The informal sector is a crucial component of India's economy, employing about 81% of the workforce, and is considered an engine of growth despite challenges in formalization and low rights for workers. It encompasses a variety of occupations, including agriculture, manufacturing, and services, but faces issues such as restrictive labor laws and lack of awareness among workers regarding their rights. The government's role in supporting formalization and productivity within this sector is essential for its continued growth and contribution to the economy.

1. CONTRIBUTION OF INFORMAL
SECTOR TO INDIAN ECONOMY:
POTENTIAL AND CHALLENGES
Dr.(Mrs) Anupma Srivastava
Associate Professor/Head, Department of
Economics
Isabella Thoburn College
Ms Amita Marwha
Faculty Department of Economics
Isabella Thoburn College

2. Informal Sector- The Engine Of Growth
• The Informal sector is now seen as the next
engine of growth for India's economy.
• Nearly 81% of all employed persons in India make
a living by working in the informal sector, with
only 6.5% in the formal sector and 0.8% in the
household sector, according to a new ILO
(International Labour Organisation) report
"Women and Men in the Informal Economy – A
Statistical Picture (Third edition) 2018 .“

3. Informal Sector -Background
• The term 'informal sector' was first used by
John Keith Hart in 1973 in the study of
employment pattern in urban Ghana.‘
• its further elaboration and elucidation was
made by the ILO's Employment Mission to
Kenya under the auspices of the World
Employment Programme in 1972

4. Key Question In Hart’s Study
• key question: does the “reserve army of
urban unemployed and underemployed”
constitute a passive exploited majority OR do
their informal economy activities “possess
some autonomous capacity for generating
incomes”?
• answer: both - external constraints/capitalist
domination + autonomous capacity

5. National Commission for Enterprises in
the Unorganised Sector (NCEUS)
• The Government of India, constituted a
National Commission for Enterprises in the
Unorganised Sector (NCEUS) vide Ministry of
Small Scale Industries Resolution No.
5(2)/2004-ICC dated 20th September, 2004, to
act as an advisory body and watchdog for the
informal sector

6. Definition Given By NCEUS
• "The unorganised sector consists of all
unincorporated private enterprises owned by
individuals or households engaged in the sale
and production of goods and services
operated on a proprietary or partnership basis
and with less than ten total workers".
• Definition given by NCEUS (National
Commission For Enterprises In The
Unorganized Sector)

7. Informal Sector -Lack In Conceptual
Clarity
• National Accounts Statistics (NAS) defines the
unorganised sector in addition to the
unincorporated proprieties or partnership
enterprises, includes enterprises run by
cooperative societies, trust, private and
limited companies. The informal sector can
therefore, be considered as a sub-set of the
unorganised sector.

8. Shortcoming Of The Definition
• The definition is, therefore, in terms of
characteristics of the enterprise rather than in
terms of the characteristics of the worker.
Thus a large number of workers with informal
job status were excluded.

9. Define Unorganised Employment
• Employment in the unorganised sector has
hitherto been derived as a residual of the total
workers minus workers in the organised sector
as Reported by the Directorate General of
Employment and Training (DGET).

10. Features Of Informal Sector
• Low level of organization; small in scale usually
employing fewer than ten workers and often
from the immediate family;
• Heterogeneity in activities;
• Easier entry and exit than in the formal sector;
• Usually minimal capital investment; little or no
division between labour and capital;
• Mostly labour intensive work, requiring low-level
skills; there is usually no formal training as
workers learn on the job;

11. Features Of Informal Sector
• Labour relations based on casual employment
and or social relationships as opposed to formal
contracts; employer and employee relationship is
often unwritten and informal with little or no
rights;
• Due to their isolation and invisibility, workers in
the informal sector are often largely unaware of
their rights, cannot organise them and have little
negotiating power with their employers and
intermediaries (ILO 2000).

12. Segments of Informal Economy
• Wage work for informal enterprises
• Domestic work without a regular contract
• Casual day labour without a fixed employer
• Unregistered or undeclared work for formal or informal firms
• Temporary and part-time work for formal firms
• EXAMPLES (total = 106 activities):
– Agriculture: landless labourers, small farmers, traditional artisans, animal
husbandry
– Industry: workers in brick-kilns, construction, beedi-making, incense
stick
– Services: workers in local transport, shops, domestic servants, community
services like street cleaning, street vendors, garbage collectors
– Small Workshops: shoe makers, garment makers and embroiderers
– At Home: garment workers artisans or craft producers
– On Rivers, Ponds, Lakes, and Oceans: fishermen, shippers

13. • Most labour has moved from agriculture to the informal
non-agricultural sector and this has boosted productivity.
However, at the same time, labour has moved out of the
highest-productivity sector – the formal sector.
• The proportionate fall in formal employment was greatest
in the public sector and, even in the most productive
formal private sector, the share of employment has fallen
slightly
• High capital intensity in the organised sector – despite low
labour costs – and an extraordinarily large share of overall
manufacturing employment in micro-enterprises, most of
which are in the informal sector are the potential reasons
why industrial /manufacturing sector is lagging behind.
Employment Status in Informal
sector-A Bleak Picture

14. Employment Status in Informal
sector-A Bleak Picture
• Construction, manufacturing and wholesale and retail
trade activities together was the main providers of
employment for the informal sector enterprises and
‘all’ enterprises in both the rural and urban areas.
• Out of all workers in the non-agriculture informal
sector, 76 per cent in the rural areas and 72 per cent in
urban areas belonged to construction, manufacturing
and wholesale and retail trade.
• The corresponding figures for all workers in non-
agriculture sector in rural and urban areas were nearly
69 per cent and 59 per cent, respectively.

15. Proportions of informal sector workers in the activities which
provided majority of employment in informal sector
INDUSTRY SECTIONS RURAL URBAN
WHOLESALE OR
RETAIL TRADE, ETC.
91 92
MANUFACTURING 86 78
TRANSPORT,
STORAGE AND
COMMUNICATION
82 68
CONSTRUCTION 64 72

16. Why study of Urban Informal sector
• Economic activities in the informal sector play
an important role in developing countries,
especially in urban areas where its income
opportunities have been increasing rapidly
with economic development.

17. Categories Of Urban Informal Sector
workers
Home-
based
workers
Street
vendors
Waste
pickers
Domestic
Workers

18. First Category Of Workers are Home
Based Workers
Home Based workers
automobile parts.
Home Based Workers
textiles and to electronic goods prepared food
Home based workers
produce a wide variety of goods and services from their homes – from garments

19. Second category of workers are Street
vendors
Street Vendors
prepared food to auto repairs
Street Vendors
building materials
Street Vendors
fresh fruits and vegetables from crafts to consumer electronics

20. Third categories of workers are Waste
pickers
Waste pickers
preventing them from accumulating in landfills and dump sites
Waste pickers
extracting recyclable goods from the waste stream
Waste pickers
pickers provide a critical environmental service,

21. various laws which apply to all section of Unorganized section
of the labour
(Laws which
apply to all
sections of the
unorganised
sector labour)
The Equal
Remuneration
Act, 1976
The Bonded
Labour System
(Abolition)
Act, 1976

22. Various Laws Which Apply To Some Section Of
Unorganized Section Of The Labour
Laws which apply
to some sections
of the
unorganized
sector labour
. Child Labour
(Prohibition and
Regulation) Act, 1986
• Dangerous Machines
(Regulation) Act, 1983
. Minimum Wages
Act, 1948
Motor Transport
Workers Act, 1961
• The Employment of
Manual Scavengers and
• Construction of Dry
Latrines (Prohibition) Act,
1993
. Inter-State Migrant
Workmen (Regulation
of Employment and
Conditions of Service)
Act, 1979

23. Profile of Women Workers In The
Informal Sector
Variables
category
Reasons for the
particular
profession
Terms and
condition of Job
Wages Discrimination
on the basis of
wages
Domestic
Workers
•Only job available
near their residence
•Economic
compulsion
•No other skill
•No defined rules
•Increment in
wages/fringe
benefits only
when they work
for longer hours
Negotiable •No
discrimination
•More preferred
over Men for
house hold job
Construction
workers
•No land
•No other skills
Depend on local
contractor for
work
No regularity or
security of job
•Disparity in
wages and in the
nature of work.
•Ill treatment
and harassment
at the hand of
contractors

24. Profile of Women Workers In The
Informal Sector
Variables
category
Reasons for the
particular
profession
Terms and
condition of
Job
Wages Discrimination
on the basis of
wages
Garment
workers •Low middle class
who wants white
collar jobs
•Can work from
home
No significant
information
•Work based
commission
•Arbitrary
No incidence
reported
Petty traders
/Vendors
Self employed
Sales Persons Economic
compulsions
•Very tedious
•Long working
hours
• involves risk of
personal
assault
•Mostly work
based
•Arbitrary and
low

25. Challenges In Formalization
• Restrictive labour laws- which promotes ad -
hocism and contract hiring in the labour
market to circumvent the rigid labour laws.
• Predominance of services-sector led growth
• Absence of thrust on manufacturing

26. Challenges In Formalization
• Lack of an exit mechanism such as insolvency and
bankruptcy laws has led to firms remaining small,
barely breaking even, and not scaling up. Such
small firms can circumvent formal sector laws
such as mandatory registrations with the EPFO
etc. rendering them informal.
• The advent of the Fourth Industrial Revolution
and automation poses even more dangers to
present formal sector jobs since workers with
current skills will be rendered obsolete unless
they undergo skill reorientation.

27. Conclusion
• Clearly, the informal sector is not the residual sector of the
economy. In reality, it is the dominant sector. The informal
sector may not contribute much to the national income but
its dominance in employment is likely to continue for some
more time as informal sector has the major role to play in
expanding the capacity of Non agriculture sector to absorb
labour.
• Government can play both direct and indirect role in
providing formalization to the large section of the
population engaged in informal sector through the better
measures of contribution of the informal sector in the GDP
of the country and to provide labour productivity, capital
productivity and capital output ratio to measure the
efficiency in the informal sector.

28. Thank You