(Photo: Priyanka Parashar/Mint)
(Photo: Priyanka Parashar/Mint)

Opinion | In search of an effective way to blunt self-exploitation

To aid the generation of well-paying jobs, Indian policy should encourage rather than ban or bully formal self-employment

If Mahatma Gandhi had proposed independence to the Indian Civil Service, the latter would probably have rejected it for the lack of a precedent. The Karnataka transport department’s since-revoked six-month ban on all Ola cabs for the lack of a precedent of two-wheeler taxis, Rajasthan’s proposed curbs on Airbnb, and Maharashtra’s micro-specification of taxi fleet composition all represent the worst of an innovation-killing bureaucracy rooted in an incomplete understanding of the cutting edge of India’s labour markets. Technology platforms are finally enabling the productivity that differentiates India’s 200 million people in informal self-employment—largely self-exploitation because it often means employed poverty—from formal self-employment. We would like to make the case that while our laws have clear notions of formal employment, we urgently need to create the regulatory and statistical space for a new category of formal self-employment.

Half of India’s labour force being self-employed is not on account of some special entrepreneurial gene among Indians; the poor cannot afford to be unemployed, so they are self-employed; not everybody can be an entrepreneur, and not all entrepreneurship is viable. Most self-employment in India has been self-exploitation; their low productivity means they are employed, but their income is not enough to pull them out of poverty and they get stuck in the low-level equilibrium of informality. There are various systemic ways to raise the productivity of millions of India’s self-employed—better skills, access to credit, urbanization, etc.—but an immediate solution, and as Princeton Prof. Avinash Dixit reminds us that life is second-best at best, could be using technology to create a mezzanine layer between informal self-employment and formal wage employment called formal self-employment. The exact definition of formal self-employment will evolve in regulatory terms, but one angle could involve capturing forms of self-employment where higher productivity ensures that its income is higher than the geographically applicable minimum wage.

There are three possible reasons why self-employment technology platforms like Ola, Uber, Swiggy, Urban Clap and so on offer small entrepreneurs higher productivity than traditional self-employment: tools, financial inclusion, and the apprenticeship effect. The first—technology tools—represents the wonderful cocktail of GPS, smartphone app, payment choices, consumer ratings, etc., that greatly improve capacity utilization of an entrepreneur’s work hours by reducing friction. The second—financial inclusion—arises from the digital exhaust generated and captured by the platform around work ethic, consumer rating, income, etc., that makes granting credit viable to entrepreneurs who have been traditionally ignored by a collateral-driven system of finance. The third—apprenticeship effect—arises from the qualitative skill improvements inevitably generated in learning-by-doing. Most informal self-employment does not offer opportunities for skill development that a formal and live environment offers in terms of the tricks, tools and syntax of higher productivity. Basically, any driver who has been on the Uber or Ola platform for six months has changed his human capital forever because of higher digital literacy, an understanding vicious and virtuous feedback loops, and the gain of a verifiable professional identity.

Any debate around the recognition of formal self-employment will logically wade into the payment and accrual of taxes. US tax laws require employers to issue a form called W-2 to wage employees and a form 1099-MISC to independent contractors. A highly contested and controversial distinction is the difference between an employee and independent contractor (subjectively determined by the degree of control you have over the worker or the amount of independence) and what labour law responsibilities apply to labour technology platforms. Indian tax laws already require the issue of Form-16 to salaried employees and the filing of Form ITR-4 by the self-employed. Policy encouragement to formal self-employment on these platforms could substantially increase the current low filings of ITR-4 returns.

India’s small and medium enterprise ministry (SME) was renamed MSME Ministry (adding the M to include our vast number of micro enterprises) a few years ago. But the MSME Ministry’s mental cartography focuses on dwarfs (small enterprises that will stay small and are mostly exploitative) rather than babies (small enterprises that will grow and are mostly productive). Historian Ramachandra Guha often reminds us of India’s achievement in creating the world’s largest democracy on the infertile soil of the world’s most hierarchical society. But we failed to create the world’s largest economy because of regulatory cholesterol generated by a civil service that defends the status quo long after the quo has lost its status. This hostility to entrepreneurship, innovation and disruption that manifest itself in Karnataka last week is a small symbol of policymaking that could sabotage the shift of 25 million people from informal self-exploitation to formal self-employment. Policy must not let this happen.

Manish Sabharwal and Rituparna Chakraborty are co-founders of TeamLease Services

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