Why 'inclusive growth' means little without social security for unorganised

The Union government — the Ministry of Labour specifically —  has been working on a code for social security for all workers for the last couple of years, an announcement made formal last week. What distinguishes this current law is its laudable ambition to cover unorganised sector workers.

Why should such social insurance (SI) be available for the unorganised sector (all units employing less than 10 workers)? First, although the ratio of the poor was declining, the numbers of poor have not for 30 years (from 1973-4 to 2004-5). The numbers did decline between 2004-5 and 2009-10 from 406 mn to 268 mn in 2012 based on the Tendulkar Method. Most poor work in the unorganised sector. ‘Inclusive growth’ or ‘antoyada’ cannot have much meaning without even a minimum social safety net for this sector. 

Second, 93 per cent of India’s work force has access to informal employment, and hence without any social protection. Only the organised sector (units with more than 10 workers) has access to social protection (and even there, only a third did in 2011-12). Third, this unorganised workforce (and the informal workers in the organised) contributes a significant proportion of total exports and half of the total GDP. Unorganised sector enterprises, as long as they are registered, also generate tax revenues for the state, and are entitled to receive some protection. This is important since the state has not universalised even elementary education for the workers’ children or provides universal healthcare.

While the first three reasons are moral, the next four are purely economic. First, the lack of social protection reduces productivity. Also, out-of-pocket medical costs are the second-most important reason — after dowry — for households first falling into debt, and then poverty. Second, the lack of SI leads to coping mechanisms by the vulnerable, which run the risk of turning transient poverty into long-term poverty. Transient poverty may lead to the withdrawal of children from school, thus causing long term damage to human capital formation. Third, historical evidence from industrialised countries suggests that SI for workers has a downward effect on the total fertility rate. 

There is another important economic reason to provide SI to workers in the unorganised sector who have incomes below the poverty line. These workers still normally own agricultural land, albeit very small plots. These plots are their safety net — they will never part with this land as long as they don’t have at least some partially similar sense of SI at the workplace in urban areas. 

The rate of urbanisation in India has been slow, and one reason for this is precisely the attachment of the small, marginal farmers (who are 84 per cent of all cultivators in India) tilling less than 2 hectares of land. If the 28 per cent of India’s rural population estimated by the Planning Commission to be poor (in 2011-12) had access to SI, these smallest of farmers who migrate for urban employment would be able to do so on a more permanent basis. 

We suggest the focus should be to ensure that the BPL segment is covered by the three essential components of SI — old age pension, maternity benefit, and life/disability insurance. Ensuring universality for BPL (22 per cent of the population who were poor by the Tendulkar poverty line, 268 mn people) will cost the government only 0.38 per cent of GDP at 2012-13 prices (less than what it spends on MGNREGA). Once all BPL households are covered, the aim should be to widen the sweep in concentric circles of those above the poverty line, using possibly occupational groups as a criterion to bring them into the sweep. The cost to government will increase with increasing coverage, though for those unorganised sector workers who are non-poor the SI should be designed on a contributory basis with some subsidy from governments, central and state.

Ideally, this bottom-up approach should be supplemented by a top-down one with informal workers lacking SI in the organised sector securing coverage, funded with contributions by workers and employers. The implementation of such a comprehensive SI for the BPL population would begin with the registration of unorganised sector workers. The Socio-economic and Caste Census completed in 2013 can help identify the potential segment of the population. That listing needs to be converted into a system whereby they are registered. These registered workers would have their Aadhaar identity cards seeded with the registration number. We must replace mandatory programmes such as the Atal Pension Yojana and PM Suraksha Bima Yojana with statutory backing, and secure funding.

The writer is a Professor of Economics, JNU, and author of Policies to Achieve Inclusive Growth in India. santoshmeh@gmail.com