condition of work and promotion of livelihoods in the unorganized sector
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INDIAN ECONOMY: TERM PAPER
Submitted By: Group I Topic III
PGP/14/260 NITESH KUMAR GUPTA PGP/14/280 MAHTAAB KAJLA PGP/14/287 PRACHI CHAWLA
PGP/14/290 RAHUL MITTAL PGP/14/313 VINNY ARYA PGP/14/315 VISHAD DUBEY
Submitted to: Prof. Sthanu R Nair
Indian Institute of Management Kozhikode
CONDITION OF WORK AND PROMOTION OF LIVELIHOODS IN THE
UNORGANIZED SECTOR
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Contents
Organized and Unorganized sector............................................................................................................... 3
Size of the population/workforce in the Unorganized Sector ...................................................................... 3
Categories of workers under Unorganized Sector ........................................................................................ 3
Need for uplifting the condition of work and livelihoods of unorganized sector workers ....................... 4
Comparison of organized and unorganized sector - working conditions ..................................................... 5
The government’s stand on the issue and initiatives undertaken................................................................ 5
Constraints on effective implementation ................................................................................................. 6
Findings & Recommendations of Committees appointed by GOI ................................................................ 6
The First National Commission on Labour (FNCL 1969) ....................................................................... 6
The National Commission on Rural Labour (NCRL) ............................................................................... 6
National Commission on Self-employed Women and Women Workers (NCSEW ............................... 7
Social Security Act, 2008 ............................................................................................................................... 8
Differentiating features of Act .................................................................................................................. 8
Administrative Structure ........................................................................................................................... 8
Criticism .................................................................................................................................................... 8
International Unorganized Sector ................................................................................................................. 9
International Labour Organization (ILO) ................................................................................................... 9
Low Wage Employment ...................................................................................................................... 10
Organizing Informal Sector ................................................................................................................. 10
Child Labour – Case of Thailand .......................................................................................................... 10
Salient Features of Successful policies ................................................................................................ 10
Recommendations ...................................................................................................................................... 11
References .................................................................................................................................................. 12
Annexure - A ............................................................................................................................................... 13
Annexure - B ................................................................................................................................................ 17
Annexure - C ................................................................................................................................................ 21
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Organized and Unorganized sector
Organized Sector/ Formal sector: The sector which is registered; follows Government rules and
regulations have employees and employers union is called organized sector. Regular wages and
hours, which carry with them employment rights, and on which income tax is paid.
Unorganized/ Informal Sector: The informal sector or informal economy is the part of an
economy that is not taxed, monitored by any form of government or included in any gross
national product (GNP), unlike the formal economy.
Size of the population/workforce in the Unorganized Sector
India’s workforce comprises of 86% in the unorganized segment in 2004-05, out of which
agriculture sector accounted for 64% of the unorganized sector (Reference: Fig I,II and IV of
Annexure A). The proportion of non-agricultural worker in the unorganized sector rose from
32% to 36% between 1999-2000 and 2004-05. In non-agriculture sector, 72% of the workforce is
in unorganized nature. In non-agricultural workers, 50% of the workforce is struggling in
Production, Transport and related activities (Reference: Fig. V, Annexure A). Kerala, Delhi,
Nagaland and Goa are among the states having high density of unorganized workers in India
(Reference: Fig III, Annexure A). In rural areas, 96.89% of the overall women workforce comes
under non-organized sector in comparison to 93.60% male workforce.
Categories of workers under Unorganized Sector
WAGE WORKERS IN THE UNORGANIZED SECTOR
Wage workers are persons employed for remuneration unorganized workers, directly by
employers or through agencies or contractors.
SELF-EMPLOYED IN THE UNORGANIZED SECTOR
They operate farm or non-farm enterprises or engage in a profession or trade, either on
own account, individually or with partners, or as home-based workers.
UNPROTECTED WAGE WORKERS IN THE ORGANISED SECTOR
They are mainly regular, casual and contract workers who are unprotected because of
non-compliance of the provisions of the existing laws. This is a growing segment in the
organized sector.
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REGULAR UNORGANIZED WORKERS
They are the workers who work for others and getting in return salary or wages on a
regular basis.
Need for uplifting the condition of work and livelihoods of unorganized sector
workers
There is a high congruence between the poor and the vulnerable segments of the society (who
may be called the common people). The population has been divided based on monthly per
capita consumer expenditure as follows:
1. Extremely Poor : up to three-fourths of the official poverty line
2. Poor: up to the official poverty line
3. Marginally Poor: 1.25 times the poverty line
4. Vulnerable: two times the poverty line
79% of the informal or unorganized workers, 88%of the Scheduled Castes and Scheduled Tribes,
80%of the OBC population and 84% of the Muslims belong to the poor and vulnerable group
(Reference Table 1, Annexure A). The high congruence between informal work status and
poverty/vulnerability becomes almost complete in the case of casual workers, 90% of them
belong to the group of poor and vulnerable (Reference: Table 2, Annexure A).
The main problems in unorganized non-agricultural sector are unequal distribution of land and
absence of education opportunities. 7.5% of the agricultural workers and 15.4% of the non-
agricultural workers are totally landless. Landlessness is the highest among Hindu SCs and
Muslim OBCs and Others and the least among Hindu upper castes.
In the case of Own Account Enterprises (OAEs), the proprietors/owners have to face problems
like absence of location for their work, shortage of credit, inadequate marketing and
infrastructural facilities. The condition of women particularly in unorganized nature is very
miserable. A women worker has to face gender discrimination at the workplace which is
reflected in the nature of work performed, valuation of the skills and the technology used by men
and women. The women are placed in the bottom in the hierarchy of job; because they are
considered as low skill. Their participation in OAEs are also very less as only about 12% of
OAEs are operated by women. Nearly 83% of the female proprietary OAEs had incomes lower
than the notional minimum compared to 41% of the male proprietary OAEs.
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Comparison of organized and unorganized sector - working conditions
The organized sector has been growing at a faster pace than the unorganized sector. However,
there are significant differences of working conditions and benefits for workers in the organized
and unorganized sector. The first prominent issue is regarding ensuring of minimum wages for
the workers. As compared to the organized sector the wages in the informal sector are not
regularized. This has a negative impact on the productivity by increasing transaction and training
costs. The second major difference regulation of maximum working hours and number of
holidays. Non-payment of overtime work is a very common phenomenon in the informal sector.
Another key differentiating factor in formal and informal sector is the healthy working
conditions. Most of the industries employing the informal workforce lack even the minimal
requirement of a first aid kit. Further, industries which are involved in hazardous working
conditions such as carpet weaving, beedi rolling, marine fishing, and metal ware ideally need to
ensure minimum healthy working conditions. The unorganized sector clusters face extremely
limited facilities for sanitation. Unorganized workers are provided with temporary residential
sheds which lack minimum facilities.
Debt bondage is common in the informal sector. Migrant, bonded and child labor often suffer
from social exclusion of one kind or another. As a net outcome of these drawbacks, the
workforce of the informal sector does not have any bargaining power.
While labor market discrimination is often manifested in job typing and lower remuneration,
discrimination outside the labor market takes the form of lower work participation rate.
The challenge is to transform the informal sector and reduce the gap between the formal and
informal by 'leveling up' the informal sector rather than 'leveling down' the formal sector.
The government’s stand on the issue and initiatives undertaken
The Fundamental Rights in the Indian Constitution guarantee:
Prohibition of exploitation of labour through use of forced labour or child labour
Nondiscrimination by the state and equality of opportunity in matters of public
employment
Right to form associations and unions
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The laws by the government that are applicable to unorganized workforce are mentioned
in Annexure - C
Constraints on effective implementation
Smaller size of the enforcement machinery in comparison to the large and dispersed
workforce; also inadequate infrastructure
Lack of representation of the unorganized workers and no participation of their
representatives in ensuring effective implementation of central and state laws
Lack of or inadequate sensitivity among those responsible for implementation
Inability of the self-certification scheme to bear an impact on the unorganized sector
Findings & Recommendations of Committees appointed by GOI
The First National Commission on Labour (FNCL 1969) was headed by Justice P. B.
Gajendragadkar in 1969. The findings were primarily about the labour conditions in unorganized
sector. The recommendations included:
First hand detailed surveys from time to time to understand the problems of different
categories of unorganized labor.
Legislative protection by the state for unorganized/ unprotected labor.
Simplification of legislative and administrative procedures applicable to small
establishments.
Expediting education and organization in the field of unorganized labor.
Reinforcement and strengthening of the inspection system as there is no alternative to the
existing implementation machinery
The National Commission on Rural Labour (NCRL) was another commission appointed in 1987
which focused its findings on the labour conditions in unorganized sector. The recommendations
included:
Multi-dimensional strategy to lift rural laborers out of poverty.
Recommendations according to categories of workers – Change in Beedi Cigar Workers
Act (1966)
Minimum wage limit Rs. 20/-
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Changes in the existing Inter State Migrant Workmen (Regulation of Employment and
Conditions of Service) Act, 1979 (ISMW).
National Commission on Self-employed Women and Women Workers (NCSEW) was headed
by Smt. Ela Bhatt in year 1988. The following are the recommendations of this committee
Introduction of a system of registration - fix a minimum wage, regulate conditions of
employment - Piece rates should be fixed or converted into daily wages
Setting up of Equal Opportunities Commission under a Central law, - investigation,
direction, advice and monitoring.
Establishing a Tripartite Board – regulate implementation of the legislation - making
women workers visible
Introduction of an extended system of childcare throughout the country to reduce the
burden on women and to facilitate the all-round development of the child.
The Second National Commission of Labour (SNCL) submitted its report in 2002 which has its
findings including that it is in general a low wage and low earning sector, workforce was not
having any bargaining power, industry was not following the Various Acts that are applicable
(Refer: Annexure C), first time they agreed that there is a need for Comprehensive legislation,
debt bondage is very common among the employed as well as the self-employed workers in the
unorganized sector. Workers are not often organized into trade unions. The self– employed is
seldom organized into associations. The recommendations of this committee are as given as:
Multi-dimensional strategy to lift rural laborers out of poverty.
Proposed an Act to consolidate and amend the laws relating to the regulation of
employment and workers.
• Covering both agricultural and non-agricultural workforce
Umbrella legislation
• Improving their productivity, quality of work, enhancing income earning abilities,
increasing their bargaining power.
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Social Security Act, 2008
The conditions of workers discussed till now have been the state of affairs of workers in
unorganized sector in India. Social Security Act passed in 2008 (Ref. Figure 1&2 Annexure B)
have come as a ray of hope for around 300 million such workers but will it really work or not
needs to be analyzed.
Differentiating features of Act
There has been a lot of debate over how different is this act from the older schemes.
Firstly, it’s an Act which means that it is legally enforceable and accountable to the beneficiaries.
Secondly, it is an umbrella provision for the first time which talks about a whole gamut of issues
related to health insurance to health and maternity benefits. Lastly, it gives enough flexibility to
the state government to enact their own schemes and carry on with the already existing ones.
Administrative Structure
The Act provides for two parallel administrative frameworks, one at the State level and the other
at Central level. Also Worker’s facilitation centres and District Committees will be set up for
ground level implementation and worker engagement (Ref. figure 3 Annexure B).
The participation of the local governance and Institutions is conspicuous by its absence in the
implementation of this Act.
Criticism
Even though most of the people see this act as a sign of situation improving in this sector, strong
criticism both informed and uninformed comes from a large section of society. The Act has been
criticized on the following grounds:
Heterogeneous Character of Workforce ignored:
The needs and priorities of workers in unorganized sector are quite different from each
other. This Act does not take into consideration these differences and provides the same
level of benefits to everyone.
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Discouraging local initiatives:
Even though the Act provides for state government coming up with its own welfare
schemes, it is seen by many people as a safe haven for employers and government to
limit themselves to the provisions of this Act and not strive for better schemes.
Charity, Not Rights:
Overall, the Act is seen as not giving rights but rather to confine the workers’ status as
beneficiaries of government schemes.
International Unorganized Sector
The unorganized sector has been the safe haven for people in developing countries which do not
have enough Social Security Nets. The international definition of unorganized sector worker is:
The contribution of this sector to GDP is close to 50% in most of the developing countries (Ref.
Table1 of Annexure B)
International Labour Organization (ILO)
During International Labour Conference in 2002, the ILO for the first time addressed this issue
of the Informal Sector and came up with the concept of “Decent Work Agenda” which talked
about 4 aspects which are 1) Respect for fundamental worker’s rights and international labour
standards, 2)Employee Protection, 3) Social protection, and 4) Social Dialogue. The primary aim
was to improve the working conditions of workers irrespective of the industry they are in.
We analyzed a lot of countries and some of the characteristics were common in most of
them namely Low wages, Inactive trade unions, Child labour etc. Let’s see some of these cases:
The major reasons for fostering of this sector have been: 1. Restructuring of formal sector leads to
subcontracting and outsourcing encouraging
unorganized sector.
2. High Transaction costs for formalizing like
high tax rates, administrative costs etc
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Low Wage Employment
In most of the developing countries, the informal sector was prominently characterized by low
wage incidences. The case in point is Brazil where around 65% of low wage incidences were
observed in the informal sector (Ref. Table 2 Annexure B).
Governments in many such countries have introduces direct income support policies for
poor families where in-work benefits are not a feasible option as is the case with informal sector
(Ref Figure 4 Annexure B).
Organizing Informal Sector
Any real guarantee for implementation and enforcement of labour standards in the informal
economy depends on the organisation of informal workers into trade unions. Many efforts on
global arena can be observed like Women in Informal Employment Globalising and Organising
(WIEGO) and the Committee for Asian Women (CAW).
Child Labour – Case of Thailand
The elimination of child labour from the formal sector has pushed them into the informal sector
where the employers are hidden from the eyes of the law. This is a huge problem since this
effects the education level in the country and thus the poverty alleviation still remains a distant
dream in most of these countries.
In Thailand, the official figures show that 300,000 children aged 15-17 years legally employed in
registered establishments in 2005 (60 per cent male and 40 per cent female). But when the
informal sector is taken into account, there are around 1.7 million 15-17 year-olds engaged in
different types of work
Salient Features of Successful policies
Created an environment to reduce transactions costs in formal sector
Appropriate, Effective and properly implemented macroeconomic and social policies,
adopted with tripartite consultation were central to good governance in the informal economy
Cooperatives as important in improving the living and working conditions of women and
men
Literacy promoted through non-formal means, and/or as part of skills development
programs
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Recommendations
Reduce the transaction costs to incentivize formalization of the informal sector
Decentralization for better governance
• NGOs, experts, professionals, local institutions need to be involved for
implementation of Social Security act
Introduction of IT in the execution of programmes and schemes- increases transparency-
Social Security No., Smart Cards
Heavy penalization for defaulting or misappropriating officials
Creation of supportive infrastructure before formalizing the social security bill into an
Act
Compilation of existing BPL schemes
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References
http://labour.nic.in/lcomm2/nlc_report.html
“A Critique of Unorganised Workers Securities Act” by Paromita Goswami
“Report on Unorganised Sector” of National Commission for Enterprises in unorganized
Sector
“Unorganised Sector Workers Social Security Bill 2007”
“Unorganised sector workforce in India” by S Sakthivel, Pinaki Joddar
“Unorganised workers bill” - In Aid of the Informal Worker by Renana Jhabvala
“Unorganised workers social secutity bill” by Indira Hirway
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Annexure - A
Size of Workforce in Organized and Unorganized Sector
Fig. I Fig. II
State-wise Employment in Organized and Unorganized Sector
Fig. III
1983 1987-88 1993-94 1999-00 2004-05
24 25.4 27.4 27.8 62.6
275.6 301.9
348.8 371.2
394.9
299.6 327.3
376.2 399
457.5
Organised Unorganised All
0% 25% 50% 75% 100%
1983
1987-88
1993-94
1999-00
2004-05
Unorganised organised
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Percentage Distribution of Expenditure Classes by Social Identity: Informal
Work Status and Education, 2004-05
Table - I
79% of the informal or unorganized workers, 88%of the Scheduled Castes and Scheduled
Tribes, 80%of the OBC population and 84% of the Muslims belong to the poor and
vulnerable group
Percentage Distribution of Unorganized Workers across Expenditure Classes
Table - II
21% belonging to Middle and High Income groups are mostly self-employed or regular
workers
The high congruence between informal work status and poverty/vulnerability becomes
almost complete in the case of casual workers, 90% of them belong to the group of poor
and vulnerable
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Sector Wise Break- up of Unorganized Sector
Fig. IV
The proportion of non-agricultural worker in the unorganized sector rose from 32 per
cent to 36 per cent between 1999-2000 and 2004-05.
In non-agriculture sector, 72% of the workforce are in unorganized nature
Only about 0.4 per cent of the unorganized sector workers were receiving social security
benefits like Provident Fund
Distribution of Non-agricultural Workers across Occupational Groups (2004-05)
Fig. V
Series1, AGRICULTURE
, 253, 64%
Series1, NON-AGRICULTURE
, 142, 36%
AGRICULTURE NON-AGRICULTURE
PROFESSIONALS, TECHNICALS etc, 4.9,
5%
ADMINISTRATIVE,MA
NAGERIAL, 9, 9%
CLERICAL, 1.7, 2%
SALES, 24.2, 24%
SERVES, 9.6, 10%
PRODUCTION, TRANSPORT &
Related, 50.4, 50%
Unorganised Sector
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Fig. VI
PROFESSIONALS, TECHNICALS etc,
19.6, 20%
ADMINISTRATIVE,MANAGERIAL, 5.6, 6%
CLERICAL, 18.1, 18%
SALES, 3.1, 3% SERVES, 9.8, 10%
PRODUCTION, TRANSPORT &
Related, 43.1, 43%
Organised Sector
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Annexure - B
Figure 1 Social Security Act – Benefits
Figure 2 Social Security Act - Sources of fund
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Figure 3 Social Security Act - Administrative Setup
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Table 1 Informal Sector - Contribution to Employment
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Table 2 Incidence of Low wage employment by Demographic characteristics
`
Figure 4 Income Support Policies implemented in different countries
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Annexure - C
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