Understanding the Unorganised Sector in the Context of Informal Employment

The unorganised sector, also known as the informal sector, refers to economic activities that are not governed by formal regulatory frameworks and do not adhere to formal labor laws or standards. These economic activities typically involve small-scale operations, casual labor, and self-employment, where workers often do not have formal contracts or benefits. In this article, we delve into the characteristics, examples, importance, and relevant government initiatives within this sector.

Characteristics of the Unorganised Sector

The unorganised sector is characterised by the following key features:

Lack of Regulation: There are minimal or no government regulations governing wages, working hours, and conditions. This leads to a significant lack of oversight and legal protections for workers. Informal Employment: Workers in this sector often do not have formal employment contracts or benefits such as health insurance, retirement plans, or paid leave. Job security is not guaranteed, and workers can be terminated without cause. Small Scale: Businesses in this sector are typically small and family-run, often operating without official registration. This can limit their access to resources and market visibility. Low Wages: Workers in the unorganised sector typically earn lower wages compared to those in the formal sector. This can be exacerbated by the lack of skills, education, and social security benefits which can further entrench the cycle of low wages. Vulnerability: Due to the lack of formal regulatory protection, workers in the unorganised sector face job insecurity and are often more susceptible to exploitation and poor working conditions. They are also more vulnerable to economic shocks, as they do not have the safety nets available to formal sector employees.

Examples of the Unorganised Sector

The unorganised sector includes a wide range of activities and workers. Some examples include:

Street Vendors: These are individuals who sell goods and services in public places, often without official permits or protection. Agricultural Laborers: Workers who are involved in the cultivation, harvesting, and processing of crops. Domestic Workers: These are individuals who work in households providing services such as cleaning, cooking, and childcare. Construction Workers: Individuals employed in the construction industry, often with limited formal contracts and protections. Small Artisans and Craftspeople: These are individuals who produce goods by hand, such as craftsmen, jewelers, and potters. They often operate in small family-run businesses without formal registration.

Importance of the Unorganised Sector

Despite its challenges, the unorganised sector plays a crucial role in many economies by providing employment and contributing to economic activity. In developing countries, this sector often serves as a safety net for those who cannot find formal employment. However, the informal nature of this sector means that workers are often lacking in the social protections and benefits that can be found in the formal sector. This can lead to job insecurity, low wages, and poor working conditions.

Realities in the Unorganised Sector in India

According to data, around 80% of India's labor force is employed in the informal sector, with the remaining 20% in the formal sector. Within the informal sector, half of the workforce is engaged in agriculture, while the other half works in non-agricultural sectors. This indicates the significant role that the informal sector plays in the Indian economy, particularly in areas where formal sector employment is limited.

Challenges and Issues in the Unorganised Sector

The unorganised sector faces several challenges and issues, including:

Lack of Social Security Benefits: Informal sector workers do not have access to the social security benefits that formal sector workers enjoy. This includes inadequate coverage for health, retirement, and other benefits. As a result, they are more vulnerable to economic and political shocks. Susceptibility to Economic Shocks: Casual workers in the informal sector are particularly vulnerable to economic shocks due to their low-paid, often unskilled jobs. Migrant workers, who make up a significant proportion of the informal sector, face even greater risks. A prolonged economic downturn can lead to job and wage losses, higher inflation, and even the risk of losing their livelihoods. Structural Disadvantage: The structural disadvantage in terms of literacy and skills makes informal sector workers more prone to exploitation. The discrimination in the labor market often forces them to accept low wages without adequate bargaining power. Government Failure: There is an ongoing struggle to reduce wage inequality and ensure a bare minimum wage for urban informal workers. Existing government programs often fall short in providing gainful employment opportunities to migrants returning to their native places.

Government Initiatives to Support the Unorganised Sector

To address the vulnerabilities of the informal sector, the Indian government has introduced several initiatives, including:

Unorganised Workers' Social Security Act 2008: This legislation aims to provide social security benefits to unorganised sector workers through the formulation of welfare schemes for life and disability cover, health and maternity benefits, and old age protection. The Act has been instrumental in partially addressing the lack of social security in this sector. Pradhan Mantri Jeevan Jyoti Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY): These schemes provide life and disability cover to unorganised workers, offering benefits such as Rs. 2 lakh on death due to any cause, Rs. 1 lakh on partial disability, and Rs. 4 lakh on death due to accidents. The annual premium for these schemes ranges from Rs. 342 to Rs. 12, making them accessible to a broad section of the informal sector. Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana (AB-PMJAY): This health and maternity benefits program is designed to provide comprehensive medical coverage to informal sector workers. By addressing health concerns, this initiative aims to improve the overall well-being and productivity of unorganised sector workers. Pradhan Mantri Shram Yogi Maan-Dhan Yojana (PM-SYM) and National Pension Scheme (NPS) for Traders, Shopkeepers, and Self-Employed Persons (NPS-Traders): These schemes focus on providing old age protection to informal sector workers, self-employed individuals, and shopkeepers. Beneficiaries are entitled to receive a minimum monthly assured pension of Rs. 3,000 after attaining the age of 60. The PM-SYM scheme is open to workers in the age group of 18-40 years, while NPS-Traders is for those with annual turnover not exceeding Rs. 1.5 crore. Aam Admi Bima Yojana (AABY): This government scheme provides Death and Disability cover to individuals in identified vocational/occupational groups and rural landless households. It helps protect these vulnerable workers against economic and social shocks. MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act): This scheme provides legal rights to work in exchange for money to rural citizens, enhancing livelihood security in rural areas through guaranteed wage employment. The program aims to offer at least 100 days of employment to every household each year. Pradhan Mantri Garib Kalyan Yojana (PM-GKAY): This comprehensive relief package aims to reach the poorest of the poor with food and financial assistance to help them cope with the economic impact of the pandemic. The Yojana provides Rs. 1.70 lakh crore for poverty alleviation and is administered through the National Health Authority.

Concluding Thoughts and Way Forward

To mitigate the impact of the informal sector on demand and economic stability, it is essential to provide social welfare schemes that protect workers. While agriculture cannot absorb more people, engaging returning migrants in new agri-value chains could create productive employment and protect livelihoods. Meanwhile, the government can scale up the “one nation one ration card” scheme and provide subsidized grains at workplaces to help migrants stay in urban centers. Additionally, distribution of excess grain stocks from government godowns to migrant workers can be explored to alleviate their immediate needs. Providing financial assistance under the Garib Kalyan Yojana can also support migrants in remaining in urban areas.