Can India’s draft labour code really bring social security to its informal workers?

Rekha Patil, a vegetable seller on a footpath in suburban Mumbai, is a small part of India’s vast informal economy. Her husband, a farmer in Palghar, about 110 km north of Mumbai, has an unreliable income. But Patil’s earnings of Rs 350 a day barely sustain her family. She pushes herself to work even when she is sick, afraid of losing a day’s income. This is getting difficult as she ages. But with scant savings and no pension to bank on, 50-year-old Patil cannot dream of retirement.

India’s social security laws are currently applicable only to the organised sector. The Unorganised Workers’ Social Security Act, 2008, has been poorly implemented. A decade after the Act came into force, the majority of India’s workers, like Patil, do not have access to medical insurance, maternity support or retirement benefits.

The Bharatiya Janata Party-led National Democratic Alliance government claims it can change this through a new law drafted in 2017. Called the social security code, it will consolidate 15 existing laws on pension, disability and life insurance as well as maternity, medical and unemployment coverage. It is one of the four labour codes that the Union government has drafted to ease the implementation of India’s labour laws.

The main advantage of the new social security code is that it will cover both the organised and the unorganised sector – about 50 crore workers, the government claims.

But labour activists say the law has major flaws that will keep most informal workers out of its ambit. Worse, they point out that workers will be cross-subsiding other workers since the government will not contribute to the social security fund that the law seeks to create.

“It is good that the code includes both formal and informal sector workers, but the way the latter needs to be dealt with is very different,” said Mirai Chatterjee, the director of social security at the Self-Employed Women’s Association, or SEWA, a trade union of more than 15 lakh women.

Registration woes

Two key problem areas in the social security code are the registration of workers and the monetary contribution they will be expected to make towards their social security benefits.

The code proposes to set up a Central Social Security Board – and corresponding state-level boards – for managing all aspects of the code. All workers across India will have to register themselves with the boards and get an Aadhaar-linked social security account called the Vishwakarma Karmik Suraksha Khata, or VIKAS. Registration details will have to be updated every time a worker migrates or moves from one employer to another. A person working with two or more entities will have to pick one employer and register themselves through them. Registered workers are to be classified into one of four socio-economic categories. The aim of such registration is to ensure universal coverage of social security benefits.

However, labour rights workers are also concerned about how the code will ensure the registration of every single worker in the informal sector, given the diversity and fluidity of their work. Except in the case of self-employed people, workers need to establish employer-employee relations in order to register.

“But what about a whole range of daily wage workers, like naka workers, construction workers, painters, plumbers, electricians?” asked Santosh Poonia, the programme manager of legal services at Aajeevika Bureau, a non-profit labour rights organisation. “They work for different employers almost every day, and do not qualify as self-employed. How will they show their employee status?”

Another concern is the medium through which workers are to be registered. According to independent labour researcher Vaibhav Raaj, labour unions usually take up most of the work of registering workers in a particular industry to the welfare boards that may exist for them. For instance, construction workers’ unions are the ones currently providing the service of getting workers registered to the Construction Workers’ Welfare Board.

“However, under the new code, these separate industry-specific boards will be reconstituted under an entirely new institutional system,” said Raaj. Under this system, the role of registering workers under various schemes is likely to be taken over by “facilitation centres” run by private entities. “So the government is essentially creating a huge market for private players to enter the social security space,” he said.

For Poonia, the entry of private companies raises another crucial concern. “These private players will then have access to Aadhaar data, since Aadhaar linkage is compulsory for availing benefits,” he said.

Paying for social security

Under the code, each state has to set up a Social Security Fund from which various benefits will be given out to eligible workers. The fund is to be made up of monetary contributions by both workers and employers – contributions that are mandatory if a worker wishes to avail of social security benefits. The employer’s contribution has been fixed at 17.5% of each employee’s wages (including contract-based workers).

Workers will have to contribute between 12.5% and 20% of their monthly wages if they do not belong to the below-minimum wage income category. Labour experts say this is too high even for organised sector workers from higher income categories. “How will self-employed people, like rickshaw drivers, for instance, pay 20% of their income towards social security?” asked Raaj.

For vegetable vendor Rekha Patil, contributing even 12.5% of her income towards a social security fund would severely hamper her ability to put food on the table every day. The prohibitive contribution amounts, particularly for those with smaller incomes, might push people to not register themselves as workers at all, said Poonia. “Because the contributions workers give will go into a pool, workers will want to register only if they feel that the returns they are getting are worth it,” he said.

Those earning less than the minimum wage are exempted from paying contributions towards social security. But to avail of benefits, workers are required to periodically submit detailed accounts of their income and employment. “But in the case of below-minimum wage workers who are not self-employed, which employer will provide a salary slip showing that they are not paying their employee the minimum wage?” said Raaj. “These are highly exclusionary criteria, since the onus will be on workers to prove their eligibility for social security.”

Some trade union leaders are also disgruntled that state or Union governments will not be directly contributing to the Social Security Fund. “The government claims it wants to provide social security to the vast majority of people, but the contributions for the fund will come from employers and employees,” said AR Sindhu, secretary of the Centre of Indian Trade Unions. “The government will not be putting in money even for those who are exempted from contributions. So benefits for some workers will be cross-subsidised by other workers.”

The code, Sindhu says, envisions a centralised system in which social security contributions are pooled into a central fund and then disbursed to state governments, who will then provide benefits to eligible workers in the form of pensions, gratuity, medical coverage, maternity coverage and more. “If the government invests workers’ and employers’ contributions to the fund, without pooling in its own contribution, who is going to offer a guarantee against the risks of market fluctuations?” said Sindhu.

What about childcare?

Trade unionists working with women are particularly concerned about the dilutions of the Maternity Benefits Act, as its provisions feature in the code. Like the current Act, the 2017 version of the draft code included the clause that every establishment with 50 or more employees must set up a creche facility nearby so that women workers can leave their children there and visit them four times a day. However, the provisions for setting up childcare facilities have been dropped from the 2018 revised draft of the code.

Mirai Chatterjee pointed out that even in the first draft of the code, the discussion on childcare and creches was limited to women in the organised sector, who have one specific workplace to go to everyday. “But what about the majority of women who work in the unorganised sector?” asked Chatterjee. “What about those who work in fields or move around for work?”

Chatterjee’s organisation, SEWA, has been providing comprehensive childcare facilities for unorganised sector workers for the past 30 years.

“Besides recommending full-day childcare, we had suggested to the government that it should first ensure the proper implementation of the provision of Rs 6,000 to pregnant women as per the cash maternity benefit scheme under the National Food Security Act,” said Chatterjee. “That scheme is not even mentioned in the code, and its implementation is very poor.”

One of four codes

Since coming to power in 2014, the Narendra Modi government has consolidated 44 existing labour laws into four new labour codes. So far, only one of them – the code on wages – has been tabled in Parliament as a Bill. It is currently receiving final recommendations from the Standing Committee on Labour.

The three remaining codes – on social security, industrial relations and occupational safety, health and working conditions – are yet to be tabled in the Lok Sabha, and are currently being discussed by different panels set up by the Ministry of Labour and Employment.

The social security code was first introduced in March 2017 and then revised a year later following consultations with trade unions. However, in November, after intense opposition from trade unions, the labour ministry dropped some contentious clauses from the 2018 draft. This included a clause about setting up a National Social Security Council that would merge and centralise the current Employees’ Provident Fund Organisation and the Employees’ State Insurance Corporation. Trade unions contended that both organisations have both been functioning satisfactorily for more than 60 years, and that merging their funds and their staff would upset the system and lead to cross-subsidies.

As the labour ministry continues its discussions on the draft social security code, it remains to be seen whether it will incorporate the remaining concerns of labour rights groups.