Strengthening India’s Informal Sector: Key Recommendations from NCEUS

India’s unorganised sector employs the vast majority of the country’s workforce, yet most of these workers labour without job security, safe working conditions, or any safety net for illness and old age. In 2004, the government set up the National Commission for Enterprises in the Unorganised Sector (NCEUS) under economist Dr. Arjun Sengupta to study this enormous, largely invisible economy and propose ways to improve it. Over five years, the Commission produced a series of reports that together form one of the most detailed blueprints ever drawn up for protecting informal workers and strengthening the tiny enterprises they run. Three pillars stand out from its recommendations: social security, skill development, and micro-enterprise growth.

Why the NCEUS was needed 🔗

When the Commission began its work, it found that around 93 per cent of the workforce was employed in the unorganised sector, and that almost all employment growth since the economic reforms of 1991 had been informal. One of its most quoted findings was that 77 per cent of the population was spending less than Rs 20 a day in 2004-05. The Commission defined unorganised workers by what they lacked: employment security, work security, and social security.

This diagnosis shaped everything that followed. Rather than treating informality as a problem to be wished away, the NCEUS argued for a strategy of “levelling up” the informal economy by giving workers a floor of protection and giving enterprises real support to grow. Its reports were submitted to the Ministry of Micro, Small and Medium Enterprises and the Ministry of Labour, and several directly influenced later legislation.

Social security measures 🔗

The first and most influential set of recommendations dealt with social security. The Commission proposed a national minimum social security scheme that would cover every unorganised worker with a basic package of benefits, regardless of which trade they worked in. The idea was to create a floor below which no worker should be allowed to fall.

A statutory national minimum wage 🔗

Alongside social security, the NCEUS pushed for a statutory national minimum wage. After analysing the gap between what casual workers actually earned and a notional benchmark wage, it recommended that the central government fix a legally binding national minimum wage that would be revised periodically. Until that was done, it suggested treating the National Floor Level Minimum Wage, adjusted for changes in the cost of living, as the working national minimum. This was significant because minimum wages in India had long been set unevenly across states and occupations, leaving many of the poorest workers earning below even modest benchmarks.

A universal framework of benefits 🔗

The Commission did not stop at a single scheme. It drafted comprehensive legislation that would guarantee benefits such as life and disability cover, health and maternity benefits, and old-age protection. To make the framework practical, it recommended separate bills for agricultural and non-agricultural workers, recognising that the two groups face very different working conditions.

These recommendations fed directly into the Unorganised Sector Workers’ Social Security Bill, which created an enabling framework for welfare schemes. The central government could formulate schemes covering life and disability cover, health and maternity benefits, and old-age protection, while state governments could add provident fund, employment injury, housing, and education schemes. This eventually became the Unorganised Workers’ Social Security Act of 2008. In practice, though, the Act was widely seen as a diluted version of what the NCEUS had envisioned, since it left much to the discretion of governments rather than guaranteeing a firm legal entitlement.

Skill development 🔗

The Commission understood that protection alone would not lift workers out of poverty. People also needed pathways to better-paid, more secure work, and that meant tackling India’s enormous skills deficit.

The scale of the problem 🔗

The numbers the NCEUS uncovered were stark. Only a small fraction of young people had received any vocational training, and among workers in the unorganised sector the share with formal training was tiny. This left millions of workers locked into low-productivity, low-wage activities with no clear route to improve their earnings.

A national mission for skills 🔗

To close this gap, the Commission proposed a National Mission for Development of Skills in the Unorganised Sector. According to analysis of the recommendations, the Mission set an ambitious target of raising formal training from a very low base towards covering a far larger share of the labour force within roughly a decade.

What made the proposal distinctive was its design. It was not simply about creating more training seats. The Mission was meant to rethink how skills are delivered to workers who come from diverse educational backgrounds and who often cannot afford to stop earning while they study. That meant flexible, modular courses, recognition of skills people had already picked up on the job, and training tied closely to the actual needs of local enterprises. The Commission’s separate report on skill formation and employment assurance laid out this approach in detail.

Micro-enterprise development 🔗

The third pillar of the NCEUS vision focused on the enterprises themselves, the millions of tiny units that make up most of the non-farm informal economy. The Commission’s mandate was to find ways to improve their productivity and create large-scale employment, particularly in rural areas. To do this, it tackled three persistent barriers: finance, technology and marketing, and the isolation of individual units.

Better access to finance 🔗

The NCEUS found that the existing refinancing institutions did not really serve the smallest enterprises. NABARD focused on agriculture and SIDBI on small-scale industry, leaving micro-enterprises in the non-farm sector poorly served. To fill this gap, the Commission recommended a National Fund for the Unorganised Sector (NAFUS), a statutory body funded by the central government and financial institutions, dedicated to financing micro-enterprises. It also pressed for reform of priority sector lending so that banks would reserve a defined share of their net bank credit specifically for micro-enterprises, ensuring timely credit at a reasonable cost.

Technology and marketing support 🔗

Access to credit alone does not make a small unit competitive. The Commission therefore recommended dedicated support for technology, including demonstration centres to showcase improved tools, subsidised access to testing and quality certification, and links with research institutions to solve practical problems. On the marketing side, it suggested common facility centres where several enterprises could share exhibition space, the development of brand identities for groups of producers, help with participating in trade fairs, and direct market links that would let producers bypass exploitative middlemen.

Cluster-based growth and the Growth Pole model 🔗

Perhaps the most innovative idea was to stop supporting enterprises in isolation and instead build on the natural clusters where similar units already concentrate. The Commission proposed a Growth Pole Programme to increase production and employment in and around existing clusters and to encourage new ones to form. A Growth Pole was described as a “cluster of clusters” that links nearby units and potential growth points so they can enjoy economies of scale in skills, technology and marketing.

To test the idea, the NCEUS designed six pilot Growth Pole projects across Rajasthan, West Bengal, Kerala, Chhattisgarh, Uttarakhand and Assam. In Dausa district of Rajasthan, for example, the local enterprises included stone cutting and carving, carpet weaving, leather goods, saw mills and dairy. The programme deliberately targeted clusters of rural industries, artisans, and the agricultural economy, the segments most dependent on natural resources and most in need of coordinated support.

What became of the recommendations 🔗

The legacy of the NCEUS is mixed. Its social security work produced real legislation in the form of the 2008 Act, and its analysis put the informal economy firmly into mainstream policy debate. Yet many observers argue that the most ambitious ideas, a binding national minimum wage, a fully funded universal social security framework, and a well-resourced National Fund, were never implemented as the Commission intended. When the government later consolidated labour laws into the Code on Social Security, critics noted that it left out several of the Commission’s key suggestions, including its detailed treatment of agriculture.

Even so, the NCEUS reports remain a reference point. They showed that a comprehensive system for the informal sector was technically feasible and carefully costed, which is why policy researchers keep returning to them whenever the question of protecting India’s working poor comes back onto the agenda.

What do you think? If a binding national minimum wage and a fully funded social security system for unorganised workers were technically worked out more than fifteen years ago, what do you believe has held back their full implementation? And which of the three pillars, social security, skills, or enterprise support, would deliver the biggest improvement in workers’ lives if it were prioritised today?

References

1. https://sanhati.com/articles/8325/
2. https://en.wikipedia.org/wiki/National_Commission_for_Enterprises_in_the_Unorganised_Sector
3. https://theleaflet.in/labour-law/the-abandoned-vision-of-a-national-floor-level-wage-for-india
4. https://prsindia.org/billtrack/the-unorganised-sector-workers-social-security-bill-2007
5. https://dvararesearch.com/what-ails-social-security-for-the-indian-unorganised-sector-challenges-in-design-and-implementation/
6. https://csr.education/development-in-india/strengthening-indias-unorganised-sector-nceus-recommendations/
7. https://link.springer.com/article/10.1007/s41027-020-00269-8
8. https://dcmsme.gov.in/Techonology_Upgradation.pdf
9. https://ruralindiaonline.org/en/library/resource/growth-pole-programme-for-unorganised-sector-enterprise-development/
10. https://theleaflet.in/labour-law/how-the-code-on-social-security-overlooks-critical-suggestions-of-two-groundbreaking-national-labour-commission-reports