Daily Hot Topic

Topic : India’s Workforce: A Move Towards Formality

GS-3 Mains : Economy 

Revision Notes

A Formal Future

• Indian Staffing Federation (ISF) unveils “India@Work: Vision Next Decade” for workforce formalization.
• Aiming to formalize the massive informal workforce – over 400 million.
• Organized staffing companies seen as key contributors.

Why Formalization Matters

• Pandemic exposed the vulnerability of the informal sector (less than 15% with social security).
• Formalization promises better working conditions and social security benefits.

ISF’s Focus Areas

• Expanding social security coverage.
• Increasing take-home pay for workers.
• Smooth implementation of new labor codes.

Key Recommendations

• Removing employment bottlenecks.
• Faster rollout of the four labor codes.
• Policy changes and incentives for formalization.
• Lowering GST for staffing services (5% with ICT benefits instead of 18%).
• Linking skill development to employment opportunities.

About ISF (Established in 2011)

• Promotes benefits of flexible staffing solutions.
• Advocates for a conducive regulatory environment.
• Maintains ethical and professional standards within the industry.
• Conducts research on the staffing industry’s growth and challenges.

Formal vs. Informal Sector

• Formal: Written contracts, defined working conditions, legal and social awareness of rights.
• Informal: Unincorporated private enterprises, often family-owned, operating outside formal regulations.

A Dominant Yet Unorganized Force

• India’s informal sector: A vast majority, employing nearly 85% of the workforce.
• Generates more than half of the country’s GDP, highlighting its significance.
• Composition: Socially and economically underprivileged sections of society.

Challenges of Informality

• Impact on Women:
  • Majority of informal workers, yet face lower wages, income volatility, and lack of social security.
  • Female labor force participation at a low 21.2% (March 2021).
• Low Wages and Exploitation:
  • No written contracts, paid leave, or minimum wage protections.
  • Long working hours exceeding labor standards are common.
• Lack of Social Security:
  • No healthcare, pensions, or unemployment insurance.
  • Vulnerable to economic shocks and health crises.
• Limited Access to Finance:
  • Difficulty obtaining loans and credit to grow businesses or improve living standards.
• Poor Quality of Life:
  • Unorganized sector workers more likely to be poor.
  • Low salaries and health problems lead to poor nutrition intake.
• Tax Evasion:
  • Informal firms often evade taxes, depriving the government of revenue.
• Lack of Data for Policymaking:
  • Absence of reliable data hinders effective policy formulation.

Way Forward: Towards Formalization

• Relaxing Restrictions:
  • Make it easier for informal businesses to become formal.
  • Self-help groups can empower informal workers and address work condition concerns.
• Comprehensive Data Collection:
  • Build a robust statistical base on the informal economy for informed policy decisions.
• Grievance Redressal Mechanism:
  • Establish a transparent and official system to address informal worker grievances.
• Enforcing Equal Pay:
  • Implement and strengthen laws ensuring equal pay for equal work (Article 39(d) of the Constitution).

Conclusion: A Call to Action

• The plight of informal workers demands urgent attention.
• Income inequality and poverty necessitate a structural shift towards formalization.
• Formalization is essential for equitable opportunities and sustainable livelihoods for all.

Source :https://www.thehindu.com/business/indias-over-400-mn-informal-labour-market-requires-a-structural-shift-isf/article68211459.ece