India’s Informal Sector- Explained Pointwise

India’s informal sector is the backbone of its economy, employing over 90% of the total workforce and contributing nearly 50% of GDP, as per the Economic Survey 2022-23. Despite its critical role, this sector remains largely invisible in policy discussions and economic planning.

According to the International Labour Organization (ILO), India has one of the world’s largest informal economies, with over 400 million workers engaged in low-paying, precarious jobs without social security or legal protections. The NITI Aayog highlights that the informal sector is a significant driver of employment, particularly in rural areas, where 80% of informal workers are concentrated.

What is the present status of Informal sector in India?

1. Employment Distribution: The agriculture and allied sectors employ ~50% of the informal workforce (PLFS, 2022). Construction and manufacturing account for 15-20%, with most workers being “contractual” and “migrant.” Domestic and gig work are rapidly growing but remain unregulated and precarious.

2. Income & Wages: Only 10% of informal workers earn above ₹10,000 per month (E-Shram, 2023). Wage disparities exist based on gender, caste, and geography. Women in informal work earn 35% less than men (ILO, 2022).

3. Social Security Coverage: Less than 20% of informal workers have access to pensions, health insurance, maternity benefits, or legal protections (NSSO, 2021). Schemes like PM-SYM (Pension Scheme for Unorganized Workers) and the E-Shram Portal exist but suffer from low enrollment and implementation gaps.

4. Migrant Workers & Labour Mobility: India has over 100 million migrant workers (Economic Survey, 2020-21). Lack of housing, portability of benefits, and job security exacerbates their vulnerabilities. Interstate disparities persist, with migrants from Bihar, Uttar Pradesh, Odisha, and Jharkhand dominating low-wage informal sectors.

5. Gig & Platform Economy: The gig economy is expanding rapidly in e-commerce, delivery, and ride-hailing services. However, platform workers lack social security, face algorithmic exploitation, and have no bargaining power (NITI Aayog, 2022).

What is the significance of the Informal Sector in India?

1. Economic Growth: Strengthening the informal workforce is critical for India’s $5 trillion economy goal. The informal sector ensures low-cost production, affordable services, and a flexible labour supply for industries.

2. Employment Generation: The informal sector absorbs rural surplus labour, preventing mass unemployment. For example, the construction sector, predominantly informal, employs over 50 million workers. During economic downturns, informal jobs often serve as a buffer, as seen during COVID-19.

3. Urban Growth & Migration: Informal workers—construction labourers, street vendors, and transport workers—support urban economies. Migrants bridge labour shortages in industrial states like Maharashtra, Gujarat, Tamil Nadu, and Karnataka.

4. Social Safety Net: In the absence of formal employment opportunities, the informal sector acts as a safety net for millions. Street vendors and domestic workers, though poorly paid, provide essential services to urban economies.

5. Cultural & Regional Diversity: The informal sector preserves India’s cultural heritage through traditional crafts, handlooms, and small-scale industries. The handloom sector alone employs over 4.3 million workers, mostly women.

6. Women’s Employment & Livelihoods: Women dominate informal sectors such as domestic work, home-based enterprises, and self-employment. Organizations like the Self-Employed Women’s Association (SEWA) have mobilized millions into cooperative structures.

What are the government Initiatives for the Informal & Unorganised Sector?

What are the challenges faced by the Informal Sector?

1. Lack of Social Security: Over 76% of informal workers lack EPF, ESI, pension schemes, or paid leave (ILO’s World Social Protection Report 2020-22). Most do not receive minimum wage protections, leading to income instability.

2. Exploitation & Low Wages: Informal workers often endure poor working conditions, with wages below the legal minimum. For example, urban construction workers often work 12-14 hours a day for meagre pay.

3. Precarious Working Conditions: Workplace safety is a major issue, with a high risk of accidents in construction, mining, and factories. The ILO (2021) estimates 48,000 annual workplace deaths in India—the highest globally.

4. Legal & Institutional Barriers: While the Labour Codes (2020) aim for “universal coverage,” implementation remains weak. Informal workers struggle to unionize, limiting their bargaining power.

5. Vulnerability to Shocks: The informal sector is highly susceptible to economic and environmental disruptions. During the COVID-19 pandemic, millions lost their livelihoods overnight with no safety net.

6. Lack of Legal Protection: Many informal workers are not covered under labour laws. For instance, domestic workers are excluded from the Minimum Wages Act, leaving them vulnerable to exploitation.

7. Health & Safety Risks: Workers in hazardous sectors like construction, mining, and brick kilns face severe health risks without protective gear or healthcare access.

What is the way Forward?

1. Strengthening Social Security: Implement the Code on Social Security, 2020, to extend coverage to informal workers. Expand schemes like Pradhan Mantri Shram Yogi Maandhan (PMSYM) and Ayushman Bharat to ensure broader inclusion.

2. Skill Development & Formalization: Invest in skill development to transition workers from low-productivity informal jobs to the formal sector. Promote micro-entrepreneurship through schemes like MUDRA Yojana.

3. Legal Reforms: Amend labour laws to include informal workers, ensuring minimum wages, workplace safety, and grievance redressal mechanisms. Ratify the ILO’s Domestic Workers Convention (C189) for domestic worker protections.

4. Technology & Data-Driven Solutions: Leverage the E-Shram Portal to create a comprehensive informal worker database. Use Geographic Information Systems (GIS) to map informal worker needs for targeted welfare schemes.

5. International Best Practices: Learn from Brazil’s Bolsa Família program, which provides conditional cash transfers, and South Africa’s Extended Public Works Programme (EPWP), which offers temporary employment in public projects.

6. UN & ILO Recommendations: Implement ILO’s Recommendation 204 for transitioning from informal to formal employment. Align with UN Sustainable Development Goals (SDG 8: Decent Work and Economic Growth) for inclusive progress.

Conclusion
India’s informal sector workers are the unsung heroes of its economy, yet they remain marginalized and vulnerable. As the ILO states, “Decent work is not just a goal; it is a driver of sustainable development.” The NITI Aayog emphasizes that “the informal sector is not a problem to be solved but a reality to be managed.” A multi-pronged approach—legal reforms, social security expansion, skill development, and adoption of global best practices—can transform India’s informal sector into a pillar of strength.

As Mahatma Gandhi said, “The true measure of any society can be found in how it treats its most vulnerable members.”