India Unorganized Sector

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The unorganised sector in IndiaBrief history

In the mid 1950s, W.Arthur Lewis developed a theoretical modelof economic development based on the assumption that there

was an unlimited supply of labour in most developin countriesand that this vast pool of surplus labour would be absorbed asthe modern industrial sector in these countries rew. It wastherefore assumed that the traditional sector comprised of pettytraders, small producers and a rane of casual !obs wouldeventually be absorbed into the formal economy and disappear."his arument became less convincin since the 19#0s whencase studies on informal sector in various parts of the worldbean to reveal the hihly active e$istence of men, women andchildren crowdin at the bottom of the urban economy in "hird

World countries. %o many studies have revealed the vast numberof wor&ers, in the "hird World, strivin hard to survive on thefruits of their labours outside the formal sector of the economy."he formal 'informal dichotomy can be rearded as a new

variation on the dualism theories of the past. In the colonial eraa contrast was constructed between an invasive westerncapitalist sector and an opposin eastern non(capitalist people)seconomy. In post(colonial development theory the concept ofdualism was applied to the dichotomy of traditional and modern.

Accordin to this view, the rural aricultural order was still

predominantly pre(capitalist while the urban(based industrialeconomy was described as capitalist. In the most recent phase ofthe dualism doctrine capitalism is the label of only the advancedsement of the urban milieu* the formal sector. "he modes ofproduction in the lower economic terrain, rather +uestionablylabeled as non(capitalist, are characteried as the informalsector.

In operationaliin these variations on dualism, the contrasts aremore sini-cant than the speci-c characteristics of each

sement. or instance, it)s entirely normal to describe theinformal sector by summin up the absence of elements found inthe formal sector. In the absence of a more analytical de-nition,the landscape of the informal sector becomes synonymous withthe &aleidoscope of unreulated, poorly s&illed and low(paidwor&ers. /ihlihtin this chaotic assortment eith /art coinedthe term informal economy) in 19#1.

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"here are di2erent terminoloies used so interchaneably tosinify the unoranied sector li&e informal sector, informaleconomy, and even informal labour which often hihlihts themost a2ected part of the sector, namely, the labour. 3 Informallabour is a labour whose use is not overned either by statereulations or by collective areements between wor&ers and

employers.4

Informal labour has, in di2erent instances, been viewed aslabour enaed in urban small scale enterprises, as selfemployment, as labour enaed in 3traditional activities4, aswholly uns&illed labour, and as labour whose use is not sub!ectto any rules or norms. ut none of this has any sound conceptualor empirical foundation. Informality does not imply a particularmode or location of labour use6 informal labour can be in self(employment, in casual wae employment, and in reular wae

employment, !ust as it can be in urban as well as in rural areas."here is little reason to thin& that informal labour must becon-ned to traditional) and modern) activities.

We do not need to assume that informal labour is uns&illed6 onlyneed to reconie that its s&ills are ac+uired outside the formaleducation system. And all the more in the conte$t of the neo(liberal economic policies of hire and -re where the oraniedsector itself is ettin informalised throuh contractualisation,casualisation, and outsourcin of labour, there are wor&ers who

are e+ually or even more educated and s&illed, wor& better andeven loner in so many of the oranied sectors6 but for nolabour rihts, wae, !ob or social security protection and for verydismal waes. "he casual and contract labourers are under thewor&in and livin conditions that prevailed in the nineteenthcentury 7urope.

%ince the introduction of the informal sector concept, opinionhas been divided as to its socio(economic impact. "here areauthors who positively point out the accelerated shift in

livelihood patterns away from ariculture and villaes to citiesand towns in the "hird World since the mid(twentieth century.ut even if the masses of mirants 8oodin into urban areaswere fortunate enouh to establish a foothold, the vast ma!orityof them could ain no access to the formal sector. It was still toosmall to cope with the continuous in8u$ of newcomers.

"he more critical analysis of researchers, who have observedthat the formal sector remained inaccessible for reasons other

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than the inferior +uality of the new urbanites) labour, and theirother defects, re!ects such an optimistic view. "he failure of thenewcomers) e2orts to -nd stable, decently paid and dini-edwor& is in this alternative perception due mainly to adevelopment stratey that, in the face of e$cess supply, see&s to&eep the price of labour as low as possible, allows no room for

collective action to reduce these people)s vulnerability andrefuses to provide this footloose wor&force with publicrepresentation. In short, the lac& of reistration, oraniationand protection does not have its oriin in the free play of socialforces, but it)s the deliberate product of economic interests thatbene-t from the state of informality in which a wide rane ofactivities in all branches of the economy are &ept, systematicallyand on a lare scale, throuh evasion of labour laws andta$ation.

Indeed, the informal sector is not a separate and closed circuitof wor& and labour. "here is the interaction, between the formaland informal sectors, and dependence of the latter on the formerand even its subordination to it. ow with the neo(liberaleconomic policies there is the widespread informaliation of theformal sector throuh down siin, casualisation andcontractualisation. In short the capitalist leaches become richerand richer by s+ueein the life blood of the wor&in force.

The Indian Scenario

"he Indian 7conomy is characteried by the e$istence of a vastma!ority of informal or unoranied labour employment. As perthe 7conomic %urvey :00#(0;, 9


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:. In terms of ature of 7mployment*Attached aricultural labourers, bonded labourers, mirantwor&ers, contract and casual labourers come under this.


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"his report shows a substantial shift between 1999(00 and :009(10 in the structure of the labour force which can be broadlydivided in to self employed, reular, and casual wor&ers. Hcasualwor&ers are employees who do not en!oy the same bene-ts andsecurity as tenured employees. All daily wae employees andsome cateories of contract employees are casual labourers.

All these %%@ reports are clear evidences to prove that thelabour mar&et of India has been underoin tremendoustransformations, includin rowth of informal sector activities,deterioration in the +uality of employment Hin terms of !obsecurity, terms and conditions at wor&, Wea&enin of wor&eroraniations and collective barainin institutions, mar&eddecline in social security etc. "o a reater e$tent, thesetransformation could be related to the onoin lobaliationprocess and the resultant e2orts on the part of employers to

minimie the cost of production to the lowest levels. It is alsoevident that most of these outcomes are hihly correlated andmutually reinforcin. A closer analysis suests that the rowininformalisation of labour mar&et has been central to most ofthese transformations, which inter alia hihlihts the utility ofunderstandin the rowth of unoranied sector in India and itsimplications.

>any thouht that India)s rowth could do no wron, and too&the administrative versions and interpretations for ranted. ow

it comes to a point that none of these can be ta&en for ranted.?rowth is slow, in8ation is structural and structure ofemployment is not enouh to cater to the rowin labour force.

Growing prominence of unorganized sector in India

Eredominance of informal employment has been one of thecentral features of the labour mar&et scenario in India. While thesector contributes around half of the ?BE of the county, its

dominance in the employment front is such that more than 90=of the total wor&force has been enaed in the informaleconomy. As per the latest estimation of a %ub(committee of theational ommission for 7nterprises in the Gnoranied %ectorH7G%, the contribution of unoranied sector to ?BE is about50= H7G% :00;.

"his national level pattern of informal wor&ers occupyin around90= of the wor&force is more or less similar in the case of most

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of the prominent states in the country. Amon the unoraniedsector wor&ers, a considerable proportion Habout J5= isenaed in aricultural sector, which in turn indicates theprominence of rural sement in the informal economy.

"he rowth of formal employment in the country has always

been less than that of total employment, indicatin a fasterrowth of employment in the informal sector. Available datasuests that within the formal sector also the proportion ofinformal K unoranied wor&ers are on the increase. orinstance, by providin a comparison of the %%@ 7mploymentBata for 55th and J1st Founds Hfor 1999(:000 and :00C(05respectively the 7G% H:00# e$plains that the country iscurrently in a state of 3informalisation of the formal sector4,where the entire increase in the employment in the oraniedsector over this period has been informal in nature.

It is widely ac&nowleded that the informal sector in Indiasu2ers from a low productivity syndrome, compared to theformal sector. "he prominent features of the sector are lowerreal waes and poor wor&in K livin conditions.

urther, the sector is characteried by e$cessive seasonality ofemployment Hespecially in the farm sector, preponderance ofcasual and contractual employment, atypical productionoraniations and wor& relations, absence of social security

measures and welfare leislations, neation of social standardsand wor&er rihts, denial of minimum waes and so on. Eoorhuman capital base Hin terms of education, s&ill and trainin aswell as lower mobiliation status of the wor& force further add tothe vulnerability and wea&en the barainin strenth of wor&ersin the informal sector. "hus, the sector has become a competitiveand low cost device to absorb labour, which cannot be absorbedelsewhere, whereas any attempt to reulate and brin it intomore e2ective leal and institutional framewor& is perceived tobe impairin the labour absorbin capacity of the sector.

With the advent of lobaliation and resultant reoraniation ofproduction chains led to a situation where production systemsare becomin increasinly atypical and non(standard, involvin8e$ible wor&force, enaed in temporary and part(timeemployment, which is seen larely as a measure adopted by theemployers to reduce labour cost in the face of sti2 competition.o doubt, it obviously indicates that these 8e$ible wor&ers in thenew informal economy are hihly vulnerable in terms of !ob

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security and social protection, as they are not derivin any of thesocial protection measures stipulated in the e$istin labourleislations. "he insecurities and vulnerabilities of these moderninformal sector labour are on the rise, as there is a visibleabsence of wor&er mobiliation and oranied collectivebarainin in these sements owin to a multitude of reasons.

"he alarmin e$pansion of informal sector, in recent times, hasadversely a2ected employment and income security for thelarer ma!ority of the wor&force, alon with a mar&ed reductionin the scale of social welfare K security proramme.

In our 3lobal4 cities such as analore, which are bein show(cased as the new faces of an auent and vibrant India, there arela&hs of people who rely on manual labour for their ownlivelihood. "he housemaids, security uards, construction

wor&ers, arment wor&ers, cobblers, beedi wor&ers, aarbatiwor&ers, drivers and many others have a very di2erent story totell. "heir incomes have not rown at the staerin rate of theiremployers6 indeed ad!usted for in8ation their incomes have oftenfallen over the last two and half decades, drivin them intodeeper poverty.

The major characteristics of the unorganized workers:

"he unoranied labour is overwhelmin in terms of its

number rane and therefore they are omnipresentthrouhout India.

As the unoranied sector su2ers from cycles of e$cessive

seasonality of employment, ma!ority of the unoraniedwor&ers does not have stable durable avenues ofemployment. 7ven those who appear to be visibly employedare not ainfully and substantially employed, indicatin the

e$istence of disuised unemployment.

"he wor&place is scattered and framented.

"here is no formal employer ' employee relationship

In rural areas, the unoranied labour force is hihly

strati-ed on caste and community considerations. In urban

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areas while such considerations are much less, it cannot besaid that it is altoether absent as the bul& of theunoranied wor&ers in urban areas are basically mirantwor&ers from rural areas.

Wor&ers in the unoranied sector are usually sub!ect to

indebtedness and bondae as their meaer income cannotmeet with their livelihood needs.

"he unoranied wor&ers are sub!ect to e$ploitation

sini-cantly by the rest of the society. "hey receive poorwor&in conditions especially waes much below that inthe formal sector, even for closely comparable !obs, ie,where labour productivity are no di2erent. "he wor& statusis of inferior +uality of wor& and inferior terms ofemployment, both remuneration and employment.

Erimitive production technoloies and feudal production

relations are rampant in the unoranied sector, and theydo not permit or encourae the wor&men to imbibe andassimilate hiher technoloies and better productionrelations. Lare scale inorance and illiteracy and limitede$posure to the outside world are also responsible for suchpoor absorption.

"he unoranied wor&ers do not receive su2icient

attention from the trade unions.

Inade+uate and ine2ective labour laws and standards

relatin to the unoranied sector.

Social security measures:

It is rihtly true that when independent India)s constitution wasdrafted, social security was specially included in List III to%chedule DII of the constitution and it was made as the

concurrent responsibility of the central and state overnments.A number of directive principles of state policy relatin toaspects of social security were incorporated in the Indianconstitution. "he initiatives in the form of Acts such as theWor&men)s ompensation Act H19:inimumWaes Act H19C;, the oal >ines Erovident unds and>iscellaneous Erovisions Act H19C;, "he 7mployees Erovident

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und and >iscellaneous Erovisions Act H195:, the >aternityene-t Act H19J1, the %eamen)s Erovident und Act H19JJ, theontract Labour Act H19#0,

the Eayment of ?ratuity Act H19#:, the uildin andonstruction Wor&ers Act H199J etc. reveal the attention iven

to the oranied wor&ers to attain di2erent &inds of socialsecurity and welfare bene-ts. "houh it has been arued thatthe above Acts are directly and indirectly applicable to thewor&ers in the unoranied sector also, their contribution is veryneliible to the unoranied wor&ers.

Inspite of the fact that not much has been done in providinsocial security cover to the rural poor and the unoraniedlabour force, the country has made some beinnin in thatdirection. oth the central and state overnments have

formulated certain speci-c schemes to support unoraniedwor&ers which fails in meetin with the real needs andre+uirements of the unoranied sector labour force.

"his becomes clear even when the hihly proclaimed ationalFural 7mployment ?uarantee Act (:005 HF7?A, thouh it is abrea&throuh, doesn)t have common wae in di2erent states andlimits itself only to hundred day)s wor& for those reisteredwor&er under the Act. What about the rest of the days in an

yearM As per this Act, the wor& uarantee applies in rural areas

only, what about the urban poorM

And loo&in at the recent Gnoranied %ectors) %ocial %ecurityAct H:00; , one really wonders if there is any provision for anunoranied wor&er in this Act other than some uidelines aboutthe available social security schemes in the country. /ow can itbe called an Act unless it has the leal bindin and provisions ofrihts to wor& and entitlements under itM /ere as per the Actnothin is mentioned about what constitutes appropriate andade+uate social security for the vast mass of unoranied

wor&ers and their dependents, what eliibility criteria, if any,ouht to be prescribed, what will be the scale of bene-ts that thewor&ers and their families are entitled to receive and underwhat conditions, what will be the fundin arranements thatmust be put in positions to meet the cost of social security andso on. Aren)t the unoranied wor&ers of this country entitled toreceive, in this J0thyear of our Fepublic, minimum standards ofsocial security and labour rihts, on the scale and spreadadumbrated in the relevant IL@ convention drawn up more than

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50 years aoM "herefore, this law which does not deal with theissue of unemployment, its reulation, waes, and conditions ofwor& and so on is not merely incomplete but dysfunctional if itproceeds to deal with social security on a stand alone basis. "he

Act, actually, su2ers from a serious lac& of leislative policy andintent. Gltimately this Act is an eye wash which has neither the

capacity to address nor the inbuilt provision to provide solutionsto the needs of the unoranied sector. 7ven the provisions andprocedure of the >inimum Waes Act H19C; is so vaue andfutile that di2erent states of India have -$ed abysmally mearewaes and that too with so much of variations from state tostate.

In fact a comprehensive Act, caterin to the security needs ofthe unoranied sector such as ood, utrition, /ealth,/ousin, 7mployment, Income, Life and accident, and old ae

remains a dream in India. %till the cries of the unoraniedsector oes unattended with the overnments layin red carpetsfor the corporates and so called investors at the e$pense andsacri-ce of the wor&in class.

Tomy Jacob

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India Unorganized Sector