Can 'formal tag' benefit the unorganized sector?

Mumbai: Even as it is clearly evident that the formalization of the Indian economy measured in terms of GVA is progressing at a rapid pace, the formalization of informal employment may have just picked up the gauntlet after the launch of E-Shram portal. It is now estimated that around 28 per cent of the unorganized sector labourers have registered on the website, with West Bengal, Uttar Pradesh, Bihar, Odisha and Jharkhand accounting for close to 70 per cent, says an internal economic research of SBI.

It may be noted that after registration at e-Shram Portal, the unorganised workers shall receive a digital e-Shram card, a universal account number that will be acceptable across the country and they will not be required to register at different places for obtaining social security benefits. Further, Government also plans to link the National Database for Unorganised Workers under the e-Shram portal with Unnati, a proposed job matching portal.

Given that e-Shram portal is a real time employment portal for registration of informal workers, it begets the question of how such data on informal employment could be juxtaposed with employment surveys like PLFS and CMIE survey. This will also help us understand whether any fundamental change is also required in the definition of informal employment in India. In India, informal employment is defined as someone who is not eligible for at least one social security benefit among Provident Fund (PF), Pension, Gratuity, Health Care Benefit or Maternity Benefit. Formal Employment on the other hand is one who gets at least one social security benefit.

To understand the linkage of real time e-Shram portal with PLFS and CMIE survey, SBI research team looked at the state-wise registrations of e-Shram portal and mapped it with the unemployment rate and state-wise number of workers who are not in a job but are unwilling to work, as per CMIE. It is logical to hypothesize that if the number of registrations at e-Shram portal is significantly large in a State, it would ideally imply people are willing to register on the job portal as either they may not be gainfully employed or they are eager to get the benefits of social security or both.

This would thus imply that the State will ideally have a low unemployment rate, if we take the example of Gujarat, Karnataka or even Telangana as the base case, where the e-Shram registrations and unemployment rate are positively related.

However, when it mapped the registrations with the unemployment rate across states, it threw up contrasting results, that require a detailed explanation

Firstly, in states like West Bengal and Odisha that are witnessing the maximum e-Shram registrations, the unemployment rate is significantly low, contrary to what it was hypothesized.

"We believe this could again imply that an informal labour force necessarily does not imply a higher unemployment, or the formalization of informal labour force is continuing at a satisfactory pace or people are not willing to work in formal employment as they may be already the beneficiaries of a guaranteed largesse of benefits or the wages are not rewarding," says Soumya Kanti Ghosh, SBI Group's Chief Economic Advisor.

West Bengal and even Odisha have already introduced universal/limited income guarantees that may have resulted in such. Interestingly, in US recently, there is news that there is not enough truck drivers possibly because of the same reason. Bihar, Uttar Pradesh and Jharkhand the other three states topping the e-Shram portal shows the trend, with Uttar Pradesh adding to the labour force and Bihar and Jharkhand witnessing a high unemployment rate, as we had hypothesized, he added. However, states like Maharashtra, Andhra Pradesh and Gujarat have also witnessed a significant percentage of labour force not willing to work. This might indicate that the migrant labourers are yet to come back in full steam into these states.

"Given these contrasting trends in Indian labour market, we now strongly recommend to look at the existing definitions of informal labour force, specifically after the pandemic. While it is easy to criticise any data that shows a faster than expected formalisation as a figment of imagination and term it as politically motivated as the existing debate in public domain shows, it is now high time we come up with recommendations for improving the conditions of our labour force. In this context, the e-Shram data that is portable across states could just be the beginning of such a process," he added.