They want wages

Written by Laveesh Bhandari | Bibek Debroy | Updated: Jun 15 2009, 07:22am hrs
Indian data have a fuzzy category called self-employment and in 2004- 05, 56.5% of the work force reported itself as being self-employed. In the non-agricultural work force, 62.8% of workers reported themselves as self-employed.

There are also wide inter-State variations. For instance, more than 65% of non-agricultural workers reported themselves as self-employed in Andhra Pradesh (65.2%), Assam (65.6%), Bihar (80.8%), Jammu and Kashmir (73.7%), Madhya Pradesh (65.5%), Orissa (70.3%), Uttar Pradesh (68.1%), West Bengal (68.2%) and Uttarakhand (67.2%). In contrast, the figure was lower than 50% in Himachal Pradesh (48.4%) and Kerala (47.9%). The higher the degree of self-employment, the lower seems to be the prosperity of the State. This suggests that self-employment is not a viable occupational category at all. It is a subsistence-level occupation because people cannot afford to remain unemployed.

Outside of agriculture, the total self-employed population is 92.1 million. Some of these are in relatively high income occupations, like independent professionals (doctors, lawyers, artists, accountants), shop owners in urban areas, rice-mill owners, workshop owners, commission agents, real estate and housing brokers and owners of small hotels and restaurants. But others are in relatively low income occupations, like handloom weavers (mostly women), chikan workers (mostly women), street vendors, food processors, rickshaw pullers, rag-pickers, beedi rollers (mostly working out of home), agarbatti makers (mostly women), potters and bamboo-product makers.

The point about this fourth transition is that self-employed workers in the relatively low income categories would be better off in wage employment, were that to be possible. And 87% of own account enterprises are actually in rural areas, which is why the rural transformation also becomes important. The average own account enterprise is low on assets and low on value addition.

The average value addition is Rs 2,175 per month in urban areas and Rs 1,167 per month in rural areas. Depending on the family size, this is not enough to ensure livelihood above the poverty line. 84.9% of own account enterprises are not registered and this needs to be flagged, because registration also brings attendant benefits, such as access to credit or government subsidies on marketing and technology.

Why arent own account enterprises registered The answer isnt entirely lack of information. Opting out of registration is probably a conscious decision, because the benefits from registration are not commensurate with the costs. Not only are procedures connected with registration complicated and tiresome, registration brings with it the attendant problem of bribery and rentseeking from the government machinery. For instance, for rickshaw pullers and street-vendors, studies in many parts of urban India have documented harassment and bribery by municipal authorities and police.

This brings in, beyond civil service reform, the broader agenda of administrative law reform. This involves two kinds of relationships that can overlapdealings between the citizen and the government and dealings between an enterprise and the government. The latter can again be divided into three phases of an enterprises existenceentry, functioning and exit.

The former involves birth certificates, death certificates, land titles, assorted requirements of establishing ones own identity and issues connected with accessing public services. E-governance experiments have attempted to simplify both, but are still unsatisfactory, since the governance bit has to be sorted out first, before electronic use can reduce transaction costs.

Poverty cost of delaying transitions

Planning commission and NSSO estimates show that extreme poverty has been declining from about 55% of the population in 1973-74 to about 27.5% in 2004-05. Though the poverty decline in terms of share of the population has been significant the number of poor has remained stagnant at around 300-320 million in the last four and a half decades. But what is more worrisome is not that the numbers are stagnant, but that the rate at which poverty is declining has been slowing. This slowdown in poverty decline is true of both rural and urban areas, though poverty has been falling relatively faster in rural areas.

The reduction in poverty can come about due to improvement in the incomes of those within various occupational profiles and the reduction in the share of the occupations that are associated with lower incomes and consequently higher poverty. It is obvious that if only one of these forces were to occur, then poverty reduction would be lower than if both occur simultaneously. However we find little evidence of desired changes in the occupational structure of the Indian workforce.

This, as has been discussed in previous sections, reflects the significant barriers to the re-allocation of human resources in the economy. Since 1991, reforms have been based on efficiency in resource allocation. But the discourse on reforms has invariably been around efficient use of capital. Land and labour are other critical inputs as well and their efficient usage is also an equally important issue. Therefore, rigidities in land and labour markets require as much discussion as rigidities in capital markets.

If constraints to movement of human capital between various occupations did not exist, we would have expected that occupations that have greater incomes (and lower poverty levels) would see greater entry and consequent increase in share of total employment. And those that have lower incomes and higher poverty would see significant exit. Where evidence is available on such shifts the movements are either insignificant or too slow. The more or less stagnant figure for organised sector employment and reducing pace of urbanisation are just two illustrations of the various rigidities impacting Indias workforce. This, we argue, is a problem that is far more pervasive and runs across various occupational cuts and sectors.

It is well known that markets work best when there are a large number of buyers and sellers. Reforms and high growth are creating greater opportunities, but many are unable to benefit from it. The demographic dividend is throwing up a large number of youth who desire employment, but just do not have the skill sets. The employment market is fed by the upstream education market. And here there are very serious elements of market failure. Poor infrastructure, poor teaching, irrelevant content, missing courses are just some characteristics. These are combined with poor regulation of quality of education provided in both public and private facilities, limits to private entry, information failures and lack of universally recognised certifications, the list is quite long.

Typically markets have the ability to self correct, but a range of laws, regulations, and practices limit this potential of Indias education sector to self-correct. The impact of this market failure is first felt in employment markets and through that adversely affects Indias objective of rapid and equitable progress.

Bibek Debroy is a noted economist and Laveesh Bhandari is head of the economics research firm Indicus Analytics