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Policies and Programmes for Employment

The experience of the last 15 years has been that GDP growth has not been accompanied by a commensurate increase in employment. This article examines current policies and programmes for employment generation, along with an analysis of the trends and challenges. It also discusses direct employment programmes, including social security for unorganised workers.


Policies and Programmesfor Employment

The experience of the last 15 years has been that GDP growth has not been accompanied by a commensurate increase in employment. This article examines current policies and programmes for employment generation, along with an analysis of the trends and challenges. It also discusses direct employment programmes, including social security for unorganised workers.


mployment generation has come to occupy centre stage in our development planning as well as implementation. Expanding productive employment is central for sustained poverty reduction as labour is the main asset for a majority of the poor. Over time it has also been recognised that high growth does not necessarily create employment. Labour absorption depends more on the pattern of growth (i e, labour-intensive or capital-intensive).

The experience of the last one and a half decades in India showed that employment opportunities created were inadequate in spite of rapid growth. The general perception in the country is that although GDP growth has accelerated, it has not been accompanied by a commensurate increase in employment leading to a worsening in the employment situation in the post-reform period. These considerations have led to a demand for greater attention to the employment objective and improving their incomes [GoI 2001]. There is also a concern about youth and educated unemployment as it will lead to a waste of human resources and social tensions.

The employment generation strategy cannot be distinguished from the broader policy thrust for growth and structural changes in the economy as a whole [ibid]. Therefore, macro policies are equally important as compared to direct programmes for generating employment.

This article examines the policies and programmes for employment generation in India. It is organised in four sections. Section I presents trends and challenges in employment situation of the country while Section II briefly examines the macro and sectoral policies for employment generation. Section III discusses the direct employment programmes including social security for the unorganised workers. The last section presents concluding observations.

I Trends and Challengesin Employment

In this section, we examine the trends and challenges in employment situation in India. The emphasis is more on a comparison of the pre- and post-reform periods. Demographic change and employment: The changes in the age structure of the population would lead to a much faster growth of population in the working age group than the entire population. Projections show that the share of the working age population (15-59) is likely to increase from 58 per cent in 2001 to 63 per cent in 2011. This demographic change will provide challenges and opportunities for the Indian economy. Low employment growth in the 1990s: The total employment in the economy increased at an average growth rate of close to 2 per cent per annum between 1977-78 and 1983, at 1.5 per cent between 1983 and 1988, at 2.2 per cent during 1987-94 and at less than 1 per cent between 1993-94 and 1999-2000 [Vaidyanathan 2001]. Thus, the experience of the 1990s in employment creation is not very encouraging. Also, the decline in employment elasticity was sharp in the 1990s. The employment elasticity to GDP for the economy as a whole was 0.53 in the period 1977-83 and this declined to 0.41 in the period 1983-94. The elasticity declined sharply to 0.15 in the period 1993-2000.

There is no one-to-one relationship between growth and employment: At the all-India level, we have seen that in spite of high growth of more than 6 per cent of GDP, the employment growth was less than 1 per cent. At the state level, however, we can see different combinations. In the post-reform period, Andhra Pradesh, Goa, Himachal Pradesh and West Bengal recorded a low growth of employment in spite of high growth in gross state domestic product (GSDP) (see the table). On the other hand, Assam, Bihar, and Punjab recorded a reasonable growth in employment in spite of relatively low growth in GSDP. Orissa registered low growth in both GSDP and employment. One of the reasons for the low growth in overall employment was due to the low growth in agriculture employment in many states.

Decline in the growth of organised sector employment: The growth of organised sector employment declined from 1.20 per

Table: Growth in GSDP and Employment – States

(Per cent)

States GSDP Growth Employment Growth, Usual Status (Principal+ Subsidiary Status) 1983 1993-94 1983 1993-94 to to 1999-to to 19991993-94 2000 1993-94 2000


Pradesh 5.21 5.28 2.61 0.26 Assam 3.83 1.95 2.67 1.86 Bihar 3.43 4.60 1.35 1.97 Delhi 9.25 9.55 3.99 3.59 Goa 7.93 10.44 -0.34 -1.33 Gujarat 5.69 7.16 2.07 1.81 Haryana 8.73 5.67 2.79 1.18 Himachal

Pradesh 5.54 7.00 2.70 -0.03 Karnataka 6.52 8.05 2.39 0.79 Kerala 6.65 5.14 1.32 1.12 Madhya

Pradesh 6.45 4.93 2.14 1.09 Maharashtra 7.72 6.11 2.29 1.05 Orissa 3.95 3.53 2.01 0.75 Punjab 4.87 4.99 1.05 5.72 Rajasthan 7.37 8.43 2.57 2.38 Tamil Nadu 6.75 6.47 1.72 1.66 Uttar Pradesh 5.58 5.40 1.94 1.08 West Bengal 5.46 7.22 2.38 0.76 All-India 5.37 6.60 2.26 1.01

Source: Bhattacharya and Sakthivel (2003).

Economic and Political Weekly April 22, 2006 cent during 1983-94 to 0.53 per cent during 1994-2000. During the same period annual public sector employment growth declined from 1.52 per cent to –0.03 per cent while private sector employment increased from

0.45 per cent to 1.87 per cent. In the case of the manufacturing sector, the share of organised manufacturing in the total declined from 16.28 per cent in 1993-94 to

15.33 per cent in 1999-2000. Rani and Unni (2004) indicate that organised manufacturing employment growth declined from 2.13 per cent per annum during 198995 to 0.70 per cent per annum during 19942000. Nagaraj’s study (2004) shows that about 15 per cent of the workforce in the organised manufacturing sector lost their jobs between 1995-96 and 2000-01.

Dualism in labour market, workforce is mainly in unorganised sector: The organised sector in which conditions are much better for workers has not been able to generate employment over time. Around 93 per cent of the workers were in the unorganised sector in the year 1999-2000. In the case of workers in the unorganised sector who have no regular jobs or assured income, their primary need is employment security and improvements in quality of employment. In fact, annual employment growth in the unorganised manufacturing sector increased from -1.73 per cent during 1989-95 to 2.16 per cent during 1994-2000.1 Casualisation of workers: The proportion of casual workers in the workforce increased from 23 per cent in 1972-73 to 30 per cent in 1987-88 and to 33 per cent in 1999-2000. It may be noted that incidence of poverty is highest for casual workers as compared to the self-employed and regular workers. In the year 19992000, around 55 per cent of casual workers in the rural areas and 50 per cent in the urban areas were below the poverty line. The corresponding percentages for selfemployed was 22.5 and 26 per cent and for the regular wage and salaried employees 15 per cent and 11 per cent, respectively [Papola and Sharma 2004]. Self-employment is still high: In spite of a decline in the share of self-employed, the proportion is still high around 55 per cent in all-India in 1999-2000. It was 58 per cent, 40 per cent, 48 per cent, respectively in agriculture, secondary sector and tertiary sector. The productivity of selfemployment is not high in many activities. Unemployment rate increased: The current daily status (CDS), unemployment rates (except for urban females) increased in 1999-2000 as compared to those for 1993-94. The daily status unemployment rate in rural areas has increased from 5.63 per cent in 1993-94 to 7.21 per cent in 1999-2000. The increase in daily status unemployment partly reflects casualisation of labour. Problem of working poor: In India, unemployment per se is not the main problem. The employment problem in India is that of the working poor. The poverty of workers was around 33 per cent in India in the year 1999-2000 [Ghose 2004].2Poverty among casual workers is very high. In other words, long-term unemployment is not a problem among the poor as they cannot afford to remain idle. Underemployment is a problem: One of the problems of the working poor is underemployment. Ghose (2004) estimates underemployment for different categories of workers. It is not surprising that casual labourers showed the highest rate of underemployment at 25 per cent. Females show higher rate of underemployment as compared to males.

Increase in rural non-farm employment:

Rural non-farm employment increased from 16.6 per cent in 1977-78 to 23.8 per cent in 1999-2000 – an increase of around

7.2 percentage points over 22 years. During the same period, males showed an increase of 9.4 percentage points (from 19.3 per cent to 28.7 per cent) while females showed an increase of 2.8 percentage points (from

11.8 per cent to 14.6 per cent). In other words, the diversification for females has been much slower as compared to males. Conflicting trends in real wages: One of the important indicators of purchasing power is agricultural wages. At the all India level, the growth rate of real agricultural wages declined from about 5 per cent per annum in the 1980s to 2.5 per cent per annum in the 1990s. Deaton and Dreze (2002) say that a healthy growth of real agricultural wages appears to be a sufficient condition for significant reduction in poverty in the rural areas. In all the states where real wages have grown more than

2.5 per cent (Gujarat, Karnataka, Kerala and Tamil Nadu) have experienced a sharp reduction in rural poverty. On the other hand, the entire eastern region, Andhra Pradesh and Madhya Pradesh experienced a lower growth in agricultural wages and a lower reduction in poverty. Agriculture wage data show a decline in the growth of real wages in the 1990s as compared to the 1980s. NSS data, however, show that there were no signs of decline in real wages for casual labourers in rural areas in 1990s as compared to 1980s [Sundaram 2001].

The real wage increase could be due to the tightening of the labour market in rural areas. Employment and education: Education is important for workers in order to get qualitative employment. The educational standards of the workers in rural India show that the percentage of illiterates among male workers declined from 55 per cent to 40.3 per cent during 1977-78 to 1999-2000. For females, the corresponding numbers declined from 88.1 per cent to 74.9 per cent. However, even in 19992000, 68 per cent of the rural males and 91 per cent of the rural females are either illiterate or have been educated only up to primary level.

II Macro Policies, Sectoral Programmes and Employment

Appropriate macro policies are important for generating employment. In other words, one has to examine whether macro policies in India are pro-employment and pro-poor in the post-reform period.

Investments are important for higher growth which can improve employment if invested in labour-intensive sectors. Compared to east Asian countries, investment rates in India are low at around 25 per cent of GDP.3 In the 1980s, the rate of capital formation in public sector was 11.1 per cent and it declined to 7.3 per cent in the post-reform period. Deceleration of public investment and private corporate investment in the second-half of 1990s is a concern. One of the reasons for the low growth in employment in the post-reform period could be low growth in public investment.

Fiscal reforms are supposed to reduce the fiscal deficit, improve social sector and capital expenditures. These are expected to improve employment prospects. The evidence shows that India lost tax revenue of 1 per cent of GDP due to tax reforms in the post-reform period. Central transfers to state governments declined. State governments were forced to borrow in the market and other (often international) sources at high interest rates. As a result, the levels of debt and debt servicing increased in most of the states. In recent years, most state governments have been in a fiscal crisis and do not have funds for capital expenditures. This has been especially important since the state governments are responsible for areas critical for farmers such as rural infrastructure, power, water supply, health and education.

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Trade liberalisation is expected to improve exports which can generate employment. However, it depends on whether the benefits percolate to unskilled workers or skilled workers. The evidence seems to suggest that the employment in the organised sector manufacturing has not improved.

Financial sector liberalisation led to a decline in credit to agriculture sector, small and marginal farmers and weaker sections in the post-reform period. The micro credit movement is not a substitute for the agricultural credit by the banks [Shetty 2003].

Regarding international experience, a study by Pasha and Palanivel (2003) of Asian countries show that the key macroeconomic determinants of the degree of pro-poor growth appear to be the rates of employment and agricultural growth. The study argues, that given the inflation rates, countries can be more flexible in their policy stance with regard to the adoption of more growth oriented as opposed to stabilisation policies. Developing countries should learn from China on agricultural growth, rural non-farm employment, public investment and human development [Rao 2005]. The impact of growth on poverty reduction is quite significant in China.

According to the Tenth Five-Year Plan document “while a higher rate of economic growth is a necessary condition for increasing the demand for labour, the pursuit of growth objective in isolation may not be sufficient, at least in an immediate foreseeable future, to gainfully absorb the annual additions to labour force. Therefore, in the short run perspective of a Five-Year Plan, growth will have to be supplemented by increasing the employment content of growth in order to fulfil the employment objectives of Plan” [GoI 2003:146]. The document also provides an indicative list of labour-intensive sectors (agriculture and allied, food-processing, rural non-farm, small- and mediumenterprises, health, education, nutrition and information and communication technologies) for appropriate policies.


The mid-term appraisal of Tenth Plan (MTA) admitted that a large part of the rural distress seen in the last few years was an outcome of failure of the growth strategy followed since 1996. The growth rate in agriculture was less than 2 per cent per annum in the last 10 years. Farmer’s suicides have increased in many states. Many farmers are shifting to commercial crops without any support from the government. Cultivation is also being done on marginal lands. Risk is high in commercial crops and marginal lands. Main problems of the farmers in the present context are:

  • (a) spurious input supply, viz, seeds, fertilisers and pesticides; (b) inadequate credit from institutional sources and dependence on moneylenders for credit;
  • (c) lack of water and drying up of groundwater; (d) lack of extension services particularly for commercial crops; (e) lack of remunerative prices for many commodities;
  • (f) exploitation in marketing; (g) lack of non-farm activities in rural areas; and
  • (h) higher health expenditures of the farmers. The government’s efforts have been poor on many of these problems of farmers. Another area is water management which is discussed below.
  • The prime minister recently urged the chief ministers to double agriculture production in 10 years. The MTA of 10th Plan lists 14 priority areas for action to improve agriculture performance including investment, research and extension, credit, irrigation, water management. Development of livestock, forestry, wasteland, etc, would also improve employment prospects.

    Rural Non-farm Sector

    Turning to the rural non-farm sector, it is recognised that this sector is important both in generating productive employment and alleviating poverty in rural areas as agriculture and urban areas cannot absorb the increasing workforce. Within agriculture and allied activities, there seems to be some diversification towards non-cereal crops. However, risk and uncertainty is associated with diversification. Technology, infrastructure and market have to be improved in order to shift the farmers to non-foodgrain crops. By any standards the unutilised potential of food-processing in India is enormous. An expansion of this sector is an ideal way of bringing industry to rural areas, expanding the value chain of agricultural production, providing assured markets for farmers, enabling them to diversify into higher value horticultural crops and expanding employment by creating high quality non-agricultural work opportunities in rural areas.4 There cannot be one policy package for the entire rural non-farm sector. Sub-sectoral policies in different regions are needed.5

    In general, development of the manufacturing sector is important for absorbing labour force productively. Right now many workers are absorbed in low productive services sector. Encouragement to women and training and improvement in skills would enhance employment opportunities.

    III Direct Targeted Employmentand Social Security Programmes

    If we leave everything to market and growth, one cannot take care of employment, risk and inequality. Also, certain redistributive policies can be good for growth. Presence of direct targeted employment and social security programmes can maintain acceptable minimum floor for social cohesion and can prevent irreversible losses of human capital in hard times.

    The state has a role in helping poor in times of insecurity and in ensuring minimum levels of provision to those unable to gain from the growth process. We discuss here few important direct programmes.

    Wage Employment Programmes

    Labour-intensive public works can play a helpful role in addressing the problem of employment security. They are easy to administer as they are based on a self-targeting mechanism. The Employment Guarantee Scheme (EGS) introduced in Maharashtra in the early 1970s was an innovative anti-poverty intervention. An evaluation of the EGS shows that the programme has reduced unemployment in Maharashtra; increased the incomes of many participating households; acted as an insurance mechanism; has had an impact on agricultural growth and agricultural wages; made the rural poor a political force to contend with; and has had considerable impact on women [Dev 1995]. These largescale employment programmes have also played an important role in the prevention of famine in India.

    National Rural EmploymentGuarantee Act (NREGA)

    Enacting the national employment guarantee act was one of the key electoral promises of the ruling coalition in the centre under the common minimum programme (CMP). The bill was passed by the Parliament in August 2005 and became the National Rural Employment Guarantee Act, 2005. This is a step towards legal enforcement of the right to

    Economic and Political Weekly April 22, 2006 work, as an aspect of the fundamental right to live with dignity.6

    One criticism of the NREGS is that it is going to be just a relief programme without having much impact on poverty alleviation. It may be noted that the NREGS is only one of the instruments in alleviating poverty. Factors like labour-intensive or pro-poor economic growth such as agriculture growth and promotion of rural non-farm employment are equally important for poverty alleviation. Apart from direct benefits of employment, national level EGS is important to fulfil the function of unemployment insurance. There is, however, debate on the productivity of the assets created. There is a feeling that public works are mainly in the form of “digging holes and filling them”. The Maharashtra’s experience is mixed. The categories of works that are supposed to be undertaken under NREGS are: (a) water conservation and water harvesting; (b) drought proofing; (c) irrigation canals including micro and minor irrigation works; (d) provision of irrigation facility to land owned by households belonging to scheduled castes and scheduled tribes, beneficiaries of land reforms or beneficiaries of Indira Awas Yojana; (e) renovation of traditional water bodies including desilting of tanks; (f) flood control and protection works including drainage in waterlogged areas; and (g) rural connectivity to provide all-weather access. All these activities improve rural infrastructure and increase agricultural productivity.

    Apart from the direct benefits of employment and incomes, the scheme has many indirect benefits such as seasonal benefits, insurance function, impact on agricultural wages, increase in women’s employment, reduction in rural-urban migration, making rural poor as a political force and, organising the unorganised workers. It may be noted that in a country where 300 million are below the poverty line, its short-term impact and insurance function, reducing vulnerability are equally important. According to the prime minister, “Bharat Nirman” is the most important initiative of the UPA government, offering a new deal to rural India. There are suggestions that “Bharat Nirman” and NREGS should be amalgamated. There is no need to amalgamate the two but there can be a coordination at the local or grassroot level.

    The EGS will be implemented by the state government, with funding from the central government. The main actors of the implementation and monitoring authorities are: The central council, the state council, the district coordinator, the programme officer, the intermediate panchayat, the gram panchayat and the gram sabha.

    Finally, many people are sceptical about a proper implementation of national employment guarantee scheme. Some feel that the government does not have adequate capacity to implement EGS without large leakages and corruption. These fears are genuine as there are problems regarding the implementation of these schemes in the past. This is because of the top-down approach, lack of people’s participation, involvement of contractors, machines, etc. Problems in the past on the food-for-work programme in Andhra Pradesh also added to the scepticism on the implementation of these programmes. It is true that there are leakages, but exaggerating this will not help in solving the problem.

    If there is political will, it is possible to implement national level EGS more effectively with a new approach. The delivery systems can be improved with the new approach of participatory development, social mobilisation, right to information, involvement of civil society and panchayati raj institutions. The guidelines are already provided by the ministry of rural development. Training and capacity-building are needed for all the stakeholders: beneficiaries like rural labourers, small/marginal farmers, women and other weaker sections; implementing agencies like district and village administration, line departments like irrigation and public works, panchayati raj institutions, local village committees, gram panchayat members, NGOs, selfhelp groups, cooperatives, CBOs and other grassroot organisations. The new act has many checks and balances and one hopes that leakages will be less in implementation.

    It is a great opportunity to generate employment and create productive assets. If these are linked to overall development, the need for these schemes would be less in future. If it is implemented effectively, the NREGS is going to be the biggest social security programme for the unorganised workers.

    Self-employment Programmes

    The group approach to self-employment programmes is in the right direction. The Swarnajayanti Gram Swarojgar Yojana (SGSY) is an integrated programme for self-employment of the rural poor launched in April 1999 following the restructuring of the erstwhile integrated rural development programme (IRDP) and allied schemes. The SGSY has, accordingly been launched as a single self-employment programme in place of the earlier programmes with effect from April 1999. The SGSY is conceived as a holistic programme of micro enterprise development in rural areas. The overall progress of the programme during the first years of its operation has been rather slow. Inadequate availability of credit has adversely affected average per family investment and credit subsidy ratio during the first two years of the programme.

    Some evaluations show that the poorest of the poor are not participating in the existing self-help groups. The repayment schedule suitable to the poorest of the poor should be adopted. Proper livelihood planning, bulk purchases of inputs and collective marketing of outputs help the poorest of the poor to organise their economic activity effectively. The second issue is how to make the existing groups sustainable over time. The low growth of the economy and existing class relations are posing constraints for the relatively betteroff among the poor in improving their well-being. The process of empowerment of women cannot be sustained unless their livelihood concerns are aptly addressed. In the case of self-employment, the right to work refers to the right to minimum income. The self-help group movement in the country has increased social empowerment of women. But, economic empowerment is yet to be achieved.

    Land Reforms and Watershed Programmes

    In the case of land reforms, there is a need to implement ceiling laws with great vigour, revisit the issue of tenancy, address the question of land alienation and incorporate more gender-friendly laws in the context of feminisation of agricultural operations. The restrictive tenancy laws have prevented optimum allocation of land resources and denied the rural poor access to land. The success of “operation barga” in West Bengal should encourage other states to undertake tenancy reforms which would generate greater employment.

    The rainfed agriculture which constitutes 60 per cent of net sown area is characterised by low levels of productivity and low input usage. Bulk of the rural poor lives in rainfed regions. Therefore, it is important to accord a high priority to sustainable development of these areas

    Economic and Political Weekly April 22, 2006

    through watershed development approach. A study of the economic benefits reveal that the successful watershed projects yield high returns on investments and provide increasing avenues for employment and income generation [GoI 2005]. “The main additional annual employment generation in the watershed areas through various activities and operations was about 181 person days per hectare and was as high as 900 person days per hectare in watersheds with multiple activities” [GoI 2005:258]. One of the problems in watersheds is that there are too many agencies of the centre and state governments implementing the schemes. This makes a coordinated approach towards prioritised planning and implementation rather difficult. Watershed development can be sustained in the long-run only through social mobilisation and capacity-building.

    Social Security forthe Unorganised Sector

    After fulfilling its promise of enacting the NREGS, the UPA government wants to fulfil another commitment made in the common minimum programme, namely, providing social security for the unorganised sector. The CMP states that “the UPA government is firmly committed to ensure the welfare and well-being of workers, particularly those in the unorganised sector who constitute 93 per cent of our workforce”.

    The National Commission for Enterprises in the Unorganised sector was set up by the UPA government under the chairmanship of Arjun Sengupta in September 2004. The commission prepared two draft bills:

    (1) Unorganised Sector Workers Social Security Bill, 2005 and (2) Unorganised Sector Workers (Conditions of Work and Livelihood Promotion) Bill, 2005. They are likely to be introduced in the Parliament with some modifications.

    As the name suggests the first bill attempts to provide social security for the unorganised workers. It provides a model by demarcating clear responsibilities of central and state governments. Who are covered under the scheme? According to the draft bill, it will cover all workers in the unorganised sector with a monthly income of Rs 5,000 and below. This category includes self-employed workers (including marginal and small farmers) wage workers including agricultural labourers and home-based workers. It also includes informal workers under organised sector.

    It is estimated that around 300 million workers are eligible under this scheme.

    The bill indicates that there will be a national minimum social security for all eligible workers covering four things:

  • (a) health insurance; (b) maternity benefits;
  • (c) life insurance and (d) old age pension. Every unorganised worker is eligible for registration and the registered worker will get a unique identification social security card with number. The present social security programmes will continue as before.
  • What are the financial implications? A national social security fund will be created. The scheme will be financed from the contributions at rupee one per day by workers, employers (wherever identified) and the government (i e, Rs 3 per worker per day or Rs 1,095 per year). The government contribution will be divided between the central government and the state government in the ratio of 3:1 respectively (Rs 0.75 per worker by centre and Rs 0.25 per worker by state government).

    Similar to EGS, the National Commission estimated the costs of the minimal social security scheme. If all the 30 crore workers are covered, the available contributions work out to be Rs 32,850 crore. The share of the central government will be Rs 17,548 crore and that of state governments Rs 5,010 crore. This adds up a total of Rs 22,558 crore to be spent by the central and state governments and is equal to 0.8 per cent of GDP in 2004-05. If we include administrative and other expenses, the government contribution may not exceed 1 per cent of GDP. Similar to national EGS, full coverage is expected to be reached in five years. If six crore workers are covered in the first year the cost will be Rs 4,512 crore and Rs 22,558 from the fifth year. The government can contribute to the fund in the form of grants or through tax or cess.

    The draft bill also provides an organisational mechanism for implementing the scheme. The commission proposes to create a national social security board, state level social security board and workers facilitations centres at the local level decided by the sate boards.

    The second bill which deals with conditions of work and livelihood promotion addresses the issues relating to providing a basic minimum standard on hours of work, payment of minimum wages, bonded labour and child labour. The bill also recognises some minimum entitlements of the workers such as the right to organise, non-discrimination in the payment of wages and conditions of work, safety at work place and absence of sexual harassment.

    There are several issues that need to be discussed regarding the first bill.

    First, the financial implications have to be discussed. Is there any relationship between the contributions and the estimated costs with the costs of providing the four minimal social security measures? The commission has estimated only the likely amount of funds from the contributions. The costs of providing health insurance, maternity benefits, life insurance and old age pension for the 30 crore workers are not clear from the bill. The government contribution in the first year (Rs 4,512 crore) is not large but in the fifth year it is closer to 1 per cent of GDP. The insistence of state governments’ contributions may create problems for the scheme as the state finances are in bad shape.

    Second, the bill seems to be suggesting a targeting approach for identifying beneficiaries. For example, the bill says that it would cover all workers in the unorganised sector with a monthly income of Rs 5,000 and below. This may again lead to targeting errors and corruption.

    Third issue is implementation. The implementation machinery still looks bureaucratic although decentralisation is mentioned. It is better to involve panchayati raj institutions more.

    Fourth, as Hirway (2006) mentioned, one has to recognise the heterogeneous character of unorganised workers. The central legislation should not replace some of the state level and NGO programmes.

    Fifth, legislation alone is not enough for delivering services. For example, you can have health insurance for all the workers. Just having insurance may not help if you do not have proper health infrastructure and availability of doctors particularly in rural areas. Simultaneously you have to improve expenditure on health and institutions at grassroot level for better delivery systems.

    Sixth, one has to examine the working of the present welfare boards as it is an innovative scheme for informal sector workers. Kerala’s experience shows that there are problems of sustainability, high costs, meagre benefits, etc. One has to learn lessons from these experiences before replicating the same in other states.

    Seventh, the second bill on conditions of workers is equally important. Some regulatory institutions are needed without having an inspector raj. Minimum wages have to be fixed keeping in view the various increasing expenditures of the poor and laws should be effectively implemented.

    Economic and Political Weekly April 22, 2006 Some estimates show that even if you increase the number of days of employment, the existing wages may not bring many workers above the poverty line. The main issue is how to improve the wage rates for the unorganised workers.

    Around 93 per cent of the workers who belong to the unorganised sector do not have any social security provision in India. The EGS is considered as one of the important component of social security for the unskilled workers. Apart from this, we need protective type social security like old-age pension, maternity benefits and health benefits. Also the conditions of workers in terms of number of hours and provision of minimum wages, etc, need attention. In this context, the two bills prepared by the national commission are important. The major challenge is to extend social security to 300 million workers covering all states and all groups of workers. As India has not implemented the protective social security schemes on a large scale, more debate and discussion are needed for better implementation.

    IV Concluding Observations

    We have emphasised that both pro-poor macroeconomic policies and direct programmes are important for employment generation. On balance, the mix of macro policies has not been pro-employment in the post-reform period. Fiscal, monetary, trade, and financial policies should have been more employment – friendly and pro-poor.

    Insufficient public investment in infrastructure is one of the biggest failures in the post-reform period. Private investment is concentrated in rich states and there is a need for public investment particularly in poorer states. Low agriculture growth since mid-1990s has also been responsible for low employment growth. The demand factor is also important for generation of employment [D’Souza 2005].7

    The need for labour-intensive pro-poor macro policies is obvious. The MTA of the Tenth Plan also stresses the importance of identifying labour-intensive sectors. In the Tenth Plan, “a clear distinction was made between employment growth that would come about through the normal process of growth (approximately 30 million during the Tenth Plan period or six million per year, on an average) and additional employment that could be generated if the pattern of growth could be altered by implementing special initiatives in identified labour-intensive sectors (approximately 20 million during the Tenth Plan period or four million per year on an average)” [GoI 2005:263].

    It is difficult to remove poverty with 60 per cent of workers in agriculture. The need for non-agricultural growth is obvious. Agricultural growth of around 4 per cent and manufacturing growth more than 10 per cent are necessary for this purpose.

    Another challenge is to provide livelihood and security to the vast low productive and low wage informal/unorganised sector. For improving their productivity and reduce risk and vulnerability, cluster approach, training and skill improvement, credit and technology and social security are needed. The problem of the “working poor” is the major problem in India.

    Finally, special employment programmes and social security are equally important. If properly implemented, the NREGS along with the Bharat Nirman programme can enhance employment and incomes of the poor and improve rural assets.


    Email: profmahendra@yahoo.co.in


    [This is revised and abridged version of the key note paper presented at the annual conference of the Indian Economic Association,Visakhapatnam, December 27-29, 2005.]

    1 On changes in the unorganised sector see Unni and Rani (2003). 2 Also see Sundaram and Tendulkar (2004). On the quality of employment, see Bhalla (2000).

    3 The recent CSO estimates show that gross capital formation in 2004-05 was 29 per cent of GDP. But, one has to check whether it was due to problems with errors and omissions correction.

    4 For more on agro-processing, see Dev and Rao (2004). 5 On rural non-farm sector, see Sen (1998), Nayyar and Sharma (2005). 6 For more details on National Rural Employment Guarantee Scheme, see www.rightofoodindia.org 7 Also see Rakshit (2004).


    Bhalla, S (2000): ‘Behind Poverty: The Qualitative Deterioration of Employment Prospects for Rural Indians’, Working Paper No 7, Institute for Human Development, Delhi.

    Deaton, Angus and Jean Dreze (2002): ‘Poverty and Inequality in India: A Reexamination’, Economic and Political Weekly, Vol 37, No 36.

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    Economic and Political Weekly April 22, 2006

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