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Is Legislation the Only Solution?

Instead of social assistance schemes for unorganised workers this article argues for a broad-based social assistance covering the entire country. A concerted effort towards increasing the quantum of social spending on the basic needs of all citizens can make a world of difference to their quality of life. Historical evidence suggests that the protective security systems that are widespread in the developed countries are the outcome and not the cause of improved living standards and productivity levels.

Is Legislation the Only Solution?

Instead of social assistance schemes for unorganised workers this article argues for a broad-based social assistance covering the entire country. A concerted effort towards increasing the quantum of social spending on the basic needs of all citizens can make a world of difference to their quality of life. Historical evidence suggests that the protective security systems that are widespread in the developed countries are the outcome and not the cause of improved living standards and productivity levels.


government of India commission under the chairmanship of Arjun Sengupta has submitted its report recommending the adoption of a national legislation for social security cover to more than 300 million workers in the unorganised sector. The commission was appointed in 2004 with a mandate that included preparation of status reviews of informal sector enterprises, labour laws and social security systems along with the prescription of strategies for enterprise development and employment promotion. The commission has compressed the terms of reference into two items: (i) A draft bill proposing a national social security scheme for the informal sector workers along with a report elaborating the proposed legislation; and (ii) A future report, in justification of the bill, dealing with working conditions and livelihood of unorganised workers.

One would have expected its sequencing to be the other way, for it is the justification for a national legislation that is conspicuously missing in the commission’s work. In any developed country the purpose of such legislation would have been to protect and legitimise what was already attained as standards in the world of work. Here, we try to reverse this process; first create a legislative framework expecting that the right institutions will emerge to fit the framework. The policy-makers seem to take for granted that, if and when national legislation can be modelled after an “intelligent design” of industrially advanced countries, the institutions underpinning that legislation will follow without the country ever having to go through an evolutionary process.

The relevant institutions cannot be wished into existence since they need to mature through a structural transformation of the entire economy. There is no rich country in the industrialised world offering social security benefits to workers, which has escaped the hard task of evolving their security institutions in the course

Economic and Political Weekly August 12, 2006

of industrial advancement. There is no way India or any developing country can jump the gun or short-circuit this process, especially the early stage of nurturing the foundational institutions that should provide primary healthcare, education and environmental sanitation to the whole population. Perhaps, with the right mix of social policies the pace of change could be accelerated, enabling the nation to take the high moral ground of legislating social security for all.

The purpose of this note is not to disagree with the commission’s position that the coverage of a social security system should become accessible to a broad spectrum of the population. It is to place on record some misgivings about the course of action being recommended.

The Target Groups

The commission defines unorganised sector workers as those in all unincorporated private enterprises engaged in the production and sale of goods and services, operated on a proprietary or a partnership basis and employing less than 10 persons. The number of workers in the informal sector – both men and women – sought to be covered through social security schemes comes to a total of 300 million. The projections of expenditure for and future returns from social security schemes are based on the current estimates of worker participation rates. These rates are likely to increase by a considerable margin in the course of the next two or three decades, and so are the cost estimates.

The commission is keen on the idea of registering all informal sector workers and enterprises to enable them to “receive all forms of support and assistance from the government”. The model recommended for extending social security to all in the unorganised sector is premised on the registration of each worker as party to an employment relationship in enterprises or operations irrespective of the size. The registered worker will be entitled to an identity (ID) card valid in all parts of the country. The simple truth is that India does not have an institutional capacity for identifying such workers, let alone collecting contributions from them or their employers. Even with low participation rates there is a conspicuous absence of any arrangement for recording of the numbers employed, not to mention the terms and conditions of their employment.

A contributory scheme at the rate of Re 1 per worker per day, as envisaged by the commission to be collected from three parties: the worker, employer and the government is based on the assumption that all beneficiaries of the scheme are engaged in durable employment relationships. Unfortunately, this is not the case with an increasingly large body of causal workers both in urban and rural areas. Nor can we be naïve to imagine that that all informal sector employers will contribute even tiny amounts of money to a worker’s fund for all 365 days of the year.

It is not easy to identify employment relations in the construction sector, where both employers and contractors are unlikely to enter into any durable relationships. Given the predicament of unidentified employment relationships in many enterprises, would it be feasible to start welfare schemes, deemed to be funded with contributions from workers as well as employers? It is well known that many employers, irrespective of the size of enterprises, are loathe to enter into any records of public authorities for fear of regulatory sanctions. The size criterion applied to small enterprises has always been used as a façade against any supervisory regime. The track record of the state in regulating or supervising employment relations among enterprises above the minimum threshold of “10 employees” is none too credible either.

If we were to do a serious job of extending the social protection nationwide to the entire unorganised sector, some important prerequisites need to be put in place. They are: (i) an administrative machinery that can record all enterprises and employers irrespective of size; (ii) public awareness of the benefits that can be canalised through social protection schemes; and (iii) appropriate incentives to workers and employers for participation in and contribution to the welfare schemes. The country as a whole has made little progress on any of the above-mentioned requirements.

There might be little support for social protection from the employer community so long as the onus is on them to provide life-time jobs to all workers hired. In the event of a termination of employment, employers should rather be obliged to pay severance benefits that are legitimately due to the workers. It is hard to imagine a cultural shift in emphasis from “jobs for life” to a package of employment benefits coming in the near future. The odds are heavily against it, especially in the unorganised sector, where there is a striking inverse relationship between skill levels and the duration of employment. The only option for unskilled workers who yearn for a secure income is to look for lifetime jobs. Those jobs are often traded against better wages and improved working conditions.

Forms of Security and the Chain of Causation

How right are we in naming assorted schemes in the public and private domain as social security? There is some ambiguity surrounding the use of the term “social” as the commission discusses a host of initiatives targeted to different groups of beneficiaries both in the governmental and non-governmental domains. The term “social” has a very distinct connotation in the literature on security-centred institutions. It takes us well beyond the domain of voluntary and private initiatives to the realm of the state in its capacity as protector and regulator of various benefits linked to employment. In general, such protection by the state is premised on the presence of identifiable employment relations. This criterion does not apply to more than 90 per cent of the workers in India whether they work in enterprises, incorporated or otherwise.

The report draws no clear distinction between the different notions of security. Social security is often equated to social assistance and a parallel is drawn with the experience of Europe in the 19th century where social assistance had assumed considerable importance. The commission divides the “social security problems” of informal sector workers into two sets as those arising out of (i) inadequacy in terms of employment, earnings, health and educational status; and (ii) out of adversity due to the absence of a mechanism to meet contingencies such as ill-health, accident, death and old age. Semantics apart, these are problems of the same genre. As we juxtapose different institutions to address difficult problems it is worth taking a look at the genealogy of different security institutions.

Early in the report the commission rightly draws a distinction between two categories of social security: (i) protective security based on legally binding arrangements for safeguarding income, healthcare and oldage pensions of workers; and (ii) promotional security which are social assistance programmes for employment creation,

Economic and Political Weekly August 12, 2006 poverty alleviation, public distribution and child development targeted on specific groups. Both the categories are posited as essential prerequisites for increased efficiency, production and productivity. First, it is important to separate the cause and effect of the two categories; and second to spell out the chain of causation leading to different types of institutions.

Historical evidence suggests that the protective security systems that are widespread in developed countries have been the outcome and not the cause of improved living standards and productivity levels. In most countries, they have morphed through promotional ventures which were originally initiated by cooperatives, trade unions and other civic groups. These initiatives as they gained ground set the stage for more ambitious welfare schemes that were formalised through legislative support. Ideally therefore, the sequence of institutionbuilding should be from the promotional schemes to the formal protectionist schemes. The latter cannot be a substitute for the hard task of promoting institutions with the involvement of beneficiaries.

One lesson we seem to have ignored from the progress of industrial societies is that the institutions for social protection need to grow endogenously on their own. It is not feasible to transplant them into a country or region which lacks an environment for nurturing and sustaining those institutions. Europe has moved a long way since the 19th century when social assistance programmes were organised mostly by voluntary groups with largesse from the state. The path followed was from social assistance through social insurance towards fully-funded contributory schemes offering predefined benefits. A transition to the modern protectionist institutions was preceded by a phase of experimenting with a number of promotional schemes, which were initiated by different social actors. The state nurtured these projects and facilitated their transformation.

The commission presents a glossy picture of the experience of other developing countries in launching and organising social protection programmes. The review of international experience made in the report suggests that most social security schemes are based in urban societies. Countries like Tunisia and Brazil with much higher levels of urbanisation and per capita income have, indeed, developed some attractive institutions. They are not necessarily replicable in a predominantly rural society, likely to remain so for several more decades to come. Possibly there are some lessons to be learned from China which has experimented with community-based contributory schemes for healthcare with the government paying part of the costs.

There is very little to show that India has made any progress with social assistance or social insurance programmes even in the urban areas. There is a compelling case for targeting assistance primarily on the working poor in rural areas. Such assistance could be supplemented with institutional arrangements for meeting their perennial needs for healthcare, pensions and special contingencies through groupbased social insurance schemes. In general, the group insurance schemes are costeffective; they operate on the principle of collective risk-sharing and their ownership rests with the beneficiaries who share the cost of administering them. Often they are anchored on the voluntary initiatives of beneficiaries, most notably workers’ organisations in different occupational categories, thereby making it possible to extend the benefits to a broad spectrum of participants.

In the long run, there is no alternative to developing a fully-funded social security system premised on predefined contributions and benefits. Nonetheless, a funded system under which individual contributors can top up their benefits in terms of healthcare, employment insurance, accidents and contingencies care, old-age pensions and other safeguards can be built only on a foundation of tax financed social assistance and group financed insurance schemes. The state can nurture the development of both social insurance and fully funded security schemes through guaranteeing the real value of all contributions made by the beneficiaries.

Welfare Funds and Other Programmes

The commission takes note of the fact that there are many commendable initiatives of both the central and state governments providing rudimentary forms of social assistance to the poor in the form of pensions, maternity benefits, nutrition and child care. Such initiatives happen to be confined to a small minority of the unorganised workers. They operate mainly through welfare funds applicable only to the selected categories of workers. The proposed national legislation is meant to consolidate and build on the work of welfare funds. However, based on the experience of such funds, especially in Kerala, which has been projected as the epitome of good practices in the field, one cannot help raising some doubts about their reach and effectiveness.

The welfare funds are born of the guilds of workers in some traditional occupations that occupy niche markets for their products or services. It is not easy to identify any employment relationships in many traditional occupations, so much so that the operation of welfare funds is predicated on two conditions: (i) possibility of raising resources through a cess on market transactions; and (ii) presence of beneficiary associations exerting political pressure for the distribution of benefits. These conditions are not present in all occupations or in regions harbouring such occupations.

Many trades for which welfare funds have been established happen to be fading out and the number of workers therein declining on account of the structural transformation of industries and occupations. Durable employment relations are shrinking in the plantations and processing industries which are vulnerable to the vicissitudes of markets. The same applies to a number of occupations such as ‘toddy’ tapping, weaving, carpentry and ‘beedi’ rolling. The possibility of levying a cess on transactions is limited in the case of many service sector workers such as hairdressers and washermen, raising concerns about the sustainability of welfare funds.

Without detracting from the merits of social policies followed in Kerala, one is inclined to question the claim that more than 50 per cent of all unorganised sector workers are covered by the welfare funds. The state’s narrative on the labour welfare fund for plantation workers (1977) and the artisans and skilled workers fund (1986) leaves some questions on their content and reach unanswered. The source of funds and the nature of benefits extended to

  • 0.84 million agricultural workers and
  • 1.07 million construction workers in the state need to be clarified. If these funds survive entirely on social assistance, it is time to put them on a sound footing with contributory schemes.
  • In West Bengal too the reach of some fairly impressive welfare schemes, for instance, the provident fund for unorganised workers, appears to be low. The presence of welfare funds is disturbingly low among some of the larger states of northern India. If, indeed, they do exist, there is a pronounced urban bias in their location and

    Economic and Political Weekly August 12, 2006

    coverage. Perhaps, it is time to pause and price” of labour which would not be bid
    audit the funds, taking into account the down by the market forces. Only by way
    numbers covered, resources mobilised of creating a social floor for wages, can
    and the benefits conferred on different there be a reduction in the volume of
    target groups. It is also worth exploring distress-induced migrations now taking
    why a number of pilot schemes aimed at place from the poorest regions of India.
    unorganised workers have failed to take off The least that can be done is to enable
    in spite of the fact they promise impressive people to live in their natural habitats
    benefits and demand less as contributions without being compelled to flee from
    by the workers and employers.
    All the same there are valuable lessons
    to be learnt from the operation of welfare
    funds. First, the funds are useful conduits
    for diverting social assistance such as
    pensions, food and medical aid to the needy
    populace. They have proved to be afford
    able in all states which have shown a
    political will for their adoption. The funds
    also provide an organising framework for
    launching viable social insurance schemes
    for healthcare, accident cover and educa
    tional facilities addressed to different groups
    of beneficiaries. These initiatives prove
    that targeted minimum support programmes
    are practical and that they can be expanded
    both in terms of reach and content.
    Priorities for Action
    Contrary to the commission’s position
    that it is time to go beyond social assistance
    schemes to cover a larger body of
    unorganised workers, my submission is
    that it is time to start with broad-based
    social assistance covering the entire
    country. A universal system of social
    assistance targeted to the needy, supple
    mented with social insurance schemes
    should receive absolute priority by policy
    makers. To achieve this we can only go
    in stages. Waving the magic wand of a
    make-believe legislation will not take
    anyone to that destination. On the other
    hand, a concerted effort towards increas
    ing the quantum of social spending on the
    basic needs of all citizens for education,
    health, drinking water and a clean envi
    ronment can make a world of difference
    to their quality of life.
    To conclude, let me repeat that only
    redistributive social spending and not
    punitive legislation can serve any useful
    purpose at this juncture. Such spending
    can become a powerful instrument in the
    hands of policy-makers towards raising
    the floor wages of the unorganised work
    ers in the entire country. Ensuring access
    to a basket of entitlements by the poor
    including primary education, public health,
    shelter, civic amenities and a clean environ
    ment can help set a minimum “reserve

    poverty and deprivation. In any case they are not going to use a plastic ID card to call up the help desk of government for non-existent services.



    [The author alone is responsible for the views expressed in this note.]

    Economic and Political Weekly August 12, 2006

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