A Cover for the Informal Sector

NEWS HIGHLIGHT

Theme : Employment, Inclusive Growth

Paper:GS - 3

TABLE OF CONTENT

1. Context
2. Formal and Informal Sectors
3. Informal Sector Workers According to E-Shram Portal
4. Challenges for Informal Sector
5. Road Ahead

Context : Predominance of Informal Sector has become one of the central features of the labor market scenario in India.It is necessary to consider multidimensional aspects of formalizing Indian Informal workforce.

Formal and Informal Sectors : 

• Formal Sector: The formal sector has a formal contract between employer and employee and predefined work conditions. This sector consists of an organized group of people working in the same environment and is legally and socially aware of their rights.
• Informal Sector: Informal sector consists of all unincorporated private enterprises owned by individuals or households engaged in the sale and production of goods and services operated on a proprietary or partnership basis.

Informal Sector Workers According to E-Shram Portal : 

• Social and Economic Analysis: Over 94% of 27.69 crore informal sector workers registered on the e-Shram portal have a monthly income of Rs 10,000 or below.Over 74% of the enrolled workforce belongs to Scheduled Castes (SC), Scheduled Tribes (ST) and Other Backward Classes (OBC).
• Age-wise Analysis: 61.72% of the registered workers on the portal are of the age from 18 years to 40 years, while 22.12% are of the age from 40 years to 50 years.
• Gender Wise Analysis: 52.81% of registered workers are female and 47.19 % are male.
• Occupation Wise: Agriculture is at the top with 52.11% of enrolments done by those related to the farm sector followed by domestic and household workers at 9.93% and construction workers at 9.13%.

Challenges for Informal Sector : 

• Gender Disparity: Women constitute the majority of informal participants, but they receive the least benefits and are characterized by lower paying, income volatility, and the lack of a robust social safety net.
• It has also significantly hindered women's participation in the workforce. The Periodic Labour Force Survey data shows that the female labor force participation rate dropped to 21.2% in March 2021 compared to 21.9% one year prior.
• Economic Exploitation: The informal employment by definition has no written contract, paid leave and hence pay no minimum wages, nor pay attention to conditions of work.
• The Code on Wages 2019 is still limited in scope and efficacy for the informal sector. Casual workers are typically the least covered because If a state government refuses to include a specific job within a particular sector, it is not covered under the minimum wages criteria.
• Lack of Taxation: As the businesses of the informal economy are not directly regulated, they usually avoid one or more taxes by hiding incomes and expenses from the regulatory framework.
• This poses a challenge for the government as a major chunk of the economy remains out of the tax net.
• No Separate Statistics: There are no official statistics available representing the true state of the economy, which makes it difficult for the government to make policies regarding the informal sector in particular and the whole economy in general.
• No Fixed Working Hours: Long working hours beyond labor standards are common in India in the unorganized sector. In Particular, there is no fixed working time in the agriculture sector because there are no laws which can act as a guideline for farm workers’ working conditions.
• Labyrinth of Poverty: Unorganized sector workers had a much greater rate of poverty in the organized sector than their counterparts.
• Low nutrition intake, because of low wages, health difficulties, presents risks to their lives.
• Worst Hit at the Time of Disaster: Many natural disasters such as floods, drought, famine, earthquakes and so on have devastating effects on the informal sectors.This problem is exacerbated by the lack of social security.

Road Ahead : 

• Simplifying Registration Processes: There is a need to ease rules for informal business conduct that will bring informal enterprises and their workers into the fold of formality.
• A Self-help group initiative that organizes informal workers can contribute to the creation of self-reliance and address issues related to their working conditions.
• Comprehensive Data of Informal Sector: It is necessary to build a comprehensive statistical base on various dimensions of the informal economy as an integral part of the National Statistical System, enabling policy makers to make informed decisions.
• Vending Rights: Vending rights on space to the vendors will increase their accountability on their space and its surrounding environment.
• License to the vendors (space and time specific) against payment of charges is also expected to enhance the revenue of Local Authorities.A part of this revenue could be used for provision of drinking water facilities, toilets and waste collection at public places
• Grievance Redressal Mechanism: Grievances from informal workers should be heard and redressed periodically through an accessible and officially monitored mechanism.
• Gender Pay Parity: Directive Principles of State Policy directs equal pay for equal work (Article 39(d)); women agricultural laborers usually receive lower wages than their male counterparts.

FAQs : 

1. What is the Formal Sector ?

ANS. The formal sector has a formal contract between employer and employee and predefined work conditions. This sector consists of an organized group of people working in the same environment and is legally and socially aware of their rights.

2. What is the Informal Sector ?

ANS.  Informal sector consists of all unincorporated private enterprises owned by individuals or households engaged in the sale and production of goods and services operated on a proprietary or partnership basis.