Indian Economy: Reforms and Development by Pradip Kumar Biswas & Panchanan Das

Author:Pradip Kumar Biswas & Panchanan Das
Language: eng
Format: epub
ISBN: 9789811382697
Publisher: Springer Singapore

9.1.1 Evolution of the Concept of Unorganized Sector in India

Formally, ‘unorganized sector’ is associated with manufacturing where a factory unit employing 10 or more workers and using power, or simply employing 20 or more workers, is required to be registered under the Factory Act 1948. The remaining factories or manufacturing units that employ less than 20 workers without using power, or simply employing less than 10 workers, are not required to be registered under the Act and thus categorized as belonging to the ‘unorganized sector’. This concept and definition of ‘unorganized sector’ are, however, not applicable to the enterprises involved in non-manufacturing activities, such as trade and services, where there is no mandatory requirement to make formal registration of the enterprises under any act, based on size of employment or any other criteria. It is left to the individual enterprises whether they would go for formally incorporating and registering the business entities with the Registrar of Companies in particular state. Those enterprises that do not register are clubbed as belonging to unorganized sector. This would make the estimate of the unorganized sector arbitrary depending on the decisions of the enterprises to register.

Central Statistical Organization (CSO) and The National Commission for Enterprises in the Unorganized Sector (NCEUS) came out with different working definitions for organized sector (and thereby unorganized sector, as a residual) in the case of trade and services. According to the NCEUS (2007) if a private or proprietary enterprise employs 10 or more workers or providing social benefits, the enterprise is considered as belonging to organized sector. According to CSO, if a private or proprietary enterprise is registered under some act such as Factory Act, Sales Tax Act, individual state’s Shops and Establishment Act, it is considered as belonging to organized sector.2 On the other hand, according to NSSO, which is the major source of data on unorganized sector, ‘The unorganized sector comprised the following types of enterprises: (i) All the enterprises except units registered under Section 2m(i) and 2m(ii) of Factories Act, 1948 and Bidi and Cigar Workers (condition of employment) Act 1966. (ii) All enterprises except those run by Government (Central Government, State Governments, Local bodies)/Public Sector Enterprises’ (NSSO 2003, p. 12). This definition would highly overestimate the unorganized sector as it would include large private corporate enterprises involved in trading and services. While analyzing NSSO data on unorganized service sector enterprises, Dahejia and Panagariya (2013) commented, ‘Most private sector service enterprises, whether small or large, are officially in the unorganized sector. For instance, large private sector banks such as the ICICI bank or HDFC bank and software export giants such as the Infosys, Wipro and Satyam are officially in the unorganized sector’ (p. 97). Thus, for a clear and more realistic picture of the unorganized non-agricultural sector an unbiased definition is required.

The NCEUS has adopted a labourist approach of informality, used among others by ILO, which takes consideration of the conditions of employment or work in both the cases of establishments as well as OAEs. It would provide a better approximation of the scenario of the unorganized sector.

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