Social and Legal Protection of Workers in Informal Sector

Social and Legal Protection of Workers in Informal Sector!

The plight of the informal sector workers continues and their condition remains insecure and low-paid.

The state has from time to time passed laws which benefit sections of the informal sector, for example the Beedi and Cigar Workers (Conditions of Employment) Act.

The basic question which arises in the case of countries like India is: can the state afford to finance social protection? This issue was raised in the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS, now MGNREGA) under the MGNREGS Act 2005 and the critics highlighted the costs of the scheme.


It was said that initially the scheme would cost the government Rs 36,000 crores per annum. This is a huge amount, but it comes to a mere 2 per cent of the total expenditure of the country. It has to be admitted that all schemes of social protection cannot be funded totally by the state, and there has to be some form of people’s participation.

In the formal sector, social security schemes such as pension and provident fund are a result of the contribution of the employers and the employees. However, this is not possible in the case of the informal sector, because a large section is self-employed with no distinct employer. Other large sections such as construction workers, casual labourers and daily rated wage workers have employers, but they are not permanent.

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For example, a construction worker is a permanent worker because they work throughout the year on the construction site; however, this person is not treated as a permanent worker as in the formal sector because there is no permanent employer. In such cases, schemes for social protection through mutual contribution cannot take place.


At the same time, there are other ways and means of ensuring that social protection is granted to this section of the labour force. In the state of Kerala, there are welfare funds for different sections of informal workers, which include funds for construction workers, toddy-tappers, auto-rickshaw drivers, and so on.

How are these schemes funded? In the case of construction workers, a small cess comprising 1 or 2 per cent of the total cost of construction is deposited with the construction workers’ welfare fund. For toddy-tappers, a similar cess is imposed on the toddy sold. The fund for beedi workers under the Beedi and Cigar Workers (Conditions of Employment) Act comes from a cess imposed on each packet of beedis.

Though the cess amount may be small, when added up, it comes to a considerable amount. For example, the toddy-tappers’ welfare fund is so flush with money that it has even provided loans to the government. In the case of the beedi fund, it was found that several crores of rupees have been amassed, and in some states, this money has been used for providing housing and education of their children.

The latter is especially important for beedi workers because it helps the next generation to move away from beedi rolling and find alternative careers. Similarly, the construction workers’ board in Delhi has amassed several hundred crores of rupees through the cess it imposes on construction costs.


These funds are used for sudden or large expenses such as deaths, marriages, and births. A member of the fund can avail loans at low rates of interest for these instances. Besides, these funds provide for education of the children, health insurance and housing. Hence, even though India is not a rich country, there are enough sources for raising funds for the informal sector workers. What is needed is a political will to implement such schemes, which is often lacking.

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