“Critically analyze the sociological significance of informal sector in the economy of developing societies.” (2025)
The informal sector, a term coined by Keith Hart (1973) from fieldwork in Accra, is income-earning activity outside labour law, taxation and social security. Far from a passing residue, it is the normal condition of work in developing societies. The ILO estimated in 2018 that over 61 per cent of the world’s employed were informal, and that 93 per cent of all informal employment lay in emerging and developing countries.
Sociological significance
- Absorber of surplus labour: W. Arthur Lewis (1954) expected the modern sector to absorb “unlimited supplies of labour”. Instead, the informal sector absorbed rural–urban migrants. In India, unincorporated non-farm enterprises alone employed 12.06 crore workers in 2023-24 (ASUSE).
- Part of accumulation, not outside it: Alejandro Portes, Manuel Castells and Lauren Benton (The Informal Economy, 1989) showed informal subcontracting cutting formal firms’ labour costs. India’s National Commission for Enterprises in the Unorganised Sector (2007) found about 92 per cent of workers unorganised, producing over half of national output.
- A socially regulated economy: Barbara Harriss-White (India Working, 2003) shows it is regulated less by the state than by caste, kinship and gender, which organise credit and recruitment.
- Livelihood of the dispossessed: Kalyan Sanyal (Rethinking Capitalist Development, 2007) calls it a “need economy” of those dispossessed by capital but never absorbed as wage workers.
- Gendered site: women dominate home-based piece-work and domestic service.
- New politics of labour: Rina Agarwala (2013) shows Indian informal workers organising to claim welfare from the state rather than from employers, as SEWA, founded by Ela Bhatt in 1972, pioneered.
Critical assessment
- The romantic reading: Hernando de Soto (The Other Path, 1989) sees heroic micro-entrepreneurs strangled by red tape. Jan Breman (Footloose Labour, 1996) replies that most informal workers are wage-dependent, circulating and often bound by advances. Their problem is powerlessness, not paperwork.
- Dualism misleads: the formal–informal line is a gradient. Formal firms hire contract labour, and the same worker crosses sectors.
- Flexibility has a price: low productivity, no social security, child labour and hazardous work. The 2020 lockdown, when over one crore migrant workers returned home, exposed how invisible they were.
- Measurement bias: seasonal and unpaid women’s work goes undercounted.
Conclusion
The informal sector matters because it is where developing societies actually work, and where capitalism, state and social identity interlock. Its value as livelihood is inseparable from its cost as precarity. The task is to extend social citizenship into it, as India’s e-Shram registry of nearly 32 crore workers now attempts.