Unorganised Sector Workforce in India

Trends, Patterns and Social Security Coverage

India’s workforce comprises nearly 92 per cent in the unorganised segment, with the entire farm sector falling under the informal category, while only one-fifth of the non-farm workers are found in the organised segment. Estimates suggest that in the non-farm sectors, as we move up the income ladder, the share of the informal sector gradually declines. However, as far as the agricultural sector is concerned, irrespective of economic class, the share of the unorganised workforce remains flat. Further analysis reveals that the coverage of social security schemes has been extremely sparse among the economically and socially vulnerable
sections. The pro-rich, pro-capital policy of the present regime is eflected in the recent downward revision of the interest rate to the subscribers of provident fund. Further, the move towards defined contributory schemes away from defined benefit schemes of pension funds is fraught with danger. Therefore, we argue that given the poor affordability and lack of an institutional mechanism, any design of social security that relies
heavily on a contributory basis is bound to fail dismally.

Across the globe, neoliberal policies are uprooting social security mechanisms that have been long in place in most of the developed and developing economies. The statebased social security system is giving way to market-based fundamentalism. The contemporary model of globalisation typically perpetuates and thrives on its central theme of “risk taking” and “insecurity”. The present phase of capitalist onslaught rooted in the Washington Consensus works through a model in which
the working class is left to bear much of the worst forms of insecurity, while large-scale asset-holders are relatively well shielded from insecurity. Although the “ageing crisis” has been thrown up as the reason for watering down social security institutions and policies in developed market economies, the bogey of “fiscal stress” is often cited as a reason for destroying these institutions in developing economies. However, it is another story that in many developing countries, the social security system is unavailable to a majority of working population. Although the
need to provide employment and social security is crucial for the poor and other vulnerable sections of population, even after over half a century of development policies, there does not appear to be any effort to ensure this for large sections of the working force. Rather, recent efforts in many developing economies go to show that the unorganised labour force is left to fend for itself, as more and more workers are added to the army of informal job markets. Bulk of India’s workforce is unorganised in nature. While almost the entire farm sector can be characterised as informal, roughly 80 per cent of the workforce in the non-farm sector is
informal. In this study, we have delineated unorganised from organised workers using both residual and direct approach. The study examines the growth and structure of formal and informal sector workforce by one-digit industry across major Indian states.We have examined the coverage of social security schemes among economically and socially vulnerable sections of the workforce, with particular reference to provident fund schemes in India.

Unorganised Sector Employment:

Over half of India’s national output comes from the unorganised sector. While employment in the formal sector has been stagnant in the last decade, employment creation in the informal segment of the economy has been tremendous. It is evident that throughout this period an verwhelmingly large portion of the workforce in India is found to be employed in the unorganised sector. Out of 399 million workers in 1999-2000, it is estimated that 371.2 million workers (nearly 93 per cent) are employed in the unorganised segment of the economy whereas only 27.8
million workers (7 per cent) are engaged in the organised sector. The share of unorganised employment in the economy has displayed markable steadiness over the years. The share of informal employment has risen from 92 per cent (nearly 276 million out of 300 million) in 1983 to 93 per cent in the 1999-2000. It is clear that employment opportunity in the organised sector has remained more or less stagnant, showing only a marginal increase from 24 million in 1983 to 27.8 million in 1999-2000. The near stagnancy of employment opportunity in the organised sector becomes evident, where the compound annual growth rates of employment in the organised and unorganised sector are sented. Employment in the organised sector has registered a growth of 1.25 per cent between 1983 and 1987-88 and 1.26 per cent between 1983 and 1993-94. But during the decade of the 1990s, we witness a sharp decline in employment opportunities. During this period organised employment
grew by only 0.34 per cent. Overall, the decade of the 1990s in India has been characterised by slow growth in employment opportunities. This is also true for the unorganised sector of the economy. The stagnancy of employment opportunities in the organised sector in the 1980s has to a large extent been compensated by a significant expansion of workforce in the unorganised segment of the economy. We observe that during 1983 to 1987-88, employment in the unorgansied sector grew by 2.05 per cent while during the period of 1983 to 1993-94, the growth rate was around
2.27 per cent. This fact clearly indicates that unorganised sector served as a buffer for the workforce when the employment opportunity in organised sector dwindled. However, the unorganised sector also underwent a sharp slump during the 1990s with the growth rate of employment falling to 1.25 per cent.

Existing Social Security Schemes:

As of today, there are a variety of social security policies and institutions in India – both promotional and protective. While promotional measures include financing and provision of education, health, nutrition, employment, etc, protective ones on the other hand, comprise pension and provident funds, maternity benefits, sickness allowance, employees’ state insurance, etc, which are provided to the workers. Protective measures are largely available to the central and state government employees in specific and to the minuscule organised workforce in India
in general. Employees’ provident funds available for the workers in India
are essentially a statutory form of compulsory saving schemes that enable old and retiring workers to maintain their living standards in post-retirement years. The Provident Fund and Miscellaneous Provisions (PF and MP) Act dates back to 1952. The act applies to units engaged in any industry listed in schedule I and where 20 or more persons are employed. Further, it is also applicable to any other establishment employing 20 or more employees or any class of such establishments, which the central government may notify in the official gazette from
time to time. Under this act, as on March 2005, there are an estimated 4,08,831 units and 4.11 crore workers covering 180 odd industries. The progressive contribution received towards the employees’ provident fund as on March 2003 is put at Rs 1,08,510.14 crore.

Coverage of Social Security Scheme in India

In this section, we intend to examine the coverage of social security schemes in India by different groups. We confine our analysis here only to the examination of employees’ provident fund. Employees’ provident fund is one of the largely available social security instruments in India for workers. It is estimated that roughly four crore workers are presently covered by this instrument. The latest round of the 55th round of National Sample Survey (NSS) collected information regarding the coverage of provident fund among workers (specific data was obtained as to whether the workers were covered by provident fund or not and if yes, whether they are covered under (i) general provident fund; (ii) Contributory provident fund; (iii) public provident fund;
and (iv) combination of GPF, CPF, PPF).
Irrespective of the quintile groups, results suggest that nonfarm unorganised sector workers have been virtually been left out of social security arrangements, and the accompanying chart attests to this fact. As far as organised sector workers are concerned, 90 per cent of the richest groups avail provident fund facility. Further, it appears that only 55 per cent of the poorest among non-farm organised segment of
workforce are covered under the provident fund system in India.
Overall, in the non-farm sector, as against a paltry 5 per cent of poorest, 35 per cent of the richest workers avail provident fund benefits.


India’s workforce comprises nearly 92 per cent of unorganised workers, with virtually the entire farm sector falling under the informal category, only one-fifth of the non-farm workers are found in the organised segment. Utilising both residual and direct approaches, the study uses the last four quinquennial rounds of employment-unemployment of national sample survey. The study examines the growth and structure of formal and informal sector workforce by one-digit industry across major Indian states. Estimates suggest that in the non-farm sectors, as we move up the ladder of income, the share of informal sector gradually declines. However, as far as the agricultural sector is concerned, irrespective of economic class, the share of the unorganised segment of the workforce remains flat. Further analysis reveals that the coverage of social security schemes has been largely against economically and socially vulnerable sections. While regular workers are largely covered by the provident fund regime, the ever increasing army of casual and contract workers, even
in the organised sector appear to have been discriminated against, not to speak of the entire self-employed, which accounts for a significant roportion of India’s workforce. Although the statutory provisions of provident fund are supposed to be applicable universally among industries specified in schedule I, the evidence clearly points to a dismal state of affairs. Hence, there is a crying need to enforce the same in the industries covered apart from revising the list (enhanced) of industries continuously. It is in this context, constant skirmishes from the ruling class to “reform” provident fund must be resisted tooth and nail. The
current interest regime of provident fund is being “liberalised” from the earlier administered regime. Recent efforts by the present government in revising interest rate downward from 9.5 to 8.5 per cent to the fund subscribers must be seen in this context. This is a clear case of transfer of income from labour to capital. The Pension Fund Regulatory and development Authority (PFRDA), 2005 is only a prelude to the larger design of privatisation of pension and provident funds. Global pension
fund managers find that the huge corpus fund that Indian ruling class is offering them on a platter irresistible. Moving away from defined benefit schemes to defined contributory schemes is fraught with danger. The exposure to risks of shifting to contributory schemes arising from future adverse investment return, etc. will have a serious bearing on the workers fragile savings. As far the larger issue of extending social security easures to the unorganised sector is concerned, we argue that given the poor affordability and lack of institutional mechanism, any design of social security that relies heavily on contributory basis is bound to fail dismally.