INFORMAL SECTOR: Boon or Bane

·        1. What do you mean by informal sector employment? 

• It consists of economic activities characterized by small scale, low capital intensity, inferior and simple technology, low productivity, reliance primarily on family resources and labor.
• These are largely unregulated by labor legislation, have no formal training, have easy entry and limited clientele 
• Thus, it is unorganized and unprotected sector. Labor relations are social and personal rather than contractual.

·       2. What are the reasons for its growth?

• Poverty 
• Lack of formal sector employment 
• Migration from rural areas to urban areas because of our failure to develop rural agriculture and rural industrialization. 
• Liberalization of economy combined with arrogant attitude of  formal sector employment.

·        3. In what sectors it is?

• Stall holders, lottery ticket seller, parking, house maids, potters, repairman, newspaper seller, pimps and prostitutes, drug peddlers, pick pockets, beggars, rag pickers and scavengers. In short, it is everywhere.

·        4. Is it necessary for economy?  Should we regulate it? Is it feasible to have no informal sector at all?

• It provides employment to around 92% of India’s labor force. Trying to bring in any legislation will create market imperfections creating hurdles in the smooth functioning of the market led economy. Also it will require huge infrastructural investment beyond the capacity of the Government. But the Government has to play a role of facilitator and promoter so that the workers employed in the informal sector are able to get requisite level of protection and security.    

·        5. What is the level of poverty of informal sector?

• According to Social development report in 2004-05, 41% of workers in informal sector belonged to below poverty line households.

·        6. What is the composition of informal sector? What is their wage profile?

• Self Employed: 56%. Theoretically they are always employed but practically they are not employed always. Casual wage earners and poorer sections of self employed many times belong to the same household 
• Casual wage employment: 33%. Here the reason of poverty is both low wages and underemployment. On an average they earn about Rs 50 a day for a family of three and didn’t get employment for 13% of days.
• Regular wage paid employment: 11%

·        7. What all castes are affected by it?

• Mostly the disadvantaged sections of society resort to informal sector. S.C’s, S.T’s Muslims and a section of OBC constitute informal sector.

·        8. Is it more in rural or urban areas and why?

• In rural areas it is mostly agricultural but in urban areas it is also there in modern sectors of economy.  In agriculture it is 58.5%, industry 19% and services 22.5%.

·        9. Is child labor a part of informal sector? Why? What about women?

• Child labor constitutes a part of informal sector because children work with low wages and don’t demand any benefits. Women constitute around 20% of informal sector employment. They are mostly concentrated in household works such as housemaid and agriculture.  

·        10. What is the impact of liberalization on informal sector?

• With liberalization the competition increased and therefore we adopted better technology to compete with foreign cheap goods. In the process the modern sector became less employment intensive. The informal sector is growing at a much faster rate than formal employment (0.1%).

·        11. How does it add to the growing economic inequality?

• Ratio of output per worker in formal employment to that in informal employment were 10.4 in 2004-05. Output per worker decides the income of laborers and therefore higher gap in output per worker is leading to economic inequality.

·        12.How can we ensure growth in formal sector employment?

• We need to make modern sector more employment centric 
•  Output growth in the traditional sector needs to be increased. 
• For this we need to divert investment from modern to the traditional sector.

·        13. Is government doing anything to take care of social security related to informal sector?

• National Social Assistance Programme (NSAP) comprising old age pension, family benefit and maternity benefits to address the social security needs of the people below poverty line.
• The social insurance schemes include several schemes launched by the Central and the State Governments for the benefit of weaker sections through the Life Insurance Corporation of India and General Insurance Corporation of India. 
• Janshree Bima Yojana Yojana is a group insurance scheme and covers natural/accidental death, partial or total permanent disability due to accident and the people below poverty line and marginally above are eligible to join the Scheme. 
• Another group insurance scheme for the agriculture landless labour, ‘Krishi Shramik Samajik Suraksha Yojana-2001’ launched in July, 2001 provides for pension and insurance besides providing money back. The contribution of the beneficiary is Re.1 per day while the Government contributes Rs. 2/- per day. 
•  Several public institutions and agencies are also imparting various kinds of social security benefits to the selected groups of workers. Among these Self Employed Women’s Association (SEWA) has made significant achievement in promoting social security through the formation of cooperatives. 
• Welfare funds are constituted from the cess collected from the employers and manufacturers/producers of particular commodity/industry concerned. 
• The Government has also enacted a Central legislation for the building and other construction workers towards creation of welfare funds at the level of States. There are around 20 million construction workers in the country. A small cess is collected on the basis of the cost of a construction project which makes the corpus of the welfare fund for the construction workers.

·        14. What is the strategy of government?

• Apart from giving social security, the government is designing special programmes to directly generate employment for informal workers such as NREGA which recognized employment as a right for an informal worker and providing employment an obligation for the government. 
• But this kind of intervention will only make them dependent on government. It will not help in enhancing output productivity or making informal workers more self sufficient. It will not address the problem of widening labor income between formal and informal sector.

·        15. Will our growth be affected if we invest more on informal sector than the formal sector?

• Apparently it looks like that our growth will be affected. But we need to choose between inclusive growth and growth without equity. We need to find out a way by which we can do both i.e. maintain growth and improve the conditions of informal sector.