A new phenomenon of the gig economy is upon us. This is a particularly important development in India, which is staring at low labour force participation. The clamour for intervention in the gig market has also begun. For example, the Rajasthan government recently passed a legislation that provides social security to gig workers. There is also a Code on Social Security 2020 at the Union level on the cards.
Social security sounds like a good idea, but when not done right, there is a real danger that it will be lost in the administrative problems of a poorly managed and governed welfare fund. For several gig workers, the existence of platforms provides an income, relative to not being in the labour force. We should not lose sight of these pressures in our attempt to provide security to specific types of jobs. Instead, the focus should be on designing mechanisms that are effective and sustainable.
A welfare fund
A “welfare fund” is often at the heart of many social security initiatives in India, including the Rajasthan fund, which is to be run by gig workers, government, and industry representatives. The fund will be financed through a cess on platforms as well as contributions by workers. A contributory fund of this kind requires financial expertise as well as governance mechanisms. Collecting contributions is of little use if financial markets are not harnessed to gain from the power of investments and compounding. Similarly, without iron-clad governance mechanisms, a fund runs the risk of becoming another pot of money to dole out to favoured participants.
It is useful to ask how well has the model of such a fund worked in the past? The Coal Mines Provident Fund, and the Seamen’s Provident Fund are examples of similar attempts at providing old-age security to fund members. And yet, we find that there have been several irregularities. A CAG report in 2021 found that the indecisiveness of the Coal Mines Provident Fund Organisation on certain debentures caused a loss of almost Rs 300 crore. More than twenty years ago, the Seamen’s Provident Fund Organisation lost almost Rs 100 crore because of irregularities in trading of securities. Accumulations at the end of one’s working life do not translate into a monthly pension without a draw-down plan. This experience should lead us to ask if the idea of a centralised welfare fund is itself problematic, and prone to misuse given its proximity to politics.
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How do we provide social security then?
The gig workers bill also raises questions on what we should reasonably expect from an employer, or in this case, the provider of a “job”. Traditionally, social security was tied to employment. The new world of labour mobility and the gig economy have changed this equation. It is also important to note that when social security is tied to an employer, the cost of it is inevitably borne by the employee. What may look like an employer contribution is eventually the total compensation to the employee divided into various components.
While social security can include many pieces, two elements – life and accident insurance, and pensions – are particularly amenable to a different design. One of the causes of hardship is the death or accident of the breadwinner of the family. This is best solved through the purchase of term insurance from a professionally managed insurance firm, rather than through a welfare fund. Group representatives can potentially negotiate with a life insurance firm for better rates and more efficient claims processes. The insurance firm is a regulated entity and more equipped to price the insurance correctly. As well, the bouquet of products through the Jan Dhan scheme had promised some life and accident cover. Why not harness them instead of devising new contracts to do the same thing?
Old-age income security also consists of saving during work life and drawing-down that wealth after an exit from the labour force. The collection of low-valued contributions and their investments need to be facilitated through low-cost fund management. Only this can ensure some build-up of wealth for retirement. It is infeasible for a welfare fund to provide any pensions unless the welfare fund itself outsources the task to a professionally run fund management entity.
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A feasible strategy
A more sensible strategy for gig workers would have been to find ways to leverage existing schemes to obtain insurance and savings for old age. This holds true for the discussion at the Union level as well.
Critical aspects of record-keeping and fund management have been resolved in some of these schemes such as the National Pension System or the Atal Pension Yojana.
One could devise mechanisms such that some of the payments to the worker get directly deposited in their pension account or towards their insurance premiums, and for that pension or insurance account to move with the worker as she moves around to different gigs.
The administration of these systems rests with professionals equipped to manage the complexity of these financial products. The choice of contribution should rest with the individual.
Low-valued transactions are often more expensive to carry out, and it is here that fiscal transfers by the State may have more impact. Workers can also be incentivised to save in pension assets through co-contributions by the State.
The government also provides a means-tested cash transfer to the destitute elderly through “social pensions”. There is a need to focus on such cash transfer programmes to provide a floor on consumption. The current approach of social security for gig workers for both insurance and pensions is unlikely to yield benefits.
Renuka Sane is research director at TrustBridge, which works on improving the rule of law for better economic outcomes for India. She tweets @resanering. Views are personal.
(Edited by Prashant)