Globalisation and trade liberalisation in India have led to a series of changes in the Indian labour market. The direct consequences are the inflow of technology, encouraged by the economic reforms, and its impact on the growth of a skill-based workforce, opening up a whole new window of opportunity even for the small enterprises in the informal sector. Skills are a method of improving human capital, which ensure income security to the workers, particularly for the poorly educated workers in developing countries such as India, and therefore a key to enriching this huge workforce which can directly and indirectly help boost the market.
The term “informal economy” refers to all economic activities by workers and economic units that are—either in law or in practice—not covered or insufficiently covered by formal arrangements. In developing countries, informal labour force is primarily comprised of self-employed people working from home or street-vending. They have neither official nor permanent places of business. Experts agree that in most developing countries the informal economy is a crucial economic force for the foreseeable future.
The National Commission for Enterprises in the Unorganised Sector (NCEUS), an advisory body of the government, was set up in 2004 to bring about improvement in productivity in this sector by generation of large-scale employment opportunities on a sustainable basis, particularly in rural areas. India currently has 59 million enterprises that provide work to 127 million people, of which 17 million new enterprises have been added since 2005. According to the economic census, millions of Indians who are leaving overcrowded farms are being absorbed by the informal economy rather than the large firms that policy-makers have been banking on. We can be hopeful that this will help divert some attention of the policy-makers towards this sector. This shift is indicative of the confidence that such enterprises are gaining for the resources that are choosing to be with them in spite of an increase in rural wages. One reason is that higher prices for farm goods and higher rural wage rates have helped generate localised demand that is met by these small firms.
The informal segment of the workforce is defined by a number of common characteristics: On limited professional skills, low incomes, low productivity and low capital investment. Developing new marketable job skills through education and training can disrupt cyclical poverty by increasing productivity and job opportunities in the informal economy and workers’ formal-sector employability. Thus, it is important to train this group to optimise their productivity and uplift the nation.
Increasing informal economy productivity requires a holistic approach by raising informal workers’ education and skill levels. However, merely investing in workforce programmes doesn’t necessarily result in greater productivity. It is not that the current population is not receiving any training or education, but where they may be going wrong is that they focus solely on technical skills without integrating non-cognitive or soft skills. Across industries, skills to communicate effectively, organise efficiently, and solve unanticipated problems are desired, and often required, in a valuable worker. Employers often find these skills lacking in the pool of potential workers.
How can we bridge this gap and train the informal sector to bring out the best in them? Broadly, we should focus on two goals:
l Reforming school-based programmes by redesigning curricula to maximise training effectiveness, strengthening collaboration with prospective employers, and improving outreach to the informal economy.
l Improving non-school programmes with efforts like reforming the traditional apprenticeship system, implementing targeted training programmes for semi-urban & rural populations, and systematically evaluating the impact of new initiatives in these areas.
Embedding new skills in a widely varied workforce is crucial for determining how productivity growth can translate into employment growth, and for whom. Developing human capital in the informal economy requires highly effective, market-driven education and training programmes.
Employers should articulate their own needs to ensure their labour demand is correctly aligned with the newly-trained workforce supply. Complementary education and training programmes include school-based education, on-the-job learning, and learning through non-governmental and for-profit private training centres.
The “Education for All” initiative has made significant progress in providing universal basic education and developing cognitive skills. However, vocational trainings are seen as an option only for those who fail in academic tracks. In India, less than 3% of secondary students chose the vocational stream in 2004-05, reflecting on the assumption that they are less important. This mindset needs to change and our leaders and educators need to understand that vocational training should be made part of primary and secondary education to ensure that those passing out are employable. The main issue is not unemployment any more but employability, one that renders an educated resource unproductive due to lack of effective, practical exposure to the industry.
Raising skill levels of informal economy workers can contribute to economic growth and wealth creation. But merely investing in workforce programmes doesn’t necessarily result in greater productivity. The effect skills development can have on the productivity of informal workers cannot be separated from other changes in their economic environments.
The National Skill Development Agency has been partnering with several organisations to coordinate various piecemeal training efforts of different ministries, state governments and industry. Skilling and placement targets have been set at aggregate and sectoral levels and a robust national tracking system is in place. The budget for skilling has been increased to more than R10,000 crore a year. PPPs such as those initiated through NSDC need to be stepped up to create awareness and training modules which can help fill this gap with the help of organisations such as Viztar International. The organisation is a transformation training and business consulting firm, and through its NGO, Success Foundation, has partnered with NSDC to provide vocational training in semi-urban and rural areas. These are unique in the way that they equally emphasise on providing soft-skills so that the candidates have a holistic development that helps them deliver their best in whatever they do.
Though such initiatives are a huge step towards solving the skills-gap in India, we have miles to go considering that in urban India, about half of all non-agricultural workers did not attend secondary school. What’s more, for casual workers, typical of the informal economy, this percentage sky-rockets to 80%, suggesting that India needs to reinforce basic logical and problem-solving skills among its workers—the first step towards delivering advanced training programmes that can help workers improve their technical and non-cognitive skills. Prime Minister Narendra Modi’s dream of building a skilled India will be incomplete without training the informal sector and hopefully their policies will be directed towards doing the same.
By Sachin Adhikari
The author is chief mentor of Viztar International Pvt Ltd