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Putting the Cart before a Non-Existent Horse

The NCEUS report is an important step towards bringing unorganised sector workers under some form of social protection. However, the cart of a social security system needs three galloping horses to take it to the destination of a deprivation-free unorganised worker: viable enterprises, successful poverty alleviation programmes and congenial macro policies, none of which is in sight.

are working in the unorganised sector and the workers in the formal sector without

Putting the Cart before

any employment security and social security provided by the employer” (ibid p 8). Going by this norm and that of “a secure

a Non-Existent Horse

The NCEUS report is an important step towards bringing unorganised sector workers under some form of social protection. However, the cart of a social security system needs three galloping horses to take it to the destination of a deprivation-free unorganised worker: viable enterprises, successful poverty alleviation programmes and congenial macro policies, none

of which is in sight.


he report of the National Commission for Enterprises in the Unorganised Sector (NCEUS) on social security for the unorganised workers is a timely and important step towards setting up a system to meet the severe deprivations suffered by these workers. This note may seem cynical at first sight but our attempt is to place the problems of the unorganised workers in the broader societal context to help focused discussion. The policies towards the vast marginalised groups like the unorganised workers run the risk of being populist if their problems are viewed from the narrow perspective of finding the number of people needing help, arranging for funds and suggesting institutional mechanisms. This may look attractive on paper, but one needs to be reminded of the dismal record in the past. The issues we raise are grouped under three headings: (i) The approach, (ii) experiences with recent schemes: failures and successes, and (iii) a quick look at the draft bill.

The Approach

Out of the nine terms of reference (TOR) given to the NCEUS, only the last refers to the social security system, requiring the commission “to review the social security system available for labour in the informal sector, and make recommendations for expanding their coverage”. The other eight TORs are about promoting growth, higher productivity and improved competitiveness of the unorganised enterprises. The TORs do seem to recognise that the social security system in the unorganised sector needs the foundation of viable and growing enterprises. The commission, however, seems to have chosen to pay no attention to this link, as its first report is on the social security system rather than on the deteriorating conditions of the enterprises in the unorganised sector and their uncertain prospects. It also needs to be pointed out that there are two other preconditions necessary for an effective system of social security in the unorganised sector. The wide range of poverty alleviation programmes have a potential to make a substantive impact on the deprivations suffered by the unorganised workers which has yet to be fully realised. The social security system needs to supplement rather than be a substitute for these programmes. More important, the macro policies tilting towards liberalisation and globalisation to raise growth rates have adverse implications for all marginalised groups. Thus, in our view, the cart of a social security system needs three galloping horses to take it to the destination of a deprivationfree unorganised worker: viable enterprises, successful poverty alleviation programmes and congenial macro policies. None of these horses is in sight, which explains the title.

Now a word about the cart itself. Two points need to be highlighted. The commission keeps its sights fixed on an ambitious objective that forms part of the national common minimum programme of the United Progressive Alliance (UPA) government: “to enhance the welfare and well-being of farmers, farm labour and workers, particularly those in the unorganised sector and assure a secure future for their families in every respect” [NCEUS 2006: 1]. It also adopts an inclusive definition of unorganised workers: “Unorganised workers are all those who future for their families in every respect”, substantial sections of organised workers will be included in the unorganised group. Trade unions seem to be losing their clout and reforms of labour laws may deal a further hefty blow to them. Interestingly, TOR 8 asks the commission to “review Indian labour laws, consistent with labour rights, and with the requirements of expanding growth of industry and services, particularly in the informal sector, and improving productivity and competitiveness” (ibid p 2). The report has little if nothing of substance on this either. Thus, the cart being crafted by the Commission appears to resemble the grand version like the raths celebrating Bharatiya Janata Party yatras rather than the simple functional types seen in villages!

Populism can seriously distort wellintentioned programmes like social security schemes. The risk is all the more in the unorganised sector with marked internal heterogeneity in several respects. Regarding it as one sector is a misnomer since it constitutes a wide range from marginal farms to cyber cafes and ‘paanwalas’. The workers range from construction workers with good potential for getting organised to rag-pickers! There is even an interesting case of domestic workers making efforts to get organised with employers too dispersed to get together for any collective action. The schemes proposed, the financing procedures and the quantum of benefits need to fit the specifics of the diverse groups. The marginalised groups like the unorganised workers are far from easy to be identified, targeted and helped to receive the benefits of all the schemes intended for them as a package. It is difficult to make the planning and implementing personnel accountable to the intended beneficiaries of the scheme.

In a democratic polity like ours, programmes intended for marginalised sections do pass through an initial phase of being populist in nature. It is not always practicable to begin at the bottom of the ladder and deliver enough benefits to the neediest from the outset. A matter of concern in the Indian context is that the programmes in the field for decades still continue to suffer from the drawbacks of a populist approach. Here

Economic and Political Weekly August 12, 2006

are the findings of two recent studies: “Affirmative action policies that target broad social groups are not going to act as powerful tools of social justice – too many of the disadvantaged will be excluded in favour of the more privileged” [Somanathan 2006]. “The objective of providing cushion against the price fluctuations (by the policy of minimum support prices) has not been successful in most of the states. A large number of farmers are not aware and awareness is confined mostly to four-five states, and in particular, to the commercial crop belt” [Deshpande 2003].

Populism has also a positive side. With growing politicisation, populist schemes could motivate the marginalised to get organised and insist on receiving their rights and entitlements. While the pressures from the top encourage populism, the pressure from the bottom could work towards checking its drawbacks. The future is ambiguous but it would be prudent to highlight the tendencies towards populism lurking in schemes like social security for the unorganised workers before they damage these policies and seriously erode their credibility in the eyes of their intended beneficiaries.

The next section briefly reviews the experiences gained in the social security schemes implemented so far. The review is illustrative with the limited purpose of underlining the need for discussion on the risks of populism in the policy approaches to improve the conditions of unorganised workers. It is indeed heroic (populist?) for the Commission to devise legislation to cover the very large and diverse groups in our country (accounting for over 93 per cent of the workforce) which are in urgent need of social protection. The resources needed for bringing about substantial improvement in the conditions of these groups and effective institutional mechanisms and personnel required for this purpose, however, seem to be quite beyond what is feasible now and in the foreseeable future.

Failures and Successes

Various governments have introduced several protective schemes purporting to provide different forms of social security to the unorganised workers. The performance of these schemes has been mixed, but in general, they are all characterised by two features – low coverage and paltry amounts of benefits. Take, for instance, the National Social Security Scheme for the unorganised sector workers, introduced by the central government in 2004 as a pilot project to provide some social protection for 25 lakh unorganised workers in 50 selected districts in the country. It was for the first time that an overall social security scheme was based on mobilising some contributions from the workers. Different schedules of contributions were designed based on the age and employment status of the workers and the benefits to be provided were old-age pensions, life insurance, health insurance and hospitalisation cover. It is now two years since the scheme was introduced and little has transpired in this period. The most severe criticism of this scheme, perhaps, was that it was introduced in a hurry and not pursued with a sense of urgency or commitment – which led many to believe that the entire introduction of the scheme was part of the election campaign of the then ruling coalition.

There has been little data on districts where the project was piloted, the total number of workers covered, growth in the number of workers, the amount of contributions mobilised, the extent of benefits provided, etc. Gupta and Trivedi (2004) mention that less than 10,000 workers were enrolled in the scheme, while the NCEUS report mentions that the current enrolment stands at only 3,500 workers, and that the scheme is virtually closed as it has no statutory backing, is voluntary in nature and no contribution from the employers is forthcoming [NCEUS 2006:29].

The Universal Health Insurance Scheme (UHIS), launched by the central government in July 2003, was expected to address a significant challenge facing the Indian health policy system – that of extending health insurance across all sections of the population. The UHIS hoped to convert the predominantly private out-of-pocket spending on health into a health insurance premium, whereby the same amount is collected from a much larger group of insured individuals rather than from the limited number of households affected by illness. In its initial design, the UHIS was “universal” as it was intended to cover all low income households willing to join the scheme. The coverage (one crore persons in 2005-06) is barely a significant proportion of the 37 crore unorganised workers in the country. Further, despite subsidising the BPL households, the coverage of these households in the first year was negligible. At the beginning of the second year, the UHIS was revised – restricting focus on only the BPL households. This effectively excluded a significant proportion of the unorganised sector – negating the “universality” of the scheme.

Where the government has failed is in acknowledging that health insurance per se is just a financing mechanism and does not in any way ensure that health services are delivered efficiently and effectively [Ahuja 2004]. In fact, the supplyside factors that characterise the public health system are so unattractive that any insurance scheme that has to ultimately fall back on this system for healthcare has little chance of succeeding. The claims ratio has also been very low. This is a typical example of putting the cart ahead of a non-existent horse – expanding insurance services without considering the availability of medical services or the lack thereof.

The Janashree Bhima Yojana (JBY), a contributory scheme, provides life insurance to unorganised sector households, restricts its focus on BPL households and those marginally APL. Although the coverage under this scheme has been increasing – from 2.15 lakh workers in 2000-01 to 63.41 lakh workers in 2005-06, this is still a very small percentage of the entire unorganised sector workforce. However, some of the positive features of the JBY are the free scholarships to the children of the subscribers and the enrolment of members through non-government organisations (NGOs), self-help groups (SHGs) and other community-based organisations. Further, the membership renewal rate has been above 60 per cent since the beginning, which is much higher than that of most social insurance schemes.

Some state level initiatives such as the Kerala Welfare Funds Scheme have been quite successful in extending social security to the unorganised workers. Currently, there are 23 welfare boards for different occupational groups in the unorganised sector, which mobilise contributions from the workers, employers and the state government. A range of benefits including pensions, provident funds, disability and accident cover, unemployment relief, etc, are provided and the total coverage varies across the sectors. In 2000, it was around 54 per cent of the unorganised workers – which is a much better performance when compared to the central schemes. Another highly successful state-level initiative is

Economic and Political Weekly August 12, 2006 the Yeshaswini Health Insurance Scheme (YHIS), introduced by the Karnataka government in 2002. This scheme is based on a public-private partnership (PPP) and is open to all agricultural labourers and small and marginal farmers in the state. Members are enrolled through the involvement of cooperative societies, which is one of the reasons for the phenomenal coverage of workers over the past three years. In 2005-06, over 14 lakh workers in Karnataka have been covered under the scheme [ILO 2006].

The brief review in this section is not exhaustive but merely illustrative, both of the range of social security schemes that are already available to the unorganised workers, and of their performance. It points out the importance of taking cognisance of the magnitude of complexities involved in extending social security to the unorganised workers before introducing the schemes. In the following section, we look at the draft of the Unorganised Sector Social Security Bill brought out by the NCEUS.

The Draft Bill

The features of the draft bill are a modified and improved version of the pilot scheme that was launched in 2004. Yet, the draft bill has a few grey areas, which need to be discussed. The following would focus only on the identification and implementation issues.

First, a major issue relating to the identification of workers is the categorisation along BPL and APL norms. Going by the past experience of similar schemes, two issues become significant; first, targeting, and second, the problem of exclusion of the most deserving ones in favour of the less deserving ones. The experience of past schemes discussed in the last section shows that whenever the BPL criterion was adopted the coverage tended to be less. The main reason for this is that, in the context of voluntary enrolment, the BPL households being vulnerable, isolated and powerless, have chosen to “exit” from the schemes; a point that NCEUS should take good note of.

The second issue relates to the contribution exemption given to the BPL category. The contribution exemption can be justified on the grounds of equity and rights. But, a viewpoint is that this category of households should contribute some amount of money in orderto have better ownership, downward accountability and better social inclusion. While this viewpoint has some merit, an equally strong point is whether we expect the poor workers to pay for future benefits, healthcare, etc, since it is the responsibility of the society to take care of them in providing old-age benefits and healthcare.

In view of the above, as well as problems relating to targeting, the best option is perhaps to extend social assistance to the BPL households. This point may be elaborated with the help of findings of the study by Rajasekhar etal (2005). The study found a great deal of heterogeneity in the unorganised sector workers in their social security needs and willingness to contribute. While some poor unrganised sector workers (belonging to female headed households, landless labourers, etc) did not even express a preference for social security, others assigned the first priority to protection against unemployment. These workers also stated that they could not contribute to social security benefits, not only because of poverty but also because they faced severe deprivations [Rao, Rajasekhar and Suchitra 2006]. This implies that for those poor households, social security benefits visualised in the draft bill are of secondary importance as compared to employment and income security. Under these circumstances, BPL households may “exit” from the social security schemes as envisaged by the bill.

The third issue relates to the need to introduce diversification in the contribution amounts and benefits package to address the problems of targeting as well as diversified needs of workers in the sector. Rajasekhar et al (2005) show that considerable variation in the amounts that the workers were willing to contribute for social security not only across the occupational categories but also within one occupation. This implies that the benefit package that they expect would also be different. One suggestion, therefore, is to introduce two types of contribution amounts and benefit packages. The first package, meant for the workers who are better off among the poor and just above BPL category, can consist of lower contributions and a lower level of benefit package. The second package, meant for those who are substantially better off than BPL households, can consist of higher contributions and a higher level of benefit package. This is expected to be better than the arrangement visualised in the draft bill on the following grounds. First, targeting becomes less difficult as the households covered under the second category do not have an incentive to clamour for benefits meant for either BPL households or the first category of households. Second, this takes care of the diverse capacities of unorganised workers in the contributions and social security needs. Third, with progress in organising the workers, provision of awareness and education, even the very poor workers will be in a position to contribute to and participate in the social security scheme.

The last issue relates to the institutional mechanism for identification of workers and the provision of benefits. The draft bill proposes worker facilitation centres and also suggests that these should consist of representatives of workers, employers and civil society organisations. The findings of Rajasekhar et al (2005) suggest that a decentralised registration mechanism is needed. With decentralisation one would expect that with a reduction in the distance between the worker and the registration mechanism, costs on account of information on identification of workers, ascertaining social security risks and payment of benefits will come down. Hence, the lowest level of registration mechanism should be at the level of gram panchayat.

At the same time, there must be another institution below the gram panchayat to represent the interests of unorganised sector workers. In this regard, formation of new and/or utilisation of existing SHGs is an important step. Groups of unorganised workers in SHGs as the first layer in the registration mechanism will help in keeping transaction costs at the minimum. These groups have a good understanding of the situation and needs of workers, represent their interests and secure the same. There should also be the involvement of panchayat raj institutions and NGOs in this.

There can be a sub-committee for the unorganised workers in every gram panchayat or municipality. In Karnataka, for instance, Section 61A provides scope for the formation of such a sub-committee, and also flexibility in terms of membership, functions, etc. The members of the sub-committee should be from SHGs of unorganised workers and their functions should relate to the registration of workers, enabling them to make contributions, ascertaining and settling the claims. Representation from government and civil society institutions is needed for

Economic and Political Weekly August 12, 2006

transparency and accountability in the registration and settling of claims conveniently and quickly.


It is high time the unorganised workforce in the country is brought under some form of social protection, and the NCEUS report is an important step in that direction. We have argued that although the bill is timely, its focus is largely on the design and implementation principles of the social security scheme, while largely ignoring the fact that a facilitative environment is imperative in order to make a success of such a scheme. This environment comprises of macro-policies not compromising development in favour of high growth, ensuring the viability of unorganised enterprises and ensuring that the basic entitlements of all households in the country are met adequately. In the absence of such an environment currently, the mere implementation of a social security scheme may do little good to the intended beneficiaries, which has been demonstrated in the case of earlier schemes as well. Finally, some drawbacks relating to identification and implementation have been pointed out and some suggestions in this regard have been made.




Ahuja, Rajeev (2004): ‘Health Insurance for the Poor’, Economic and Political Weekly, July 10.

Deshpande, R S (2003):Impact of Minimum Support Prices on Agricultural Economy, ISEC, Bangalore.

Gupta, Indrani and Mayur Trivedi (2004): ‘Social Health Insurance Redefined: Health for All through Coverage for All’, Institute for Economic Growth, New Delhi.

ILO (2006): ‘India: Analysis of Yeshaswini Health Micro-insurance Scheme’, International Labour Organisation Sub-Regional Office for South Asia, New Delhi.

NCEUS (2006): Report on the Unorganised Sector, National Commission for Enterprises in the Unorganised Sector.

Rao, V M, D Rajasekhar and J Y Suchitra (2006): ‘Unorganised Workers: Deprivations, Social Security and Policy Implications’, Economic and Political Weekly, May 13.

Rajasekhar, D, G K Karanth, S Madheswaran and J Y Suchitra (2005): Design and Management of Social Security Benefits for the Unorganised Sector Workers in Karnataka, ISEC, Bangalore.

Somanathan, Rohini (2006): ‘Assumptions and Arithmetic of Caste-based Reservations’, Economic and Political Weekly, June 17.

Economic and Political Weekly August 12, 2006

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