October 18, 2018

Bringing informal workers to the forefront of our economy

With 81 percent of India’s employed workforce being in the informal sector, we can't afford to ignore their potential. Here's how entrepreneurship could offer a solution.

5 min read

The image of the ‘struggling’ daily wage labourer in India is one that stakeholders from across the development sector aspire to transform. Financial security, quality living conditions, and opportunity to thrive are the buzzwords in a conversation about the needs of this bracket. These workers—usually associated with the informal or unorganised sector—are assumed to represent the outliers of the national economy.

By definition, the informal sector includes those roles which aren’t taxed or monitored by any form of government. Recent findings however, indicate that 81 percent of India’s employed individuals work in the informal sector, of which 64 percent are engaged in non-agricultural forms of employment. Thus, while the informal sector may only contribute a sliver to national income charts, it clearly takes up a sizeable slice in the national employment pie.

81 percent of India’s employed individuals work in the informal sector.

These individuals aren’t guaranteed job security or minimum wage employment, and often lack essentials such as identification documents, bank accounts, insurance coverage, access to quality education, and more. If 81 percent of the nation is working in the informal sector, it implies that the work done by 81 percent of the nation isn’t formally recognised as ‘work’.

Challenges around formalising the informal sector

If the problem is so apparent, then why has it been allowed to persist? To understand the wider challenges surrounding this situation, let us explore the case of the construction sector, one which contributes heavily to the migrating population and is widely recognised as a part of the informal economy.

1. Tracking and monitoring

For starters, monitoring this extensive cohort is a difficult task, owing to the widespread migration of the labour workforce. It is estimated that there are 5 to 6 million interstate migrants a year in India, growing at a rate of 4.5 percent annually. This includes undocumented workers who migrate seasonally across multiple locations, working for various employers, potentially across numerous sectors. These dynamic parameters make it challenging for government bodies to effectively track informal workers over a long duration. As a result, they are often excluded from state policies at both the source and destination.

2. Turning policy into action

For workers in the construction sector there are legal provisions, set within policies such as the Building and Other Construction Workers Act (BOCW, 1996), which aim to protect them from exploitation at the workplace.

However, converting these plans to action continues to be a challenging task. For instance, the act stipulates a cess collection, which is to be directed towards worker welfare. However while INR 70,000 crore had to be collected by the various Welfare State Boards, the actual collection amounted to only INR 26,962.18 crore rupees. Utilisation of the funds collected is even lower still.

The hierarchy of power set within this sector places contractors and sub-contractors at the top, while pushing labourers to the bottom of the barrel. The work hours are long and, the working conditions strenuous. Additionally, frequency of circulation of workers is high owing to the changing nature of skills required in a construction site. Since awareness about BOCW is limited among the workforce, there is hardly any demand for welfare measures.

3. Lack of capital

But the problem doesn’t end with worker’s rights. A closer look at the lives of contractors reveals that despite being higher in the hierarchy, they are handicapped by lack of capital and the irregularity of their revenue cycles. As a result, the job security of those employed under them is also at risk.

[quote]Financial obstacles prevent blue-collar entrepreneurs from running their enterprises efficiently.[/quote]It is apparent that for these blue-collar entrepreneurs, there are several financial obstacles which prevent them from running their enterprises efficiently and ethically. For example, lack of collateral and poor credit scores prevent them from availing bank loans. Even if they manage to procure loans, the stringent frameworks set within financial institutions reduces the amount of working capital available for utilisation.

Related article: An untapped opportunity in employability

Entrepreneurship offers a solution

There are organisations working with entrepreneurs to help them overcome the challenges they face.

1. In 2016 Pratham (the organisation I am a part of), deployed the ‘Good Contractor‘ programme, which provides financial assistance, mentorship, and training for upcoming contractors. The USP of the project is that it has defined an ethics matrix with guidelines for labour welfare, and a candidate’s eligibility to continue in the programme is dependent on how they fulfil the requirements in the matrix. By recognising upcoming contractors as entrepreneurs, the programme has managed to impact the lives of nearly 400 labourers through 35 contractors over two years in Mumbai. The financial autonomy and mentorship that this programme provides, should be recognised as the key drivers for participation from the workforce.

informal sector

Photo courtesy: Pratham Institute

2. At the start of 2018, the Udhyam Learning Foundation launched the Udhyam Vyapaar model, working on a one-one basis with 30 entrepreneurs. The programme empowers youth at a grassroots level by providing one-one mentorship, to help overcome the challenges which they may be experiencing in running their enterprises. The objective in this case is to foster entrepreneurs from low income backgrounds, irrespective of the sector or scale of the proposed business plans. The organisation plans to partner with NBFCs to provide funding for entrepreneurs in the nearby future.

3. Having worked on a voluntary basis for 5 years within Aurangabad and Nagpur,  Vruksh Ecosystem has been increasing awareness about the same within local communities, reaching out to over 5000 youth from both rural and urban backgrounds. It has managed to support 30 to 40 entrepreneurs working on enterprises within the sectors of agriculture, healthcare, clean mobility, and sustainable cities, and will officially be launched in, November 2018.

[quote]Numerous spill-over benefits are generated through entrepreneurship.[/quote]The common denominator for each of these organisations is the message of social impact at a grassroots level, while ensuring profitability for entrepreneurs. The numerous spill-over benefits which are generated through entrepreneurship, scales these models beyond the direct beneficiaries. The chain reaction which can be generated by starting with a small cohort is what makes them truly click. The rise of these initiatives by nonprofit organisations, strengthens the idea that the solution for improving worker welfare lies in the overall systemic change that may be accelerated through entrepreneurship.

Role of civil society and CSR

With the push towards entrepreneurship created by the Start-Up India movement, workers in the informal economy cannot be excluded from the picture. While they may be at a disadvantage when compared to their counterparts in the white-collar end of the spectrum, it mustn’t be forgotten that these blue-collar entrepreneurs could open the doors required to organise 81 percent of the working Indian population. This is a mammoth task, which cannot be accomplished by simply creating amendments in policy. So, what do we need to do?

1. Inclusive entrepreneurship

We need to recognise that fostering entrepreneurship in an inclusive manner, is steadily becoming the need of the hour. In both rural and urban communities, programmes which focus on employability and foundation skills could begin to spread the idea that entrepreneurship is an accessible career path for people from all walks of life.

2. Training and mentorship

Once the message is out there, the next step is building programmes which can help these aspiring entrepreneurs navigate the challenges they will face. These individuals will require mentorship, training in communication, digital literacy, financial literacy, programme management, and so much more. The goal of their training and mentorship would be to enable them to build a sustainable future for themselves, while creating new job opportunities for others.

3. Financial support

Financial limitations are one of the primary bottlenecks which prevents interested parties from entering starting their own enterprises, and so corporates play a significant role in the success of entrepreneurship models. When the matter of CSR funds arise there needs to be greater willingness to experiment and invest in these models. Microfinance institutions and NBFCs should be willing to grant business loans to entrepreneurs who are vetted and vouched for by partner nonprofits. With innovation comes risk, and funding entrepreneurs with limited collateral and personal finances is a gamble, but it is one that is necessary to ensure the success of their ventures.

On a final note, dignity of labour is a message that is yet to be accepted by the Indian community, and while we need skilled workers, the need for job creators is greater still. The cause of bringing the informal worker cohort to the forefront of our economy is one that needs to resonate in all corners of the nation. With a working age population of more than 850 million, we cannot afford to ignore the potential that 81 percent of our national workforce represents.

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Annette Francis

Annette Francis has been with the youth training arm of Pratham Education Foundation since 2018. Her areas of focus include workforce development and technology-driven skill training. Annette has previously worked in a teaching capacity with organisations based in India and Scotland, and is an alum of the University of Edinburgh.