Formalizing social security for the informal sector – Community News
Social Security

Formalizing social security for the informal sector

During the budget speech, the finance minister spoke about the 20-year process of implementing the labor codes in India. These codes passed by the Lok Sabha last year include the extension of workers’ insurance (ESI) and other social security mechanisms for workers in the gig economy.

This is a welcome step and successful implementation of these measures would reduce the vulnerability of these workers and provide a safety net to absorb financial shocks. India was one of the first countries to roll out a major social security program at a very early stage of development, with the adoption of the Employees’ State Insurance Act in 1948 and the Employees’ Provident Fund Act in 1952. These programs focus on to cover millions of factory workers in the major industrial centers and provide them with various benefits in the event of health and income shocks. While there have been social security schemes targeting the unorganized sector over the past decade, it is only now that there has been a consolidated policy effort to address the social security gaps for the unorganized sector.

India has witnessed a steady informalization of the formal workforce in the manufacturing and service sectors, underlined by the growth of the gig economy. While this informalization has provided additional income-generating opportunities, the informality in the scheme has led to employment that is increasingly characterized by insecurity.

Less than half of workers in the informal sector have access to some form of risk protection, such as life insurance, health insurance and pensions. The Social Security Code provides, among other things, provisions for the Provision Fund, tips, employee insurance and maternity benefits for employees in the organized sector. The provisions for employees in the organized sector can be contrasted with the lack of clarity about provisions for unorganized employees – the Code provides little guidance on minimum floors or the composition or adequacy of these benefits.

The Treasury Secretary highlighted plans to launch a common portal that will be used to collect information about disorganized workers in the sector, and use it to “use health, housing, skills, insurance, credit and formulate food schemes for migrant workers.”

While the additional benefits these schemes provide to workers in the unorganized sector would help, there is a need to formalize and standardize minimum provisions for unorganized workers, similar to those for formal industry workers in the Social Security Code. The COVID-19 crisis has taught us the importance of building safety nets and it is important to learn from the experiences of the past year and formulate robust social security mechanisms for the disorganized sector in India. While extending ESI and other social benefits to handymen is a welcome step, there is still a long way to go.

(The author is Head of Social Protection Initiative & Head of Research Analytics, Dvara Research)