The decade long political turmoil had a significant impact on Nepali economy. The formal sector had to bear the major burden: many industries were shut down, resulting in the loss of sources of employment for thousands of Nepalis. This led to fertile grounds for the informal sector to flourish. Post 2007, the economy of the country is gradually improving, but yet, the informal sector continues to grow. According to the classical development theory, when an economy grows, the formal sector expands and informal sector shrinks, but the exact opposite is happening in Nepal. The reason for this is the difficulty in transition: people working in the informal sector have not been able to transition smoothly to the formal sector, owing to reasons like limited opportunities and lack of required skills.
Employing more than 2,000,000 people, the informal sector influences Nepal’s GDP significantly. The nature of their jobs may vary, but one thing common among workers in the informal sector is their vulnerability. Generally, informal employment is not adequate to achieve a good standard of living, as it is accompanied by inadequate wages and difficult working conditions. Most workers of this sector do not have warm relationships with their employers, and nor do they get social security benefits accorded to employees of the formal sector. Illiteracy and poverty make their situation even more precarious. [break]
Despite such a large number of people being employed in the informal sector, the government’s social security mechanism has not been able to incorporate them in its policies. Most of them don’t have unions or organizations to represent them, unlike employees of formal sectors, which may be one of the reasons why their voices are unheard.
There is no provision of social security for people working in the informal sector, although a couple legislations do cover some of them. For instance, Vehicle and Transportation Management Act provides accidental compensation to workers under a compulsory insurance provision. As per this provision, a vehicle owner must have accidental insurance coverage for his driver. The compensation may vary according to the type of vehicle and position of workers, ranging between NPR 100,000 to 200,000. Similarly, those working in trekking and mountaineering sectors are also covered with accidental insurances, and the insurance amount should not be less than 250,000 NRs. But two such policies are not enough to take care of all workers in the informal sector.
Critics may say that most people working in the informal sector are from the bottom of the economic pyramid, and do not contribute to social security mechanism. If they aren’t paying anything to the government, then the government having to take care of them with other people’s tax money doesn’t make sense. Plus, it is impractical to have the money collected from formal sector bear the social security costs of both formal and informal sector, especially in a developing country like ours with a rapidly growing informal sector. But that’s not our only option. We can promote social schemes financed and managed by informal sector workers themselves.
A report by ILO has cited three main factors that hinder the coverage of social security. First, people are not willing to give money to social security mechanism, as the accountability factor is missing. Second, they do not get to witness the flow of their money and how it benefits them in the long run. And third, they face various administrative and legal hassles in accessing their social security money. But if they themselves make committees/mechanisms, or provide leadership to such committees, then these problems can be solved. They can make their own rules and know how their money is being used. It will also solve the problem of free riding, as the informal sector will be paying for its own social security.
In San Salvador, about 1,000 vendors of the local market have come together and started a credit scheme. They contribute about 10$ annually to a collective health fund. Money from that fund covers the health costs of members and their families. When someone is hospitalized and the fund cannot pay the bill, all members contribute out of their pockets. Such a trend has also been started in Nepal. For instance, micro drivers’ union collects a certain amount of money from drivers every day, depending on the number of times they travel across a route. Money thus collected can be accessed by drivers to pay the traffic department in case their license is taken by the police.
As has been discussed before, vulnerability is the one thing common among workers of the informal sector. The vulnerability affects all aspects of their life including health, education, social status etc. In the absence of any social security mechanism, most informal sector workers have no option but to try to solve these problems individually. But collective action is usually more fruitful in combating such problems than individual action. The social and economic costs can be brought down significantly if the approach is collective. By collective action, I mean the formation of a committee or organization of informal sector workers. They can also use intermediaries such as unions, co-operatives, and NGOs.
Even within the informal sector, social security needs vary according to the profession or location of work. Thus, those with the authority to manage the funds must take precautions against fraud. They must be very careful while letting in new members, and monitor the activities of existing members.
Informal sector being the source of employment of such a large group of people, we cannot completely exclude them from social security policies. Although the traditional three way (employer–worker–government) approach practiced in the formal sector may not be applicable here, we have to keep searching for new policies and partnerships to incorporate them. It will be difficult to find a single umbrella policy to cover such a diverse sector, but we have to keep experimenting and come up with appropriate policies and mechanisms.
The author is an MDeVs graduate from Kathmandu University
Bijay.kumar.shahi@gmail.com
Related story
Harnaaz Kaur Sandhu on the cover of L'Officiel India and Metro...
-1776353206.webp)
