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.
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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.
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:
Extremely Poor : up to three-fourths of the official poverty line
Poor: up to the official poverty line
Marginally Poor: 1.25 times the poverty line
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.
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
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/-
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
Improving their productivity, quality of work, enhancing income earning abilities, increasing their bargaining power.
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.
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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.
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.
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.
The major reasons for fostering of this sector have been:
Restructuring of formal sector leads to subcontracting and outsourcing encouraging unorganized sector.
High Transaction costs for formalizing like high tax rates, administrative costs etc
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:
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
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