Monday, 20 August 2012

Definitions of Unorganized Sector

Extracts from: Report of the Committee on Unorganised Sector Statistics, National Statistics Commission, GoI, February 2012.

Unorganised or informal sector constitutes a pivotal part of the Indian economy. More than 90 per cent of workforce and about 50 per cent of the national product are accounted for by the informal economy.

The terms "unorganized" and "informal" sectors are often used interchangeably. The informal sector may be broadly characterized as consisting of units engaged in the production of goods or services with the primary objective of generating employment and incomes to the persons concerned (ILO, 1993). These units typically operate at a low level of organization, with little or no division between labour and capital as factors of production and on a small scale. Labour relations - where they exist - are based mostly on casual employment, kinship or personal and social relations rather than contractual arrangements with formal

The National Commission on Enterprises in Unorganized Sector's definitions of informal sector are as follows:

Informal Sector: “The unorganized 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”. [Unincorporated means not organized or maintained as a legal corporation].

Informal worker/employment: “Unorganized workers consist of those working in the unorganized 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”.

Informal economy: The informal sector and its workers plus the informal workers in the formal sector constitute the informal economy.

The Commission considered all agricultural activities undertaken on agricultural holdings, either individually or in partnership, as being in the unorganised sector. According to this definition, it excludes only the plantation sector and other types of organised agriculture (e.g. corporate or cooperative farming) and covers a very large part of agriculture.

It is increasingly realized that “lack of reliable statistics on the size, distribution and economic contribution of the sector. . . has been a major constraint in providing a realistic understanding of the significance of the Indian economy, leading to its neglect in development planning.“ (NCEUS 2008, P.64). Under the changed circumstances where informal sector is increasingly interlinked with the formal, and plays pervasive role in the economy and in the livelihoods of the people, it is imperative to improve the information base of the sector. Moreover, the development of unorganized sector has a potent role in the "inclusive growth" in the current paradigm of planning.

There are a number of gaps in the statistics on enterprises and employment in informal sector in India. The Committee noted that the data gaps emanate from the divergence of the existing data collection mechanism relating to concepts, definitions and coverage required for an effective data system conforming to the ILO frame work.

The four current practices that undermine the quality and credibility of India"s database are:

i. Reduction of the number of sanctioned posts of the NSSO field investigators and their immediate supervisors, and filling up the vacancies with inexperienced contract workers. There are serious doubts about the capacity of contract investigators to conduct surveys like the one on unorganized enterprises. The situation has turned more complex with the Supreme Court effectively banning engagement of school teachers as Economic Census enumerators. There exists no longer a designated permanent cadre at the operational base of the Economic Census.

ii. Reductions in sample size along with deficient sample frame resulting in unacceptably large standard errors. The reduced sample size because of restriction on the recruitment of additional qualified field workers seriously compromised the quality of the Annual Survey of Industries.

iii. Unacceptably large revisions (like for instance, the Index of Industrial Production-IIP) that not only damage the public credibility but also diminish their utility for making official policy decisions.

iv. Failure to initiate surveys that would provide the basic source data required for National Accounts Statistics that has led to the adoption of excessively round about procedures making the estimates highly suspect.


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