india

Updated: Feb 20, 2019 17:44 IST

What do the flower seller on the corner of your street, the food app-based delivery man, the person tasked to pick up garbage from your home, and the growing army of professional freelancers, have in common? Two things: One, they are all unorganised or informal workers — a labour force which doesn’t have access to a steady salary, often based around gigs, short-term contracts or part-time work, as opposed to permanent jobs. Two, they all work without social protection benefits, like pension or health insurance.

The changing nature of work is upending traditional employment globally, and with it, social protection systems. Take for instance, insurance, made possible through mandatory contribution and payroll taxes on formal wage employment.

New working arrangements outside standard contracts mean that such protection is not available to an increasing share of people. And while highly skilled and well-paid freelancers can save and buy insurance from the private sector, poor unorganised workers cannot. In fact, only 10.3% of the working population in India report contributing to social insurance plans.

Alongside the recent focus on unemployment in India, it bears repeating that in terms of absolute numbers, there are more unorganised sector workers than unemployed people. As per the 2012 National Sample Survey Office (NSSO) data, while 10.6 million people were unemployed, nearly 391 million – over 90% of all workers in India -- were employed in the unorganised sector. Combined, that’s a lot of people with no access to social security benefits.

Though India halved the share of the population in extreme poverty from 45% in 1994 to 22% in 2012, it has failed to generate enough stable jobs for its burgeoning working-age population. For instance, in manufacturing, employment has been shifting towards greater informality as production is outsourced and new hires are taken on as contract workers.

As per the latest National Sample Survey Office (NSSO) data, the share of contract labour in organised manufacturing reached 34% in 2011, up from 14% in 1996.

It’s clear that new ways of protecting people are needed. A new social contract and greater investment in people are required. Our analysis in the flagship 2019 World Development Report released in January offers three salient findings that can help shape the future of social protection in India and around the globe.

First, informality, which currently engulfs around 80% of labour markets in developing countries, is a premier bottleneck. India can teach the world many lessons toward creating a viable architecture for unorganised workers — the recently announced Pradhan Mantri Shram Yogi Mandhan aims at providing a monthly co-contributory pension, past budgets have expanded social insurance programmes such as Atal Pension Yojana and the new health insurance scheme. These programmes de-link social protection benefits from payroll contributions and reliance on a steady employer.

Second, social assistance programmes which transfer benefits to protect the poorest from risk and ensure equity in societies, could be adapted and enhanced to include larger swaths of informal sector workers. In developed countries, there are a range of options starting with a means-tested Guaranteed Minimum Income (GMI) programme and ending with a Universal Basic Income (UBI).

An intermediate option could be a Negative Income Tax that has relatively high threshold and gradual withdrawal of benefits, or a smaller GMI supplemented with other programmes, such as universal child allowances and social pensions.

The recent budget announced an assured monthly income for small and marginal farmers. Various states also have different models of income support. For example, Sikkim recently announced the intention to implement a full UBI, while states like Odisha are investing in farmer income assurance through the recent Krushak Assistance for Livelihood and Income Augmentation or the KALIA scheme.

However, the challenge in India is one of implementing such mechanisms at scale, not least due to fiscal constraints and weak state capability. Implementing universal transfers requires strong administrative building blocks for cash delivery and targeting to minimise exclusion.

Also, India has too many schemes. For example, the government has identified nearly 440 benefit transfer schemes for direct benefit transfer (DBT) at present. A strategy on how these different schemes can be consolidated in a way that preserves fiscal balance is urgently needed. The solution to a fragmented 400 scheme system cannot be to add a new income transfer scheme, without consolidating other programmes.

Third, the notion of “progressive universalism” can help guide a social protection strategy in India in ways that benefit the poor and vulnerable first. India must define a core basket of social security benefits relying on a mix of its current programmes. Once guaranteed basic protections are in place, people could enhance their social security package with various progressively subsidised schemes —with contributory social insurance, or an array of voluntary options that the state and markets can offer them.

Globally, states face the formidable challenge of financing investment in social protection. But there are options — payment and identification technology can facilitate tax collection by increasing the number of registered tax payers and social security contributions. Reforms such as the Goods and Services Tax (GST) can go a long way in bolstering state revenues.

Over the next few days, a series of articles will suggest pathways of reform to some of India’s largest social protection interventions, including pension programmes, health insurance, the Public Distribution System and the Mahatma Gandhi National Rural Employment Guarantee Scheme. The latter two are among the largest anti-poverty measures in India and indeed the world, while the former are relatively new instruments for unorganised workers. However, all of them are relevant for India’s future welfare architecture as they attempt to de-link social security benefits from a person’s place of work.

(Michal Rutkowski is Senior Director of the Social Protection and Jobs Practice at the World Bank)