Construction worker welfare deserves special attention

These are some stylized facts about India’s labour market. First, of the nearly 900 million adults of working age, only 45% are either employed or seeking jobs; i.e., they comprise the entire labour force. This makes India’s labour force participation rate (LFPR) one of the lowest among peers. For female LFPR, the ratio is barely 18% and has been falling. Second, the proportion of workers in the informal sector is as high as 90%. These workers do not have any health or retirement benefits and typically do not have enforceable employment contracts. For them, wage and payment delays are not uncommon, and get worse during downturns. Recourse for non-payment is non-existent. Third, unemployment rates are high, especially among the educated youth. This was reported in a recent survey for all states; Rajasthan’s unemployment rate for graduates was 51%. Another stark indicator of this jobs drought was revealed in an answer in Parliament, which said that 220 million Indians had applied for about 700,000 government jobs in the last seven years. That’s a success rate of 0.33%. Despite these minuscule odds, the scramble for a “permanent” government job should be counted as a prominent stylized fact of India’s labour market. Inexplicably, growth in jobs is not commensurate with India’s fast economic growth. Is it thwarted by an inherent bias for capital intensity in industrial production due to the low cost of capital? Or is it also because of the notorious burden of so-called rigid labour laws? The latter may not be a strong factor, since 90% of India’s employed workers are anyway not subject to most labour laws. Yet, if we see the distribution of enterprises across sizes, the graph drops sharply after 10 employees, when labour laws become applicable. Fourth, the lack of formal-sector jobs also shows in the earnings data of workers. An estimated 45% of salaried workers earn less than ₹10,000 per month, barely above minimum wages. However, we also see an acute shortage of certain skills, which places a huge premium on these. The sixth is the changing pattern of employment across sectors. As per a CEDA-CMIE survey, the number of manufacturing jobs has halved from 51 million in 2016-17 to 27.3 million in 2020-21. Real estate and construction sector jobs too decreased from 69 million to 53.7 million. The agriculture sector, which would be expected to see an out-migration of workers, saw a slight increase in jobs from 146 to 152 million. Thus, agriculture still hosts over a third of the workforce, though characterized by low worker productivity and disguised unemployment.

How much can policy impact jobs growth directly, especially when 90% of workers are in the informal sector? In this backdrop, a proxy unemployment programme such as the National Rural Employment Guarantee Scheme (NREGS) becomes a necessity and has also proven effective as a safety net. Post-covid, there has been demand for an urban equivalent of the scheme. Employment is predominantly a state subject and local solutions can vary across the country. But there is also the danger of states imposing coercive and populist policies, which can prove counterproductive and even be unconstitutional.

Large-scale employment creation potential exists in labour-intensive sectors such as construction, textiles, retail, tourism and agro-processing. The construction sector proved to be a huge job creator during the infrastructure boom of the recent past. It can be a boon for unskilled and semi-skilled workers. If the sector sees another upswing, we will witness large-scale employment creation, albeit informal.

One policy step that affects construction workers needs urgent attention. This relates to the non-performance of a landmark legislative move of 1996. Called the Building and Other Construction Workers Regulation Act, it was a national law to regulate their employment and working conditions. Welfare Boards were setup by all states to provide for schemes that cover health and pension benefits, maternity leave, education for children and compensation for accident and death. The actual benefits might vary from state to state. For example, Delhi used the funds to provide unemployment benefits during the covid lockdown. Some states have enlightened schemes for workers’ children’s scholarships. The schemes are financed by a mandatory 1% cess on the value of construction projects that has to be paid before the contractor or employer can begin activity. The cess cannot be used for any purpose other than worker welfare. The data on it usage is dismaying. In the past 25 years, states have collected nearly ₹80,000 crore, but more than half lies unspent. The Comptroller and Auditor General of India reported that only 1.7% of Delhi’s 1 million construction workers were registered with the Welfare Board as of March 2019. Between 2002 to 2019, the Delhi government had spent only 5.6% of the cess collected. The story is similar across states. Since construction workers migrate seasonally, their names get deleted. Contractors and employers only pay the cess but are not liable to register workers. Many cash-strapped states are eyeing this pile of unspent money. The central government has registered 280 million informal sector workers on its e-Shram portal. This is heartening, but the plight of unregistered construction workers has not been addressed. States and the Centre should not only tighten the Welfare Board’s registration process, but also enlist the help of civil society watchdogs to ensure that construction workers are registered and get their rightful benefits.

Ajit Ranade is a Pune-based economist