Raising resources


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IN India, the unorganised sector constitutes the overwhelming bulk of the workforce accounting for over 93% of the total employment in 2001. The sorry plight of labour in India’s unorganised sector is well-known. There is enough evidence to suggest that the new economic policy regime since the early 1990s has had little in terms of positive dispensation, either through underlying macroeconomic processes or add-on public policy initiatives. Significant deceleration in the employment opportunities in the aggregate, despite the emergence of some new avenues, has been widely commented upon as among the most dismal outcomes during the reform era.

The issue of social security has assumed further significance in the scenario of the growing restructuring of the economy and intensification of the reform process that can only accentuate many of the negative tendencies. The present paradigm is associated with the weakening of working class, informalisation of the labour force, and shrinking space for trade union politics as a worldwide phenomenon. The most significant implication of such weakening of the organized workforce and growing informalisation is perhaps the erosion of the provisions for social security of the labour force, both in the organized and unorganized sector.

It is tragic that even the most elementary needs of the citizens, directly or indirectly dependent on this sector, have not been taken seriously by the state in India at any point since independence. More surprisingly, the rationale for not doing so has been sought in terms of lack of resources. Throughout the post-independence period, social sector spending has not received the requisite priority. Further, in recent years, the situation has worsened in many ways. Public expenditure incurred by both the Union and the state governments together on the social sectors has declined from 6.25% of GDP in 2000-2001 to around 5.8% in 2005-06 (BE). Recently, the government announced its plan for scrapping 130 small centrally sponsored schemes related to social sectors and environment. All this is happening despite impressive growth rates in national income for almost 25 years now.

We would like to submit that the major shortcoming of the economic transformation in India since independence is neither the lack of growth or industrialization, nor the availability of resources to ensure public spending on the critical social and economic sectors. On the contrary, it lies in the realm of policies and processes that would have facilitated the fulfilment of the basic needs relating to education, health and social security. Nor is it true that our policy-makers have not acknowledged the significance of the provisioning for basic needs. For instance, Jawaharlal Nehru was quite categorical that the national planning committee accord primacy to the fulfilment of basic needs than to higher growth per se. Based on a close reading of official pronouncements since the early days of independence, it would appear that the public provisioning of these basic needs have been repeatedly stated as a primary commitment of the state.


Given such a backdrop, the need for some protection to the unorganized sector can hardly be overstated. Even many government proclamations, which are otherwise criticized or commented upon due to several reasons like the report of the Second National Labour Commission (SNLC), have acknowledged the need for such protection with clear recommendations for constituting an umbrella-legislation to protect the interests of the unorganised sector. Citing information provided by National Accounts Statistics Report of 1995, it talked of the need for a comprehensive legislation for guaranteeing economic justice in terms of minimum wages, job security, work safety and social security of the vast unorganised sector that contributed to more than 65% of the national GDP.


Trends of Social Sector Expenditure by Government (Centre and state governments combined)


2000-01 Actual

2001 -02 Actual

2002 -03 Actual

2003-0 Actual 4

2004 -05 RE

2005 -06 BE

Total government expenditure as % of GDP







Total social sector expenditure as % of GDP







Total social sector expenditure as % of total government expenditure







Source: Economic Survey 2005-06.


But while the SNLC report recommended a system for providing a basic level of social security for the unorganised sector workers as a responsibility of the state, unfortunately, its actual emphasis was not on an increased role of the state or the employer to provide social security but on the provision of a contributory mechanism. The report was clearly sceptical as regards the possibility of comprehensive safety nets for the unorganised sector in the present economic situation in the country. In fact, many of its recommendations were more concerned about the interests of corporate sector rather than the welfare of workers in the unorganized sector.

To cite a few, it recommended that before fixing the minimum wage the appropriate government should keep in mind the capacity of the industry to pay for it (para 6.112); that social safety nets would be viable only if the number of people who ‘fall’ into them constitutes a small percentage of the workforce (para 7.404); though the responsibility to provide a floor level of security will be primarily that of the state, it should be left to individual citizens to acquire higher levels of security through assumption of individual as well as group responsibility and contributory participation (para 8.32), and so on. Probably, these recommendations of the SNLC were the basic guiding principles on the basis of which the earlier NDA government came out with the Unorganised Sector Workers Bill 2003, which faced criticism from trade unions, civil society and media.


The World Federation of Trade Unions during its deliberations at the 14th World Congress of Trade Unions held in New Delhi in March 2000, pleaded for a universal system of social security and reiterated the need for organising the unorganised through new membership enrolment in trade unions, organising workers and trade unions in enterprises where there is no trade union and organising the informal sector, part-time workers, home workers and self-employed persons in order to enhance their collective bargaining strength. The Congress also noted that due to structural changes in the economies world over, application of high technology in the organised sector and implementation of the free trade policy of WTO, among other factors, the volume of the unorganised sector is swelling.

Soon after assuming power, the UPA government came out with its policy manifesto in which it expressed commitment towards the welfare of all workers, particularly those in the unorganised sector. The new government referred the earlier bill to the National Commission for Enterprises in the Unorganised Sector, which recommended that a single bill might not be the best way to address the problems of the workers in this sector. Thereafter, two bills were proposed in Parliament in 2005 namely (a) the Unorganised Sector Workers Social Security Bill, 2005 and (b) the Unorganised Sector Workers (Conditions of Work and Livelihood Promotion) Bill 2005. The Unorganised Sector Social Security Bill 2006 prepared by NCEUS is a modified version of previous bills.

Any substantive intervention to ameliorate the conditions of work and workers’ welfare in the unorganised sector is a welcome step. These bills have been welcomed by several commentators as a significant step forward. They appear to have a reasonable protective net covering the entire unorganised sector and encompasses issues relating to regulation of working hours, payment of wages in accordance with the Minimum Wages Act 1948, remuneration for overtime, payment of bonus, gratuity, maternity benefits and compensation for injury.


It’s not that the proposed bill is the first of its kind in India since there already exist numerous schemes and programmes, both as part of government initiatives as well as non-government efforts. Some of the schemes have been reasonably successful at local levels and, in fact, constitute the basis for the need of a national scheme for unorganized sector workers. The entire range of social security provisions for the unorganized sector workers can be classified into four groups, namely the central government sponsored programmes, social insurance schemes, social assistance through welfare funds of governments and finally, the non-government initiatives. The Box below provides an indicative list of some existing schemes and programmes.

Existing Social Security Nets for Unorganised Sector

i. Centrally Funded Programmes

(a) National Social Assistance Programme (old age pension, family benefit, maternity benefit)

(b) Employment Assurance Scheme

(c) Swaran Jayanti Gram Swarojgar Yojana

(d) Jawahar Gram Smridhi Yojana

(e) Schemes for Handloom Weavers and Artisans

ii. Social Insurance Schemes

(a) Social Security Group Insurance Scheme.

(b) Janshree Bima Yojana

(c) Krishi Shramik Samajik Suraksha Yojana-2001

(d) National Policy for Older Persons

iii. Social Assistance Through Welfare Funds of Central and State Governments

(a) Group Insurance Scheme for Beedi Workers

(b) Integrated Housing Scheme for Beedi and Mine Workers

(c) Welfare Fund for Building and Other Construction Workers

(d) State Government Initiatives:

- Welfare Funds in Kerala,

- Statutory Fund under Assam Plantation Employees Welfare Fund Act 1959

- Funds under Bombay Labour Welfare Fund Act 1953

- Mysore (Karnataka) Labour Welfare Act 1965

- Punjab Labour Welfare Act 1965

- West Bengal State Assisted Scheme for Provident Fund for Unorganised Workers (SASPFUW).

- Tamil Nadu Social Security and Welfare Scheme 2001

iv. Public Initiatives

- Self Employed Women’s Association (SEWA)

- Mathadi Workers Boards Maharashtra


Some of these schemes not only provide progressive spaces for coverage of the unorganized workers, but are to a large extent national in character. For example, the Employees’ Pension Scheme, 1995 framed under the provisions of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 is already applicable to 180 industries/classes of establishments employing 20 or more persons. The scheme does not discriminate between organised and unorganised sectors. Possibilities are being explored by government for extending pension coverage to other groups who are presently not covered. Similarly, the Krishi Shramik Samajik Suraksha Yojana 2001 is supposed to provide life-cum-accident insurance, money back and superannuation benefits. It is expected to cover around 10 lakh agricultural workers in 50 selected districts over a span of three years.


However, the basic characteristic that distinguishes the proposed bill from earlier schemes is both its envisioned reach of social security and the articulation of a legal framework for universalisation of benefits to all sections of the unorganized sector workers throughout the country.


The Draft Bill prepared by the NCEUS intends to provide social security to workers in the unorganized sector by demarcating the responsibility and mandate of the state and central governments to implement a national level social security scheme. The scheme shall entail old age pensions to all workers above the age of 60 years, health insurance for the self, spouse and children below 18 years, nominal maternity benefits and death/disability insurance in case of accidents.

For this a National Social Security Fund shall be constituted with contributions of Re 1 per day from the worker (for those in the BPL list, the GOI shall contribute), Re 1 per day per worker from the employer (if employer is unidentifiable, then the GOI and the state government will share the burden in the ratio 3:1) and a contribution of Re 1 per day per worker shared by the GOI and the state government in the ratio of 3:1. There are other sources of this fund such as grants and loans from the central government, and earmarked cess and donations.

The proceedings of the ‘fund’ shall be utilized through a central level National Social Security Board and the corollary state boards. The National Board (comprising of state boards, national level trade union of unorganized workers, NGOs related to the sector and national level organizations of employers in the unorganized sector) shall manage the ‘fund’ and administer the Act and formulation of policies at the national level. In similar fashion, state boards shall also be formed. A district level committee headed by the district collector shall manage the registration process of the scheme. There shall also be local level worker facilitation centres and district level dispute resolution councils for the successful implementation of the scheme.


Well intentioned with a substantial outreach, in many ways, the proposed legislation bears a close resemblance to those applicable to factories and enterprises under the Factories Act, including the clause of penalty for contravention of the provisions of the bill. There are issues of finer details which may require greater attention to the messy structural features of the unorganised sector. However, due to reasons of space we shall not discuss them here. Rather, we would like to emphasise the issue relating to financing of the proposed bill.

As per the NCEUS estimates, the total cost of the scheme will be Rs 7,367 crore (0.20% of GDP) in the first year, ie., 2006-07 and Rs 25,401 crore (0.48% of GDP) in the fifth year, i.e., 2010-11. Of this total amount, the contribution of the central government will be around Rs 6674 crore in 2006-07 which will increase to Rs 20,582 crore in 2010-11. As a percentage of GDP, the additional burden on the central government works out to 0.17% in the first year and 0.39% in the fifth year. As a percentage of gross tax, the additional financial requirement works out to 1.51% in the first year and 2.74% in the fifth year. Assuming that the above estimates take into account the upper limits to the proposed contributions and expenditure, it can be said that over a five-year period the total expenditure to be incurred for the implementation of the provisions in the bill shall range between 0.2% to 0.5% of GDP at market prices (see Table 2).


Financial Commitment of the Centre and State Governments (Rs in crore)







Number of workers (crore)






Health and insurance for all


















Provident Fund for APL workers


















Pension to BPL workers (60+ workers)


















Total expenditure of centre and states


















Administrative costs






Total (centre +states)+administrative costs






Centre + administrative costs






Source: Unorganised Sector Social Security Bill 2006, NCEUS.


In line with the SNLC philosophy, the bill envisages contributions from the proposed beneficiaries, presumably to increase the responsibility of ‘stakeholders’. However, given the structural features of our unorganized sector and the extreme vulnerability of most workers, it may not be worthwhile to make individual beneficiaries contribute financially. Further, most states in the country are currently in the throes of serious financial crisis, largely connected with the worsening of fiscal federalism in the country in recent years; expecting many of the states to contribute towards social security may not be such a wise move, certainly at the current juncture.


In any case, the proposed annual expenditure is less than 0.5% of our GDP and in our view can very well be borne by the Union government alone. It is worth pointing out that during 2004-05, the Government of India had forgone a huge sum of Rs 1,58,661 crore of potential revenue on account of various tax exemptions, incentives, deductions etc. (see Table 3). All this in a context where India has one of the lowest tax-GDP ratios in the world! Should the central government so wish, it can surely raise the resources required to fund social security. In a more recent development, as per the widely commented media reports, the government is actually prepared for a revenue loss of around Rs 97,675 crore to be borne over next five years on account of the losses due to forthcoming SEZs. This estimate is provided by the Ministry of Finance itself while addressing a query posed by a former legislator.


Estimate of Tax Revenue Foregone Due to Tax Exemptions/Incentives/Deductions (in the Central Government Tax System) in 2004-05 (in Rs crore)


Tax Exemptions/ Incentives/Deductions Under

Estimated Revenue Foregone


Customs duty



Corporate income tax



Excise duty



Personal income tax



Cooperative sector tax



- (Related to export credit)

- (35,430)


Total revenue foregone



Total tax revenue collected in 2004-05



Revenue foregone as % of tax


revenue collected

51.8 %

Source: Annexure 12, Receipts Budget, Union Budget 2006-07.


The proposed manned-mission to the moon by ISRO would cost the government around Rs 15,000 crore by 2014. The government tries to comply with the targets of the FRBM Act when it comes to allocations for the social sector but seems quite ‘flush with funds’ when it comes to giving concessions to the corporate sector or questionable ‘scientific endeavours’. The latest Human Development Report (HDR) released by UNDP reveals that India loses the maximum number of lives to diarrhoea in the world and yet its military spending is almost eight times more than that on water and sanitation. In other words, somewhere the question of priority itself is not getting prioritized.


The argument advanced by the proponents of the bill that making it contributory would increase the commitment of the stakeholders, and would be strategically important, may appear conceptually appealing. However, whether a contributory scheme for the stakeholders in the current scenario would at all be feasible, and the kind of institutional capacities required for administering the same can be put in place, are tricky questions. Probably, there are better alternatives to a contributory mechanism for social security.

First among some such alternatives can be an effort towards improving the tax-GDP ratio. We have already mentioned that the additional requirement for financing of the proposed social security shall be between 1.5 to 2.8% of gross tax collection and in one single year, the tax revenue foregone by the government due to tax incentives for the corporate sector is around 52% of the total tax collected. If the government can increase the tax collection even by a small margin through stricter compliance and cutting down exemptions, there will be sufficient resources for the purpose.


Second, the organized sector uses the services of the unorganized sector in a variety of ways through different direct and indirect mechanisms. If the government can earmark a certain proportion of taxes collected from the organized sector for the social security of the unorganized sector, the issue can be taken care of, even without any contributions.

Third, given the above logic, the government can impose a cess for the exclusive purpose of funding social security in the unorganized sector. Some such cess (on diesel, income tax) are already in existence for financing infrastructure investment and education. In the case of improving the condition of unorganized workers, whose low wages and poor conditions account for higher profits and better living conditions for the rest of society, the logic of having such a cess is even more incontrovertible. This can be another alternative strategy for resource mobilization.

In our considered view, the government should make provision for the floor level social security universal by offering free participation to the unorganized workers, following which it can be left to the workers if they want more security in terms of subscriptions to a range of optional instruments. In the ultimate analysis, as emphasised earlier, it needs to be acknowledged that funding a scheme of this nature is a matter of political choice; the supposed financial constraints are far from binding.