RBI suggests unemployment insurance fund, universal access to social security for workers

Nearly 79% of the working population in the informal job sector do not have a written contract, says a report by the Reserve Bank of India (RBI). About 5% of these workers have a contract for less than one year, less than 3% have a contract signed for one to three years, and only 15% have a written contract for more than three years, adds the report.

The central bank, considering the plight of employees in the informal job space, has suggested to firms to build an unemployment insurance fund during the economic boom period to temporarily support workers when they are retrenched.

The prevalence of high informal employment is a major challenge, with 71% of the total employed labour force being self-employed. Worse, 77% of the self-employed enterprises are small and employ less than six workers, the data brought out by the RBI in its latest report on 'Currency and Finance' said.

Quoting from the Periodic Labour Force Survey, it said that 78% of the working population in India have not received any type of training, less than 10% are learning on the job, a little more than 4% are self-learning and only about 3% have received formal training.

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On the education profile of the workforce, it said that 28% of them are illiterate and another 26% have received only primary school education. Only 9% possess a graduate/postgraduate degree.

The RBI underscored the need for raising the quality of labour through large-scale expansion of public expenditure on education and health and the Skill India mission. Above all, it has asked companies to have labour reforms with flexibility to hire and fire workers, that can allow firms to adjust their job force according to economic cycles.

"One option here could be to build an unemployment insurance fund during periods of economic boom at the firm level, which can be utilised to financially support workers up to a limited period after retrenchment," the central bank said.

It, however, observed that many of the social security measures apply to firms that have a certain minimum number of workers, which create incentives for firms to not scale up. To address the issue, a policy option could be the universal access to social security irrespective of the company's size, with each firm required to earmark a certain percentage of their profit for workers.

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