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THE proposal of the National Commission for Enterprises in the Unorganised Sector for ensuring national minimum social security for unorganised workers has its origin in the election manifesto of the current government which came to power in 2004 – to extend social security cover to workers in the unorganised (also referred to as ‘informal’) sector of the economy. As in most developing countries, existing social security arrangements enjoy legal backing only in the case of those employed in the formal sector of the economy, estimated at nine per cent of the total workforce as on 2000.

It is not that there is no social security cover to the informal workers. Several schemes initiated by both the central and state governments operate for workers in specified occupations. However, only around 6% of the unorganised or informal workers are covered under any social security measures. There are a number of non-governmental organizations, including organizations of informal workers, who have attempted to implement some social security schemes. However, their coverage too adds up to only around 2% of the workforce. It is in this context that one should view the recommendations of the National Commission to introduce a national minimum social security cover to all the unorganised workers. The commission was set up in 2004 to examine the problems faced by enterprises and workers in the informal sector and suggest appropriate remedial measures.

So far the informal workers were defined residually by referring to all the workers who did not belong to the formal sector. On examining this issue the commission felt a need for an unambiguous definition of informal or unorganised workers. It recognized that unorganised/informal workers exist both in the unorganised (informal) and the organised (formal) sector. The unorganised sector was defined as ‘all unincorporated private enterprises owned by individuals or households engaged in the production and sale of goods and services and operated on a proprietary or partnership basis and employing less than 10 persons.’ Second, it defined informal/unorganised workers as ‘all those who are working in the unorganised sector defined above and workers in the formal sector without any employment security and social security provided by the employer.’ By this definition, there were 336 million unorganised workers in the unorganised sector and around 26 million unorganised workers (i.e. without social security) in the organised sector giving a total of 363 million workers as on 1999-2000.

In order to determine the eligibility for registration in the proposed national social security scheme, the commission deducted the workers in the unorganised sector having social security provided by the employer, unpaid family workers and farmers other than marginal and small ones. This gives a total of 263 million workers in 1999-2000 and 294 million workers in 2005-06 assuming a growth rate of 1.9% per annum. This has been rounded to 300 million workers.

The available literature suggests that the core concerns of the informal workers relate to health and maternity, old age security and survival of the family in the event of natural and accidental death of the worker. There are many other insecurities that call for inclusion, such as injury while at work, funeral expenses, allowance during periods of unemployment and so on. The view taken was that there should be a national minimum social security applicable to all the unorganised workers across the country. Given the concurrent nature of the subject under the constitution, it should be left to the state governments to add on to or provide additional benefits.


As such, the benefits recommended include (i) health care for the worker and family in the form of benefits to cover hospitalisation, survivor benefit in the event of accidental death of the main breadwinner, and maternity benefits for self or spouse as the case may be; (ii) life insurance cover; and (iii) old age security in the form of a monthly pension to the workers belonging to the Below Poverty Line households and provident fund for workers belonging to the APL households.

The national minimum social security is based on an insurance model for health and life insurance. The entire scheme is based on contributions from workers, employers and the government at the rate of one rupee each per day or Rs 365 by each party per year. Since a majority of unorganised workers do not have directly identifiable employers or are self-employed, the government will have to pay the contribution of employers also. It is then left to the government to raise the employer share through an appropriate taxing mechanism.


Workers belonging to BPL households have been exempted from payment of their contribution and that too will have to be borne by the government. The pension for these workers will come directly from the government budget by extending the current old age pension under the National Social Assistance Programme. The most important recommendation of the commission is that the proposed social security cover should have legislative backing through an Act of Parliament. The entire unorganised workers are to be covered over a period of five years. The break-up of the costs are given in Table 1.


Phasing of the Coverage and Expenditure of Centre and States (Rs crore)

Number of Workers (crore)

Central Government Expenditure Towards

Costs as percentage of GDP mp




BPL old Aged

Contributory Schemes

Pension of old BPL workers

State Government Contribution

Administrative Expenses

Centre + Admin exp

Centre and states + admin exp





























































Note: (i) Figures indicate the financial expenses as a percentage of GDP including administrative costs @ five per cent of the contribution expected in each year. (ii) GDP at market prices is expected to grow at 8 per cent p.a in the next five years while the direct taxes at 20 per cent and indirect taxes at 8 per cent. (iii) Administrative expenses col. (7) are calculated at 5 per cent of total contribution as of central government (col 4), state (col 6) and of APL workers.


A dedicated organisational set-up has also been suggested. At the national level there will be a national social security fund and a board to manage with a core professional staff. It will be autonomous with a mandate to implement the national minimum social security and will have representation of stakeholder departments/ministries and organizations of unorganized workers. It will make available funds to the states as per their entitlement and will extend technical assistance apart from monitoring the progress of implementation. The crucial agency for implementation will be the state level board with a state social security fund. It will have the flexibility to negotiate with insurance agencies to secure the best possible deal. It will also decide on additionalities to the national minimum and/or create additional benefits. The state boards will also not create a vast body of bureaucracy. Instead they will work through workers facilitation centres, which are designated bodies. These could be workers organisations, cooperatives, NGOs working with unorganised workers or gram panchayats in villages and nagar palikas in urban areas.

The real challenge is in collecting the contribution of workers throughout the country and ensuring timely delivery of services. What is envisaged here is a tie-up with an old institution that still maintains credibility among the common people – the vast network of post offices numbering over 156,000, which should be able to collect contributions from workers as well as the government. It could also function as a book-keeper to the social security system by keeping accounts and making payments to the service providers as required by the concerned state boards or the national board. Workers could open savings bank accounts through which benefits could be distributed. In this way the challenge of collection and distribution of funds can be met without any significant additional investment by the government. Such a system is already in operation in some states (e.g. Andhra Pradesh) for the workers employed under the National Rural Employment Guarantee Scheme in which wages are credited to the post office savings accounts of the workers.


It is not uncommon to hear that the states may not come forth to implement the scheme in full measure. Also that states are, more often than not, unwilling to share the financial costs of such a scheme. This tendency to dismiss the states as unwilling and poor partners is unacceptable both on constitutional grounds and empirical evidence of their record. In a federal constitutional set-up it is important to take the states on board for they are crucial players in the system. The subject under consideration is on the concurrent list and as such calls for a partnership rather than sidelining the weak. It is for this reason a two-tier social security cover was envisaged. First, there should be a national floor applicable to the entire country backed by national legislation. Second, states will then have the incentive to build on this national floor depending on their regional circumstances.

The empirical evidence is that such a system is already in operation in a number of programmes that have to do with either promotional or protective social security. Take the case of subsidised prices for essential commodities distributed through the public distribution system. Many states add on to this subsidy and supply the commodities. The latest example is that of Tamil Nadu which has decided to provide rice to the BPL households through the PDS at Rs 2, significantly lower than the centrally subsidised price of Rs 5.50 or so. Or take the example of old age pension under the National Social Assistance Programme under which only those above 65 years are eligible. Till last year it was Rs 75 per month (now enhanced to Rs 200). Many states provide old age pension for the poor old of 60 years and above and enhance the amount by giving Rs 130 to 150, and some even provide Rs 200 (e.g. Tamil Nadu) or more than that (e.g. Punjab and Haryana). There is also the example of states (e.g. Kerala) contributing to the honorarium paid to anganawadi workers in the ICDS centres, which is a centrally funded scheme. There are many such examples and if there are some states that have not been able to live up to this practice, they should not be held as models of weak partnership.


Many, especially those of the middle class, often express bewilderment when they are told that over 90% of the workforce in this country does not enjoy any guarantees of employment or social security. The fact that almost all the poor in India are also subsumed under this category often escapes the attention of many who matter. The demand for social security for this group of workers has been there for some time although that voice is often not organised or loud enough; whenever it is, such voice gets submerged in the bigger voice of the organised who carry a disproportionate share of political clout. There was general agreement when the idea of a national minimum was proposed. But even the well-meaning often end up giving a helping hand to those who would like to see it postponed. I would only venture to summarise the opposition, often made on the ground of ‘difficulties in implementation’. These are (i) the country has not yet reached a sufficiently high level of income to afford a universal social security cover; (ii) the fiscal costs are too high; and (iii) the required implementation machinery will be enormous.


Take the first set of issues. Put simply, it means that the country will have to wait sufficiently long before even thinking of designing a social security system to meet contingencies. This way of thinking is not only common among experts but also among the vocal public (i.e. those who currently enjoy all kinds of state subsidies, including social security benefits) at large. One finds here a turning away from the historical experience of the now developed countries. Western scholars have documented in considerable detail the origins of what is now known as social security.

Beginning with the Poor Law in England in 1601, the state has been seized with issues relating to social security, not necessarily motivated by any benevolence but largely by self-interest of the propertied classes. The beginning of Bismarckian social insurance in Germany in 1883 also predated full-scale industrialisation. In most western countries, social security evolved over a period of more than 100 years and in some cases well over 150 years back. It is no exaggeration to say that most western countries had attained a reasonable level of human development, arising out of state policies on social security of both promotional and protective kinds, prior to embarking on full-scale industrialisation.

The second issue of fiscal burden is related to the first. But fiscal burden cannot be related to the absolute amount. If the proposed costs to government are considered as a share of the national income, they will be 0.2% in the first year and 0.5% in the fifth year when all workers are covered. Of course, some might argue that it needs to be seen as a share of the government budget. If the government’s tax-to-GDP ratio is around 17% now (with the central government accounting for 11.2%), the additional burden will be less than 1.5% in the first year and around 3% in the fifth year. But equally, one needs to look at it from a priority angle. The estimated incremental cost of the Sixth Pay Commission for the central government employees is estimated between Rs 25 and 40 thousand crore; in other words, equivalent to the total cost of the proposed social security cover for the unorganised workers at the minimum or 1.6 times at the maximum. Remember, the minimum social security is to cover 300 million workers whereas the incremental cost of the salary revision would cover a mere 3.5 million employees. So the question of fiscal burden gets a small twist: fiscal burden to benefit whom?


The third issue may well have a number of aspects that deserves careful and detailed examination. Even when there is some agreement on the need for a social security cover, the implementation of certain elements are called into question on ‘practical’ grounds. Take the case of health insurance. The objections revolve around inadequate health care facilities in rural areas (which is an admission of failure in this vital area of state provision) and the inability of rural workers to familiarise themselves with insurance systems. The commission has recommended a cashless model for hospitalisation expenses by which the beneficiaries will be able to access the services of hospitals. This calls for the state boards to designate health care institutions for this purpose. The commission has recommended public health care institutions, cooperatives and charitable institutions as well as private hospitals that meet the minimum requirement of infrastructure.


As a matter of policy, public health care institutions, as they are constituted now, are expected to provide free health care services to the people at large. However, at a practical level everyone is aware of the many charges that people have to incur even in public hospitals (such as medicines and diagnostic services). This insurance model, if adopted, will ensure additional revenue to designated public health care institutions for providing services to the eligible informal workers and their families. This could indeed act as an incentive to strengthen public health infrastructure. Of course, both the central and state governments will have to ensure that adequate health infrastructure is put in place, especially in the rural areas of the country.

The ongoing National Rural Health Mission should be in a position to strengthen health infrastructure in the rural areas. At the same time, it is also recognized that designated facilities might not exist within reasonable distance in certain areas. In such cases, 5% of the hospitalisation charges may be chargeable for transportation purposes for reimbursement later. There is no denying the fact that experience in providing health through an insurance model is at present limited in the country and that providers are on a fast learning curve. The workers facilitation centres as well as organisations of, and working among, informal workers will have to play an active role in educating and assisting them in accessing these social security benefits.

The main idea in the proposed implementation model is to avoid creating a huge bureaucracy and bring in the local governments and self or civil society organisations of the workers. There is considerable experience in this regard going by the number of welfare funds and boards set up in a number of, if not all, states by the governments there. Moreover, a number of civil society organisations have partnered the state governments in providing social security. But more importantly, one needs to ask questions, not in terms of the difficulties of implementation but rather about ways to put into place an appropriate mechanism for a large country like India.


After all, one cannot forget the fact that there already exist promotional social security programmes involving elaborate implementation machinery without creating an additional bureaucratic system. Take the example of the Integrated Child Development Scheme (ICDS) covering 300,000 centres (i.e. villages). Or the example of the mid-day meal scheme for primary school children throughout the length and breadth of the country. Fortunately, a third tier of government has come into being in this country. It is vital to strengthen it in every conceivable way and orient it to provide a much needed social security cover to the vast mass of unprotected workers who contribute close to 55 to 60% of the national income. Social security to the unorganised workers is not charity; it is a well deserved due from the society to which they contribute.