HOW TO MAKE SELF-EMPLOYMENT COUNT

THE CONTEXT: The structure of India’s labor force has remained relatively stagnant, with a persistent predominance of self-employment. As of 2023-24, 58.4% of the workforce is self-employed, up from 57.3% in 2022-23. This high level of self-employment is largely driven by the predominance of the agricultural sector and the relative shift towards the services sector, bypassing manufacturing.

THE IMPLICATIONS:

• • Low productivity: Self-employed workers, particularly those in Own Account Establishments (OAEs), are less productive than those in Hired Worker Establishments (HWEs). The annual Gross Value Added per worker in OAEs is about 50% of that in HWEs (Rs 1 lakh vs 2 lakhs).
  • Poor quality of work: Self-employment in India is often characterized by informality, lack of social security, and absence of written contracts. This leads to precarious working conditions and limited access to benefits typically associated with formal employment.
  • Gender disparities: Self-employed women are likelier to be engaged as “helpers in household enterprises” than as own-account workers. This contributes to lower earnings and fewer opportunities for economic advancement.
  • Underemployment: Many self-employed individuals, especially in rural areas and among women, work fewer than 40 hours per week, indicating significant underemployment.
  • Low earnings: Self-employed workers’ earnings are often barely above those of casual laborers. The gender gap in self-employed earnings has widened between 2017-18 and 2023-24, particularly in rural areas.

KEY FEATURES OF INDIA’S LABOR FORCE:

• • Rural Dominance and Economic Distress: In rural areas, women’s participation in self-employment has surged, primarily driven by economic necessity rather than opportunity. Between 2017-18 and 2023-24, the share of self-employed women rose from 51.9% to over 67%. This increase often involves low-paying or unpaid work within family enterprises, reflecting limited access to quality employment opportunities.
  • Barriers to Female Participation: Several factors contribute to low female LFPR, including cultural norms, lack of childcare facilities, and limited access to safe transportation. Additionally, women face a significant wage gap, earning on average 33% less than their male counterparts. Educational and skill gaps compound these challenges; only 12.3% of women aged 15-59 received vocational training as of 2021-22.
  • Economic Implications: The underutilization of women in the workforce impedes economic growth. A report by Bain & Company suggests that increasing female workforce participation could significantly boost India’s GDP. However, despite consistent GDP growth, India has not realized the upward trend in female labor supply seen in other maturing economies.
  • Shift from Agriculture to Services: The Indian economy has experienced a change from agriculture directly to services, bypassing manufacturing—a path different from early industrializers like Europe and North America. While agriculture’s contribution to GDP has decreased to less than one-fifth, it still employs a significant portion of the workforce. Conversely, the services sector now contributes nearly half of the national economic value but uses only about a third of the workforce.
  • Implications for Structural Transformation: This shift has positive and negative implications. On one hand, it has created numerous white-collar jobs with better working conditions and higher salaries, particularly in urban areas. On the other hand, it has deepened the rural-urban divide and failed to absorb agricultural surplus labor into manufacturing jobs.
  • Challenges in Manufacturing Growth: The slow growth in manufacturing has not provided enough jobs to absorb workers moving away from agriculture, leading to underemployment and unemployment issues. The services sector’s reliance on specialized skills further exacerbates this challenge, as many workers lack the necessary education and training.

SELF-EMPLOYMENT PATTERNS IN INDIA:

• • Gender Disparities: Self-employment is a significant component of the labor force in India, but it exhibits stark gender disparities. Men predominantly operate as “own-account workers,” managing their enterprises without hiring regular employees. In contrast, many self-employed women are categorized as “helpers in household enterprises,” often working without pay.
  • Necessity vs. Opportunity: Women’s participation in self-employment is frequently driven by necessity rather than entrepreneurship. Economic distress, lack of salaried job opportunities, and social constraints push many women into self-employment. For instance, the share of self-employed women rose from 51.9% in 2017-18 to 67% in 2023-24. However, this increase often reflects survival strategies rather than genuine entrepreneurial ventures.
  • Spatial Variations: Self-employment patterns vary between rural and urban areas. Approximately 73.5% of women in rural India are self-employed, compared to 43.2% in urban areas. This high rate of rural self-employment is often linked to agricultural activities and informal sector jobs.
  • Challenges for Rural Women: Rural women face greater challenges due to limited access to education, skill development, and formal job markets. Social constraints further restrict their economic activities, making self-employment a fallback option rather than a choice. These women are more likely to be involved in low-paying or unpaid work within family enterprises.

CHALLENGES ASSOCIATED WITH SELF-EMPLOYMENT IN INDIA:

• • Lack of Social Security and Benefits: Social Security benefits are a significant issue for self-employed workers. According to the National Sample Survey Office (NSSO), only about 26% of informal workers have access to social security, such as provident funds or health insurance. This lack of coverage exposes workers to financial risks and limits their ability to cope with economic shocks.
  • Impact on Job Quality: The informal nature of self-employment often results in precarious work conditions. Workers lack job stability and are not entitled to benefits like paid leave or healthcare, which are standard in formal employment. This situation is further compounded by the absence of written contracts, which affects job security and bargaining power.
  • Earnings Disparities: On average, self-employed women in rural areas earn around Rs 5,000 per month, significantly less than their salaried counterparts, who earn between Rs 11,000 and Rs 12,000. The gender earnings gap widened between 2017-18 and 2023-24, especially in rural areas.
  • Underemployment Issues: Many self-employed individuals, particularly women in rural areas, work less than 40 hours per week. This underemployment indicates that these workers are available for additional work but lack opportunities. The limited hours contribute to low overall earnings and economic insecurity.
  • Productivity Challenges: OAEs have significantly lower productivity levels, with Gross Value Added per worker being about half that of HWEs (Rs 1 lakh vs Rs 2 lakhs). This disparity is primarily due to limited access to finance and managerial support, which restricts the scale and scope of operations.
  • Economic Implications: The predominance of OAEs reflects a survival strategy rather than entrepreneurial success. These enterprises often emerge out of necessity due to a lack of better employment options. This situation underscores widespread poverty and a distressed job market.

CONSTRAINTS ON IMPROVING SELF-EMPLOYMENT QUALITY:

• • Low Educational Attainment: As of 2023-24, only 20.6% of self-employed individuals have completed Grade XII or higher education, with the figure for women being alarmingly low at 11.4%. This reflects a persistent gap in educational attainment, particularly for women in rural areas, where traditional norms often prioritize domestic responsibilities over education.
  • Vocational Training Deficit: Vocational training remains abysmally low, with only 3% of self-employed individuals receiving formal or vocational training. This lack of skill development is a major barrier to improving the quality of self-employment. The Economic Survey 2023-24 highlights that only 51.25% of India’s graduates are employable due to a mismatch between education and market needs. Furthermore, societal biases often associate skill development with low academic achievement, deterring participation.
  • Credit Deficit: According to the Annual Survey of Unincorporated Sector Enterprises (ASUSE), over 41% of unincorporated enterprises operate within households, and less than one-fifth hire regular workers. This reflects the small scale and limited resources of most self-employed ventures.
  • High Borrowing Costs and Limited Loan Sizes: Traditional lenders often require collateral, making it difficult for small entrepreneurs to secure loans. The India Digital SME Credit Report 2023 reveals a working capital gap of $112 billion for small businesses, highlighting the systemic challenges in accessing credit.
  • Impact on Marginalized Groups: Minority-owned businesses face unique challenges due to systemic biases in legal and administrative systems. For example, SC/ST entrepreneurs are more likely to face difficulties in accessing legal recourse, which limits their ability to grow their enterprises.

THE WAY FORWARD:

• • Expand Vocational Training Programs: Programs like the Pradhan Mantri Kaushal Vikas Yojana (PMKVY 4.0) focus on demand-driven skill development, including new-age skills such as AI, robotics, and drone technology. These programs should be scaled further to include rural and marginalized populations. As of December 2023, PMKVY has trained 1.4 crore individuals, but its reach must improve in underserved areas.
  • Overhaul ITIs: Integrating entrepreneurial modules into ITI curricula is essential. The Directorate General of Training (DGT) has initiated programs like drone-related courses and entrepreneurship training for ITI instructors, but these efforts need broader implementation.
  • Link Skill Development with Financing: Schemes like PM Mudra Yojana can be integrated with vocational training to ensure that skilled individuals can access credit for starting enterprises. For example, the Mudra scheme disbursed loans worth ₹3.48 lakh crore in FY 2023-24, but targeted outreach to skill-trained youth is necessary.
  • Strengthen Microfinance Institutions and Cooperative Banks: Microfinance institutions are vital in providing small loans to self-employed individuals. Strengthening their capacity through government support can bridge the $530 billion credit gap in the MSME sector highlighted by the Economic Survey 2023-24.
  • Streamline Business Registration: Simplifying registration processes for micro-enterprises can encourage formalization. The Udyam Registration portal has formalized over 4.69 crore MSMEs by July 2024, but further simplification is required at state levels where compliance burdens remain high.
  • Encourage Deregulation: Threshold-based concessions often incentivize enterprises to remain small. Introducing sunset clauses for such incentives can encourage growth beyond these thresholds while maintaining benefits during the transition phase.
  • Address Social Barriers: Initiatives like Mission Shakti focus on empowering women through safety measures, skill development, and economic opportunities. The program’s funding has increased significantly from ₹1,864 crore in FY 2023-24 to ₹2,517 crore in FY 2024-25.

THE CONCLUSION:

Improving self-employment quality requires a multi-pronged approach that integrates skill development, financial inclusion, administrative simplification, and targeted empowerment of marginalized groups such as women and SC/ST entrepreneurs. By addressing these constraints holistically through policy interventions like PMKVY 4.0, Mudra Yojana, DAY-NRLM, and Mission Shakti, India can unlock the potential of its vast self-employed workforce while driving inclusive economic growth and reducing informality in employment structures.

UPSC PAST YEAR QUESTIONS:

Q.1 Normally countries shift from agriculture to industry and then later to services, but India shifted directly from agriculture to services. What are the reasons for the huge growth of services vis-a-vis industry in the country? Can India become a developed country without a strong industrial base? 2014

Q.2 How has globalization led to reduced employment in the formal sector of the Indian economy? Is increased informalization detrimental to the development of the country? 2016

MAINS PRACTICE QUESTION:

Q.1 Discuss the challenges associated with self-employment in India, focusing on informality, low earnings, and poor productivity. How do these challenges affect the overall quality of self-employment, and what policy measures can be implemented to address them?

SOURCE:

https://indianexpress.com/article/opinion/columns/how-to-make-self-employment-count-9717794/