Don’t rush to mimic Rajasthan gig workers law

In India there is little difference between gig work and full-time employment.

The devil, as they often say, is in the details. And so it is with the The Rajasthan Platform Based Gig Workers (Registration and Welfare) Act 2023, passed in the Rajasthan Assembly on July 24 to nearly universal fanfare.

The need for some form of social security measures for gig workers was so acutely felt that this Act is currently lauded with messianic zeal just for the good intentions behind the law. There is a good chance that other states will follow suit and therefore, a closer scrutiny can instruct areas for improvement.

The Gig Landscape

Around 7.7 million workers are employed as gig workers in India according to a NITI Aayog report released in July 2022. This is due to grow three times by 2029-30. Zooming in on Rajasthan, there are 2.25-2.70 lakh gig workers in the state.

In the gig economy, people are contracted for specific tasks or gigs and paid for that gig alone. Since they are not employees, they do not receive any benefits, such as pensions, insurance, or even well-defined leave from work.

There is also considerable variability in income levels, which hampers any form of financial planning. Platforms or aggregators that hire gig workers have absolved themselves from providing any of these benefits by emphasising that the personnel are “partners” and not employees.

The bigger problem is that the nature of gig work in India is quite different from how the sector originally evolved. By design, a gig worker does small, temporary freelance tasks when they have extra time or idle resources – for instance, hypothetically, an Economics professor is done with research for the day and undertakes a couple of trips on Uber in the evening to earn beer money.

In India, however, there is little difference between gig work and full-time employment. A delivery partner relies entirely on delivery service for their income, and so does an Uber driver. The only small difference, however, is that they can choose between different aggregators – drive for Uber in the morning and Ola in the evening. Technically, this should be referred to as multi-homing employment.

Rajasthan’s Proposed Solution

While the minute details of the Act can be found elsewhere, here’s a summary. The Act proposes to:

1. Levy a cess (specific tax) on every transaction (between 1 and 2 percent)

2. Register every gig worker, aggregator and record all transactions (a data privacy nightmare!)

3. Constitute a welfare board that will implement welfare schemes for the gig workers – accidental and health insurance, pension, scholarships, and anything else they may deem fit.

4. Impose fines on errant aggregators

While there is a skeletal architectural structure for the welfare of gig workers, the Act delegates the actual welfare measures entirely to the board. The only mention of what will be done with the cess is about the payment of salaries to board members.

The success of the bill is entirely dependent on the functioning of the board and unfortunately, from past evidence, constituting a welfare board is no panacea for welfare of workers. There is a similar cess and welfare board for construction workers in many states and their performance has been dismal.

Will Benefits Reach Workers?

Of the ₹87,000 crores collected through cesses on construction transactions, nearly 44 percent or ₹38,000 remain unused, despite many workers claiming woeful working conditions and lack of a safety net. Even Rajasthan has a utilisation rate of about 55 percent.

The relatively successful example of this model is the Maharashtra Mathadi, Hamal and other manual workers welfare board, but even that has had mixed results related to workers getting the full benefits and having agency.

The other logistical issue is of distribution of benefits. Given that all the resources (collected through cesses) are pooled in a centralised account, is every individual who is registered on the platform equally entitled to the benefits? Is the aforementioned Professor who has done two Uber rides in a month equally entitled to pension as a person who does gig work 12 hours a day?

This is a crude socialisation of social security and removes individual incentive. To avoid this, the board will end up getting greater (arbitrary) discretion of when to disburse funds and we will get stuck in a soul-crushing bureaucratic quagmire.

A better model, as Takshashila’s Nitin Pai suggests is to use the existing Jan Dhan-Aadhaar-UPI architecture and have individual welfare accounts to make targeted payments based on volume of transactions. The sums in the individual accounts can still be used to buy group insurance for health, accident, and life, have a pension fund and even generate long term returns that can be used to grant scholarships, etc.

Some Macro Questions

The inevitable question that arises is about the need for a cess to pay for social security. Individuals and corporations already pay taxes, direct and indirect (including when they use the gig economy), which is supposed to cover basic social security.

The next valid question is why only gig workers or construction workers? Surely, contract employees in factories deserve social security. So do street sweepers, domestic help, waiters, and every form of non-corporate employees. We might end up putting a cess on every economic transaction, which is nothing but the indirect tax (or GST).

Finally, there is an invariable issue of federalism that props up. In an ideal cooperative federalism scenario, this sort of mechanism should be done at the union level, as having different state wise laws and registration for a fluid nationwide digital service makes little sense.

However, in election times, the state government may not want to cede space and credit to the Union, which will be quick to whip up an acronym and seize the political mileage.

Anupam Manur is a Professor of Economics at the Takshashila Institution, an independent think tank and school of public policy. Views are personal, and do not represent the stand of this publication.