Redefining Formal Jobs Key To Getting A Clear Picture Of Employment Growth: Panagariya Panel

Prashant K Nanda and Gireesh Chandra Prasad

Jul 18, 2017, 12:22 PM | Updated 12:22 PM IST

NITI Aayog vice chairman Dr Arvind Panagariya 
NITI Aayog vice chairman Dr Arvind Panagariya 
  • A NITI Aayog panel has recommended that a more pragmatic definition of formal workers replace the current, highly restrictive description to get a real sense of jobs being created.
  • Joining the jobs discourse, a high-level government panel has hinted that employment generation numbers may have been under estimated and has suggested that the definition of formal workforce be redrawn.

    A government task force headed by NITI Aayog vice-chairman Arvind Panagariya has suggested adopting a “pragmatic definition” of formal workers and recommended that workers covered under private insurance or pension, those subjected to tax deduction at source (TDS) and those working in companies excluded from the Goods and Services Tax Network (GSTN) should be considered for counting of jobs.

    India lacks accurate jobs data and unemployment has been a prickly issue for successive governments.

    The task force, which was set up in May, has now recommended that at least for the purpose of counting, people covered under one of the following be considered as formal workers:

    • Workers covered under the Employees’ State Insurance Act,1948
    • Workers covered under Employees’ Provident Funds and Miscellaneous Provision Act, 1952 (or other similar social security scheme)
    • Government and other public sector employees
    • Workers having coverage under private insurance or pension schemes or provident funds
    • Workers subject to tax deduction at source on their income through submission of Form 16 or similar Income Tax form.

    “The Task Force is of the view that, in the Indian context, where written contracts are not common and nearly three-fourths of employment is in enterprises with less than 10 workers, the definition of a formal worker based on enrolment in provident funds, medical insurance or pension schemes represents a reasonable compromise,” said the report.

    The panel also suggested that the government can tap GSTN for getting a sense of the jobs being created both in the services and manufacturing sectors, news agency PTI first reported on Friday.

    It suggested that companies or establishments excluded from GSTN because of their nature of service or low turnover should be surveyed annually to get a picture of the jobs being created. Such annual surveys should include all enterprises in health and education sectors, and those with turnover less than Rs 2 million in other sectors.

    India faces the challenge of creating jobs for a predominantly young population. According to credit rating firm Crisil, around 18 million people enter the workforce every year. The number of jobs created is far lower; between 2011-12 and 2015-16, India created 3.65 million jobs a year, according to industry lobby group Confederation of Indian Industry.

    The task force said the redefinition of formal workers, if officially adopted, would have implications for existing rules and would require amendments to the relevant Acts.

    Currently, India does not have a fixed definition of formal workers, underlined the Panagariya panel. Consequently, various definitions have been applied. A commonly used definition accepts only regular workers in enterprises registered under the Factories Act, 1948 as formal workers. The workers are called “organised” workers by NSSO instead of formal workers. Under this definition, all workers in service sectors are classified as informal or unorganised workers, the task force noted.

    An alternative definition classifies all workers in enterprises with 10 or more workers and all government workers as formal workers. This definition also uses the term “organised workers” instead of “formal workers”. Yet another definition classifies workers as formal, provided they have a contract regardless of the size of the enterprise in which they work.

    “All these definitions are highly restrictive and exclude many workers who have decent and steady jobs but either do not work in large enough enterprises or do not have written contracts. After considering various alternatives, the task force concluded that it was desirable to adopt a new, more pragmatic definition of formal workers.


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