In Retrospect

Missing from the mainframe

NDUW and MPI are two frameworks that promise comprehensive policy formulation and implementation around the ‘invisible’ masses of India; implementing both is fraught with challenges

Missing from the mainframe

India had a forgettable spring last year — forcing millions to take to the streets to head back to their homes, barefoot, as the passenger trains wouldn't run, and the buses wouldn't cross borders either. They realised collectively, perhaps for the first time, that they don't belong to the cities they had flocked to for pursuing their aspirations, for meeting the basic needs of their families. They don't belong to their villages either which would not provide them enough social security to sustain their families, to teach their children and to avail treatment for their ill family members. Unfortunately, many of them died walking, neither in the town nor in their villages, but on the streets!

They've left behind a pestering question — where did they belong? We have no concrete answers because their very existence had been undocumented. Theirs had been a life of unbelonging. India's notorious migrant crisis has shown the country a mirror that reflects the reality that could pierce the heart of the coldest of human beings. It is against this gloomy background that the Supreme Court had nudged the Central government to accelerate the work on building a national database of unorganized workers that would serve as the base for providing sort of recognition to the hitherto 'invisible' working class. The government eventually came with a database aimed at facilitating social security schemes for the unorganised worker, as also providing a base for policy formulation and monitoring.

In another important development, the government has designed a national multidimensional poverty index on the lines of International MPI, but with localised traits. Both the initiatives are landmark in themselves, and have overlapping elements of aiding policy formulation around poverty alleviation.

In this article, we shall delve into the nitty-gritty of the two initiatives, majorly the NDUW, and retrospect to what extent these could help the unorganised sector workers. We shall also look into the challenges that could block the progress.

The informal sector

The unorganised sector comprises legal activities that are hidden from the sight of the government but add to the GDP of the nation. The Code on Social Security, 2019 defined an unorganized sector worker as "a home-based worker, self-employed worker or a wage worker in the unorganised sector and includes a worker in the organised sector who is not covered by the Industrial Disputes Act, 1947."

As per an International Labor Organization Report, 61 per cent of the total global workforce is employed in the informal sector. Developing nations, in particular, are characterised by a higher percentage of informality which coincides with dismal performance on basic parameters of health, education, sanitation, living conditions etc. The percentage of informality, as per ILO, in Africa is 85.8 per cent; Asia and the Pacific (68.2 per cent); Arab States (68.6 per cent); Americas (40 per cent) and Europe and Central Asia (25.1 per cent). For India, the SBI recently estimated the size of its informal workforce at a humongous 93 per cent.

The strength of the Indian economy depends on the health of its informal sector because the majority of the population operates within it. However, the darkness and the gloom of this sector casts a dull shadow on the overall outlook and integrity of the nation. Despite the tall claims of being the fastest growing economy, the blot remains — the potential of the dedicated labour of around 45 crore Indians is ill-utilized, well below the optimum levels. How much below? We have no idea because we don't have enough data.

Further, this large-sized unorganized sector of India comprises the people who are the main service providers of the nation — from rickshaw pullers to farm producers and from gig workers to doctors. Also, this undocumented sector forms the largest chunk of consumers in the nation — how much they consume, how much they save and how much they invest defines the trajectory of national development. Their interest is national interest, and their neglect is the neglect of the nation.

Formalisation of the economy

One wonders why India has such a large percentage of informality. What stops the firms and labourers from being a part of the formal economy? And why the governments have failed to date in bringing greater formality in the economy? To answer these questions, we take a sneak peek into the two narratives of formalization — one from the government's standpoint, the other from the workers' point of view.

For the government, formalization could mean greater control and oversight of the economy, greater revenue collections and more data to devise policies for the welfare of the unorganized workers. For a worker, formalization could mean a greater social security net, secure employment and welfare support. Formalization in a real sense will have to yield outcomes that are consistent with both the standpoints.

Given the low control that workers have over the market, India's formalization path appears to be dictated largely by the government's perspective. Two major aspects of the formal economy are: 1) Workers are registered and fall under the tax net; and 2) Every single monetary transaction of the firms directly or indirectly involves the Central bank — this can be approximated to cashless transactions. In view of these aspects, GST roll-out and demonetization remain the earlier major steps of the current ruling dispensation towards the formalization of the economy. GST, in particular, offers disincentives to the informal firms for remaining out of the government's tax net and regulation. The impacts of these reform measures are widely debated. The astounding figures of informality, even years after the rollout of these schemes, indicate that a lot more is to be done on this front.

Apart from these disincentive-led (against informal sector) reform measures, certain incentive-led (towards formal sector) schemes have also been launched. The Government's EPFO scheme is a case in point. Under the scheme, the government incentivizes EPFO-registered firms to hire workers with social security entitlements.

For the formalization to take place in the real sense, workers and firms will have to be persuaded through communication and action to shift towards the formal economy. One of the reasons behind the phenomenal size of the informal sector is the cumbersome and unaffordable structure of the registered domain. Unless and until a favourable environment is created, extensive formalization will remain a distant dream.

It is in this light that the creation of NDUW should be seen. The success of the initiative will depend on whether it is perceived by the government as a tool of revenue collection and oversight or for devising data-based transformative social policies in the long term.

Confluence of NDUW and MPI

India has seen two developments this year that not just show a ray of hope but also have a huge potential towards enabling the implementation of schemes and policies for the poor and the deprived. The two developments are — realization of the National Database for Unorganized Workers (NDUW) and the conceptualization of the Multidimensional Poverty Index (MPI).

Following the recommendation of the Standing Committee on Labor — chaired by Bhartruhari Mahtab — the Ministry of Labor and Employment (MOLE), in collaboration with the National Informatics Centre, came up with the National Database of Unorganized Workers (NDUW) on August 26, 2021, with an estimated cost of Rs 704 crores. The database is aimed at providing social security to the workers of unorganized sectors — though it lacks details regarding the nature and extent of social security assistance to be provided. It allows the workers of the unorganized sector to register themselves on the database through an electronic portal called e-Shram. Alternatively, workers can also seek assistance from Common Service Centers and State Seva Kendra to complete their registration 'free of cost'. The biggest advantage of NDUW is its potential to serve as a base for policymaking around the sector

Complementary to this could be the formulation of the Multidimensional Poverty Index. Poverty was measured across the world in terms of the Human Poverty Index until 2010. In 2010, Sabina Alkire and James Foster made a major breakthrough by designing a brand-new indicator — Multidimensional Poverty Index (MPI) — which was adopted by the United Nations Development Programme (UNDP) in its Human Development Report as a replacement for its Human Poverty Index.

The new index has gone a long distance in enhancing our understanding of poverty, in the form we conceptualize it today. In simplest terms, while the Human Poverty Index gauged poverty in terms of the monetary income of the families, MPI expanded the ambit by incorporating other dimensions of poverty that were so far overlooked. India has been faring quite badly on this parameter over the past few years.

And now the government has come out with its National MPI which will be tailored to the national priorities. National Multidimensional Poverty Index is believed to foster policy formulation and targeted interventions in the context of 'intra-country or intra-region heterogeneity in development'.

If utilised properly, the two initiatives could potentially transform the entire social and economic structure of the country in an unprecedented manner.

Challenges in creating the database

The National Database for Unorganized Workers (NDUW) is indeed a positive step in the right direction, but how transformative it would be will depend on how far the governments will go in fixing the loopholes left by the process.

As per the available data, the total number of informal workers in India may be between 43 to 45 crores — because the estimates given by different agencies differ a great deal. It has to be understood that these estimates pertain to the period before the pandemic and may not reflect the reality of the post-pandemic world. While the Ministry of Road and Transport estimated that 10.6 million migrant workers returned from cities to their homes after the lockdown, the RBI put the numbers at 40 million. These are official data and are widely criticized for being underestimations. Further, the upper age limit of 59 years leaves out a significant number of workers in the unorganized sector. Essentially, the NDUW target of 38 crore registrations may still be excluding a large number of people — an exclusion within an exclusion.

Apart from this direct exclusion, many of the intended beneficiaries will find themselves left out on certain counts:

1) The digital conundrum: As India marches ahead on the path of development, digital is its favoured route, the criticality of which cannot be contested, of course. But the e-word may not sound very attractive to millions. As reported by Internet Freedom Foundation, a 2017-18 NSO survey found that only 18.4 per cent of persons aged 15 and above were able to operate a computer, while only 22.9 per cent were able to use the internet. This brings the very proposed tool of change — e-Shram — into question.

Indiaspend reported that over 80 per cent of registrations were assisted registrations made in CSCs and State Seva Kendras, and just 19 per cent through self-registration by November 25. This reflects the deep digital divide within the country. Apart from digital literacy, internet speed and penetration also remain key issues.

The digital India is the reality we aspire for and the India with digital divide is the reality we are living in. In the implementation of NDUW, the government may require some real legwork in not just incorporating local facilitation centers but also strengthening them to serve the purpose. If need be, the government must express the willingness to reach at the doorsteps of each informal sector worker — to provide them the recognition they have been kept bereft of to date.

2) Aadhar-seeding: The Aadhar seeding of the NDUW may be problematic on several counts. The apparent objective of the government is to simplify the process of registration but the consequences might just be the contrary.

Aadhar authentication for various programmes like Public Distribution System, MNREGA etc. has been far from satisfactory. Aadhar in itself was a mammoth biometric system, and inconsistencies in such a system are quite common. There have been reports of denial of benefits on account of biometric authentication failures. Ajay Bhushan Pandey, ex-CEO of UIDAI, noted that authentication failure for government services was as high as 12 per cent.

In the Justice KS Puttaswamy vs Union of India case, the Supreme Court had held that Aadhar linkage can be demanded only in the cases where the benefit is provided from the Consolidated Fund of India. In the case of providing social security benefits under the NDUW, many of the schemes may fall out of the ambit of the Consolidated Fund of India. This raises critical questions around the constitutionality of the Aadhaar-based authentication for the database.

Furthermore, on the ground, there are seemingly smaller problems like losing the Aadhar-seeded mobile number, losing the Aadhar itself, errors in details on the Aadhar cards, slight change of fingerprints of the manual laborers in villages etc. It would be a blunder to roll out such a transformative policy action without taking into small or big hurdles that may prove out to be spoilers.

3) Data security: Data security should be the central part of discourse while planning a database of such extensive scale. Policymakers cannot keep the issue on the sideline and come back to it when the problem gets bigger. At present India lacks a full-fledged data protection policy. This might present a window for the loopholes to creep in.

The creation and implementation of the NDUW will involve the transaction of data between various tiers of the government, particularly between the Central and the state governments. Data security arrangements at both levels must be taken care of at both levels.

Database of the unorganized sector was pending for a long time. Now that it has come into existence, the opportunity of transforming India's informal economy should not be lost.

Views expressed are personal

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