ON 11 DECEMBER 2004

1.         The Prime Minister had an intensive interaction with the National Commission on Enterprises in the Unorganized/Informal Sector and its Advisory Board on 11.12.2004.   The List of participants is enclosed.

2.         At the outset,  Dr. Arjun K.Sengupta, Chairman of the Commission, thanked the Prime Minister for sparing his time to meet the Commission.  Acknowledging the Prime Ministerís personal contribution in the constitution of the Commission, he stated that the wide-ranging terms of reference formulated for the Commission reflect the concerns and priorities of the Government in respect of the informal sector of the economy.  The Chairman informed the Prime Minister that the Commission has been focussing on a few significant programmatic interventions, which could be adopted in the immediate term.  The   Commission and its Advisory Board have held two meetings. Detailed discussions have also been held with various stakeholders.  In the light of these deliberations, the following issues have been identified for investigation by the Commission in the  next few months. 

ō      The notion of growth poles for the informal sector in the form of clusters/hubs, where external economies need to be provided to spur employment generation and productivity enhancement and the feasibility of integrating the initiatives and programmes of various Ministries in this domain;

ō      Skill formation in the informal sector and the potential for public private-partnership in the provision of the required skills;

ō      Provision of micro finance and related services to informal sector enterprises and strengthening of the institutional framework in this area;

ō      Issues concerning social security for the workers in the informal sector and instrumentalities for achieving this objective.

 3.            Dr.Sengupta stated that the Commission will also look into the impact of the legal and regulatory framework on the functioning of the unorganized/informal sector and the legislative initiatives needed to unleash its potential for employment generation.

 4.         The Chairman indicated that issue papers on the identified priorities are being prepared for initiating a discussion with the Ministries concerned, State Governments and other stakeholders.  Interactions with eminent thinkers such as Prof. Amartya Sen are also being organized.  He hoped that the Commission would be able to formulate a few concrete proposals for the ensuing Budget exercise.  He made a special mention on the unstinted support extended to the Commission by Shri T.K.A.Nair, Principal Secretary to the Prime Minister, Shri R.Gopalakrishnan, Joint Secretary, Prime Ministerís Office and Shri B.V.R.Subrahmanyam, PS to Prime Minister, without which the Commission could not have become functional within a short time of its constitution.

 5.         In his address to the Commission, the Prime Minister underlined the importance of formulating a new development strategy in view of the fact that the organized sector has ceased to be a creator of employment opportunities. The growth of productivity and employment generation capacity in the informal sector, which accounts for 90-95% of the employment in the economy, has to keep pace with the rate of increase in the labour force.    In this context, the Prime Minister highlighted the concerns which the Commission would have to address on priority.  In the first place, the problems of production, including the availability of capital, which confront the unorganized sector, will have to be taken up.  In particular, the imperfections of the market for capital in relation to the informal sector will need to be addressed.  Measures for facilitating market access for the unorganized sector, which is at a disadvantage compared to the organized sector, also need to be devised.  The Prime Minister also underlined the importance of identification and adoption of best practices in the field of technology upgradation in the context of an unprecedented acceleration in the generation of knowledge and technological advancement.  

6.         The Prime Minister laid special emphasis on the relevance of the Gandhian model of decentralized development.  The Chinese experience of promoting vast conglomerates of village and municipal enterprises to stem the exodus from the countryside also needs to be studied.  

7.         The Prime Minister underlined the importance of comprehensive social security for the informal sector in view of the increasing commercialization of the society and the weakening of the traditional social fabric. 

8.            Referring to a certain bias in the system against the informal sector, the Prime Minister called for a review of the existing legal framework and cautioned against the risk of substituting one set of inspectors by another in the name of environment protection and other concerns. 

9.           In conclusion, the Prime Minister exhorted the Commission to come up with a charter of a new deal for the informal sector of the economy.  He said that ideas are more influential than vested interests and there is an urgent need to reach out to the forgotten sections of the society.  

10.            Following the Prime Ministerís address, Members of the Commission and the Advisory Board articulated their views and shared their insights with regard to the informal sector.   

11.       Dr. K.P.Kannan, Member recalled the work done by the Centre for Development Studies in Kerala  on issues of social security  and  underlined the need to view social security in a larger canvas and as an investment in human capital so that it addresses not merely the question of equity but  also efficiency.  Citing examples of  the existing national and regional level models, which provide some measure of  social security to certain sections of workers, he suggested that the Commission should assess their potential and examine the modalities of enlarging their scope and coverage to more occupations and regions.  The approach has to be one of developing a social security framework in which different models could coexist. Dr.Kannan  also underlined the  importance of public-private partnership in the provision of  social security and the need to preserve the space for innovative initiatives and voluntarism. 

12.       Shri K.K.Jaswal, Member Secretary stated that the Commissionís interaction with the Central Statistical Organisation and the Report of the 55th NSS Round have been helpful in a proper appreciation of the definitional issues in the unorganized/informal sector  and the characteristics of employment in informal sector enterprises.  The concept of growth poles/clusters could be employed to supply the deficiencies of the enterprises in a cost-effective manner, provided there is a convergence in the strategies and programmes of different sectoral  and territorial units of Government.  He also underlined the importance of harnessing Information and Communication Technologies to the development of informal sector enterprises.  The success of programmes such as e-Chaupal of ITC, Chirag of N-Logue and Akshaya in Kerala has demonstrated  the potential of Information and Technology as well as the scope of public-private partnership in this domain. 

13.            Dr.Bibek Debroy, Rajiv Gandhi Foundation suggested that the multitude of rules and regulations applicable to informal sector enterprises should be rationalized.  The existing system inhibits entrepreneurship and the Commission needs to focus its attention on this issue. 

14.            Dr.B.N.Yugandhar, Member, Planning Commission highlighted the skill incongruence existing in the country.  There is a mismatch between the education provided in schools and colleges and the skills required for absorption in the labour market.  The skill deficit in the  informal sector needs to be assessed and measures taken to bridge the gap between demand and supply of qualified  manpower.   He suggested that the capacity of existing institutions be enhanced by operating second  and third shifts in the I.T.Is. and other  technical institutions.  In the context of an alarming increase in the number of literate unemployables, he advocated a revamp of the plethora of employment generation schemes, which, if provided the  required linkages, could absorb upto 3.5 million entrants in the labour force. 

15.            Ms.Madhu Kishwar, Editor, Manushi  made a  strong plea for police reform, as police connivance was an important factor in the excesses  of  the Inspector Raj.  Extortion by enforcement agencies is often accompanied by   abuse of human rights. There is a need to redefine the mandate of the regulatory mechanism.  Another issue of concern is that of delays and defaults  in payments by the organized sector to the enterprises in the unorganized sector.  As a first step, the disclosure of dues to small and tiny units must be made mandatory for the corporate sector.  She also underlined the urgency of reviewing the policy for utilization of public land to promote employment generation in the informal sector and protect petty traders, craftsmen and service providers from appropriation and exaction by enforcement agencies.   She suggested that a few pilot projects may be taken up to demonstrate the feasibility of creating extortion-free havens for informal sector enterprises.     

16.       Shri Joginder Kumar, President, Federation  of Tiny and Small Scale Industries of India welcomed the constitution of the Commission to address the problems of the tiny and small scale sector, which have generally been overlooked.  In this context, he drew attention to the imposition of service tax on outsourced manufacturing services, which together with the levy of tax on Commission Agents was proving detrimental to the small scale sector.  He pleaded for extending the exemption of service tax currently available to textiles, agriculture, printing and education to the whole of the manufacturing sector.  He stated that the current rate of duty on secondary and defective steel was seriously affecting the competitiveness of the small scale-manufacturing sector in the global market.  Shri Joginder Kumar also urged that this sector should be given a representation in the  Prime Ministerís Economic Advisory Council. 

17.             Ms.Mirai Chatterjee, Self Employed Womenís Association (SEWA) observed that social security and work security cannot be considered in isolation.  The experience in SEWA proves that these issues are closely inter-linked.  The challenge lies in  developing appropriate mechanisms to reach the poorest of the poor in the country.  She advocated the concept of Identity Cards for  entrepreneurs in the informal sector, which would entitle them to the  requisite clearances and assistance from Government, banks and other agencies.  She also pleaded for expediting the review of regulations in the area of micro savings and insurance.  The removal of regulatory hurdles in the area will give an impetus to the expansion of micro finance services in the informal sector. 

18.            Professor Bhalchandra Mungekar, Member Planning Commission was of the view that the process of growth  was likely to be more and more exclusive;  hence the need to expand social security.  Structural factors  like caste and gender discrimination, rural urban divide and low skill levels have also contributed to unemployment. The Employment Guarantee Scheme needs to be  adapted to local conditions in the  States. He suggested  that the 13 million hectares of cultivable wasteland available in the country should be distributed to the landless SC and ST labourers and its utilization integrated with  the Employment Guarantee Scheme. Referring to the rampant frustration in the tribal belt, he suggested an immediate review of Forest Laws to restore traditional tribal rights to forest produce and protect the  livelihoods of tribal communities.  Dr. Mungekar also drew attention to the alarming drop out rate in schools in backward areas, for which a specific intervention has to be devised.  The skills being imparted by technical institutions need to be upgraded  constantly in step with the market demand. 

19.       Prof. S.Mahendra Dev, Centre for Economic and Social Studies, Hyderabad  stressed the importance of  deregulation, promotion and protection of informal sector.  The systemic bias against the unorganized sector needed to be rectified.  The sector should, in fact, be favoured because of its low incremental capital-output ratios and high employment potential.  Referring to the diversity of social security models tried out in the country he opined that a standard prescription would not work in the country.  He stated that the self help movement in Andhra Pradesh has gathered a momentum of its own  and more than five lakh Self Help Groups with a membership of almost 60 lakh women are in place.  The fact that the income generation activities pursued by the Self Help Groups are mostly of a low technological level is, however, a cause of concern.  Suitable strategies need to be developed  for improving the linkages of this sector with the organized and corporate sector  to overcome the constraints of technology and market access 

20.            Prof.Amit Bhaduri  was of the view that academic input  could be used to critically appraise the current strategy for the development of the informal sector and visualize feasible alternatives to it.    The problem of  marketing may either be seen as an issue of market share or one  of market size.  Strategies  for increasing  the size of the market  will have benefits across sectors.   As regards skill formation, an emphasis on the supply side  alone will not yield the desired results; there is a need to address  the demand  side concerns as well. 

21.       Prof. Jean Dreze noted that the Commission, like most Government bodies, did not  have any woman Member.  Referring to the Employment Guarantee legislation, he stated that it was evoking a positive response from State Governments and bodies of  employers.  The Scheme seems to offer a viable strategy for providing a measure of security of employment to the disadvantaged sections of the labour force.  He was of the view that the issues of corruption and harassment could largely be addressed by a strong Right to Information Act.  Striking a note of caution in regard to the pursuit of deregulation in the informal sector, he stated that even in informal enterprises, there were areas of conflict and a certain degree of regulation was needed to offer a minimum level of protection to the workers.                                                        

The meeting ended with a vote of thanks to the Prime Minister.