How to make Self-employment Count

Key Characteristics of India’s Labour Force

• Low Participation and Stagnant Structure: India has a low rate of workforce participation among the working-age population.
  • The structure of labour force participation has remained largely unchanged for decades.
• High Self-Employment Rates: India has a higher proportion of self-employed workers and a smaller share of wage and salaried workers compared to other middle-income economies.
  • Over 50% of the working population is self-employed:
    • Rural Areas: Approximately 60% self-employed.
    • Urban Areas: About 40% self-employed.
  • There has been an increase in self-employment between 2017-18 and 2023-24, particularly in rural areas and among women.
• Gender Disparity in Self-Employment:
  • Men: Predominantly own-account workers (running their enterprises).
  • Women: Largely “helpers in household enterprises”.
  • While the gender gap in own-account workers has narrowed between 2017-18 and 2023-24, the proportion of women working as “helpers” has increased.

Implications of High Self-Employment

• Work Quality and Productivity Issues: High self-employment levels indicate poor work quality and low productivity, especially in rural areas.
  • Self-employment is often a fall-back option due to the lack of better opportunities.
• Informality and Lack of Security: Self-employed workers lack formal job benefits such as:
  • Social security coverage
  • Paid annual or sick leave
  • Written employment contracts
• This results in increased informality of work.

• Low Earnings and Underemployment
  • Self-employed earnings are barely above casual labour levels.
  • The gender earnings gap has widened between 2017-18 and 2023-24, particularly in rural areas.
  • Zero earnings: Almost all self-employed helpers report zero earnings, regardless of gender.
  • Self-employed women often work less than 40 hours per week, leading to underemployment.

Constraints to Improving Self-Employment Quality

• Education and Skills Deficiency
  • Low Education Levels: In 2017-18, only 17% of self-employed workers had completed Grade XII or higher, which marginally increased to 6% in 2023-24.
    • For self-employed women:
      • 2017-18: 9% completed high school or beyond.
      • 2023-24: Increased to only 4%.
    • Vocational Training:
      • Abysmally low: Only 3% of all self-employed had any formal or vocational training.
        • This gap limits their ability to enhance their skills and improve their work quality.
• Limited Access to Formal Credit
  • Limited Credit Access: Many self-employed workers lack access to formal credit markets, which restricts their ability to expand their businesses.
    • Approximately 41% of unincorporated non-agricultural establishments operate on a small scale within household premises.
    • Limited credit increases borrowing costs and reduces loan size, constraining the growth of enterprises.
  • Impact on Productivity: Own Account Establishments (OAEs) have significantly lower productivity (₹1 lakh per worker) compared to Hired Worker Establishments (HWEs) (₹2 lakhs per worker).
• Administrative and Legal Challenges
  • Complex Legal Processes: Starting formal enterprises remains challenging due to bureaucratic hurdles.
    • Entrepreneurs are often forced to rely on family-managed firms, inhibiting growth.
  • Impact of Poor Court Efficiency: Court inefficiency hampers contract enforcement and lowers productivity.
    • Disproportionate negative effects on SC-ST entrepreneurs.
    • Affects the ability of enterprises to expand and generate employment.
  • Example of Impact: The difference in professional management accounts for 11% of the per capita income gap between India and the US.

Solutions for Enhancing Self-Employment Quality

• Vocational Training and Education: Expanding vocational training and linking it with entrepreneurship opportunities.
  • Facilitating credit access for ITI graduates under schemes like PM Mudra Yojana.
• Access to Formal Credit: Improving access to formal credit markets to expand self-employment and enterprise size.
• Administrative and Legal Reforms: Simplifying the process of starting and managing formal enterprises.
  • Enhancing the efficiency of courts to improve contract enforcement and reduce friction in business operations.

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