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India has to create more formal jobs: World Bank

The World Bank said informal workers show resourcefulness in handling the constraints they face, but the businesses they run are too small to raise the livelihoods of their owners. Photo: Hemant Mishra/MintPremium
The World Bank said informal workers show resourcefulness in handling the constraints they face, but the businesses they run are too small to raise the livelihoods of their owners. Photo: Hemant Mishra/Mint

World Bank says regardless of how work may be changing, for low and middle-income countries, it is persistent informality and low-productivity employment that poses the greatest challenge

New Delhi: Making a case for creating more formal jobs, the World Bank in its draft World Development Report 2019 said in India the pay-offs in the formal sector are over twice as much as in the informal sector, which is among the largest in the world.

The Bank said regardless of how work may be changing, for low and middle-income countries, it is persistent informality and low-productivity employment that poses the greatest challenge.

“Since 1999, India has seen its IT sector boom, become a nuclear power, broken the world record for the number of satellites launched in a single rocket and achieved an annual growth rate of 5.6%. Yet, the size of its informal sector has remained around 91%," the World Bank said.

In another draft report titled Systematic Country Diagnostic (SCD) for India released in February, the World Bank said India needs to create regular, salaried jobs with growing earnings rather than self-employed ones, in order to join the ranks of the global middle class by 2047—the centenary of its independence.

The reports add to the current debate started after Prime Minister Narendra Modi said selling pakodas was also a kind of employment.

The World Bank said informal workers show resourcefulness in handling the constraints they face, but the businesses they run are too small to raise the livelihoods of their owners.

The draft World Development report said that self-employment, informal wage work with no written contracts and protections, and low-productivity jobs more generally are the norm in most of the developing world.

“Informal firms are run by uneducated owners, serve low-income consumers, and use little capital—informal firms add only 15% of the value per employee of formal firms. They also rarely transition to the formal sector," the report added.

The Bank said governments can encourage formal private jobs for the poor.

“Improvements in infrastructure in towns and villages could encourage formal firms to establish themselves near poor workers. While small-scale informal enterprises are unlikely to formalize and grow, the owners of informal firms can obtain formal jobs," the World Bank added.

In a report titled ‘Jobless Growth?’ released earlier this month, the World Bank said to keep employment rates constant, India needs to create 8 million jobs per year as it adds 1.3 million to the working-age population every month.

The government on Wednesday released employment data from three social security organisations which showed India added some 3.46 million people to the formal workforce between September last year and February 2018.

They, however, do not give a clear picture on whether these are new jobs or a result of formalization of existing informal employment due to factors such as the implementation of the goods and services tax (GST).

The lack of credible and periodic data on job creation in the economy has been a major weakness of India’s statistical system. It has often led to charges and counter-charges of jobless growth in the country.

The Narendra Modi-led National Democratic Alliance government has recently decided to start counting jobs created in the non-farm informal sector, expanding the scope of job creation in the country.

The government has asked the labour bureau under the Union labour ministry to begin counting jobs created in establishments deploying less than 10 people. Effectively, it means that establishments and shops run by a single owner or with one employee too will be counted as employment generation.

Data from this new measure of employment based on an establishment survey is expected to be released either by the end of this year or in the first half of 2019.

In July 2017, a government task force headed by then NITI Aayog vice-chairman Arvind Panagariya had suggested adopting a “pragmatic definition" of formal workers.

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