The Informal Sector in the Indian Economy

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The term ‘informal’ was coined in response to economic activity, primarily observed in developing economies, that did not fit into western and industrialised ways of working. It can be observed from two key perspectives: the workforce and the enterprise. In the workforce, it is defined as work that is not regulated or subject to any legal oversight. For enterprises, it is defined as an entity that is actively engaged in production, but is not registered or institutionalised.

The informal economy has consistently accounted for over 50 percent of the gross value added in the Indian economy, highlighting its entrenched role in economic growth. It also functions as a source of livelihood for several communities who are unable to find meaningful employment in the formal sector. The growth of digital labour platforms and the gig economy is an example of how informal work arrangements replicate themselves in the technology paradigm.

Informal working arrangements (primarily self-employment and casual work) form the majority of working arrangements in both rural and urban areas. Informal workers are a highly heterogeneous group, but share in common experiences of precarity as a result of the lack of institutional support and legal oversight over their working conditions. Most workers do not have a job contract, access to paid leave, or social security.

There is a lack of reliable evidence pertaining to informal enterprises in India. A majority of these enterprises are concentrated in the services sector. These enterprises are present across sectors and are embedded in various value chains. However, these enterprises face challenges resulting from
informality, thus limiting access to growth opportunities, participation in the higher end of the value chain and effective integration into macro transitions.
Unlocking better economic outcomes for actors in informality is essential, and ensuring India creates decent jobs should be the priority. There is a need to develop targeted interventions to enhance socio-economic outcomes for the workforce and enterprises, these strategies include reducing vulnerability of informal workforce, fair integration of informal businesses into evolving market dynamics, and designing a supportive ecosystem for informal economic activity.

Authors: Sadhana Sanjay, Riya Chainani, Ragini Bakshi and Tripti Naswa

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