrated in specific regions. Traditional party-based trade unions found these pockets of formal workers easy to organise and political parties used them as vote banks.

In recent years, the decline of the manufacturing sector and growth of the services sector has led to the government’s recognition of the workers in the smaller and informal segments of work. Liberalisation and the consequent privatisation of public sector and the decline of large industrial units in favour of sub-contracting many products, processes and services to smaller units, led to the diminishing power of the traditional trade unions. The government wedded to liberalisation in all fields, including labour reform, was forced to recognize and contend with the growing informal work force. The international forces operating through the World Bank-IMF also lent their support to the process of liberalisation and consequent informalisation of the work force. This is not to suggest that the informal work force was not large before liberalisation, but that the consciousness of their existence is more prominent in the new regime.

Formulating a Social Security Bill for Unorganized Sector Workers

The informal work force in India is very large and segmented. Any number of programmes addressed to this sector will still only address a small segment of this work force. In the last few years, there has been a focus on two specific programmes for workers in the informal sector: the Employment Guarantee Act and Social Security Bill for Unorganised Sector Workers. The employment guarantee scheme is a self-targeting programme and reaches the bottom segment of this work force. Protective social security can reach a wider segment of informal workers. Both programmes are necessary in order to cover a larger proportion of the workers. In fact, in a country where resources are scarce, the government should prioritize between subsidies and tax concessions for the large industry, benefits for the workers in the formal sectors, such as the Pay Commissions, and policies that benefit the informal workers.

The challenges in designing social security provisions for the informal workers are far too many. In fact, the first challenge is to get the government to prioritise resources for this Bill.

One of the major challenges in the design is to provide a unique identity to all informal workers irrespective of the sector of work in an effort to target uniform social security benefits for all workers.

Provision of a unique identity also needs to take into consideration the opposition from workers in say existing well-run Welfare Fund Boards, multiple activities and mobility of workers across sectors and physical space etc.

Another challenge is the delivery of the programme. Workers do not see much benefit from joining a social security or welfare fund programme. The institutions or departments that are to deliver this programme have to be decentralised as the micro credit programmes have become, in order to reach the remote and poor workers.

The finance to secure this programme is the next major challenge. For this, we need to learn from some of the best run Welfare Fund models. The best models are generally funded by a cess or tax on the product. As in the recent case of a one per cent cess for education in order to finance universalisation of education, a similar cess for social security for informal workers would help to finance and expedite universalisation.

Another lesson that comes from the best practice welfare fund models is the concept of a tripartite mechanism for raising finance. So besides the State, the employers and the employees all contribute to the fund to finance the social security provisions.

The tripartite body is also used to oversee the delivery mechanism. The employer’s association, major trade unions and government have their representatives on this body and that helps to ensure that the workers are identified correctly and receive the benefits due to them. However, this is easier to implement when the welfare fund is for a specific sector of workers, such as bidi workers. When one is talking about a universal scheme the representation of employers and workers has to be thought out.

While the welfare fund models are interesting cases to emulate, for social security to be universal we have to consider that all workers are to be covered irrespective of the sector in which they work. One suggestion is that these schemes should be area-based. The responsibility for overseeing the identification of workers and the delivery mechanism then should devolve to the local self-government, Panchayat or Municipality, where they are strong and duly elected, or to the local NGOs if they happen to be a strong force in the region.

While the proposal for area-based social security would take care of multiple activities of workers and mobility across sectors over the course of the year, it still does not address the issue of migrant workers in a place other than their original homes. If the identification of workers is conducted at the home rather than their place of work, this would include all the home-based workers. The problem of identification would remain for the seasonal migrants and migrants with no permanent residence.  

The issue of reaching the unreachable informal workforce and implementing a universal social security programme even when the State is favourable to the idea is daunting. Unless and until there is a force operating from below in favour of the work force, even a benign government will find it difficult to implement such a programme in a large country like India. The issues of organisation, voice and representation are processes to be followed if the informal workers are to get their due irrespective of the form and political affiliation of government in office in the democratic set-up that is India.