By Jalaj Tokas
Published On: October 6, 2021 at 14:23 IST
The Indian economy is characterized by the existence of a vast majority of informal or unorganized labor employment. India’s unorganized sector workforce has been at the forefront of driving the economy’s rampant growth ever since independence. The total amount of informal workers participating in the workforce is estimated to be around 93% of the labor component in the country according to the Economic Survey of 2018-19. The informal sector, since time immemorial, has undoubtedly been making a significant contribution towards developing the Indian economy.
However, despite the Indian economy’s deserved reputation, factors such as an increased economic prosperity exploitation, poverty and lack of basic necessities pose a challenge to this sector. Although the unorganized sector plays a crucial role in the economy in terms of employment, a significant segment of the workforce still remains neglected. What’s more worrying is that the problems mentioned are nothing but the tip of an iceberg!
Talking about a solution to the problem, there still are many statutes and laws for the unorganized workers, but they are still not provided with social security benefits which could result in protecting the unorganized sector.
The following write-up discusses the need for an effective legal and administrative policy framework that can provide for easy hiring and social security for a growing number of contract workers in the country. It touches upon the challenges faced by the sector, especially while framing a contract, and the way forward before concluding on the same lines.
Given its substantial contribution to the overall economic growth, it is important to understand the significance of unorganized sector in terms of its efficiency performance. And in order to understand this better, we need to learn more about the unorganized sector.
What is the Unorganized Sector?
Unorganized sector is a sector which is generally not governed by the rules and regulations that are laid down by the Government regarding the condition of employment.
According to the Unorganized Workers and Social Security Act, 2008:
“Unorganized Sector means an enterprise which is engaged in the production or sale of the food or in providing services of any kind owned by individuals or self-employed workers and where the number of workers is less than 10 in number.”[i]
The Supreme Court in Sodan Singh Vs New Delhi Municipal Committee[ii] held that street vending constitutes a profession, occupation, trade, or business under Article 19(1) of the Indian Constitution. Therefore, declaring it to be a fundamental right protecting an informal worker’s right to work.
The Act further goes on to define an unorganized worker working in an unorganized sector as:
“A home-based worker, self-employed worker or a wage worker in the unorganized sector and includes a worker in the organized sector who is not covered by any of the Acts mentioned in Schedule II to this Act.”[iii]
In general, unorganized sector covers most of the rural labor along with a substantial part of urban labor. It includes activities carried out by small and family enterprises, partly or wholly with family labor. The unorganized labor is overwhelming in terms of its number range and therefore they are omnipresent throughout India.
A Wage worker is defined as:
“A person employed for remuneration in the unorganized sector, directly by an employer or through any contractor, whether in cash or in kind, whether as a temporary or casual worker, or workers employed by households including domestic workers, with a monthly wage of an amount as may be notified by the Central Government and State Government, as the case may be.”[iv]
The wage-paid labor is largely non-ionized due to casual and seasonal nature of employment and scattered location of enterprises. This sector is marked by low incomes, unstable and irregular employment, and lack of protection either from legislation or trade unions.
In the National Statistical Commission 2012 Report, 90% of the total workforce has been given to the imperial work force. According to 2015-16 figures, one-third of the workers in the country are daily wage laborers.
The National Sample Survey Organization (NSSO) conducts thorough surveys of these unorganized sections at a regular interval and has observed that the manufacturing industries which do not come under the Annual Survey of Industries (ASI) are counted in the unorganized sector.
Thus, the unorganized sector is not independent or exclusive. It is dependent on the organized industry and the economy as a whole.
Contractual laborers are workers who are hired in or in connection with the work of an establishment “by or through a contractor, with or without the knowledge of the principal employer.”
In simple words, the laborers who are employed through a contract or an agreement to perform certain form of labor or work for a short period of time are called Contractual Laborers.
In India, Contractual Employment is regulated by the Contractual Labor (Regulation and Abolition) Act, 1970. The arrangement got legal recognition when the Contract Labor (Regulation and Abolition Act), 1970 of India (CLRA) was enacted with the purpose to regulate the employment of contract labor in certain establishments and to provide for its abolition in certain circumstances.
The Act applies to an establishment or a company employing more than 20 workers on a contractual basis. As per this law, a contractual worker is a workman employed for contractual work through a contractor and not directly through an employer.
Contract Labor is one of the acute forms of unorganized labor. Under the system of contract labor, workers can be employed through contractor on the contract basis. Workmen shall be deemed to be employed as “contract labor” or in connection with the work of an establishment when he is hired in or in connection with such work. In this class of labor the contractors hire laborers who do the work on the premises of the employer, known as the principal employer but are not deemed to be the employees of the principal employer.
However, it has been felt, and rightly too, that the execution of a work on contract through a contractor who deployed the contract labor was to deprive the labor of its due wages and privileges of labor class.
Growing Prominence of Unorganized Sector
Predominance of informal employment has been one of the central features of the Indian labor market. While the sector contributes around half of the GDP of the county, its dominance in the employment front is such that more than 90% of the total workforce has been engaged in the informal economy.[v]
According to the data released by NITI Aayog in November 2018, 85 percent of the total workforce is employed in the unorganized sector. According to an estimate, the total workforce in the country is 45 crores, out of which, 93 percent i.e. the number of people working in the unorganized sector of the country is about 41.85 crore.
While some argue that the informal sector is an autonomous segment of the economy producing mainly for self-consumption, meanwhile others argue that the informal sector is integrated with the rest of the economy through complementary linkages.
In India, complementary linkage between the formal and informal sectors takes place mainly through sub-contracting which promotes informal sector’s growth. The unorganized labor is overpowering in terms of its numeral range and, therefore, it is omnipresent throughout our country.
In the post-modern world highlighted by liberalization, globalization, and privatization the country has seen drastic changes in the business environment and nature of employment. These changes have created many issues in social security measures.
The need for social security is a fundamental human right and it should be provided to all citizens. Social security provided to the unorganized sector is not recognized and efforts should be taken by the government.
In this regard, the issue of social security to the growing sector of unorganized workers draws more attention. The government enacted social security legislation for the welfare of unorganized workers formulated and supported by many schemes. The Unorganized Workers Social Security Act, 2008 aims in providing a framework for welfare schemes for the unorganized sector.
The Act also provided for the constitution of the National Social Security Board and State Social Security Board for unorganized workers by the respective Central and State Governments respectively.
Similarly, the National Commission for Enterprises in the Unorganized Sector (NCEUS) was set up in 2004 as an advisory body and as a watchdog for the informal sector to bring about improvement in the productivity of the unorganized sector enterprises for generation of large scale employment opportunities on a sustainable basis, particularly in the rural areas.
The Ministry of Labor and Employment introduced 4 Bills in the year 2019 with the aim of simplifying, amalgamating and rationalizing the Central Labor Legislations. The amalgamation of 29 central labor laws into bills has been codified and enacted as:
- The Code of Wages, 2019;
- The Industrial Relations Code, 2020;
- The Code on Social Security, 2020;
- The Occupational Safety, Health and Working Conditions Code, 2020.
The Bills attempt to harmonize and consolidate numerous legislations relating to occupation, social security, wages and salaries, industrial disputes, and other such applicable labor employment-related matters.
The latest Periodic Force Survey (PLFS) of 2017 – 2018 released in May 2019 says that even among the regular wage/ salaried workers in the non-agricultural sector (of the informal sector), 71.1 per cent had no written job contract, 54.2 percent were not eligible for paid leave and 49.6 per cent were not eligible for any social security benefit.[vi]
When compared to the organized sector, the unorganized sector has not savored the advantages or assistance of any organization. Resulting in making majority of them become unseen victims.
- The number of contract laborers in the country is on the rise, primarily because they can be paid less than permanent workers and the ease with which they can be sacked.
- The sector has become a competitive and low-cost device to absorb labor which cannot be absorbed elsewhere, whereas any attempt to regulate and bring it into more effective legal and institutional framework is perceived to be impairing the labor absorbing capacity of the sector.
- The sector is characterized by excessive seasonality of employment, preponderance of casual and contractual employment, atypical production organizations and work relations, absence of social security measures and welfare legislations, negation of social standards and worker rights, denial of minimum wages and so on.
- Poor human capital base as well as lower mobilization status of the work force further add to the vulnerability and weaken the bargaining strength of workers in the informal sector.
- Since it is a nonbinding advisory, employers are still well within their power to terminate a contractual worker.
- The Contract Labor (Regulation & Abolition) Act, 1970 (CLRA) denies adequate legal protection to contract workers and is seen as discouraging the formalization of the labor force, thus depriving many employed in the informal sector of adequate safeguards.
- Finally, identifying the unorganized workforce sector who are uneducated and unaware of the profits of the organized sector, the sprinkled nature of the sector and the difficulty of keeping tabs, problematic employers avoiding any form of regulation.
The insecurities and vulnerabilities of the modern informal sector are on the rise, as there is a visible absence of worker mobilization and organized collective bargaining in these segments owing to a multitude of reasons.
The Way Forward
Efforts are being made on the part of government towards providing adequate legal protection to contract workers. Some of the proposals put forward include:
- The government is considering a proposal to drop the word ‘abolition’ from the law, as it contradicts the regulation of the sector.
- Another proposal calls for giving staffing firms a national license. The license will be based on a set criterion which will be renewed every three years. This will serve the twin purpose of providing better social security for contract workers while simultaneously helping them create more jobs in the organized sector.
- A single license would be a boon. One national license could be given based on the financial credibility and past record of staffing firms, which will make it easier for firms to operate, besides reducing informalization.
- Such a sweeping change in legislation will see small staffing firms either close shops or start being compliant. For big, listed firms, this can be seen as a direct push to employment creation.
- The important role played by the judiciary cannot be ignored as well. The Court in the case of Daily Rated Casual Labor Vs Union of India[vii] held that the denial of minimum payment amounts to exploitation of labor. It added that paying an employee less than minimum pay is a violation of Article 14 and Article 16 of the Constitution of India. It also opposed to the spirit of Article 7 of the International Covenant of Economic, Social and Cultural Rights, 1966. The court further held that the government cannot take advantage of its dominant position and should be a model employer.
Contract labor is now a reality. There is a need for a legal and administrative policy framework that can provide for easy hiring and social security for a growing number of contact workers in the country.
The managements try to by-pass the provisions of social legislations unless they are legally trapped or forced by circumstances, while the judiciary has always upheld the concept of social justice, dignity of human rights and worker’s welfare. Hopefully, the new labor codes in India will help further the momentum of generating employment and reducing the current unemployment rates.
The unorganized sector plays a pivotal role in the society; and therefore it requires special attention. The informal sector plays a significant role in the economy in terms of employment opportunities and poverty alleviation. This sector generates income-earning opportunities for a large number of people.
In India, a large section of the total workforce is still in the informal sector, which contributes a sizeable portion of the country’s net domestic product. Most of them are socially and economically deprived sections of the society engaged in informal economic activities.
The government realized the vital role performed by unorganized sector in the economy. Therefore, many legislations and schemes have been initiated by the government for the benefit of unorganized workers. The Indian judiciary also plays an important role in protecting the rights of the unorganized sector.
All in all, India can’t wish away the informal sector. And neither can it be assumed that the fortunes of the formal and informal sector move together. Investing in real-time informal sector data and bringing the informal sector to the forefront of policy decisions can have large multi-year economic growth payback.
ABOUT THE AUTHOR
Jalaj Tokas is a second Year Law student pursuing B.A.LLB from University School of Law and Legal Studies, GGSIPU, New Delhi. He is a life-long learner is self driven towards his ambitions. He strongly believes that expectations are premeditated disappointments and strives not just to be successful but more importantly to be of value.
Edited by: Aashima Kakkar, Associate Editor, Law Insider
[i] Unorganized Workers and Social Security Act, 2008, s. 2(l).
[ii] Sodan Singh Vs New Delhi Municipal Committee, 1989 AIR 1988.
[iii] Unorganized Workers and Social Security Act, 2008, s. 2(m).
[iv] Unorganized Workers and Social Security Act, 2008, s. 2(n).
[vii] Daily Rated Casual Labor Vs Union of India, 1987 AIR 2342.