India Informal Sector Introduction

• India’s informal sector plays a pivotal role in its economic landscape, employing over 90% of the total workforce and contributing nearly 50% to the GDP, as highlighted in the Economic Survey 2022-23. 
• Despite being the backbone of the economy, this sector often remains overlooked in policy discussions and economic planning.
• The International Labour Organization (ILO) recognizes India as one of the world’s largest informal economies, with more than 400 million workers engaged in low-paying, precarious jobs without access to social security or legal safeguards. 
• NITI Aayog underscores the sector’s crucial role in rural employment, with nearly 80% of informal workers concentrated in rural areas.

Present Status of the Informal Sector in India

• Employment Distribution:

• • • Agriculture and allied sectors absorb nearly 50% of the informal workforce (PLFS, 2022).
    • Construction and manufacturing employ 15-20%, with most workers being contractual and migrant.
    • Gig and domestic work are rapidly expanding, yet remain largely unregulated and precarious.

• 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 jobs earn 35% less than men (ILO, 2022).

• Social Security Coverage:

• • • Less than 20% of informal workers receive pensions, health insurance, maternity benefits, or legal protections (NSSO, 2021).
    • Government schemes like PM-SYM and the E-Shram Portal face low enrollment and implementation gaps.

• Migrant Workers & Labour Mobility:

• • • India has over 100 million migrant workers (Economic Survey, 2020-21).
    • They face challenges related to housing, benefit portability, and job security.
    • Migrants from Bihar, Uttar Pradesh, Odisha, and Jharkhand dominate low-wage informal sectors.

• Gig & Platform Economy:

• • The gig economy is expanding in e-commerce, ride-hailing, and food delivery services.
  • Platform workers lack social security, face algorithmic exploitation, and have limited bargaining power (NITI Aayog, 2022).

Significance of the Informal Sector in India

• Economic Growth:

• • • Strengthening the informal sector is crucial for achieving India’s $5 trillion economy target. Nearly 50% of India’s GDP is derived from informal economic activities (Economic Survey 2022-23).
    • The sector supports low-cost production and affordable services, making essential goods and services accessible to a large population.
    • Small informal businesses and street vendors generate over ₹15 lakh crore in annual turnover, boosting local economies.
    • Industries like textiles, leather, and food processing rely heavily on informal labor for cost efficiency and global competitiveness.

• Employment Generation:

• • • The informal sector absorbs rural surplus labor, preventing mass unemployment, especially among landless agricultural workers and seasonal migrants.
    • The construction sector, one of the largest informal employment providers, employs over 50 million workers, many of whom are seasonal migrants. 85% of construction laborers in India are informal workers (NSSO, 2021).
    • During economic downturns, informal jobs act as a shock absorber, as seen during the COVID-19 crisis when millions turned to informal self-employment such as street vending and gig work after formal sector job losses.
    • The agriculture sector, which employs around 265 million workers, is primarily informal and forms the backbone of India’s food security.

• Urban Growth & Migration:

• • • Informal workers like construction laborers, street vendors, waste pickers, and transport workers are critical to urban economies. They provide services that sustain metropolitan cities like Mumbai, Delhi, Bengaluru, and Chennai.
    • Cities like Mumbai, Surat, and Delhi heavily depend on migrant labor from states like Bihar, Uttar Pradesh, Odisha, and Jharkhand for construction, manufacturing, and domestic work.
    • Migrants bridge labor shortages in industrial hubs such as Gujarat (textiles and diamonds), Tamil Nadu (leather and automotive), and Maharashtra (manufacturing and logistics).
    • Street vending alone supports over 10 million people, with cities like Delhi having more than 3 lakh street vendors who cater to urban needs.

• Social Safety Net:

• • • In the absence of formal employment, the informal sector provides crucial livelihoods to millions, reducing extreme poverty.
    • Street vendors, domestic workers, and small-scale artisans provide affordable services that cater to lower and middle-income groups.
    • Hawkers and street food vendors serve over 25% of India’s urban population daily, ensuring food accessibility at low prices.
    • During economic crises like COVID-19, the informal sector became a lifeline—MGNREGA saw a record 389 crore person-days of work in 2021, providing income support to informal workers.

• Cultural & Regional Diversity:

• • • The informal sector plays a key role in preserving India’s heritage, including handlooms, handicrafts, and indigenous art forms.
    • India’s handloom sector, which employs over 4.3 million workers, contributes significantly to exports, with ₹36,000 crore in annual revenue. States like West Bengal (Tant sarees), Uttar Pradesh (Banarasi silk), and Rajasthan (Bandhani) thrive on informal artisanship.
    • Tribal artisans and rural craftsmen sustain traditional industries like Dhokra metalwork (Chhattisgarh), Madhubani painting (Bihar), and Pashmina weaving (Kashmir).
    • Small-scale pottery, bamboo craft, and woodwork contribute significantly to both domestic and international markets.

• Women’s Employment & Livelihoods:

• • Women form a significant portion of the informal workforce, particularly in domestic work (over 3 million workers), home-based enterprises, textile production, and beedi rolling.
  • In self-employment, 70% of female workers are engaged in agriculture, dairy, and small-scale food processing, often working in family-owned enterprises.
  • The Self-Employed Women’s Association (SEWA) has mobilized over 2.5 million women into cooperative structures, improving income security and financial independence.
  • Women-led self-help groups (SHGs) under DAY-NRLM (Deendayal Antyodaya Yojana-National Rural Livelihoods Mission) have enabled over 8 crore rural women to engage in informal economic activities, boosting family incomes.

Government Initiatives for the Informal & Unorganized Sector

• • Insurance & Pension Schemes:

• Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY): 

• Provides ₹2 lakh life insurance cover for individuals aged 18-50 years at ₹330 annual premium.
• Over 16 crore people enrolled, ensuring financial support for informal workers’ families.

• Pradhan Mantri Suraksha Bima Yojana (PMSBY): 

• Provides ₹2 lakh accidental insurance coverage for individuals aged 18-70 years at just ₹20 annual premium.
• More than 33 crore beneficiaries, with thousands of claims settled annually.

• Pradhan Mantri Shram Yogi Maan-Dhan (PM-SYM) & National Pension Scheme for Traders (NPS-Traders): 

• PM-SYM: Provides a pension of ₹3,000 per month to unorganized sector workers after 60 years of age.
• NPS-Traders: Specifically for small traders and shopkeepers with an annual turnover below ₹1.5 crore.
• More than 45 lakh informal workers enrolled under PM-SYM.

• Employment & Skill Development Schemes:

• Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA): 

• Provides 100 days of guaranteed wage employment to rural households, reducing seasonal unemployment.
• In FY 2022-23, over 7.5 crore rural households benefited, generating 300 crore person-days of employment.
• Highest demand seen in states like Uttar Pradesh, West Bengal, and Madhya Pradesh.
• Impact: Helps marginal farmers, landless laborers, and women sustain their livelihoods.

• Pradhan Mantri Rojgar Protsahan Yojana (PMRPY): 

• Encourages formalization of informal workers by incentivizing businesses to hire them.
• The government pays 12% of the EPF contribution for new employees earning up to ₹15,000 per month.
• Over 1.5 crore workers have benefited from this scheme since its launch.
• Impact: Helps informal workers transition to formal employment, securing social security benefits like PF and pension.

• Aatmanirbhar Bharat Rozgar Yojana (ABRY): 

• Launched to support job creation post-COVID-19 and restore employment levels.
• Provides EPF subsidies for businesses hiring new workers or re-hiring those laid off during the pandemic.
• Over 6 million jobs created, with states like Maharashtra, Tamil Nadu, and Karnataka leading the implementation.
• Impact: Helps boost employment, especially in MSMEs and small businesses, where informal labor is dominant.

• E-Shram Portal:

• Launched in 2021 to create a national database of unorganized workers.
• Provides an e-Shram Card with a unique 12-digit number, enabling access to social security schemes.
• Over 28 crore informal workers registered, including street vendors, gig workers, domestic workers, and construction laborers.
• Benefits: Enables the government to target social security programs more effectively and integrate workers into formal schemes like EPF and ESI. In 2022, lakhs of gig economy workers from platforms like Ola, Swiggy, and Zomato registered, bringing them under formal welfare schemes.

• Social Welfare & Food Security:

• Pradhan Mantri Garib Kalyan Yojana (PM-GKAY): 

• Provides free food grains (5 kg rice/wheat per person per month) to National Food Security Act (NFSA) beneficiaries.
• Implemented during the COVID-19 pandemic, benefiting over 80 crore people.
• Extended till December 2023, ensuring food security for daily wage earners, rickshaw pullers, and slum dwellers.

• Additional Key Initiatives:

• Street Vendors’ Empowerment – PM SVANidhi: 

• Provides micro-loans (up to ₹50,000) to street vendors for reviving businesses post-COVID-19.
• Over 60 lakh vendors have benefited so far, with digital payments and credit incentives integrated.

• Rashtriya Swasthya Bima Yojana (RSBY) & Ayushman Bharat: 

• RSBY: Provides ₹30,000 health insurance to unorganized workers.
• Ayushman Bharat (PM-JAY): Extends ₹5 lakh per family annual health cover for informal sector workers.
• Over 50 crore beneficiaries under PM-JAY, ensuring healthcare access.

Challenges Faced by the Informal Sector

• Precarious Working Conditions: Unsafe workplaces are common, especially in construction, mining, and sanitation work. India records 48,000 workplace deaths annually—the highest globally, according to the ILO (2021). The Annual Report on Occupational Safety, Health & Working Conditions Code (2023) highlights poor compliance with safety regulations in hazardous sectors, with limited inspections and weak enforcement mechanisms.

• Legal & Institutional Barriers: Despite the Labour Codes (2020), enforcement remains weak. The PLFS 2022-23 reveals that only 24% of informal workers are aware of legal protections. The India Employment Report (2024) by the ILO and Institute for Human Development (IHD) states that unionization among informal workers is below 10%, restricting their ability to negotiate wages or benefits.

• Vulnerability to Economic & Environmental Shocks: The informal sector is highly sensitive to economic downturns and climate-related disasters. The ILO-UNICEF Report on Social Protection for Informal Workers (2023) notes that informal employment fell by 20% during COVID-19, pushing millions into poverty. The Climate Vulnerability Index (2023) warns that rising temperatures and extreme weather events disproportionately impact informal agricultural and street-based workers.

• Lack of Legal Protection: Many informal jobs fall outside labor laws. The Economic Survey 2022-23 noted that domestic workers, street vendors, and gig workers face uncertain income and lack of dispute resolution mechanisms. The Gig and Platform Economy Report (NITI Aayog, 2022) highlights that gig workers lack access to minimum wages, social security, or fixed working hours, leading to high stress and burnout.

• Health & Safety Risks: Workers in construction, mining, and sanitation face chronic health issues and high workplace fatalities. The National Health Accounts Report (2023) states that 93% of informal workers lack health insurance, making treatment unaffordable. The Swachh Bharat Mission Evaluation Report (2023) highlights that sanitation workers continue to operate in hazardous conditions, leading to frequent fatalities from toxic gas exposure.

• Lack of Social Security: Over 76% of informal workers lack access to EPF, ESI, pension schemes, or paid leave, according to the ILO’s World Social Protection Report (2020-22). The Periodic Labour Force Survey (PLFS) 2022-23 states that over 90% of India’s workforce remains in the informal sector, highlighting the absence of social security coverage. Women and migrant workers are particularly vulnerable due to irregular employment and lack of maternity benefits.

• Exploitation & Low Wages: Informal workers often earn below minimum wages, with no overtime pay or job security. The State of Working India Report (2023) found that casual workers in urban areas earn ₹300-₹400 per day, far below a living wage. Agricultural laborers, domestic workers, and gig workers, including delivery riders, also face wage fluctuations and income insecurity.

The Way Forward

• 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 for broader inclusion.

• Skill Development & Formalization:

• • • Invest in skill development to help workers transition from low-productivity informal jobs to the formal sector.
    • Promote micro-entrepreneurship through schemes like MUDRA Yojana.

• Legal Reforms:

• • • Amend labor laws to include informal workers, ensuring minimum wages and workplace safety.
    • Ratify ILO’s Domestic Workers Convention (C189) for domestic worker protections.

• Technology & Data-Driven Solutions:

• • • Use the E-Shram Portal to create a comprehensive informal worker database.
    • Utilize Geographic Information Systems (GIS) to map worker needs and design targeted welfare schemes.

• Learning from Global Best Practices:

• • Implement ILO’s Recommendation 204 for transitioning from informal to formal employment.
  • Adopt models like Brazil’s Bolsa Família program (cash transfers) and South Africa’s EPWP (public works employment).