Social security for faster growth

Ajay Shankar | Updated on February 16, 2021

Helping hand There is an urgent need to extend MNREGA to urban workers   -  Thulasi Kakkat

Providing social security to unorganised sector workers will be key to India becoming a global manufacturing hub

The Directive Principles of State Policy in the Constitution envisaged the creation of a social welfare state as resources became available. In post war Europe, the evolution of the social welfare state was reaching completion and this would have shaped the thinking in the Constituent Assembly. The working class movement gained in strength with industrialisation in Europe in the early twentieth century and the provision of social safety was a major goal.

What is not widely known and is quite interesting is that the essence of social security; relief for industrial workers for unemployment, health care and old age pension, was first introduced in Germany by Chancellor Bismarck in the late 1880s. He did it not because he was a socialist but because he saw this as being essential for the rise of Germany as a leading industrial power. He saw workers whose basic needs were taken care of as being essential for rapid industrialisation. This insight of Bismarck is still relevant.

The Central as well as State governments have been attempting to provide welfare measures as envisaged in the Directive Principles over the decades depending on political priorities and resource constraints. Rural employment on demand for 100 days in a year under MNREGA and the Food Security Act have been landmark developments. Both were pillars in mitigating distress during Covid as millions of migrant workers went back to their village homes during the lockdown.

The government financed universal health insurance coverage for all under Ayushman Bharat is transformative. Social safety has to now be recognised as an essential prerequisite for success in industrialisation. Workers have to become partners. They are as important an asset as plant and machinery.

The reality is that in this globalised world the same plant and machinery can be bought and installed anywhere. Human beings make all the difference for global competitiveness. Abundant supply of motivated, efficient and productive workers who take pride in quality is the key.

Unroganised, uncovered

Only about 10 per cent of our work force is in the organised sector and gets the benefits that our progressive labour laws provide. The remaining 90 per cent are not covered. The use of outsourced contract labour in industrial plants has grown. The ensuing contradictions sometimes become unmanageable. In the present globalised world, products, firms and their supply chains can rise as well as decline very rapidly. Blackberry is a good illustration. Accordingly, the need for workers can also rise and fall very rapidly.

A regulatory environment and a friendly eco system supportive of the needs of this new reality is essential if we are to succeed in manufacturing and becoming a major hub of global supply chains. Full labour market flexibility with a robust social safety net for the entire working population would be the way forward.

The underlying premise of stable firms and life long employment behind the contributory system of social safety that emerged in Europe a century back has now become dated. At our stage of development the state needs to assume greater responsibility.

The four new labour codes, the result of a few years of stakeholder consultations and discussions, seem to recognise the needs of contemporary reality. Fixed term employment, giving States freedom to increase the number of workers below which a firm can have flexibility in hiring and downsizing and adopting the goal of covering all workers in the informal sector in the Social Security Code are major positive new features.

The provision of social security to the 90 per cent workers who are either in the informal sector or are self-employed needs to begin now. The ambition should be to have full social security by 2022, the 75th year of our independence.

The first step would be the extension of MNREGA to urban areas. 100 days of guaranteed work provides a basic social safety net at the bottom of the pyramid in urban areas. If it had been in place, the distress of migrant labour at the time of the lockdown would have been substantially lower. Municipal bodies can use unskilled labour for a range of useful work. It may cost around ₹15,000-20,000 crore per year. This is affordable.

Unemployment insurance is a product whose time has come in India. Discussion on its possible contours with stakeholders and experts needs to commence with government leadership. Designing it to cover those in the informal sector would be especially challenging. The government should ideally consider making a matching contribution for those whose incomes are below the level at which Income Tax becomes payable.

But depending on the cost implications, the threshold could be made lower to begin with. Given the fiscal difficulties now, a social security cess on Corporate profits would be necessary. Even doing away with the 2 per cent mandatory CSR to provide for the social security cess would be worthwhile.

Skill development schemes

Semi-skilled and skilled workers do lose their jobs and with technological modernisation this happens more rapidly. There should be well designed skill development programs for them. Their skills may be upgraded, or, they may be given new skills along with improvement in their work ethic. This may be done at no cost to them and should be fully funded by the central government.

The upgradation of the skills of the existing work force needs greater priority and focus under the Skill Mission. Programs have to evolve on the basis of an ongoing assessment of anticipated demand for skills in the area. The ready and abundant availability of trained and efficient manpower with the right skills for global supply chains is a major positive in attracting investment. It may be worthwhile for us to get retired skilled workers from countries such as Germany, Japan and Korea to help us in getting training content and methodology right.

Bringing workers, their skills and their social security, centre stage is essential to attract private investment for job creation. As better paying jobs get created, poverty would decline faster, and India could regain the growth rate of over 8 per cent that it needs.

The writer is Distinguished Fellow, Teri

Published on February 16, 2021

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