Much policy and public attention has been directed towars the emerging gig worker segment in the context of India’s jobless growth trajectory. This worker pool is targeted to reach 23 million by the end of decade. The overall sustainability of the sector demands that these workers be financially empowered and skill enabled.
A relevant policy question remains whether gig workers should be treated as wage workers or entrepreneurs given the characteristics shared with both. There is a dichotomy here as the Labour Ministry has made these workers eligible for certain statutory benefits under the new social security code, whereas the MSME Ministry via SIDBI’s lending operations has started recognising them as nano-entrepreneurs.
This debate has ramifications for their access to easier finance and other government benefits. Granting gig workers MSME status would allow them to avail priority sector lending without collateral and at lower interest rates, along with credit risk guarantees, tax and market access benefits, as well as other forms of government support. Recent policy debate has more generally focused on the recognition of nano-entrepreneurs, be it solo-preneurs, home-based businesses or independent contractors, under the MSME category.
To address this question, the risk-reward profile of gig workers needs to be analysed. In contrast to traditional wage workers with formal long-term contracts, gig workers enter into short-term formal contracts with digital platforms on a ‘pay for performance’ basis — that is, they get paid by some measurable performance metric like number of orders delivered or trips made, often with an additional set of complex incentives built in.
Therefore, while platforms reduce the need for gig workers to cultivate their own clients and negotiate transaction prices, they do not guarantee income, and workers face business volatility subject to the vagaries of market demand. Many have to supplement platform work with their own side business. In addition, platform commissions, which may be perceived as the unit cost for acquiring a “gig”, and other related costs are typically garnished from the gig worker earnings.
Work-specific investments
Another component of risk are work-specific investments borne by gig workers. Like nano-entrepreneurs, they incur initial expenditures for working assets like phones, vehicles, and other tools as well as recurring operational costs for fuel, vehicle maintenance, inventory, insurance, and upskilling. Whereas some platforms have started to provide partial subsidies, scale-based discounts or loan support for such purchases, this is not the norm. Lastly, gig workers do not enjoy social security benefits including protection against loss of income due to illness, injury, or other unforeseen and uncontrollable events, access to affordable healthcare for themselves or their families, as well as pension and old-age security. While most platforms have started providing some basic form of insurance, typically personal accident coverage, recent studies show that only one in five gig workers had health or life insurance.
A 2023 study of gig workers in Bengaluru observed a 57 per cent variation around average daily earnings and 79 per cent variation around average daily work expenses. Further, it demonstrated high volatility was experienced by all worker types including delivery workers, autorickshaw drivers, service professionals and cab drivers. Cash flow volatility led to reliance on small, recurring loans from peers, friends, family and informal lenders to pay for expense spurts and smoothen consumption as these workers are largely unable to access formal financial tools like credit cards or bank loans.
Another Covid-related study has highlighted how absence of social security made gig workers vulnerable to economic shocks. It estimated 90 per cent of Indian gig workers lost significant income during the pandemic, and that 47 per cent had to borrow to cover their expenses for a month. Within six months, 44 per cent had already borrowed, 45 per cent had cut consumption, and 83 per cent had to use up their savings. It is urgent to address questions of financial access to harness the potential of the digital gig economy.
New tech-based solutions in the financial ecosystem have emerged to address the financial needs of the sector be it cash flow volatility, need for working capital, vulnerability to economic shocks or delayed wage payments. Successful solutions are cash flow aligned, personalised, flexible, convenient and scalable to the needs of the gig economy. Regulatory and policy action is needed to recognise this rapidly growing pool of tech-enabled workers as nano-entrepreneurs and allow them to harness priority sector finance to grow, invest and thrive. Importantly, this could also help mitigate against unintended consequences of RBI’s recent regulatory curtailment of unsecured retail credit, which has spilled over to working capital for gig workers.
Malick is Chief Business Officer & Co-Founder KarmaLife, and Buteau is Executive Director, LEAD at Krea University