Scholars often make a distinction between the organized or formal and unorganized or informal sector. There is a debate over how to define these sectors. According to one definition, the organized sector consists of all units employing ten or more people throughout the year.These have to be registered with the government to ensure that their employees get proper salaries or wages, pension and other benefits. Informal sector could best be understood through its composition.

The term informal or unorganized is often used in the Indian context to refer to the vast numbers of women and men engaged in different forms of these forms include HOME BASED WORK (for e.g. rolling papads and beedies), SELF-Employment (for e.g. selling vegetables), Labour on construction sites, domestic work, and a myrad other forms of casual or temporary employment.

Composition of the Informal Sector in India

In most Indian cities the urban poor survive by working in the informal sector. Poverty and lack of gainful employment in the rural areas and in the smaller towns drive large numbers of people to the cities for work and livelihood These people generally possess low skills and lack the level of education required for the better paid jobs in the formal sector. Besides, permanent protected jobs in the formal sector are shrinking hence even those having the requisite skills are unable to find proper employment For these people, work in the informal sector are the only means for their survival. For the urban poor, street vending is one of the means of earning a livelihood as it requires minor financial input and the skills involved are low though the income too is low.

  1. A large section of street vendors in urban areas are those with low skills and who have migrated to the larger cities from rural areas or small towns in search of employment. Other employment opportunities for the illiterate or semi-literate migrants are working in small factories or workshops having low level of technology, and hence having a greater reliance on physical labour, and casual day labourers in construction sites or other places.
  2. There is another section of the urban population that has joined the informal sector; namely, those once engaged in the formal sector. These people or their spouses were once engaged in better paid jobs in the textile mills in Mumbai andAhmadabad and engineering firms in the formal sector (Bhowmik). A study conducted by SEWA in Ahmadabad shows that around half the retrenched textile worker are now street vendors. We can hence see that the urban informal sector has a variety of occupations, though incomes are low and social security is non-existent
  3. The third category of workers in the informal sector is those who are employed in the formal sector. These people are engaged as temporary or casual labour in industries or establishments in the formal sector. In large factories or undertakings one can find permanent workers and also workers who are employed as temporary or casual labour. In many such organizations, there are sections where casual labour is employed. This could be in the canteen or in cleaning. In many companies the security staffs are not employees of the company. They are hired from a separate company. These people are on contract with that security company. They are hence contract workers. Therefore, we have casual and contract workers working in the formal sector organizations. In many organizations we will find that contract labour and casual or temporary labour is used extensively.
  4. The employment of such labour is because many companies do not want to increase the number of permanent workers. The reason is that if a worker becomes permanent then the employer has to make provision for provident fund, give gratuity payment at the time of retirement, provide for medical leave and facilities if the person falls ill allow the pension after retirement
  5. Other important reason is that the employer cannot remove a permanent worker from his work. In other words, the employer can hire a worker but he/she cannot fire the worker as easily. There is a long legal process involved. On the other hand temporary and casual workers do not get any of the facilities cited above and they can be removed from their jobs at anytime. In 1993, a book containing case studies in eight industries (Davala, 1993) shows that in some industries casual and contract labour form more than half the total number of workers employed in that industry.
  6. Above description brings about certain aspect of the informal sector. The overwhelming majority of the workforce in India lies in the informal sector. Over 90% of the work, whether it is in agriculture, industry or services is in the unorganized or informal sector. Workers in the formal sector do not get most of the security given to workers of formal sector. Their jobs are insecure, as most of the laws do not protect them. Though in principle labour laws in India are expected to apply to all sections of industrial labour, there are inbuilt provisions which exclude large sections of our labour force. For example, the most important law regulating work in industries is Factories Act All other Acts such as Employee State Insurance Act, Workmen s Compensation Act, Provident and Pension Act etc., apply only to establishments covered by the Factories Act This Act is applicable only to manufacturing units which employ a minimum of 10 workers and which use power and a minimum of 20 workers if the unit does not use power. Hence a large section of industrial workers employed in small industries do not have legal protection in their work.

Sociological Aspect of Informal Sector

  1. The term’s unorganized and informal are often used interchangeably. Strictly speaking informal is used to denote those forms of enterprise that are not governed by any legal framework (for e.g. Registration under company law). All though it is quite logical that an informal enterprise will employ informal unorganized labour it must be remembered that formal enterprises also have unorganized employees, and in fact there is an increasing tendency to informalise employment relationship in the formal sector.
  2. The use of contract workers to run canteens or do housekeeping and gardening, employing teachers on clock hour basis, and out sourcing jobs such as data entry are some examples that may unravel the complex nature of employment in unorganized informal sector as well as organized formal sector.What is important is this who there in terms of the legal status of the enterprise or employment relations, workers in this section are the most disadvantaged one in India.
  3. Two national Labour Commissions, along with several other international and national commission, committees and conferences in the last 50 years have documented the socio-economic conditions of workers in the unorganized sector in India.The latest is the National commission for enterprises in the unorganized sector (NCEUS), also known as theArjun Sen Gupta Committee, which submitted its report to the government of Indian in 2006.
  4. The Committee’s report estimated that there are over 340 million (approximately 34 to 37 core ) workers in the unorganized sector in India, and they contribute around 60, 70 to the national economic output of country. Around 28 core work in the rural sector of which an estimated 22 core are in the agriculture sector. Around 6 core are in urban areas. Women make up 11-12 core of which around 8 core are engaged in agriculture.
  5. In terms of overall employment, the committee’s report estimates that over 92% of the country’s working population is engaged in unorganized sector, and that the majority of women workers also work in this sector. Yet in spite of their vast numbers and their substantial contribution to the national economy, They are amongst the poorest section of our population. It is therefore imperative that urgent steps are taken to improve their conditions.
  6. By and large, there are three types of issues of unorganized sector workers that need to be addressed
    1. The regulation of their working conditions
    2. Provisioning for conditions in which they are unable to continue work, such as old age and disability.
    3. Measures to help them overcome situations of insecurity such as major illnesses and the liability of loosing employment or being loid at the will of the employers, for which they have no legal remedy.
  7. Unorganized work is characterized by low wages that are often in sufficient to meet minimum living standards in nutrition, long working hours, hazardous working condition, look of basic services such as first aid drinking water and sanitation at the worksite, etc. Even a cursory glance will identity several such occupations, including agricultural labour, construction workers on building sites, brick-kiln workers, workers in various service industries ranging from transport and courier services to the hospitality industry.
  8. A large invisible section of workers is employed in what is called as home based work’ where typically, workers use their own premises to do price-rated work. This not only includes traditional crafts, handloom weaving, beed rolling but also more modern industry such as electronics.A survey done by A1DWA (AI) India Democratic woman s Association as for back as 1989, in pune city identified over 150 occupati one where women did home based work that ranged from making flower garlands, folding paper for the book printing industry, supplying, ‘chapattis’ to caterers, making ‘aggarbatties’ weaving plastic seats for office chars, deseeding tamarind and packing sweets.
  9. Both formal and informal surveys reveal that on an average, unorganized sector workers to not earn more than Rs. 30-50 per day some may appear to earn more but the work is often seasonal and the total earning amount to naughty the some. In order to earn more workers work longer and harder. This is particularly the case for self employed persons such as vendor, ragpickers and petty traders, who make their services available form the early hours of the morning to late at night in all types of in hospitable working conditions.
  10. Parents often take the help of children to supplement their own earnings, and this is major reason for the widespread prevalence of child labour in the informal sector. Women are given law and unequal wages. Sexual harassment is common but unarticulated due to fear of loss of employment There is no question of paid leave and maternity benefits. The use of cheap labour in the informal sector is the major source of profit for employers and contractors who exploit the workers lack of collective bargaining power and state regulation.
  11. Living in object poverty, most workers in the unorganized sector barely manage a subsistence existence. There is no question of saving, particularly for times when they are unable to work. Hazardous work conditions often cause accidents, loss of limbs etc. Such disability is disas hours because there is no other source of income for their households. More importantly, there is no provision of old age security such as pension. When AIDHA decided to organize domestic workers into a union in pune city, the over whelming response of women to the demand for pensions revealed the huge insecurity they faced The lack of savings and support systems also mean there is no fall back in other emergencies especially major illnesses or the death of an earning member in the family the rising costs of private health care and the systematic dismantling of the public health system in these times of liberalization are a major reason for the huge indebtedness of household in the unorganized sector. There is pressing head to provide insurance, especially health insurance cover to the workers.

Broadly speaking, Informal sector is characterized by

  1. Low levels of skill: Workers in this sector have low levels of education and thus they have low levels of skills. This is the reason why they are engaged in jobs involving low technology. Worker in the formal sector have skill and theire position in the labour is better.
  2. Easy entry: Getting work in informal sector is comparatively easier than in the formal sector. Any able bodied person, irrespective of the skills possessed can become a day labourer. With minimum investment the same person can become a street vendor and sell her/his wares in the market The people need no money to invest in a shop. In this way the informal sector is able to absorb more workers who would not get any work because they are either not qualified or they do not have capital for investing in business.
  3. Low paid employment: Because of the requirement of low skill and the easy entry, work in the informal sector has low returns.Workers who offer their labour are not paid high wages. In fact, the biggest grievance against this sector is that the wages are many times below sustenance level. In many cases, low wages drive other members of the family in informal workforce because the main wage earned is not sufficient for sustaining a household In this sense, children too, may be encouraged to join the labour force.
  4. Immigrant labour: Informal sector is largely composed of immigrant Most of the workers come to the city from rural areas in search of a livelihood Hence migrant status is a characteristic of informal sector.
  5. Informal sector in India is broadly characterized as consisting of units engaged in the production of goods and services with the primary objectives of generating employment and incomes to the persons concern.
  6. These units typically operate at low level of organization, with little or no division between labour and capital as factors of production and on a small scale.
  7. Labour relations, where they exist, are based mostly on casual employment, kinship or personal or social relations rather than contractual arrangements with formal guarantees. Thus, production units in informal sector are not constituted as separate legal entities independently of the household or household members that own them. There is no complete sets of accounts are available which would permit a clear distinction of the production activities of the enterprises from the other activities of their owners.
  8. The owners of their production units have to raise the finance at their own risk and are personally liable, without limit, for any debts or obligations incurred in the production process.
  9. Expenditure for production is often indistinguishable from household expenditure. For statistical purpose, the informal sector is regarded as group of production units, which form part of the household sector as household enterprises or equivalently, unincorporated enterprises owned by households.
  10. One major difference between developing and developed countries is the number of people in regular salaried employment. In developed countries, the majority are formally employed. In India, over 50% of the population is self-employed only about 14% are in regular salaried employment while approximately 30% are in casual labour.
What are the social implications of this small size of the organized sector?
  1. First, it means that very few people have the experience of employment in large firms where they get to meet people from other regions and backgrounds. Urban settings do provide some corrective to this your neighbours in a city may be from a different place – but by and large, work for most Indians is still in small scale workplaces. Here personal relationships determine many aspects of work. If the employer likes you, you may get a salary raise, and if you have a fight with him or her, you may lose your job.This is different from a large organization with well defined rules recruitment is more transparent and there are mechanisms for complaints and redressal if you disagree with your immediate superior.
  2. Second, very few Indians have access to secure jobs with benefits. Of those who do, two-thirds work for the government. This is why government jobs are so popular. The rest are forced to depend on their children in their old age. Government employment in India has played a major role in overcoming boundaries of caste, religion and region. One sociologist has argued that the reason why there have never been communal riots in a place like Bhilai is because the public sector Bhilai Steel Plant employs people from all over India who work together. Others may question this.
  3. Third since very few people are members of unions, a feature of the organized sector, they do not have the experience of collectively fighting for proper wages and safe working conditions. The government has laws to monitor conditions in the unorganized sector, but in practice they are left to the whims and fancies of the employer or contractor.

Relevance of the Informal Sector in Indian Context

  1. Broadly, the informal sector provides income-earning opportunities for a larger number of workers. In India, there is large magnitude of workforce getting their livelihood from the informal sector.
  2. Thus informal sector has a crucial role in our economy in terms of employment and its contribution to the National Domestic Product, savings and capital formation.
  3. Since majority of Indian Workforce is illiterate and poorly trained role of informal sector becomes crucial for providing employment to such workforce


  1. At present Indian Economy is passing through a process of economic reforms and liberalization. During the process, merger, integration of various firms within the industry and upgradation of technology and other innovative measures take place to enhance competitiveness of the output both in terms of cost and quality to compete in the international market.
  2. The low inefficient units either wither away or merge with other ones performing better. In this situation, there is a special need to take care of the interests of the workers by providing them training, upgrading their skills, and other measures to enable them to find new avenue of employment, improve their productivity in the existing employment, necessary to enhance the competitiveness of their product both in terms of quality and cost which would also help in improving their income and thereby raising their socio-economic status.
  3. It has been experienced that formal sector could not provide adequate opportunities to accommodate workforce in the country and informal sector has been providing employment for their subsistence and survival Keeping in view the existing economic scenario, the unorganized sector will expand further in the years to come. Thus, it needs to be strengthened and activated so that it could act as a vehicle of employment provider and social development.

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