This article tackles the complex relationship between work and savings, and how it manifests itself in the heavily unregulated informal work industry
7 minutes read
While the ‘unorganised’ informal economy now accounts for roughly half of India’s GDP, it accounts for 80-90 % of the workforce. It includes agriculture, despite the fact that land titles are registered, except for plantations, which are regarded as ‘organised’ despite their unravelling workforces. Research suggests that most of the economic progress in the world in coming years is going to be from the informal sector. Not only is the nature of occupation termed to be informal, but so is the savings-investment cycle. Hon. Prime Minister, during the 2019 election mentioned that “The ultimate objective of subsidies should be to empower the poor, to break the cycle of poverty, and become foot-soldiers in our war on poverty.”
But do these subsidies really help the informal sector to be able to save? is it empowering, or empowering enough?
It is observed that citizens from the low income groups who incline towards poor saving habits do so because they spend first, and resort to saving the remnants. Around 80% of the Indian population is engaged in the informal sector. Of this, 94% are women, 62% of whom are not formally connected to any financial institution to the extent of not having bank accounts either. ( IMF, January 2020 )
Low incomes often lead to poverty. Most of the poverty in rural areas is asset sourced poverty. Scarcity of monetary resources can be overcome by good financial skills. These skills not only involve the ability to be able to manage finances, but financial literacy too. Financial literacy is definitely an obstacle, but at the core of this issue is basic literacy. One cannot expect an individual to understand financial literacy concepts without having a basic education or without knowing the basic aspects of income and savings. Research shows that in a broader perspective, women are seen to be generally managing the household, and the financial responsibilities that follow. Household financial responsibilities not only revolve around managing and handling the household duties but also strategizing these duties and single handedly operating the management aspect of running a family. There is a tremendous amount of planning that goes into this managerial work as well, but it is different from the hardcore financial management. This becomes tougher, as being employed in the informal sector does not allow a lot of employees the freedom to basic benefits like a clean, hygienic workplace, equal pay, health insurance and more.
Women in India, especially from low income groups often undergo major employment shifts due to their workplace, responsibility of the household and other variable factors like spouse’s wage rate/occupation. In a rural scenario, where an average woman has to manage domestic responsibilities as well as the family, choosing work closer to home is the most ideal and preferred solution. Most of these work spaces are not located in a healthy or a conducive atmosphere and are a victim to social perils like inequality, unfair wages, unhygienic environment or abusive environment. This defeats the rationale of women wanting to choose work spaces closer to home as it does not allow the woman to bring her child to work or even to work part-time. Due to the above-mentioned reasons, most of these jobs are on a daily wage basis, and employees are often underpaid for their services. In such a situation, where there is almost no social security, accompanied by highly fluctuating wage rates and no policy benefits, it is very difficult for women to continue working in such an exploited situation.
As mentioned earlier, women are quite capable of handling daily transactions and household finances but it is mostly not through the formal chains of financial management. If a loan has to be sought, it is done mostly through the employer being the lender, more often than not. Government subsidies, policies for the low income groups, benefits etc, are available, but not accessible. In a rural scenario, where an individual would place trust in a tangible system, it is tough to introduce concepts like fixed deposits, stocks, or saving/current accounts. Therefore it is observed that for low income groups in an urban setting, firms have to partner with NGOs engaged in ground work in order to get things done. There are multiple Village Level Entrepreneurs and groups working to facilitate this transition for the low income groups as the main issue which is to facilitate trust building, once achieved becomes half conquered.
It is also very important to consider the aspect of the rural and the urban divide, a rural woman necessarily earns her income in order to make ends meet or to pay for emergencies or necessities. The outlook is to spend first and then save. Comparing this to the urban space, in contrast to the rural woman does not earn to save. Trends have been observed where the urban woman (in metropolitan, and tier 1&2 cities in the country) is not the sole bread-winner in the family which makes the household function much more seamlessly as compared to a rural household.
For some kind of formal financial institution to penetrate into the rural sphere, in order to encourage saving behaviours, only digital ways will not work. Most institutions and organisations have experienced that the people do not readily trust the firms for saving or investment related affairs. The trend states that women have been trusted more to make sure that the lent money is received back. Digital penetration is definitely a challenge, however as a student residing in an urban space, what you can do to contribute is find out about organisations that facilitate this transition and volunteer with them remotely, via phone calls or manage their ecosystem.
The informal saving and investment system operates on trust. Informal lending mainly, in the low income sector does not involve any paperwork. It is always advantageous to introduce such groups to the formal sector or institutions that facilitate saving as it does not only have elements that help them to understand what safeguards their money but also forms a line of defence. This ensures that believability increases with the accountability that a deal written on paper brings. Often, it is the setup that might intimidate this group because of the societal setup or conditions.
Women in the low income group are better at strategizing their responsibilities and managing their time and resources. Irregular wages, no fixed source of monthly income does not lead them to save in formal sources of financial institutions. They seek their employers for loans or any kind of emergency or payment, etc. These women are worried about basic expenditures like children’s education, monthly ration and even recurring expenses like electricity and telephone bills. Due to the kind of background they belong to, often they are not aware of basic financial terms like credit score, or an employment contract and are likely to collect their salaries or payment in cash itself. Although they prefer this, there is no official record of their employment which stems to larger issues in the future.
Women in the low income group seek their employers for loans or any kind of emergency or payment, etc. These women are worried about basic expenditures like children’s education, monthly ration and even recurring expenses like electricity and telephone bills.
What’s their loss? Heavy losses on medical expenditures because of not being aware of insurance policies or investment in education and schooling fees because of being unaware of scholarships for children belonging to low income groups are commonly observed mistakes.
What can be done to change this? It is not viable to move them to the formal sector, even if it does look feasible. It would always help for them to be aware of these policies for them through educational programs or drives in their locality so they don’t fall trap to local loan sharks, and learn about maximizing their savings through returns.
- Investopedia: Why Financial Literacy Is So Important and Poverty Trap Definition
- Parinaam Foundation: Diksha Financial Literacy Program
- Department of Financial Services, Ministry of Finance, Government of India: Schemes
- The Quint: How COVID Threw India’s Low-Income Households Into Debt Traps