Need to combine multiple schemes


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THE unorganized sector1 is nowadays used to describe over 90% of the Indian workforce. The unorganized sector is neither unorganized nor a sector, but more an omnibus term describing a worker who does all types of work: paid, unpaid, temporary, permanent; across sectors: manufacturing, services, agriculture; in a variety of workplaces: factories, own home, on the streets, in the fields; and under a variety of work relationships: contract employees, self-employed, own account. The term ‘unorganized sector’ thus recognizes the wider world of work, not just the narrow one of the permanent employee.

Though work is an activity that most humans undertake to enable them to survive and meet their needs, it has began to acquire a narrower meaning in the last century. The development of industrial societies saw a clear separation of labour and capital, where the worker began to sell only his labour. The worker became a labourer, the owner of capital became an employer and the normal relationship in work took the shape of an employer-employee relationship.

India too witnessed the growth of labour as the country industrialized with an influx of workers from rural areas into the factories. Since the conditions of work for many of them was quite appalling, the rise of the trade union movement as well as the socialist orientation of the Indian state partially ensured that the industrial workers would have some form of security. Economic security was ensured through labour laws which obligated employers to pay minimum levels of wages, job security by making it difficult for employers to fire workers, while simultaneously providing for minimum levels of health and safety. Social security was ensured by laws which provided for old age security through provident fund and health care through employees social insurance.


However, in India, unlike the western world, only a small percentage of people ever really became employees. The conversion of work to labour remained incomplete as most people continued to earn their living in rural areas as farmers or artisans. Even workers who earned their living by selling their labour never quite became ‘employees’ – agriculture workers, for example, were usually unable to establish an employer-employee relationship with the farmers. At the best of times no more than 12% of the workforce was ever covered by protective labour laws, and these were the workers in the public sector or in large enterprises in the private sector, in what was called the organized sector, where enterprises were incorporated and regulated.

In the last decades of the last century the world of work experienced a major transformation. ‘Work flexibility’ and ‘globalization’ became the preferred ways in which many companies began to shed their obligations as employers and to neutralize the employer-employee relationship. In India, labour legislation became less protective as contract work became pervasive. Slowly it began to be realized that only a small minority of workers were employees, that in fact the large majority was outside the organized sector. For want of a better term, everything outside the organized sector began to be called the ‘unorganized sector’.


Families in India generate their livelihoods working for an income, or alternatively by subsistence production. Many of these workers can be said to be self-employed in that they do not make their living from working for a wage for others. In the unorganized sector nearly 60% of the workers are self-employed. The unorganized self-employed workforce has a ‘creamy layer’ whose incomes place them among higher ranges in the country. These include those owning small and medium enterprises, professionals such as doctors and lawyers, wholesale traders, large scale transporters, moneylenders, real estate dealers and builders, large farmers, and a variety of entrepreneurs.

A majority of self-employed, however, are poor, struggling to make a living.2 A large proportion of these are in agriculture working as small or marginal farmers, who are barely able to make two ends meet. Many of them are artisans, metal workers, handloom weavers, embroiderers still preserving ancient crafts. Many self-employed run small workshops or factories using family workers or hiring a few others. Yet others are in trade – as street vendors or small shop owners, wandering traders and hawkers. Many provide services such as barbers, cobblers, carpenters and domestic services.

It is inadequately realized that in India, perhaps more than in other countries, work of different type exists side by side, the most modern alongside the traditional, the large scale alongside the small scale, the most mechanized alongside the most manual. Sometimes they serve different markets – the metro in Delhi was built by sophisticated machines, whereas the houses in most small towns are built by masons and manual workers using age old techniques. At other times they serve the same market – the garments sold by multinational chains are sewn in modern factories and hand embroidered by zari workers using addas in their own homes. In many ways, every sector of work can be seen as a chain reaching the most modern to the most traditional, from the most mechanized to the most manual, from planes to cycle-rickshaws, from multi-use tractors to hand-drawn ploughs.


A majority of the self-employed are at the bottom end of this scale. They are usually tiny, unable to use or invest much capital. They rely on manual labour and outdated machines and are unable to reach markets where their products would fetch a higher price. In the manufacturing sector, for example, over 80% of enterprises in the unorganized sector are own-account and family-owned and operated. In the agriculture sector 80% of farmers are small and marginal.

Women come in at the bottom end of the scale. Men are more likely to be employers, women are more likely to be wage workers or unpaid family workers. Men are more likely to own large enterprises, women to own small ones. Men are more likely to own skills and modern technology, women to work in manual, unskilled work. A majority of self-employed women are homebased workers – producing for the market in their own homes. There is a hierarchy of poverty risk associated with the segmentation of the labour force with women concentrated in forms of employment with high risks of poverty (see Figure I below).


Segmentation of the Unorganized Sector Workers

Source: Progress of the World’s Women, United Nations Fund for Women (UNIFEM) 2005.


Work is essential to life in an economy where livelihood is dependent on wage income or on subsistence production. Unlike countries of the North, the state in India does not provide a livelihood to those who do not or cannot work, and no work means a reduction in quality of life and sometimes even starvation. Most families need work security. In India, in the organized sector, work security meant that it was difficult to fire workers once they had a job. It also meant that work had to be reimbursed with a minimum wage.

Outside the organized sector, however, there was never any form of work security, although ownership of assets such as land or cattle or of skills such as masonry or stitching did generate a certain degree of confidence in obtaining an income. However, in recent years in India there have been rapid changes in the economy, and incomes that workers earlier took for granted may no longer be available. Older skills may no longer be useful; multi-skilling be a requirement to get a job; and land may often become a source of debt rather than serve as an asset.

A form of work security that has existed in the Indian context is that of ‘relief works’, i.e. public work that the government undertakes in times of drought to provide employment. The Employment Guarantee Act takes this further and ensures a basic employment on public works for every group of persons that needs it. However, work security could go beyond this if the economy was more geared to the needs of the unorganized sector.


In particular, work security for the self-employed requires a mix of policies that can enhance the availability of employment opportunities. The direction that these policies would take often depend on whether the self-employed are regarded as workers or as entrepreneurs. Should a distinction be made between an entrepreneur and a worker, or can a worker also be an entrepreneur? When we begin to move towards the lower end of the scale of the self-employed, the end where clustering in greatest, the distinctions between an employer and a worker, and between an entrepreneur and a worker, begin to blur. As we have seen, most self-employed are ‘own-account’ workers, unregistered, often working from homes, unable to distinguish between the money for investing in business or for their own consumption, and unable to distinguish between profit and wages. For the own-account workers, the difference between capital and labour remains blurred.

The policies required for the poor self-employed in India need to be focused towards making the very small enterprises productive and viable. These might include credit aimed towards the poor, various forms of micro-finance, skill development and access to new technologies, access to market information and research and development and perhaps, most important, a level playing field in policies and laws.

Unfortunately today, the small self-employed are discriminated against in favour of the large. The street vendor is driven away from his place of work by harsh urban policies even as the large retailers are welcomed; the small farmer pays far more for water and electricity than the large farmer; the small shops and home-based workers are being made to shut down their business because of zoning laws. In short, instead of enhancing work security, many of our economic policies are creating insecurity for the self-employed.


Health: The lives of self-employed workers are replete with different kinds of risks including personal, occupational and family risks derived from sickness. Sickness – individual or of immediate family members – may result in loss of employment. It also entails additional expenses in terms of medicines and/or hospitalization. With increasing privatization of health care services, the worker is forced to shoulder an increasing financial burden in times of illness or injury. She thus has to meet these expenses by either spending her savings, borrowing from moneylenders and/or by selling or mortgaging her assets. As a result, the worker both suffers a reduction in her income and savings and faces a simultaneous rise in interest expenses. The reduction in assets eventually leads to depletion of her income, borrowing and consequent indebtedness, trapping her inexorably in a vicious circle of poverty.


Old age: Traditionally in many societies, the elderly were taken care of by the family. However, with the disintegration of the joint family system, changes in employment patterns and an exodus from rural areas, the social protection needs of the elderly have become crucial. An old worker who has no support and is totally dependent on others for survival is very vulnerable. Old age not only means loss or diminution of income, it also means loss of health and rise in the cost of medical care. A related problem is one of being lonely, helpless and dependent.

Risks and crisis: It is usually a crisis – personal, social or natural – which drives a family into the down-slide towards destitution. It could be natural contingencies like floods, droughts, cyclones, a personal loss like the death of the breadwinner of the family, or events such as a market crash, crop failure or cattle loss through disease. Each crisis leaves the worker and his family weaker and more vulnerable. The main reason for such a strong negative impact is the high expenditure incurred at such times, and the lack of arrangements for the poor to save for such contingent expenditures. In the absence of insurance, there is no opportunity for the worker to spread the risks over a longer period and provide coverage during times of financial risks. Women not only suffer the same risks as men but also have additional problems combining their roles as mothers and workers.


Maternity benefits: The most productive years of a women’s life are also the reproductive years of her life. In the absence of any provision for maternity leave, a women worker often has to leave her job to have a child. Poor health, additional medical expenses and a possible loss of employment make the women worker economically vulnerable during the period of childbirth, plunging her into a crisis of borrowing and high interest expenses. Often she is unable to take adequate rest and starts working soon after childbirth with adverse effect on her health. This repeated neglect of women’s health during pregnancy and child birth manifests itself in high mortality rates, anemia and poor health.

Child care: The women worker plays the triple role of a worker, housewife and mother. Since child care is often considered the sole responsibility of the mother, the working mother is often bogged down by this burden. This leads to a decline in the productivity of the mother as well as negatively impacts on the health of both the mother and child. Besides, to assume that young children are taken care of in traditional family arrangements no longer holds true.

In the absence of adequate child care facilities, a working mother has little option but to leave the child with a slightly older sibling. A large pro-portion of sibling care givers are girl-children – many of them not above the age when they need care and nurturing themselves. Provision of child care facilities releases the girl child to attend school and to enjoy her childhood.


Although it is generally agreed that there needs to be a system of social security for unorganized workers, the methods of implementation of such a system seem daunting to most policy-makers. At present there does not seem to be any one system which is in a position to deliver a mix of social security schemes to workers. However, the elements of a system do exist and can be used as the building blocks for a new system. The central point of such a system would be a unique social security number to each worker.

The Bill proposed by the National Commission on Enterprises in the Unorganised Sector and the earlier one by the National Advisory Council envisage developing a system which would identify the workers, collect their contribution and reach the benefits to them. The NCEUS approach, however, relies heavily on the state government machinery which may prove to be cumbersome and bureaucratic. A more practical approach would be to incorporate a multiplicity of organizations and build on existing systems which are reaching the unorganized sector workers. For the self-employed this could include microfinance agencies, self-help groups, skill development programmes, existing welfare funds, marketing agencies and many others – a wide variety of agencies which could be brought under a social security authority. If reaching social security to the unorganized workers is to succeed, we must draw on the plurality of our country.



1. ‘Unorganized sector’ is a uniquely Indian creation. The term used internationally and in all other countries to describe the same type of worker is ‘informal’.

2. ‘poor’ is used to mean those who are unable to meet their minimum needs of food, housing, education and opportunities for their children. It does not refer to those under the poverty line who are in fact very poor. A closer approximation to the way it is used here is the definition of those earning below $2 a day.