Beyond Bluewashing: Why Tackling Informality is Key to Sustainable Supply Chains in India


Editorial by Social Compact

Across India's industrial sector, over 50% of the workforce keeping business chains afloat comprises impermanent, contractual, and supply chain workers. These individuals often work over 12-hours a day, 6 to 7 days a week, for wages that barely exceed USD 5-7 per day. Their situation is exacerbated by the lack of job contracts and social security cover, which defines their informal status in the workforce and constitutes the bedrock of their vulnerability despite being engaged full time in formal industry. This article delves into the significance of addressing informality in the workforce and how the Social Compact movement is at the forefront of enabling industry to improve trackability of and accountability towards worker well-being within the informal layers of industry.

Informality makes workers invisible; supply chains risk-prone

Leveraging fixed term, contractual and supply chain workforce has become a way for companies to win flexible labour and production capability which they can temper in accordance with business needs, without having to worry about all workers as their “on roll” responsibility.

It would have worked; however the arrangement falls short on some fundamentals, impacting 200 million industry-engaged informal workers, over twice the entire population of Germany. A major issue is the lack or inadequacy of job contracts. In Social Compact’s experience, contractors of less than 5% companies provide workers with a job contract that well-defines their terms of engagement, is provided to the worker, and is in a language the worker understands. Another significant omission is the lack of social security coverage, with less than 30% companies fully complying with mandatory entitlements like the Employee State Insurance for informal workers earning less than USD 252.37 (INR 21,000) monthly which ensures free access to subsidized treatment for accidents and illnesses, for the worker and family. As a result of this basic omission, one health episode or hospital admission, pushes the family to take a loan of USD 190 to USD 315, from random money lenders, at an exorbitantly high interest rate of 14-30%, which basically throws the family into a debt trap. Formal banks do not lend money for such needs to this cadre of population, without a legit job contract or employer letter to rely on.

In other words, flexible labour engagements deteriorated into informal and often unprotected engagements, leaving the working poor without any risk cover, as was evident during the mass exodus of working migrants, 24 hours into India’s first lockdown.

But it’s not just the workers. Informality heightens the precarity in supply chains as well, making it hard to track and ensure dignity and equity for the fixed term, contractual and suppliers’ workers keeping the business chain afloat. It is therefore no surprise that there is a growing demand for responsible supply chains that uphold the rights and well-being of contributing workers. In the wake of Germany’s Supply Chain Due Dilligence Act, all of Europe is set to pass a similar ruling for ensuring greater trackability, understanding and mitigation of human rights related risks and violations, across global supply chains of European companies. Even in India, regulatory bodies like SEBI are demanding listed companies for public disclosures not only restricted to the wellbeing of their own employees and workers, but also those of value chain partners. For businesses aiming to be future-ready, the trend should be fairly directive.

A few useful questions to consider

  • Does your company in India or Indian supplier maintain record on worker-related compliances and wellbeing?
  • Do these records include data on impermanent and contractual workers fulfilling core and support functions for the business?
  • Does it include workers in their supplier base?

If the answer is “not quite”, you are assessing risks and potential for your business, with visibility on less than 30% of the workforce that sustains it. Limited visibility means poor pre-emptive and corrective capability in the supply chain, laying a rather precarious foundation for business chains striving to be ‘sustainable’, whether socially or financially.

Join the Social Compact movement

Social Compact is a multi-stakeholder platform that is enabling Industry with improved business systems, to ensure greater transparency and accountability towards the wellbeing of informal workers in their business chain. It leverages a framework of 6 human centric outcomes that underlie the vulnerability of workers across industrial sectors, aka, minimum to livable wages, occupational health and safety, access to grievance redressal, gender parity, access to government benefits, skilling & growth. A company begins its Social Compact journey with a tool-based assessment, evaluating the maturity of informal worker practices across the above mentioned outcomes, as understood by the management. It then visits select sites to gather ground up insights from workers across all informal functions- core or support. Insights gathered through this inclusive process are offered to the C-suite as systemic recommendations for corporate-wide absorption. The Compact then helps companies absorb the systemic recommendations into existing business policies, monitoring, and reporting systems, or develop new solutions if need be. Finally, Social Compact offers companies a digital dashboard to create ease of tracking and reporting on informal worker wellbeing indicators, making this hitherto invisible demographic, visible to leaders across levels, urging action and good governance. Over the last three years, Social Compact has worked with over 60 companies, across manufacturing, auto components, construction, among others, triggering systemic impact for over 300K informal and vulnerable workers.

In addition to its enablement journey with individual business chains, Social Compact also actively partners with industry chambers and platforms, investors and norm setters to mainstream the need for industry in India to absorb a new aspiration- one where sustained profitability of business chains builds on the sustained wellbeing and growth of all workers.

We look forward to each one of you joining us on this journey, and joining forces with our vibrant community of practice in India.