New labour reforms: What safety net for workers in urban informal economy?

By Arup Mitra, Mayumi Murayama* 
Considerable overlaps exist between rural and urban poverty through migration and employment in the informal economy. However, several of the low-income households have been residing in the urban space for a very long time and it would be misleading to interpret them as a fresh spill-over from the rural areas.
In fact, the elasticity of urban poverty with respect to rural poverty is very low. In spite of the fact that parts of the informal economy share close links with the formal sector, residual activities conducted on a large scale within the informal economy cannot be overlooked. Further, many of these low- income workers reside in slums and squatter settlements.
Rural transformation has not been accompanied by the growth of demand induced activities. So, the rapid population movement from the rural space occurs in relation to the large cities, if not all the urban areas. But an exclusionary urban policy is not the right method of reducing the city burden; rather creating amenities and empowering the poor to take advantage of the agglomeration economies should be a cost reducing way of generating inclusive growth.
Several of the low-income households in cities create a great deal of value addition though they earn much less than the contribution they make. Infrastructure and income support measures are indeed required for their well-being.
The recent pandemic and the subsequent lockdown wiped away the sources of livelihood, particularly in the urban space, and more so in large cities, which comprised many migrants. The return migration occurred, raising the vulnerability of the workers. The complete lockdown forced millions of workers to become openly unemployed and could explain considerable overlaps between unemployment and poverty.
There has been a severe stress in the rural sector: those who have returned to the rural areas could not get absorbed in gainful activities as the rural non-farm sector hardly comprises demand induced activities. On the other hand, the agricultural sector has already been in a state of excess-supplies of labour.
The importance of public provisioning of work opportunities in the urban context must be felt at the policy circles. Though some of the jobs in the urban informal economy help reduce poverty, the recent pandemic has affected those processes miserably.
The implementation of rural employment programmes does bring respite to the rural population including the migrants who returned to the rural areas following the lockdown. But it is not sufficient because many urban low income households have foregone their rural contacts and cannot return to the rural areas despite the shrinking employment prospects in the urban areas.
What safety-nets can be provided to the workers in the urban informal economy to create sustainable sources of livelihood is an important question. Identifying the gainful activities within the informal economy, removing the operational constraints and information asymmetry, providing credit and marketing assistance and improving the existing practices of business sub-contracting and regulating the exploitative role of the labour contractors are some of the few obvious suggestions.
The lack of legal security of space for the operation of the informal enterprises is a major problem which has resulted in poor marketing of goods and profitability. The rent seeking attitude of the government and the local government employees will have to be ended. The employability of the workers through training and skill formation will facilitate upward mobility. Like the rural employment guarantee programmes the urban areas also need to receive allocations for such initiatives.

How the exploitative roles of the business and labour contractors can be changed is a critical question

Though the recent reforms of labour codes say goodbye to the inspection raj in the organised/formal sector, how the exploitative roles of the business and labour contractors can be changed is a critical question. On the whole, both the rural non-farm and urban informal sectors will require special attention of the policy makers and for the post pandemic and lockdown period sincere efforts will have to pursued to develop these sectors and create potentiality for sustainable livelihood.
The recent labour reforms have a connection to the constitution of Second National Commission on Labour by Atal Bihar Vajpayee’s government in 1999. There are 44 Central laws and more than 100 state laws. About 100 changes were suggested by the committee of which 74 have been amended. The Centre plans to subsume 44 Central laws into four broad codes on

1. wages;
2. industrial relations (restriction on strikes, only units employing more than 300 workers will have to take permission from the government for retrenchment); 
3. social security (reskilling fund to be used for reskilling of workers retrenched; National Social Security Board to recommend to the Central government for formulating schemes for different sections of unorganised sector workers, gig workers, platform workers; aggregators to contribute 1 to 2 per cent of the annual turnover); and
4. occupational safety, health and working conditions (OSH): (migrant workers earning up to 18,000 a month will receive journey allowance etc. to be paid by the employers).

While a large number of practical problems are associated with each of these codes, some stand out sharply. For example, how the fourth code is to be implemented, what mechanisms will be at place to tackle the major deviations, what provisions will be made for dwelling conditions of the workers to improve, whether the slums will receive protective measures and amenities to lead a healthy life are some of the key questions.
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*Arup Mitra is Professor, Institute of Economic Growth, Delhi; Mayumi Murayama is Executive Vice President, Institute of Developing Economies, Japan External Trade Organisation (IDE-JETRO)