Article: Budget 2018: What Should the Informal Worker Expect?

Employee Relations

Budget 2018: What Should the Informal Worker Expect?

In this edition of the People Matters Budget 2018 Series, we look what the Union Budget would bring to the largest segment of the working population in the country The Informal Workforce
Budget 2018: What Should the Informal Worker Expect?

435.66 million: Number of informal workers in the country

38.56 million: Number of formal workers in the country

44.74 million: Number of informal workers in the organized sector

50%: Contribution of the informal workforce to GDP

435.66 million: Number of people who do not enjoy employee benefits and social security

More than 90 percent of the working population in India is employed as informal workers.This percentage has almost remained consistent between the two population censuses done in the country – one at the start of the millennium in 2001-02 and one after 10 years in 2010-11. Although the organized sector has absorbed many from its more scattered counterpart, the absorption rate hasn’t been significant and most of them who made the cut continue to be employed as informal employees (like contractual workers).

The case of Absorption

Here is some data from the National Sample Survey Office (NSSO):

Even with a fleeting look at the data, one can observe that of the ~20mn people working in the organized sector, ~15mn have been employed as informal workers; significantly outnumbering their formal counterparts. Regardless of their per capita contribution to the economy (latest data argues that informal workers contribute to around 50% of the country’s GDP), the fact remains that most of these workers continue to be underutilized assets of our country. Absorbing informal workers – even if in parts – into the formal sector will create an ecosystem wherein the benefits will multiply for all stakeholders involved.  Here is what formalization of the workforce can lead to:

  • it provides employees a blanket of social security as they are protected by labor laws for formal employees; 

  • their contribution to the economy increases because of the formalized nature of their work – they do not have spells of unemployment, underemployment, disguised employment or seasonal employment;

  • they earn fixed salaries – which is often an upside from the unorganized sector which has been found to pay notoriously  less and breach the minimum wage compliance – giving them higher spending powers;

  • employers have direct and easy access to a massive ready-to-work workforce,

  • they fall under the ambit of taxes.

The Promise of the Government

The government has taken cognizance of the importance of integrating the informal workforce into a formal setup. As a matter of fact, the same is building up to be one of the major expectations from the 2018 Fiscal Budget. The next financial year’s budget will be of even higher significance, because of it being the last budget before the 2019 general elections. This provides a two-pronged opportunity for the BJP-led NDA government:

1. To allocate resources to fulfill its long-standing promise to consolidate the 44 labor laws into four codes –industrial relations, wages1, social security, and occupational safety, health and working conditions. As reported by the Indian Express, the government is preparing for the Social Security code. 

2. To deliver on its much-awaited electoral promise of job-creation for people. It is being anticipated that the government may announce the country’s first National Employment Policy (NEP) in the upcoming Budget, the Economic Times reported.

The Expectation from the Budget

With these expectations from the budget in context, it becomes easier to comprehend what needs to be done to harness the demographic dividend that we have been boasting off and, yet, underutilizing at the same time.We arrange the types of employees and organizations in a 2x2 matrix to understand the suggested actions better, and then highlight the policy interventions that must be a part of the upcoming budget so as to convert the informal working population into the formal workforce:

1. Absorb Unorganized/Informal and Outsiders in the Organized Sector

The first step is to create formal jobs in the organized sector so that there are avenues for both: migration from informal-formal and inclusion of the ones currently unemployed (includes fresh graduates, people on sabbaticals, people who have left their jobs and are on the lookout for new ones, etc.). The National Employment Policy, which is expected to be rolled out in this Union Budget, will lay out a roadmap for sector-wise job creation, as reports in the media point out. The employers might be given fiscal incentives to create jobs for people; in return for which, as their employees, people will get access to social security. It is interesting to note that while the workforce has increased by approximately 14 mn between 2004 and 2010 (NSSO data), the number of people in the unorganized sector has stayed roughly the same. This is indicative of the fact that not enough avenues have been created in the organized sector to absorb employment-seeking youth and informal workers from the unorganized sector. Furthermore, the government will have to closely work with the private organized sector, alongside creating jobs in the public sector, if it is to find a long-term solution to this challenge.

2. Provide social security to those who cannot be absorbed

While it is ideal that anyone who seeks employment must be able to find it, the fact remains that the pace of job creation has been the slowest in 20152  since 2008’s recession in the eight major sectors in India. It, then, is of critical importance that we remain realistic about the timeline of the transition of workers from the informal to the formal space. It might take nothing short of a few decades of consistent effort, smart policy-making and robust implementation to actually achieve the goal of integrating the two diverse sectors. Hence, providing social security to the strata of the population that doesn’t enjoy employee benefits becomes the prerogative of the state. That has been building up as another key expectation from the Union Budget. The BJP-led NDA government is aiming for universal coverage in its social security scheme, and we can expect to observe announcements around budget allocations (in a federal structure) come 1st February 2018. “The scheme envisages mandatory pension, insurance against disability and death, and maternity coverage, alongside optional medical and unemployment coverage,” The Indian Express reported. Social security schemes for employees in the formal sector are built on the 1:1 model. The employee puts his/her share and the equal is contributed by the employer. For the informal workforce, which might be incapable of contributing their share, the government must allocate enough resources to make up for it. The complete cost won’t be borne by the Centre; instead, it will be shared between Centre and State. A robust social security scheme is what is needed for all the informal workers, and we are expecting the Budget to answer just how much social security would be provided to the informal workforce.

3. Regulations for Organized/Informal workforce

Basic laws on workplace environment for contractual workers exist in India (such as the Contract Labour Act, 1970). But all of those are from the pre-Uber era. The umbrella of contractual workers (or gig economy workers in the post-Uber era) has expanded immensely in the past decade. A lot of emerging companies are not huge employers, relying heavily on their fleet of contractual employees – whether they are in logistics, e-commerce, or cab-hailing. These fleets of contractual workers have slowly started to question the absence of basic employee rights (see cases of Deliveroo and Uber). While no such case has blown up in India yet, it might be worth considering the possibility, and the repercussions, of that, happening. It might be far-fetched to think this Budget would address the challenge of providing employee benefits to the Organized/Informal workforce in this gig economy, but that doesn’t mean the government should keep it completely off of its radar. 

These expectations from the Union Budget are indicative of the multiplicity of initiatives that must be undertaken to cater to the informal workforce of the country. We will be in a better position to assess whether the expectations were met or not once the Budget is announced on the 1st of Feb, 2018. Watch out this space for more in-depth analysis of the Budget 2018. 

The Code on Wages Bill has been introduced by the Government in the Lok Sabha.

It was the last when the Labour Bureau Data was recorded.


(This is the third of an eight-part series of the People Matters: The Budget Series)

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Topics: Employee Relations, #Budget2018, #Featured

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