Unorganised Sector


Unorganised Sector

Date: 10 Aug 2015
Dr. Saikat Sinha Roy , Professor at Department of Economics at Jadavpur University, Kolkata


During the Workshop on ‘Unorganised Sector’ held under the auspices of Speaker’s Research Initiative (SRI) on 10 August, 2015 in the BPST Main Lecture Hall, Parliament Library Building, Dr. Saikat Sinha Roy, Professor at Department of Economics at Jadavpur University, Kolkata briefed the Members of Parliament on the current scenario of Unorganised Sector in India.

While introducing the subject, Dr. Roy stated that Unorganised Sector has assumed extreme importance in the context of globalization as this is one such sector which is not able to cope up with the globalization process.  The discussion which took place during the course of his presentation focused on the following issues-

  1. Definition of Unorganised Sector
  2. Definition of Informal Sector
  3. Characteristics of Unorganised Sector
  4. India’s Unorganised Sector
  5. Problems being faced by Unorganised Sector
  6. Government Schemes for Informal Sector
  7. What further needs to be done
  1. Definition of Unorganised Sector- In Indian context, the concept of unorganised sector lacks conceptual clarity and uniformity across the subsectors of the economy. The National Commission for Enterprises in the Unorganised Sector (NCEUS) report addressed this issue. The report defines ‘The unorganised sector consists of all unincorporated private enterprises owned by individuals or households engaged in the sale and production of goods and services operated on a proprietary or partnership basis and with less than ten total workers’. The Commission considers all agricultural activities undertaken on agricultural holdings, either individually or in partnership, as being in the unorganized sector. According to this definition, it excludes only the plantation sector and other types of organised agriculture (e.g. corporate or co-operative farming) and covers a very large part of agriculture.
  2. Definition of Informal Sector- The definition of Informal sector is given by the 15th International Conference of Labour Statisticians in 1993. This definition is based on certain characteristics, such as:
  1. So far as the legal status is concerned, the informal sector incorporates unincorporated enterprises belonging to the household institutional sector. It does not incorporate non-profit institutions.
  2. All economic units in the informal sector are unregistered units (though the criterion of non registration is not compulsory).
  3. Permanent employees are also unregistered.
  4. Size of the economic unit should be defined in terms of number of paid employees.
  5. Finally, at least some production has to be marketed.

According to T.S Papola (1980) following are the features most often observed as characteristics of the informal sector in various studies on the subject.

  1. Small size of operation: It is considered a necessary condition for including an enterprise in informal sector, because ‘smallness is usually accompanied by several other attributes which make such enterprises disadvantaged’.
  2. Informal structure and family ownership: Small size itself makes it possible to run an organization without structured division of labour and management hierarchy.
  3. Non-Modern technology: The informal sector units use labour intensive, pre-dominantly manual, low productivity techniques of production, as compared to capital-intensive, highly mechanised and high productivity ones used by the formal sector units.
  4. Lack of access to government favours: Facilities like organised capital market, bank finance, foreign technology, imported raw material, protection from foreign competition etc. are not available to informal sector.
  5. Competitive and unprotected product market: The producers of artwork and handicrafts in the informal sector operate in a market mostly devoid of any competition. The actual producers, viz. the workers do not get adequate share of benefits of the non-competitive market, as contractors and middlemen grab most of the surplus.
  6. Unprotected labour market: The labour market for the informal sector is unregulated and highly competitive on the supply side, with absolute freedom of entry unlike the formal sector with regulation and strict entry restriction on the basis of standard hiring norms.
  1. Characteristics of Unorganised Sector- From the definition of NCEUS, following characteristics of a unit in unorganised sector may be extracted.
  1. It is small in terms of employment;
  2. It is associated with low capital intensity;
  3. Labour productivity is low;
  4. Produces low priced goods and services in different modes of self-employment, unpaid family labour and wage work;
  5. An enterprise has no legal personality of its own (other than the person who owns it).
  6. Working condition in unorganised sector units is very poor;
  7. Excessive seasonality of employment is seen;
  8. Social security measures are absent;
  9. Often negation of social standard is seen;
  10. Workers have very poor human capital base in terms of education, skill and training  and thus they are immobile;
  11. Any effective legal action taken against any illegal activity in this sector is seen as a step of impairing;
  12. Workers are hugely scattered and not unionized;
  13. They are also socially stratified on the basis of caste and sub-castes (seen especially in rural areas).
  1. Additional Concepts on Unorganised Sector-
  • In India, unorganised sector consists of workers of micro, small and medium enterprises, unpaid family members, casual labourers, home based workers, migrant labourers, out of school youth, domestic workers, street vendors etc. The informal sector is heterogeneous in nature, covering all economic activities both in organised and unorganised sector in both the rural and urban areas.
  • The NCEUS provides definition for workers in unorganised sector:

‘The unorganised/informal workers consist of those working in the informal sector or households, excluding regular workers with social security benefits provided by the employers, and the workers in the formal sector without any employment and social security benefits provided by the employers.’

  • It is very important to distinguish between informal/unorganised sector and informal employment. In short, the set of unorganised/informal sector enterprises constitutes the informal sector, while the set of people whose employment can be characterized as informal, because of certain characteristics of their jobs, constitutes the set of workers in informal sector.
  • There are two approaches of defining informal/unorganised sector, viz. ‘enterprise approach’ and ‘labour approach’. In the former, characteristics of production units are taken into account to define the informal/unorganised sector. While latter defines the set of workers in the informal employment.
  • As per ‘Ministry of Labour and Employment’ definition : Unorganized sector means an enterprise owned by individuals or self-employed workers and engaged in the production or sale of goods or providing service of any kind whatsoever, and where the enterprise employs workers, the number of such workers is less than ten.
  1. India’s Unorganised Sector- As per certain studies pertaining to emerging market economies specially in developing countries, not relating to India, 70 to 80 per cent of our total employment is generated in the unorganised sector. According to the data of the National Commission for Enterprises in the Unorganised Sector (NCEUS), popularly known as the Arjun Sengupta Commission which submitted its report in 2007, 50 per cent of our India’s GDP comes from the unorganised sector in terms of activity, or in terms of characteristics. Further, In 1990s, India’s workforce comprised nearly 92 percent of unorganized workers, with almost the entire farm sector falling under the unorganised category, only one-fifth of the non-farm workers were in the organised segment (Sakthivel and Joddar, 2006). Around 52% of unorganised workers were engaged in agricultural and allied activities and they constitute almost 90% of the total labour force in 2006-07 (NCEUS, 2007).   

The followings are some statistics on unorganised sector in India-

  • The unorganised sector in India consists of workers in micro enterprises, unpaid family members, casual labourers, home based workers, migrant labourers, out of school youth, domestic workers, street vendors etc.
  • On the basis of 2004-05 NSS data, NCEUS has estimated that 15 per cent (67 million) of the country’s workforce is employed in the organised sector while the remaining 85 per cent (390 million) is in the unorganised sector.
  • As per the Economic Survey 2007-08, 93% of India’s workforce include the self employed and employed in unorganized sector.
  • As per the 66th round of NSS survey (2009-10), approximately 92.8 per cent of the total work force in 2009-10 constituted of informal workers. The sector is heterogeneous covering all economic activities both in organised and unorganised sector covering both the rural and urban areas
  1. Problems faced by the Unorganised Sector-

Firstly, identification of workers in the unorganised sector in India is not properly spelt out. Further, there is problem of estimation. India has an organised sector. But, a large part of the organised sector employment is in the informal sector. Entreprises hire labour to bring down the cost. There is a requirement to improve the skill in order to improve competiveness of products and not to reduce the labour cost.

  1. Government Schemes for Informal Sector

Jan Dhan Yojana, Atal Pension Yojana, Pradhan Mantri Suraksha Bima Yojana (PMSBY), Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), MUDRA Bank, Skill Development India are targeted for this sector.

  1. What further needs to be done

The first thing which needs to be addressed is access to finance. If the micro, medium, small, unregistered, unorganised, informal sector do not have access to finance, they can neither produce nor they can take the risk of producing or selling things in the market nor can they purchase inputs.

The second thing is providing infrastructure to the unorganised sector. Unless they are given common facilities in terms of cluster development, they cannot grow. Similar products can be brought under the same cluster. There are typical examples of good cluster development in India such as Tirupur Cluster and leather clusters in Kanpur. People working there need to be provided with working infrastructure apart from finance.Often these enterprises lack hygienic production spaces. Production cluster of small tools and engineering goods in Howrah District of Kolkata is almost dying because of lack of facilities. So, all kinds of modern marketing techniques are required.

Further, cluster development is not only about providing infrastructure, or having clusters for textiles, food processing, information technology, industrial estates etc., but also to have the supply chain. There should be infrastructure development for the entire supply chain development. It may not be able to produce the same thing under the same roof. For example, the Durgapur Steel Plant has fragmented production processes. So, core production is steel and other things are being outsourced. These outsourcings are done from clusters which have come from the satellite clusters which are around the Durgapur and Bhilai Production Units. What is required now is that these large enterprises which have contracted out should also help in cluster development of the ancillary units. The large Hyundai Firm in Chennai has actually led to cluster development of auto components all around Chennai.

In regard to small enterprises and unorganised sector enterprises, there is a paramount need to provide them with information on markets. If steps in this direction are not taken then their products would be restricted to the local markets only. These products would not find markets globally and during the time of globalisation, limiting ourselves to the local market is not the way out.If global market is our market, then these small enterprises should have access to marketing information, marketing capabilities etc. It may not be possible for these small enterprises to develop their own marketing enterprises.There can be one umbrella enterprise for all of them.

There is also a need for technology development fund and skill development fund because all these unorganised sectors lack technology and they work with traditional or often primitive technology. So, there should be technology upgradation and to work with the new technology there should be new kind of skills. So, skill development has to take priority.