Why 93% of India’s workforce is trapped in unorganized sector

India might be feted as an ‘emerging economy’, but it’s also a nation of millions of underprivileged – those unemployed, underemployed or working at minimal wages. Clearly, these millions have never been a part of the ‘Shining India’ saga.

Nearly 30 million (mn) of India’s labour force is unemployed, 26 mn are officially underemployed, 40 mn want additional work and 35 mn are looking for other alternatives of livelihood. According to a National Sample Survey Organisation (NSSO) 2009-10 survey, the size of India’s workforce is between 430 and 471 mn. The lower number indicates people who look for work every day, while the higher points to those who have joined the workforce at some point in the year.

NATION WITHIN NATION

India’s official upper limit of unemployment and underemployment is about 70 million — that’s more than the population of countries such as France, UK, Italy, South Korea, Spain and Canada. Even this figure is disputed by experts who believe that the actual number is several times larger. The official 6.6% unemployment rate is possibly a mirage created by the complex nature of the labour market.

India’s labour market is characterised by part-time workers, seasonality of work, underemployment and social factors which restrict many women from joining the labour force. Compared to 56% of our male population, only 23% of women are part of India’s total workforce: people who are usually employed. Of the 26 mn usually employed who couldn't find work through the year, 17 mn were women. This results in a huge loss in person-days.

In rural India, nearly one-third of women workers’ person days are lost annually, while in the cities 15% of working days of women employees go unutilised. There's a significant number of male workers invisibly underemployed. They want additional work or are looking for other avenues. More than 60% cite low wages as the main reason.

EMPLOYED YET BPL

The visible or invisible lack of work measured through unemployment and underemployment statistics doesn’t quite give the true picture. Being employed alone doesn’t guarantee an escape from poverty. The official limit of unemployed and underemployed is 70 million while the most conservative poverty estimates (30%) translate into 359 mn people. That means, officially, at least 289 mn Indians are not unemployed, don’t want additional income and aren't looking for alternative careers, but are below the poverty line.

Perhaps the ‘employed yet BPL’ crisis is because of a large chunk of people classified in the NSSO’s ‘self-employed’ category. In the absence of reliable data on incomes, a household’s expenditure is considered a fairly good indicator of its income. Arranging India’s population according to the monthly per capita consumer expenditure (MPCE), it emerges that among the poorest rural ‘employed’ Indians, 42% are self-employed. The figure is 43% for urban India. Far from being a sign of newfound entrepreneurial confidence, distress is the main reason behind the significant numbers of the self-employed.

In the rural sector, even the top 10% have a substantial number of self-employed people, understandable because the bulk are farmers. However, there is a huge difference in the average expenditure of the richest 10% of the rural population as compared to the corresponding urban group, which has a moderately higher proportion of people with regular salaried jobs — 41.4% against 41.1% self-employed.

What accounts for the poor quality of employment and disparities in income? The reasons are lack of job creation in the organized sector, the slow rate of shift of employment from agriculture and shortage of skilled labour. Over the years, agriculture’s share in GDP has declined but the proportion of the workforce employed in the sector has remained static. From the 1950s, when agriculture constituted about 50% of GDP, its share has fallen to 15% in 2009-10, but it has remained the mainstay of employment. As a result, average income from agriculture is the lowest among all sectors.

According to a recently released report of the ministry of labour and employment, the share of industries is 28% while the remaining 58% of India’s GDP comes from the services sector. Although they constitute 86% of India’s GDP, services and industries give employment to only 47% of the workforce — 22% in industries and 25% in services. It is evident that part of the employment problem stems from lack of skill development and inadequate creation of opportunities in the non-agricultural sectors.

INDIA & OTHERS

When compared with other Brics countries, it's clear where India lags. Among these five emerging economies, China is the only one where industry has a larger GDP share than services. Yet, services employ one-third of the Chinese workforce. In Brazil, services constitute 65% of GDP and give jobs to 61% of the workforce. The corresponding figures for Russia are 58% of GDP and 62% of the workforce. Similarly, in South Africa employment generation in services is higher than income from the sector. Services constitute 63% of South African GDP while the sector employs 70% of the country’s workforce.

Lack of skills in India also forces workers to remain trapped in the unorganized sector, doing menial and semi-skilled work. About 93% of India’s workforce is in the informal sector. The majority of these people work in pitiable conditions, lacking basic labour standards like a written job contract, paid leave, social security and access to trade unions.

The labour ministry’s 2011 report on employment points out that it is possible the recent economic slowdown has affected job prospects of the poorest the most. The Worker Population Ratio (WPR) indicates overall access to the labour market . The WPR for the poorest MPCE quintile has declined from about 40% in 1999-2000 to 35% in 2009-10. For the richest quintile, it has increased from 40% to 43% during the same period.

SCHEMES & SKILLS

Schemes like the government’s flagship rural job guarantee scheme (MGNREGA ) have increased work participation rates and, to some extent, also narrowed the gap between male and female workers. A recent NSSO survey reports that rural households who got work under MGNREGA worked for an average of 37 days. Clearly, the much-hyped scheme has been unable to provide work for the promised number of days. Even if MGNREGA provides work for the maximum of 100 days, it wouldn’t be enough as it focuses on unskilled manual work and is not training workers in any skill.

Apart from MGNREGA, the government runs three major job schemes. The Swarnajayanti Gram Swarozgar Yojana aims to create self-employment for the rural poor, the Swarna Jayanti Shahari Rozgar Yojana targets urban youth, while the PM's Employment Generation Programme assists the unemployed in setting up micro enterprises. But their impact is minuscule. Together these three schemes benefit about three million people annually — a meagre 10% of the officially unemployed.

In the 11th and 12th Plans, the Planning Commission is targeting the creation of about 116 million jobs, which would absorb the 85 million rise in the labour force and cover some of the existing gap between jobs and job-seekers. This prognosis, however, has two big ifs. It can happen only if the projected number of new jobs materialise. Equally, the benefits of these new jobs can accrue only if people with the relevant skills are available.

Important Dates

Applications Close Oct 23, 2012 Shortlisted organizations need to provide detailed documents online Presentation of Awards Jan 28, 2013 New Delhi