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Quick Survey On Impact of the Global Financial Crisis on Workers and Small Producers in Selected Sectors in the Indian Economy Executive Summary Indira Hirway1 Introduction The impact of the global financial crisis has been transmitted to the Indian economy through three major channels, namely, financial sector, exports and the exchange rate. Though the Indian banking sector is not overly exposed to the sub-prime crisis, the large capital outflow, following the crisis, has resulted in financial crunch and shortage of liquidity for large number of sectors in the economy, with credit to small / micro enterprises almost dried up. In the case of exports, which still account for only about 22 percent of the Indian GDP, the decline caused by global crisis, have had a relatively small direct impact on the selected sectors. However this impact is a matter of concern because (a) the affected workers are informal workers and are unprotected, and have almost nothing to fall back on in the crisis and (b) the indirect effects and the effects in the subsequent rounds have been significant and widespread. And lastly, the third channel through which the global crisis is transmitted to the Indian economy is exchange rate. The Indian rupee came under the pressure due to capital outflow, declining reserves of foreign exchange, decline in export earnings etc. This made import of raw materials and inter-mediate goods more expensive, and reduced the prices of export goods in the global market when the global market is shrinking. All the three channels have impacted adversely on several sectors and particularly export oriented sectors2 . In the above context as well as in the context of the increasing evidence of the adverse repercussions of the global economic slowdown on the Indian economy, UNDP India supported in April 2009, quick surveys across sectors and regions to obtain data from the field that would provide a better understanding of the implications of the slowdown on the poor. This study has been undertaken by a team of researchers located at different organizations: Centre for Development Alternatives (Prof Indira Hirway), Gujarat 1 Centre For Development Alternatives, Ahmedabad., and Coordinator of the UNDP India sponsored study on the „Impact of the Global Financial Crisis on India‟s Poor „ email@example.com 2 The other channels through which the global crisis seems to have transmitted to the Indian economy are (a) decline in remittances, (b) decline in tourism, and (c) decline in FDI. Institute of Development Research (Prof Amita Shah), Entrepreneurship Development Institute, India (Dr. Santosh Kumar and Dr Jignasu Yagnik) and Self Employed Women‟s Association (SEWA Teams in UP, MP and Gujarat). Prof Indira Hirway has coordinated the study. The key objective of this quick study is to understand the impact of global crisis on informal and marginalized workers affected by the global crisis. The sectors for the quick surveys were identified on the basis of emerging reports that highlighted impacts on specific sectors. These included sectors that were affected directly as well as indirectly through the inflow of displaced workers from other sectors as a survival strategy. The focus was on understanding the repercussions on poor people in terms of their livelihoods and human poverty encompassing the dimensions of education, health and nutrition/food security. The sectors thus identified include gems and jewelry, engineering, auto parts, agriculture and textiles. In addition, an attempt was also made to understand the challenges experienced by people belonging to marginalized groups such as the waste pickers. The surveys have focused mainly on workers (and their households) and small enterprises / small producers / own account workers in the selected sectors. The specific objectives of the study are (1) to examine the impact of the crisis on the workers and small producers working in the selected sectors, (2) to draw inferences for interventions to address the adverse impacts on the workers and the sectors in the short and medium terms and (3) to examine and recommend social security options to help the workers through systemic social protection. The study has also made recommendations for reorganizing labour and small units in the selected sectors to strengthen the sectors under the possible crisis. And finally, in the light of the findings, it has raised questions about the validity of the neo-liberal policies for the Indian economy. The study is a quick study. It started in the middle of April and will be over by the middle of June. Table 1 The Sample Sample Organization Location of Sector State/s Total Study Workers Small Industry Surat 127 35 162 Gems and Gujarat CFDA Jewellery Bhavnagar 34 34 Auto parts Punjab Ludhiana 125 31 156 EDII Industry Gujarat Rajkot 120 30 150 Engineering GIDR Industry Tamil Coimbatore 123 40 163 Nadu Guajarat Ahmedabad 95 5 100 Garment SEWA Madhya Indore 100 100 Pradesh Gujarat Gujarat 100 10 100 Agriculture SEWA Madhya Madhya 100 100 Pradesh Predesh Waste Gujarat Ahmedabad 90 10 100 SEWA Pickers Chikan Uttar Lucknow 100 20 120 SEWA Craft Pradesh Total 1129 156 1285 Approach of the Study All sector-studies have followed a common approach, with some additions to meet some sector specific requirements. The common approach consisted of the following steps: Analysis of the available literature and secondary data to understand the impact of the global crisis on the selected sector: This also included in-depth discussions with concerned government officials, sector (industry) leaders and office bearers of associations and labour leaders if any. Selection of a centre or two for an empirical study based on the sectoral picture of the impact, and preparing a profile of the selected Centre (s) to understand the nature of impact of the crisis at a local level: This involved discussions with sector (industry leaders), officials and labour leaders in the selected centres as well as focus group discussions with men and women workers, small entrepreneurs and self employed / own account workers and household members (including women members) of workers. Sample survey of selected 100-150 workers and small producers: The sample was selected purposively on the basis of the information of typologies of workers and location of workers. Though the sample size is small, the sample survey does provide a good understanding of the impact of the global crisis on workers. A sector specific schedule was designed for producers of each of the sectors. Each sector study undertook some case studies in order to understand the nature of the impact of the crisis at the household level. Key Findings of the Study: Profile of Workers: The seven sectors differ considerably from each other in terms of technology & productivity, organization of production (Garment and Chikan Craft are relatively more home-based, Gems & Jewelry units are officially to be registered under the Factories Act), sex and age composition of workers, and wages & incomes of workers. However, the common features are that all the sectors are export oriented or connected with exports / imports; have informal enterprises and have predominantly informal workers. The Diwali (November 2008) has been the turning point for these sectors in the sense that the sectors and workers felt the impact of the crisis after the Diwali. The profiles of the workers indicate that (1) the share of women in total workers is less than 5 percent in auto parts industry, engineering industry and gems and Jewelry industries, while it is more than 90 percent in waste pickings, home based garment manufacturing and 60 percent in agriculture, (2) most workers are Hindus except in Chikan craft in Lucknow and home based garment industry in Ahmedabad where Muslim women are in majority, (3) About 70-80 percent workers in all the sectors belong to the scheduled castes / tribes and OBC, (4) only one third of the workers live in pucca houses, and the rest in semi-pucca or Kachha houses, and (5) more than 95 percent workers (100 percent in the case of home based garments agriculture and waste picking) are informal workers. Though there are some “regular workers” in Auto parts, Gems and Jewelry and Engineering industry, they are not “permanent” and are not entitled to social protection or social security. Impact of the Crisis: More than 80 percent of the workers in the selected centres have been affected adversely by the crisis – except in the engineering industry, where the percentage of the affected workers is 58 percent. There has been a significant decline in (1) the average wage rate, (2) number of days of work in a month and (3) hours of work per day after the crisis. As a result, the monthly income of these workers has declined by 10 percent (engineering industry) to more than 60 percent (Gems & Jewelry and Garment industry). On an average, the monthly incomes have declined by about 40 percent. Changing Pattern of Employment: About 20 percent workers have been rendered unemployed after the crisis (40-45 percent in Gems and Jewelry, Garment and Chikan Craft); 40 percent workers have been forced to accept reduction in their work; while the rest of the workers have taken up work outside their respective sectors. About half the workers, working in the same sectors or outside the sectors, have experienced a shift from skilled to unskilled work, from “regular” or “contract” to casual work and from relatively high to low productivity petty work. In other words, they have been forced to move to the lowest rung of the labour market to survive in the crisis. Help Received from Different Agencies: The workers have hardly received any significant help from any agency, such as the Government (Central and State Government), employers, industry associations & chambers of commerce, trade unions or civil society organizations. The low support that a few workers and their households have experienced is of two categories: support in managing consumption needs of households and assistance received in accessing / retaining employment or work in the labour market. As regards the first category of support, no assistance has been provided to the workers and their households except for the small assistance provided by the industry associations in Gems and Jewelry and auto parts industries. This help covers less than 5 percent of the workers and the amounts are for from adequate. The governments did not help much because social security is almost absent and other assistance (free food grains, free education, free health services) did not come forth. The second category of support in finding alternative jobs / work also was not much. That is, the employment exchanges, with its wide network, could not provide any significant support. The workers therefore had only three alternatives left: (1) to depend on dis-saving, (2) to borrow from friends and relatives, or (3) to reduce household consumption expenditure. The study shows that the households decided to depend mainly on reducing consumption expenditure to manage the situation. About 31 percent households used dis-savings (most of them are from relatively better paid sectors such as Gems and Jewelry and auto parts industries) while about 16 percent households pawned their assets and 15 percent sold their assets like gold, silver, house etc. About 15 percent households borrowed from friends and relatives (in some cases money lenders) to meet their urgent consumption needs. This was more common in Gems and Jewelry and auto parts industry, where the income levels are relatively high. Workers in the other sectors are too poor to shell out money for friends and relatives. Though a few of them took loans from private money lenders, the amounts were small. The main strategy of the workers therefore was to reduce consumption expenditure to manage the situation. Reduction in Consumption Expenditure: The Mainstay of the Coping Strategy: A major coping strategy of the affected households has been to reduce household consumption expenditure. It is interesting to note that almost all households - those who have experienced a decline in income as well as those who have not experienced a decline - have reduced their consumption expenditure due to the overall uncertainty prevailing in the economy. Food Consumption: The most common strategy has been to reduce food consumption by reducing the use of quality food (i.e. milk, vegetables, fruits) and non-vegetarian food (i.e. eggs, meat, chicken etc) and by skipping a meal a day. About 65 percent households have reduced consumption of quality food while 6.5 percent households (mainly in waste picking, agriculture, garment and auto parts) have reduced one meal a day. As it came out in focus group discussions, women were more affected than men by the reduction in food consumption. Education and Health: Reduction in the expenditure on education and health was another major strategy of the affected workers. On an average half the households have reduced their expenditure on education by (1) shifting children from private schools to government schools (20 percent), (2) withdrawing children from school (15 percent), (3) not paying fees (6.5 percent) and by (4) reducing expenditure on books, uniform, education material etc. 3 percent households have also taken a loan to meet education expenditure. It needs to be added that in the case of Garment, Waste Picking and Agriculture, the school enrolment was as it is low and the education expenditure was also low. However, these households also have gone down further in education after the crisis to reduce expenditure as well as to rope children in the labour market. Again, 64 percent households reduced their expenditure on health by shifting to public hospitals or to home based treatment. It is to be noted that even the poor households depend on private health care as public health care is not accessible to all (due to poor infrastructure) and is not dependable. Our focus group discussions made it clear that after the crisis there is a tendency to avoid going for outside medical help as far as possible. In short, in the given constraints, the workers had no option but to resort to compromise on their well-being and human development achievements. Women the Worst Sufferers of Crisis: The study has shown that women are the worst sufferers of the crisis. They have suffered (1) as producers / own account workers / employers, (2) as wage earners at home or outside home as wage earners at home or outside home and (3) as home makers, and in the process, have taken on them a disproportionate burden of the crisis. To start with, women‟s participation in the labour market has increased by 31 percent on an average: 20.5 percent in Gem and Jewelry, 25.6 percent auto parts, 5.8 percent in engineering, 25 percent in garment, 58 percent in waste pickers and 10 percent in agriculture. Women have taken up part time or full time work to help the family in crisis. As the field studies show, women have entered into low productivity, low income activities, most of which are drudgery. These activities are unskilled construction work, agricultural work, house work (domestic hired work), or home based work like making incense sticks etc. In spite of spending long hours on these works the earnings have been miserably low. Self employed women workers seem to face several problems in managing their enterprises. Though these problems were there before the crisis, they have multiplied after the crisis. The major problems that they face are (1) poor access to credit, which has almost dried up after the crisis, (2) low level of infrastructure support, which has declined further as the government is worried more about the infrastructure of large units than about small and micro enterprises, (3) poor access to markets, specially after the crisis and (4) far from adequate support in technical up-gradation, skill training etc. There is clear evidence that shows that women‟s unpaid work has increased after the crisis. On an average 28 percent households reported that women‟s unpaid work has increased. This percentage varies from7.4 percent in engineering industry to 57.5 percent in garment industry and 49.0 percent in Chikan craft. The unpaid work has increased because (1) cash poor households have brought many market oriented activities within the purview of domestic work, (2) paid medical services have turned into unpaid domestic work of care for the sick (3) un/under employed men at home need more work / caring from women. In addition, one observes an increase domestic tension and conflicts due to the shortage of income on the one hand and the lack of adequate support from the government and other agencies on the other hand. About 47 percent households reported increased domestic tension and conflicts resulting in domestic violence in some cases. One third households also reported increased depression and increased incidence of mental and physical illness. A few cases of suicides have been observed in these sectors. About 18 percent households reported increased spending on smoking and drinking, mainly by men. This has once again impacted adversely on women and children in the households. Migration Back to Villages: Migrating back to native village has been an important coping strategy of urban workers affected by the crisis. Since many urban workers have their roots in villages, one observes that many of them have gone back to their respective villages after the crisis. This is because they find it difficult to live in cities without a job. Villages are cheaper for them since they have their ancestral home, some land (though not much), free goods and relatively low needs. About 30-40 percent workers from auto parts, Gems and Jewelry and engineering industries have gone back to their villages. The overall impact of this migration has not been very positive. To start with, these workers have depressed the wage rates in rural areas by 30-40 percent, with the result that the local workers are not happy with this invasion. Secondly, since the remittances have stopped, the local economy also has experienced depression: Tea shops, paan shops and small restaurants have closed down in some villages. And thirdly, the migrant workers are frustrated and depressed, creating tension and conflicts in these villages. NREGA is expected to help here as it provides employment opportunities to the new workers as well as protects the wage rate from falling. However, there is no evidence of these positive developments, as NREGA has not been taken seriously in the study areas. To sum up, the impact of the global crisis appears to be quite wide-spread. Its direct impact is felt by export-intensive industries like the diamond (cutting and polishing) industry, export-oriented industries (with a significant local demand) like textiles and garments, auto parts etc as well as industries / sectors like waste picking not directly connected with exports. The indirect impact seems to have occurred in a number of sectors, with the result that subsequent round impacts have been intensive in several pockets, leading to severe recession in some regions. Though the overall impact has been in selected sectors / pockets, the intensity of the impact has been severe, particularly on small producers / self employed workers and wage earners in the informal sector. The coping strategies, such as (a) reduction in household expenditure, (b) incurring debts, (c) withdrawal of children from school, (d) women and children entering into the labour market and (d) migration back to the native place have made the plight of the affected workers worse. Major Recommendations 1. Universal Social Protection to Workers: The experience of the crisis has shown that the workers, who contribute to exports and economic growth, have been thrown into the volatile global market without any safety nets or social protection. As the majority of these workers are informal sector, workers, in the absence of any social protection, they have adopted coping strategies which have intensified their misery. There is an urgent need to design and institutionalize a package of universal social security consisting of some minimum critical social protection to all the workers in the economy. Such a package should include (1) unemployment insurance or assistance, (2) health insurance, (3) old age pension, (4) maternity benefits, and (5) compensation against injury, disability or death. The Social Security Bill of the NCEUS designed in May 2006 is very relevant here. A National Fund for social security should also be created for this purpose. There is an urgent need to include all the critical social security measures and take all legal, financial, institutional and administrative steps to institutionalize this minimum package of social protection to all workers in the economy. 2. Ensuring Employment Services to Workers The study has shown that when skilled workers lose their jobs they do not get any support to find new suitable work and are frequently forced to take up unskilled petty work (where their skills are wasted) or remain unemployed. There is a need to institutionalize the assistance and support to workers in the competitive market to facilitate their movement from one (skilled) job to another (skilled) job. This requires well organized employment services which includes (1) labour market information service, (2) counseling of workers on what kind of work is suitable for them and how to get it, (3) providing training and re-training to workers. If necessary, by linking them with suitable training institutes and (4) help in moving to new jobs. There is thus a need to up-scale the employment exchanges to set up employment services. The government can consider private –public partnership in this area. 3. Ensuring Food, Health and Education for All The adverse impact of the crisis on the workers / small producers could have been avoided if critical gaps in social goods – health, education, skills were ensured. The study has shown that the large number of programmes and schemes that we have to promote education, health and well being of people / workers are not able to help during a period of crises. For example, there are no institutionalized facilities to ensure that no child is withdrawn from school and / or roped into the labour market till he / she completes 7 th (or 10th) standard; or there is no provision that ensures basic health to all. Human development is a basic requirement and a primary obligation of the government. The experiences have revealed that though SSA (Sarva Shiksha Abhiyan), NRHM (National Rural Health Mission), ICDS (Integrated Child Development Scheme) PDS (Public Distribution System) etc exist, they are limited in scope and in incurring expenditure. There are several gaps in public health and education, with the result that they fail to help people during a crisis. There is a need to fill in the gaps by changing norms (for example health facilities), building infrastructure, allocating adequate funds and putting in place the required institutions. It is also recommended that a special fund is created, preferably though Welfare Boards to provide soft loan with subsidies to workers to take care of their educational and health related needs. Considering the fact that expenditure on health is frequently a source of vulnerability and suffering of poor households, access to health services, at affordable prices or free (for the very poor) should be made universal. The above facilities must be ensured from Welfare Boards, wherever they are available. For other sectors, a relief package of the basic facilities must be designed to make it available to workers in the event of a crisis. 4. Addressing Problems of Small Producers / Micro Enterprises The study has shown that in all the selected sectors small producers, the self employed or own account workers are the worst hit group of producers. This is largely because they have poor access to credit, to markets, to raw material and to infrastructural facilities on the one hand and the low staying power on the other hand. Under the crisis, they suffer from declining markets as well as high input costs (when inputs are imported) with the sharp depreciation of the rupee and severe liquidity crisis. They are also almost pushed out from the credit market because of the liquidity crisis on the one hand and the crisis in their sector on the other hand. Non-viability of small and micro enterprises is, as it is, a major problem in the economy, and the crisis has revealed that their position becomes worse in crisis. Though these producers contribute more than 30 percent of the national exports and provide large scale employment, their share in institutional credit is only 2 percent (for the units with less than investment of Rs 5.00 lakhs) and 4.3 percent (including the units with investment of less than Rs 25.00 lakhs). The crisis has underscored the urgent need for providing support to make them viable in the economy. That is, instead of addressing only the sectoral problems through bail-out packages for small producers, efforts should be made to strengthen small producers, MSME sector, in the economy, along with modifying trade policy and sectoral policies. This is an opportunity to undertake this task on a priority basis. The following recommendations are made in this context: In order to ensure their access to credit, we recommend (1) including them in priority sector lending, (2) reducing the rate of interest on their credit, (3) relaxing the process of debt recovery for them, (4) providing export credit, (5) strengthening micro credit to help them to run their business, and (6) soft loans to tide over crisis as well as to remain in business . We reiterate the importance of the creation of a special fund for them (NAFUS) as recommended by the NCEUS. Ensuring price regulation for raw materials and finished goods, as well as providing subsidy in electricity charges. Infrastructural support, particularly regular supply of electricity, facilities for storage and warehousing. Technological support to upgrade technology to be competitive in the market. It will be highly desirable that bail-out packages are designed for these enterprises. Such packages should include access to credit, markets, technology and to skill training. Making them viable and enabling them to grow will have huge advantages in terms of poverty reduction and generation of productive employment on the one hand and expansion of the effective demand to boost economic growth on the other. 5. Skill Training and Skill Up-gradation The study has pointed out that skill training / retraining of workers is important during a crisis for several reasons: Firstly, the poor hit badly by the crisis in unskilled activities like waste picking cannot be helped adequately without their skill up-gradation. These workers, as it is, suffer from very low productivity and they earn very low incomes. As our study has shown, their conditions become worse in the crisis. The solution for these workers therefore lies basically in skill up-gradation and in involving them in processing of waste, trading of waste products etc. Secondly, skill training / retraining is important even for skilled workers to enable them to move upward in the value chain or to acquire new skills when the demand for old skills decline. There is therefore a need to design skill training programmes keeping in mind these points. In this context, it is to be noted that acquisition of good education (up to 10 th standard) is a good way of providing social protection, as it enables students to acquire new skills without much problem. In fact, on the job skill training is never a good way of acquiring skills, particularly when workers are barely literate or are school drop outs (as in the case of diamond industry). The best way to impart skills is after sound basic general education and then through skill institutions. This prepares workers to shift from one skill to another easily. Universalisation of education up to 10 th standard is therefore very important. 6. Giving Visibility to Workers and to Small Producers A problem that the crisis has thrown in the open is that there are no reliable data on informal workers and producers (particularly small producers) in the economy. In fact, policy makers are facing a serious problem while helping affected workers and enterprises, because of this problem, as they can neither identify the affected workers nor can allocate adequate funds to help them. In the case of diamond industry, all units are to be registered under the Factories Act as per the order of the Gujarat High Court4 . However, less than 20 percent of the units are registered. Also all workers in small units and more than 60 percent workers in large units are “non-permanent”, and cannot therefore claim social security benefits. As a result, of the total estimated 5500-6000 diamond units in the state, only about 532 units are registered and less than 20 percent of diamond workers are recorded as workers. There is an urgent need to sort out this problem either by providing an incentive to the industry to get registered or by amending the Factories Act – which is a difficult but an essential task.. In the case of other sectors like auto parts, engineering, textiles and garments also the story is the same. There is an urgent need to keep complete records of these workers through giving them Identity Cards (and registration to units) to enable the workers to access benefits of relief packages as well as social protection in general. There is also a need to make registration of small units mandatory. This is a long standing task, and it needs to be taken up seriously. We also recommend that a National policy for home based workers should be drafted and implemented at both central and state level with immediate effect and the funds should be allocated for it from the coming budget. 7. Bail out Packages for Women The study has shown that women are the worst sufferers of the crisis. They have suffered (1) as producers / own account workers / employers, (2) as wage earners at home or outside home as wage earners at home or outside home and (3) as home makers, and in the process, have taken on them a disproportionate burden of the crisis. There is a clear male bread-winner bias on the part of the employers (women are the first ones to lose jobs) as well as the government (which does not address women‟s employment specifically). And though women provide “safety net” or become “shock absorbers” by taking on them the burden of paid and unpaid work, there are no policies that address their concerns. There is a need to address all the three aspects of women‟s problems in a focused manner and effectively. 4 This is because even the smallest unit with 3-5 grinding mills requires power and employs more than 10 workers. As producers / employers women should get an access to credit, technology, infrastructure facilities and markets. A special “stimulus package” should be designed for them keeping in mind the specific needs of women producers / own account workers. The male bread-winner bias must change because women also are bread winners, and many times lone bread winners in many families. There is a need to see that in all policy packages for small producers, women get an equal access to all the supports. The study has also shown that women workers are the first ones to be thrown out under crisis. When the work is reduced women are either asked to leave or their work is cut down or they are shifted to lowest level of work such as casual unskilled work. Special efforts are needed to see that they are not treated as inferior type of workers. Our study has shown that women‟s burden of unpaid domestic work has increased because (1) cash poor households have brought many market oriented activities within the purview of domestic work, (2) paid medical services have turned into unpaid domestic work of care for the sick (3) un/under employed men at home need more work / caring from women. In addition, many women have either entered into the labour market for petty work or have increased their “economic” work to make the two ends meet. In short, women‟s burden of work has increased. In this context we recommend the following: There should be separate employment targets, including skill training targets, for women so that their employment is not sacrificed under the male bread-winner bias. The government should focus on construction of social infrastructure to reduce women‟s (increased) burden of unpaid work Social services should be expanded to take care of health, education and well-being of children and adults so that women‟s domestic work is reduced on the one hand and proper care is ensured on the other hand. Expansion of ICDS in terms of content, and infrastructural support and day care facilities for working women are important in this context. Women‟s increased work also calls for universal child care facilities to release women from the burden of work, and more importantly for ensuring healthy early childhood development of children. Apart from strengthening ICDS, there is an urgent need to institutionalize universal child care. In short, the crisis should be seen as an opportunity to take some important steps in promoting gender equality in the economy. 7. NREGA and Urban Employment Guarantee Programme (EGP) A major coping strategy of many of the urban workers affected by the crisis has been to go back to their native villages, where their families live and where life is relatively less expensive. This has been observed in the case of all the sectors. Effective implementation of NREGA can help in multiple ways here: (1) it can provide employment at minimum wages to the workers who have come back to their respective villages, (2) it will not depress the wage rates in the village as the NREGA wage rates are statutory minimum wages. (when workers join agriculture, there will be a steep decline in the wage rate), (3) it will build productive assets in the village that could expand employment opportunities in the sectors such as agriculture, animal husbandry, horticulture etc and (4) NREGA will uplift the self esteem of the workers, who will be productively employed and who will contribute to the development of the village. In short, NREGA can work as a shock absorber and a safety net under the crisis. NREGA can also boost the economy by raising the effective demand and contribute to social infrastructure and human development, when planned well. It is therefore strongly recommended that: Focused efforts are made to design NREGA for the regions where workers have migrated back. Efforts are made to plan works systematically to promote overall development and employment opportunities in the village. The skills of the workers need to be promoted by designing special works for the regions. State governments are directed to pay special attention to NREGA in the affected districts and for affected workers. There is also a need to extend NREGA in several ways: (1) incorporation of skill training as well as use of skilled persons under NREGA, (2) inclusion of social services in NREGA, (3) flexibility with respect of selection of assets under NREGS and (4) increase in the number of days of work, from 100 days per households to unlimited days. There is a strong demand emerging for an urban employment guarantee programme. Our study has shown that most workers are not willing to migrate back to their villages. They also find it difficult to live in urban centers when their wages fall drastically. They were, therefore, willing to take up work if it was made available to them. The urban employment guarantee programme (EGP) can focus on urban infrastructure and urban services such as drinking water, sanitation etc. The specific characteristics of an urban EGP could be (1) inclusion of skilled work in the programme, (2) if necessary inclusion of skill training, (3) social services and (4) quality of life. Considering the fact that (1) the urban poor, particularly those living in slums, need massive efforts in terms of improving their infrastructure and basic services, and (2) small and micro enterprises in the informal urban sector require sound infrastructural support, urban EGP can play a useful role in the content of the crisis. 9. Fresh Look at Globalization The first question that arises in the context is about the gains of globalizing at the lowest end of the value chain, where the work is labour intensive, the value added is small, the employment gain is positive but the quality of employment is very poor, and the stability of employment is very low with the global market being a volatile market. This is the case of many of our export industries, such as, the textile and garment industry, the diamond (cutting and polishing) industry, the auto parts industry and the small engineering industry. In these industries, the quality of employment is very low thanks to the pressure of competition in the global market. When the global crisis like the current one occurs, resulting in a huge decline in the demand for the export products, the industry crumbles with the workers left almost totally unprotected in the volatile market. This kind of globalization does not really help either in terms of gains in employment (because the quality of employment is miserable) or in terms of stability of employment and incomes of workers. There is need to take a fresh look at the globalization policies. We suggest the following in this context: Upward Integration to Move Up in the Value Chain: One option is to move up in the global value chain and acquire a place in the global production networks (GPN) to acquire some stability – a protection against the volatility of demand in the global market. For example, in the case of the diamond industry one can recommend manufacturing of jewelry to acquire a larger and more stable place in the global market. Similarly, global brands can be created in the garment industry. Experiences have shown that this task is tough, not easily achievable, as it involves changing the global structure of production in favour of a developing country, India. Though efforts in this area may continue, one cannot really depend on this approach. Integrating Development Goals into Trade Policy: The adverse impact of the global crisis on the workers of export industries emanates from non-integration of the labour policy with the trade policy and industrial policy to promote growth of exports by inter- linking it with the industrial policy. For example, the Textile Ministry and the Commerce Ministry worked very closely together to take maximum advantage of the post-quota regime in textiles and garments. However, labour policy is nowhere in the picture when the industry and the trade ministries work together, with the result that the quality of employment is sacrificed. To put it differently, increase in exports, which should be a means to increase employment and well being of workers, is seen as a goal, and the real developmental goals such as poverty reduction, provision of productive and protected employment, human development etc are kept outside the purview of the globalization related policies. We believe that there is an urgent need to integrate developmental goals with the trade policy to ensure well-being of workers on the one hand and social protection of workers in the event of crisis on the other hand. This is an urgent matter deserving high priority in policy making. Exports as Main Drivers of Growth: This brings us to the third point, questioning the validity of the strategy of depending on exports as the main driver of economic growth. So far global markets have been seen as competitive markets, and India had to struggle hard to get an access to them – even at the cost of quality of employment. The crisis has shown that these markets can also decline drastically destabilizing our industries, our economic growth and the labour. In short, given the fact that global markets are uncertain and volatile, it may not be wise to depend unduly on exports for economic growth. Clearly, there is a need to rely more on domestic markets for economic growth. The question is not whether to depend on global markets or on domestic markets, but it is how much to depend on global markets for promoting economic growth and how much on domestic markets. We believe that the moment developmental goals are integrated into the trade policy, the choice will be revealed, as trade will not expand at the cost of the developmental goals and it will be restricted along with exports. Focusing on expansion of domestic demand helps in multiple ways. To start with, it ensures relative stability of growth as growth is located within the domestic economy. It also ensures poverty reduction since domestic demand increases with the increased purchasing power of people, particularly the poor. And finally, it facilitates achievement of human development goals and sustainability of growth. Implications for Development Paradigm: In the final analysis, the study has clear implications for development paradigm for the Indian economy. It is clear that the intensive impact of the global crisis on the Indian economy, even in pockets, needs to be avoided. Such an impact can result into decline in industrial growth; capital outflows leading to decline in private foreign investments and down turn in the stock market, liquidity crisis, depreciation of the Indian rupee and its consequences, and overall deceleration of the economic growth. In order to minimize the impact of such a crisis, India should be better prepared by putting in place social protection, employment services and basic human development in place on the one hand and promoting inclusive growth by promoting employment intensive sectors, infrastructure development including social infrastructure and promoting domestic demand on the other hand. And finally, there is a need to hold review meetings to see that the revival policies and packages are properly implemented in time and to suggest any modifications as and when necessary. Sector Specific Recommendations Most of the recommendations emerging from the study are presented above. In addition, there are some sector specific recommendations emanating from each sector study. These are presented below. 1. Diamond Cutting and Polishing Industry The diamond industry in India, which is mainly located in Gujarat, depends largely on imports for raw diamonds and on exports for marketing polished diamonds. This industry has therefore suffered considerably when the demand for diamond in the global market, mainly in the US market, fell by more than 50 percent. The worst sufferers are small producers and workers many of whom migrated back to villages from the major diamond centers like Surat, Bhavnagar, Ahmedabad and Amreli. As the main report of the sector indicates, workers as well as small producers in the industry have suffered severely not only in the areas of employment and income but also in education and health, social life (tension, conflicts, suicides etc) and gender inequalities. Major sector specific recommendations for this industry are as follows: Immediate Relief: The most urgent need is to provide immediate relief to workers who have lost jobs or have experienced a sharp decline in work and wages. In the absence of social protection these workers have been left to fend for themselves. There is a need to provide relief by providing them (a) cheap / subsidized food grains and other related items, (b) free or subsidized education to their children, (c) free / subsidized health services, (d) allowance by way of unemployment allowance and (e) soft loans for consumption at low / zero interest (without any recommendation by the employer and by self declaration) to enable them to survive in the crisis. Implementations of the Factories Act: Implementation of the Factories Act is a must not only because the Gujarat High Court has ordered it but also because it will ensure regulation of the working conditions as well as minimum social protection to workers. Unfortunately diamond factories as well as the Surat Diamond Association do not see any advantages in implementing the Act because (a) the number of workers is always fluctuating in this industry due to the changes in the orders received from outside, (b) the factories are not willing to bear the burden of social security measures for the workers and (c) the implementation will bring in corruption in the industry. We suggest that (a) some incentive should be given to factories (in terms of access to credit, for example) to get registered under the Act, (b) welfare funds should be created to ensure social protection to workers who tend to move from one factory to another and (c) regulation of working conditions should be ensured even in smaller units, which are frequently sweat shops. Skill formation and Training of Workers: There is an urgent need to focus on skill formation and training for workers (a) to help them to move to higher value added levels of production (including jewelry making – which will be discussed at length in the final report) (b) to help unemployed workers to get into other employment avenues such as embroidery, garments, textiles and others (c) to help them start new units in non-farm sectors and (d) to help women to move to higher levels of skills in this industry. Bailing out Small Producers: Bailing out of producers – big as well as small – is important for this industry. However, bailing out of small producers is important because (a) they have suffered much more than the others in the present crisis and (b) they need help more urgently as their access to credit, skills etc is limited. We therefore recommend special measures in the areas of (a) credit / liquidity (b) subsidies / concessions in electricity charges, input costs, rent etc and (c) supply of raw diamonds to the small producers to survive in the crisis. Search for New Markets: There is a need on the part of the Gems Jewelry Export Promotion Council as well as the Ministry of Commerce to look for alternative markets and to provide their required support to access new markets. There is a need to follow what the Ministry of Textiles did for the textile and garments industries after the expiry of the quotas in 2004. Looking to the long term prospects of the indust5ry in the global market, we purpose that a separate department should be set up to protect and promote this industry. 2. Auto Parts The auto parts industry has been passing through difficult times. However, in these moments of crisis too, the selling of automobiles has been recorded at a higher level. The leaders from the industry suggest that Indian Auto Component industry is one of India's sunrise industries with tremendous growth prospects. From a low-key supplier providing components to the domestic market alone, the industry has emerged as one of the key auto components centres in Asia and is today seen as a significant player in the global automotive supply chain. India is now a supplier of a range of high-value and critical automobile components to leading global auto makers such as General Motors, Toyota, Ford, and Volkswagen amongst others. The global auto component industry is likely to touch US$ 1.9 trillion by 2015, of which around 40 per cent (US$ 700 billion) is likely to be supplied from cost- effective countries like India. Even though India's share of the global auto components trade worth US$ 185 billion was only 0.4 per cent in 2007, India is projected to become one of the leading five auto component economies by 2025. To make these projections a reality a good number of policies need to be reviewed and implemented both by the central and state governments. The recommendations presented here are based on the discussion with the Chairperson of the various Industry Associations, officials of the Chamber of Industries and Commercial Undertakings; focus group discussions with producers and particularly small producers and workers; and field surveys. While the firm owners want the systemic changes in the policies, the workers are more concerned about the access to the protection policies for any such crisis in future. Recommendations for Small Producers: The following are the recommendations for small producers and micro enterprises. Government must control the prices of the raw material, as any fluctuations in the prices have a direct bearing on production and demand. The government should levy surcharges on the export of the steel so that the industries can be saved. Also, there should be regulated and less frequent power cuts as far as the industrial units are concerned. The economic packages for Punjab, Himachal Pradesh, Jharkhand, Uttarakhand, etc, should be similar. The three year tax holidays as has been provided in other states be also applicable in Punjab, as with these tax holidays the other states are in a better position to attract investments too. There is a 40 percent difference between the taxes in the tax exempted and non-tax exempted states. This must be removed. The industry associations must play a pro-active role and encourage the sinking firms by offering them better exposure in the industries fairs, etc. They should provide critical services, particularly to micro and small units to protect them. There is a need for creation of Cluster of Industries, particularly for the micro and small industries, which would also facilitate the networking among the various firms for bulk purchase of the raw material, inter-industry transfer of labour and most critically check the growing competition among the industries. A proper governance mechanism in the cluster of industries may resolve some the issues that seems to be plaguing the auto parts industry in the wake of the crisis. The industries should facilitate easy accessibility to loans to workers from the banks to take care of their contingency needs. Banks must be directed for easy credit availability at lower rates of interest to the small and medium enterprises, as the rates are quite high (9% to 12%) compared to the interest rates of the multinational banks which charge 6% to 8%. It is thus suggested that SSIs and SMEs also be provided finances at par with the rates charged by the international banks. There is a need for skill up-gradation or skill formation of the semi-skilled and unskilled workers, especially in the case of the contract or casual workers, which will improve the working of enterprises as well. The State Government as well as the Industry association must take required steps in the direction. Recommendations for Workers: The main sector specific recommendations for this sector are as follows: The workers, especially the contract or casual workers, must be provided with all those benefits of social security which the permanent workers are getting. They should get health cover as well as allowance to take care of the children‟s education. The government must come with a policy that protects the basic rights of the workers. Industry units should facilitate the process where the workers get easy loans from the banks to take care of their contingency needs. 3. Home based Garment Workers The study on home based garment workers has shown that (a) the decline in the global demand for garments has impacted adversely on the employment and incomes of home based garment workers, (b) the absence of a recording system of garment workers has made it difficult to identify them, which has, in turn, made it difficult to help the workers who have lost work and incomes or have experienced reduction in work and incomes, (c) the existing schemes to provide social protection to these workers are far from adequate, as a result of which the affected workers have hardly any protection to fall back on in the crisis, (d) in the absence of alternative jobs being available, garment workers have been forced either to remain unemployed or to take up any jobs that involve drudgery. The specific recommendations for this sector and workers are as follows: Strengthen the existing Urban Informal Economy Welfare Board, Gujarat in order to reach the welfare schemes to the affected workers. Also introduce new schemes like (1) provide scholarships, uniforms, books etc to the children of garment workers, with a priority given to the workers affected by the crisis, (2) provide maternity benefits along with nutritious food for mother and children for three months (Rs 2500/- per month) to the women from affected households, and (3) ensure medical benefits to the affected workers (and other garment workers) by opening of dispensaries in the areas populated by ready made garment workers and by introducing mobile dispensaries in other areas (Such schemes are already provided by the Bidi Welfare Board). ESIC coverage should be extended so as to include ready made garment workers. Considering the fact that there is a big reduction in the demand for garments, it will help if the government ensures that all tenders regarding the stitching and sewing work like Government uniforms and municipal school uniforms are given to home based garment workers, with priority given to member based organizations and cooperatives of the workers. Government should also provide subsidy to garment workers to set up, run and purchase equipments for new garment units, with a preference given to cooperatives of the workers. It will help if the use of electricity is charged at the residential rate or is subsidized, and thread for stitching is provided at subsidized rates to the affected workers A major problem in this sector, as in the other sectors, is that there are no records of the workers in this sector. It is difficult therefore to identify the affected workers for the purpose of providing help during the crisis. Government should take up this opportunity to build records of these workers. The government should register all the home based workers and provide them with identity cards. In order to help those who want to set up their own units in other trades, all the existing government schemes should be made available to garment workers. Urban Employment Guarantee Scheme also is recommended here. 4. Waste Pickers Waste picking is an important urban economic activity taken up mainly by women and children. The percentage share of men workers is estimated to be less than 20. This activity is spread over almost all towns and cities in India. In the city of Ahmedabad, which has been selected for the study, there are about 30,000 -35,000 waste pickers. Though this activity is not directly impacted by the global crisis, the indirect impact is significant. The study has shown that due to the overall decline in waste generating industries like garment, engineering, textiles etc, the supply of the waste has declined significantly, leading to a decline in the prices also. Consequently, workers engaged in this activity have experienced 20 to 30 percent decline in their income. The study has also shown that this decline has adversely impacted on the life of waste pickers in multiple ways. Waste picking sector, as it is, suffers from extreme vulnerability due to low and uncertain incomes as well as almost absence of social protection for the workers. It is recommended that the opportunity should be used for institutionalizing some important changes for the sector as well as the workers. The main recommendations made in this context are as follows: The first major recommendation is regarding providing social protection to these workers to protect them against the risks and uncertainty in their life. The social protection should include the minimum critical needs of workers. Such a package can be administered through the Urban Informal Economy Welfare Board set up by the Government of Gujarat. It is necessary to provide Identity Card to each worker to help them in the crisis as well as generally. Such an identity card can be issued by the Board mentioned above, based on the self-declaration by workers. Looking to the fact that the income / employment of these workers is subjected to the decline in the prices of waste materials decided by the scrap shop owners, it will help if the government declares support prices for the waste and scrap shop owners are asked to purchase waste at these prices. What is more important, however, is that these workers should be enabled to earn higher incomes by (1) setting up scrap shops and (2) by providing storage facilities as well as sorting sheds so that they do not have to sell waste when the prices are low. Waste pickers, whenever, possible should be encouraged and enabled to set up waste processing / recycling units. Workers will suffer less when they are protected by such value addition. They will also improve their productivity and earnings in the process. Waste pickers should also be encouraged to undertake productive employment outside this sector. They can for example, buy peddle rickshaws or motorized vehicles with subsidies under the prevalent government schemes. In fact, taking advantage of the crisis situation in this sector, efforts should be made to shift them to move profitable occupations. Government can also help by buying their products (for example recycled paper produced by waste pickers units) and providing them skill training. Organizations of waste pickers, i.e. unions as well as cooperatives can help these workers in the event of crisis by demanding the right prices collectively and by promoting recycling units etc. It is important therefore to provide recognition of these organizations by the government, while policy making, declining prices, designing social protection schemes will strengthen such organizations. Local municipalities and municipal corporations can help organizations of waste pickers, particularly in the present crisis by (1) ensuring them door to door waste collection, (2) providing them with necessary equipments and safety measures, and (3) by providing the organizations working capital to start processing / recycling units. 6. Agriculture Since agriculture in India is not a major contributor to the export basket, it is not likely to be impacted much by the global crisis. However, there are two channels through which this sector has suffered from the crisis: (1) The regions which export agricultural produce have experienced a set back in the demand, resulting in some adverse impact and (2) the decline in several export based industries have pushed many workers back to their villages, and this has increased pressure in some selected pockets. In other words, though the agricultural sector as a whole is not much affected by the global crisis, there are some pockets which have suffered very badly. Two studies were conducted in this context: (1) study in four districts of Gujarat and (2) study in Madhya Pradesh. The major recommendations emerging from the studies are as follows: Efforts should be made to take up activities related to NRM (natural resource management) in the affected regions, i.e. where large number of workers have migrated back. These activities could be forestation on waste lands, regeneration of common lands, water shed development, rain water harvesting structures etc. These activities, will, apart from providing wages and employment to the workers, will improve the prospects of economic growth in these regions. NREGA can play an important role here. It will also help to provide special support to the farmers, who have lost their global markets, to diversify their cropping pattern. Experts in the departments of agriculture and agricultural universities can be asked to undertake this task. And lastly, it will be useful for the government to increase public investment in agriculture – which is, as it is, needed urgently – with a priority to affected regions. This investment can focus on providing support to small and marginal farmers to improve their productivity, cropping intensity and cropping diversity. 6. Engineering Industry Engineering industry having significant backward linkages with a number of sectors in the economy has undergone severe slow down in production thereby adversely affecting the opportunities as well as terms of employment for thousands of workers in the country. Unlike much talked about sectors producing consumer goods such as automobile, textiles, diamond, garments, construction and leather, the engineering industry represents a highly diversified set of intermediate and capital goods that runs into most of the vital sectors in the economy including agriculture. The sector therefore is vulnerable to recessionary trends in all these major sectors in the economy. Moreover the sector also assumes importance in terms of manufacturing exports in the country. Lastly, the sector is characterized by a fairly long value chain entailing a number of processes viz; foundry, casting and forging, machining, parts and component manufacturing, assembly and transport etc. The machine tool industry has significant multiplier impact of the tune of 1:15 in the rest of the economy. The engineering industry started getting affected adversely by the recent economic crisis about six months ago. The impact however, varies across specific products and size of the units. Those related directly to auto-parts and machinery, have been affected more severely i.e. to the tune of 50-70 per cent of the production. Similarly very small units have faced more severe crisis as compared to the larger units, which so far, have coped with reduced turn over. Most of the medium and large units have retained their skilled and regular employees as they expect recovery to start from July onwards. The study in this sector shows that volatility in prices and availability of raw material such as coal, pig iron and crude oil has also contributed, almost equally, to the present scenario of low demand and low turn over; coupled with seasonal migration of the skilled workers and the financial crisis have aggravated the problem. More than closure, reduced demand up to 70 per cent is the major problem faced by the units. Since majority of workers are daily wage earners, they have reported reduced work or less payment for the same/more work as the main impact. Workers have also suffered from reduced quantity/quality of food intake, neglect of health care and increased mental stress. High indebtedness and migration back to native villages also have been observed. The major sector specific recommendations are as follows: There is a need to ensure stability in prices and supply of raw materials. This must be ensured on a priority basis. Greater emphasis should be laid on technology and productivity aspects so that the burden of the increased competition is not passed on to those at the end of the value chain. As far as workers are concerned, there is a need for ensuring support for food, health and education security to the families of the workers affected by the crisis. This should be done on a priority basis. Revival of NREGS along with promotion of home based production, especially for essential commodities needs to be taken up Annex 1 – Background Information on the Study The survey was guided by the following questions: What has been the impact of the financial crisis on poor women and men employed in the directly and indirectly affected selected sectors? What are the coping mechanisms being resorted to? How has the financial crisis impacted income levels and children’s schooling, nutrition and health? Are the impacts different across women and men, girls and boys? What needs to be done in the short term to address the adverse impact on poor women and men workers belonging to the informal and marginalized segments of the workforce? What kind of social security options can be made available to poor women and men to cope with the crisis to sustain progress on human development outcomes? The key objective of this quick study is to understand the impact of global crisis on informal and marginalized workers directly and indirectly affected by the global crisis. Such an understanding is critical, as these workers are usually invisible and ignored in economic aggregates that are the key determinants of the policy choices. We believe that the impact of financial crisis on informal and marginalized workers is not visible firstly because the affected workers are not visible in official data and secondly because the indirectly affected sectors are not usually recognized as affected sectors in official analysis. This study has been undertaken to understand the impact of the global crisis on workers of six affected sectors, with a special focus on small producers and informal workers. The specific objectives of the study are (1) to examine the impact of the crisis on the workers and small producers working in the selected sectors, (2) to draw inferences for interventions to address the adverse impacts on the workers and the sectors in the short and medium terms and (3) to examine and recommend social security options to help the workers through systemic social protection. The study has also made recommendations for reorganizing labour and small units in the selected sectors to strengthen the sectors under the possible crisis. The attempt was to conduct a quick study to facilitate policy dialogue. It was initiated in the middle of April and was completed by middle of June, 2009. The survey was conducted in following locations: Sector Location Gems and Jewellery Surat and Amerli/Bhavnagar Auto-parts and machinery Ludhiana Engineering products Coimbatore and Rajkot Agriculture Villages of Gujarat and M.P Textiles Ahmedabad Waste pickers Ahmedabad A sample of 125-150 workers was selected for each of the sectors for the survey. The survey also captured views of the vulnerable population such as women and men belonging to Scheduled Castes, Muslims, Persons with Disabilities (PWDs) and the aged. The survey included structured questionnaires and also used participatory methods such as focus group discussions, case studies and interviews with industry, labour representatives and government officials. Approach of the Study All sector-studies have followed a common approach, with some additions to meet some sector specific requirements. The common approach consisted of the following steps: Analysis of the available literature and secondary data to understand the impact of the global crisis on the selected sector. This also included in depth discussions with concerned government officials, sector (industry) leaders and office bearers of associations and labour leaders if any. Selection of a centre or two for an empirical study based on the sectoral picture of the impact, and preparing a profile of the selected Centre (s) to understand the nature of impact of the crisis at a local level. This involved discussions with sector (industry leaders), officials and labour leaders as well as focus group discussions with men and women workers, small entrepreneurs and self employed / own account workers and household members (including women members) of workers. Sample survey of selected 100-150 workers and small producers. The sample was selected purposively on the basis of the information of typologies of workers and location of workers. Though the sample size is small, the sample survey did provide a good understanding of the impact of the global crisis on workers. A sector specific schedule was designed for producers of each of the sectors. Each sector study undertook some case studies in order to understand the nature of the impact of the crisis at the household level. In short, the approach of the quick study was sound enough to throw light on the impact of the global crisis on workers and small producers.
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