Finance Minister Nirmala Sitharaman will soon present an Interim Union Budget today, 1 February.
Interim budgets in an election year are usually seen as populist announcements that project larger than anticipated fiscal outlays on electorate-centered welfare schemes, mostly for the poor who are more in number (as voters). Such schemes are a part of an incumbent government’s manifested vision to stay in power.
However, in the Modi government’s own decadal tenure, there has been a conscious attempt to avoid populist announcements during the Union budget speeches, while attempting to present budgets that appear growth-oriented but remain indifferent to acknowledging or addressing key economic challenges.
One such group of issues is that of ‘jobless growth’, rising youth unemployment, and informality in India’s employment landscape. We discuss the reality of these through a detailed analysis below.
Output-Employment Gap
In a 2017 book called The Vanishing Middle Class, the MIT economic historian Peter Temin pointed out that the Lewis model of a dual economy had become increasingly relevant to the US (Temin, 2017).
According to Temin, a combination of forces — de-industrialisation, globalisation, new technologies that favored professionals and capitalists, and declining protections for labour — have produced a widening gap between the winners from these developments and those who are left behind.
Growth in Index of Industrial Production and Growth in Employment.
Source: CMIE Employment Data
Employment rate by region and gender.
Source: CMIE Employment Data
If we look at the output-employment growth over the last six years, particularly from the post-2016 demonetisation period, there has been a sharp fall in overall output (if we only look at industrial production levels) and in the aggregate employment rate of the eligible job-seeking population.
The gendered effects of these trends are even more striking, where the female employment rate has dropped from 11.88 per cent (2016-17) to 7.96 per cent (2021-22). In urban areas, for women, the employment rate has dropped from 10.77 per cent to 5.57 per cent in the same period.
Rising Youth Unemployment
See the chart below (source: World Bank) for the years 1991-2024 on India’s youth unemployment (measuring unemployment between 15–45-year-old seeking employment).
India’s youth unemployment from 1991 to 2024.
Source: World Bank
Our team at InfoSphere did a detailed breakdown of the rising youth unemployment numbers based on the CMIE and PLS data (see here for more).
The key issue here is to understand how urban unemployment (especially amongst females) among the educated youth has worsened in the last decade.
More educated, young females (30 per cent of them seeking employment) cannot find a job in the organised, secured workforce. The higher the education qualifications of the job-seeking youth, the higher their unemployability (see here for more discussion). What this has further done amongst the lesser educated job-seeking population is to explore employment for survival in a bloating informal (unsecured) economy.
Rising Informality and How It Makes India’s Labour Market More Complex and Unequal
Informality in the Indian labour market has come to be understood as a compilation of economic activities, jobs, enterprises, and workers that do not receive protection from the state nor are they regulated in any manner. The workforce landscape has 480 million workers contributing to its various sectors with some workers employed in the formal sector while others in the informal sector.
A staggering 81 per cent of the working population is employed by the informal sector in India and the leading causes for this are weak enforcement of labour laws; and low literacy levels amongst workers.
Additionally, there is widespread unawareness of worker-centric opportunities (even when available), causing individuals to work in the informal space for reasons of flexibility in work/paid hours and getting faster means of employment and ‘quick’ income.
Unveiling the Labyrinth: A Fractured, Unequal Worker Landscape
There is an increasing trend in the rise of informal employment, which can also be attributed to the increased labour force participation of women in the ‘informal’ working space that has grown from 17.5 per cent in 2017-18 to 27.8 per cent in 2022-23.
Rising informal employment.
Source: Team Infosphere
Share of informal labour in the formal sector.
Source: Team Infosphere
Additionally, the size and extent of operations of a firm, play an important role in determining the informality of labour. Firms located in the remote parts of the country contribute the largest share of unsecured, informal work in the country.
It has been observed that unfavorable government policies and unpredictable business environments often act as roadblocks that prevent the “formalisation” of labour.
Rural-Urban Disparity in Labour Force Participation
The rural populace is experiencing a significant surge in dependence on the informal sector, with a staggering 80 per cent relying on non-farm informal employment. This heightened reliance highlights the crucial role played by the informal sector in sustaining rural livelihoods.
Rural informal sector employment.
Source: Team Infosphere
The escalating dependence on informal employment accentuates the challenges faced by rural communities in accessing formal job opportunities. In the latest recorded year, 2022-23, urban areas display a substantial 66 per cent dependency on non-farm informal employment, indicating the significant role played by informal economic activities in urban livelihoods. This dependency has consistently increased over the past three years, indicating a persistent reliance on informal employment avenues.
In urban areas, the male labour force exhibits a higher dependency on the informal sector compared to females, with figures standing at 69.1 per cent for males and 55.5 per cent for females. This may be attributed to factors such as occupational preferences, societal norms, and differential access to formal employment opportunities. Despite the lower overall dependency in urban areas compared to rural settings, the 66 per cent reliance underscores the pervasive nature of informal employment across diverse geographical contexts.
Urban informal sector employment.
Source: Team Infosphere
In 2022-23, urban areas prominently manifest a 66 per cent reliance on non-farm informal employment, highlighting the substantial role of informal economic activities in sustaining urban livelihoods. This dependence has consistently surged over the past three years, indicating a persistent reliance on informal employment avenues.
Shrinking Social Security for Salaried Employees in India
Concerns arise from recent data on social security benefits for salaried employees in India, revealing a worrisome trend of shrinking coverage, particularly in the 2021-22 period. The decline in the percentage of employees receiving these benefits raises alarms about potential erosion in the secured nature of the salaried workforce, posing threats to their financial security, and overall well-being.
Employees not eligible for social security benefits (rural).
Source: Team Infosphere
However, a significant shift occurred in the 2022-23 period, notably in rural India, where there is a substantial upturn. The percentage of employees accessing social security benefits sees a sharp increase, reaching a coverage of 59.9 per cent, signaling a positive change in social security accessibility in rural areas. What’s explaining this is difficult to know.
Employees not eligible for social security benefits (urban).
Source: Team Infosphere
Urban male employees bear the brunt of this concerning trend, experiencing a continuous decrease in social security coverage. The figures reveal a decline from 49 per cent in 2020-21 to 48.1 per cent in 2021-22, further dropping to 48 per cent in 2022-23. This decline underscores a critical issue in the urban landscape, signifying a reduction in workplace protections for salaried employees, particularly the male workforce.
The broader perspective, as reflected in the "All Person" category, underscores the gravity of the issue. Despite slight variations, the percentages consistently demonstrate a downward trend, pointing towards a systemic challenge in ensuring comprehensive social security coverage for urban salaried employees.
This disparity between rural and urban areas not only highlights the need for targeted interventions in urban settings but also emphasises the importance of understanding and addressing the nuanced challenges faced by different segments of the workforce in securing social security benefits.
On Minority Participation in Labour Force
A stark contrast in labour force participation rates among minority communities, both in rural and urban settings, underscores deeply ingrained systemic inequalities. The overall minority participation levels are notably low, with urban female minority workers facing heightened marginalisation.
Minority participation in labour force.
Source: Team Infosphere
Within the minority groups, Scheduled Castes (SC) exhibit comparatively higher participation rates in both urban and rural areas than Scheduled Tribes (ST) and Other Backward Classes (OBC). However, even within the SC category, a rural-urban disparity is discernible, with SC displaying a higher participation rate in urban areas.
The most alarming observations are the lowest participation rates, which are witnessed among STs in rural areas and OBCs in urban areas. This sheds light on the intricate intersectionality of social categories, revealing that the labour force divide is not uniform across different minority groups.
A critical gender dimension emerges, with the urban female minority workforce facing the most significant challenges, evident in notably low participation percentages. This intricate interplay of gender and minority status suggests that urban minority women encounter additional barriers, exacerbating the complexities associated with their labour force participation. Our data further delineates the rural-urban and male-female disparities, underscoring the urgent need for targeted policies addressing the multifaceted challenges faced by minority communities, particularly focusing on gender-specific barriers in urban areas.
Before and After Covid: Current Status of Informality in Indian Labour Market
The COVID-19 pandemic has had a profound and widespread impact on the informal labour market in India. Around 80 per cent of informal sector workers lost their jobs as the lockdown unfolded.
According to (CMIE) reports, in April 2020, India experienced a loss of 121.5 million jobs, with 91.2 million being in the informal sector, including small traders, hawkers, and daily wage labourers. The adverse impact of COVID-19 on the informal sector stems not from the virus’s discriminatory nature but rather from the disadvantaged position of informal labourers due to pre-existing socio-economic conditions.
Informality in the Indian labour market (pre-lockdown).
Source: Team Infosphere
Informality in the Indian labour market (post-lockdown).
Source: Team Infosphere
Both graphs illustrate the employment status of informal workers across sectors, pre and post-lockdown (percentage). On the other hand, the Periodic Labour Force Survey (PLFS), started in 2017-2018, indicates a consistent decline in the unemployment rate in India despite the pandemic. However, a significant portion of these employment additions appears to be precarious.
Unpaid family labour now nearly matches paid workers, pointing to the rapid growth of informality in the labour market. This rise is attributed to the increased participation of rural women in the labour force (constituting around 80 per cent of the total 42 million growth) and the surge in unpaid work in agriculture (32 per cent) since 2017-18.
Growth in unpaid workers since 2017-18.
Source: Team Infosphere
In 2017-18, approximately 84.6 per cent of casual workers, 52.8 per cent of regular workers, and 67.9 per cent of self-employed workers earned wages below the recommended national minimum wage (MW) of Rs 375 per day, creating a 41 per cent gap between the stipulated minimum wage and actual earnings.
Therefore, the sudden loss of income from pandemic-induced unemployment became particularly challenging for informal workers, who were already grappling with low earnings even before the pandemic unfolded.
Share of workers earning less than Rs 375 MW in 2017-18.
Source: Team Infosphere
The informal sector further contributes to unfair competition, financial instability, and regulatory challenges, hindering the development of a robust and equitable business environment. It negatively impacts formal businesses through lower costs and tax evasion, posing challenges for formal enterprises struggling to compete on price.
Tax evasion reduces government revenue, limiting resources for public services that benefit both formal and informal enterprises. The informal sector's non-compliance with regulatory standards raises concerns about product quality and safety. Lesser credit lending due to meager business capital leads to lower formalisation of the informalised sector.
Share of informal sectors across broad sectors to GVA.
Source: Team Infosphere
This chart depicts the share of the informal sector to Gross Value Added from FY 2011-12 to FY 2020-21. From FY 2011-12 to FY 2017-18, the share of informal sectors has been constant at around 52 per cent to 54 per cent. According to an SBI report in 2021, the informal sector may have shrunk to no more than 20 per cent.
The informal sector, while providing employment opportunities for many, often inflicts significant negative impacts on workers. Exploitative practices, including substandard wages, long working hours and unsafe conditions, job insecurity, are pervasive, as informal workers often lack the bargaining power and legal protections afforded to formal employees. Those belonging to marginalized groups face discrimination and exclusion from economic opportunities, further perpetuating social and economic inequalities.
Average wage earnings of causal labourers.
Source: Team Infosphere
This chart depicts the per day average wage earnings of casual labourers from FY 2020-21 to FY 2022-23. Between the fiscal years 2020-21 and 2021-22, there was a notable 16.6 per cent upswing in the average daily wage earnings. However, this growth rate has subsequently reduced by half, standing at 8.2 per cent from 2021-22 to 2022-23. In an overarching view, there has been an aggregate growth of 26.15 per cent in nominal wage. Although this indicates significant income growth, the trajectory of the purchasing power of the labourers can’t be gauged.
Unpacking the Impact: Government Schemes Shaping Informal Labor Markets
The government launched the E-Shram Portal in 2021 with an aim of building a comprehensive National Database of Unorganized Workers (NDUW) in the country and to boost the last-mile delivery of the welfare schemes for the unorganized workers in the country.
As per the e-shram portal, if a worker is registered on the portal and meets with an accident, he will be eligible for Rs 2.0 Lakh on death or permanent disability and Rs 1.0 Lakh on partial disability. So, far more than 29.23 Crore unorganized workers have been registered on this portal. However, the reach of the scheme is limited as only 4.4 per cent of rural and 42 per cent of urban households have access to the Internet. This digital barrier is a major hindrance in achieving the objective that the government aimed to achieve.
Another such scheme of the government is the Pradhan Mantri Shram Yogi Maan-dhan (PM-SYM) which is a central government scheme meant for old age protection and social security of Unorganised Workers (UW).
It is a voluntary and contributory pension scheme under which the beneficiary would receive a minimum assured pension of Rs 3000/- per month after attaining the age of 60 years. The subscriber’s contribution is made through an ‘auto-debit’ facility from his/ her savings bank account/ Jan- Dhan account. However, total subscribers under the scheme fell to 4.43 million on July 11, down 1.19 million from 5.62 million on January 31 attributing to high inflation, a rise in cost of living.
Measures to embrace the informal economy’s link with the formal must be supplemented by reducing the variegated disadvantages faced by women and lower caste groups in securing formal, more secure jobs.
An apathetic indifference to the informal economy, and not understanding what it is/means, creates additional trouble for workers and the government should aim to do more to create a labour-friendly environment that encourages informal sector workers especially those employed in small enterprises to register themselves, which would initiate a shift towards their regulation and protection.
This in turn would foster compliance with and awareness about labor laws and government policies benefiting the relatively disadvantaged workers in the informal sector. As of now, there is less faith and trust in the current regime’s governmentality to address most of these concerns, let alone doing so in a vote-on-account Interim Budget 2024.
(Deepanshu Mohan is a Professor of Economics and Director, the Centre for New Economics Studies (CNES), Jindal School of Liberal Arts and Humanities, O P Jindal Global University. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)
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