Editorial 1 : Making her Work Count
Context: How to make self-employment count
Introduction: India has low rate of participation of the working-age population in the workforce and the almost stagnant structure of labour force participation.
Characteristics of India’s Labour Force
- India has a much larger share of workers who are self-employed and a smaller proportion of wage and salaried workers than most other middle-income economies. This structure has not shifted much in decades.
- Of the working population, over half are categorised as self-employed — almost 60% in rural areas and about 40% in urban areas
- Reason: The predominance of the agricultural sector and the relative shift towards the services sector, bypassing manufacturing, has a significant role to play in the continued high levels of self-employment.
Self-Employment and Gender Gap
- There is a stark compositional difference in the self-employment of men and women.
- For males, the category of own-account worker dominates, while most self-employed women are helpers in household enterprises.
- Although the gender gap in the proportion of own-account workers has declined between 2017-18 and 2023-24, the proportion of self-employed females in the category of helpers has increased between 2017-18 and 2023-24.
- This increase indicates a worrying rise in the informality of work.
Features of Self-Employment
- The criteria used in most economies to define formal jobs i.e. coverage by the social security system; entitlement to paid annual or sick leave, and written employment contract are missing for the self-employed.
- Low Earnings: Not only are the earnings of the self-employed barely above those engaged in casual labour, the gender gap in self-employed earnings has increased between 2017-18 and 2023-24, with the gap expanding more in rural areas.
- Significant Underemployment: For both rural and urban self-employed women, the hours of work is very low, at less than 40 hours per week. Therefore, the proportion of workers who are available for additional work tends to be highest amongst the self-employed in rural areas.
- The majority of self-employment work is also of poor quality and probably a fall-back option when better work opportunities are unavailable, particularly in rural areas and for women.
Constraints to Improving the Quality of Self-Employed Work
- Low education and skills
- Poor access to formal credit
- Poor access to legal support
- While these impinge on all self-employed workers, they are often particularly binding for self-employed women.
Education and Vocational Training
- The proportion of self-employed with grade XII or above education was only 17% in 2017-18 and has increased only marginally to 20.6% in 2023-24.
- Education levels are particularly low for self-employed women – 9% of these women had completed high school or beyond in 2017-18, which has inched to just 11.4% in 2023-24.
- The proportion of all self-employed with any formal or vocational training is abysmal at 3%.
Improving Vocational Training
- Vocational training can be transforming in enhancing the quality of self-employment and entrepreneurship, broadening choices and expanding work opportunities.
- There needs to be a conscious attempt to link skill training to entrepreneurship.
- PM Mudra Yojana is open for a range of self-employed people such as small manufacturers or artisans, ITIs so far have not been able to channel any start-up funds for their trainees.
Access to Formal Credit
- Lack of access to formal credit markets limits the size and scope of self-employment, entrepreneurship and the ability to create establishments that generate employment.
- Lack of access to formal credit raises the cost of borrowing, reduces the size of available loans and restricts the capacity and size of the entrepreneur and her enterprise.
Administrative and Legal Support
- Although the ease of doing business has been steadily improving in India, starting a formal enterprise remains challenging even when the entrepreneur has the technical know-how and access to credit.
- The administrative and legal landscape is often complex.
- Further, access to legal recourse in the event of business disputes is fraught with challenges.
- Inadequate legal access entails friction in contract enforcement, which lowers the aggregate productivity of establishments.
Conclusion and Way Forward
With the creation of jobs continuing to be a challenge, vocational training together with access to credit and legal support can enhance the quality of self-employment and entrepreneurial activity in the country.
Editorial 2 : In With the New
Context: Task cut out for the new RBI Governor
Introduction: Sanjay Malhotra takes over at a time when the global economy is in flux. While India stands tall, it must ensure that it does not become complacent. Certain areas need supervision.
Maintaining the Integrity of the Financial System
- Financial regulation is a nebulous task because the RBI has to be proactive to ensure that the system does not falter.
- RBI ensures discipline through its regulatory framework.
- It must anticipate mishaps and address rule violations promptly.
- Over the past six years, the RBI has effectively maintained financial system integrity, a trend that must continue.
Conduct of the Monetary Policy Committee
- New Members: Three external members have just changed in October. With a new Governor and potentially a new Deputy Governor in February, there will be five new members.
- Focus on Repo Rate Adjustments:The timing and magnitude of repo rate cuts in the current cycle will be crucial.
Managing Liquidity
- In the last couple of years, the RBI has used the LAF framework (liquidity adjustment facility) involving VRR and VRRR to balance liquidity.
- There has been a change this time with it opting to cut the CRR.
- The OMO option also exists in its armoury.
- Liquidity seems to have been affected considerably by the quantum of government cash balance held with the RBI.
Managing Currency Fluctuations
- Challenges Ahead: Potential jingoistic policies from the US under a new president could impact global interest rates, fund flows, currency values, and prices.
- The rupee has been well managed recently to ensure less volatility — this could have been the reason for the decline in forex reserves in the last couple of months.
- The management of volatility in the forex market will be another area that will merit attention.
Government’s Banker
- RBI has been seamlessly carrying out its functions as the government’s banker for the last 10 years.
- With years of experience in the Finance Ministry that handles budget formulation and implementation, the new Governor is in a good position to fine-tune operations, if required.
Green Financial System
- A lot of work needs to be done in conjunction with other financial regulators to take the green financial system to the next level.
- Green bonds, deposits and loans among others would have to be pushed aggressively as the country moves to meet its stated goals.
Emerging Challenges and Strategic Considerations
- Cryptocurrency
- Current Stance: India has maintained a firm no to cryptocurrencies, unlike several countries where it is gaining popularity.
- Future Direction: RBI faces the dilemma of whether to prepare a roadmap for crypto acceptance or continue its rejection.
- Internationalisation of the Rupee
- Limited Global Usage: The rupee’s use in global transactions is restricted to bilateral trade.
- De-dollarisation Movement: Growing global calls for de-dollarisation require RBI to strategically navigate the internationalisation of the rupee.
Conclusion: Markets and stakeholders will closely observe Sanjay Malhotra’s tenure as Governor to understand his approach to different areas. As the global economic landscape evolves, RBI’s leadership will play a pivotal role in safeguarding India’s economic resilience and driving future growth.