Over its 75-year journey post-independence, India has been functioning as an informal and unorganized economy. Although significant strides toward formalization have been made since the 1990s, the informal workforce continues to play a pivotal role in the nation’s economic landscape. The informal workplace which comprises over 75% of the total workforce contributes nearly 45-50% to India’s GDP. In such a scenario it is imperative that we address the issues of fair pay, social security, and regulatory safeguards for this large segment of the population. The challenges of the informal sector demand attention as India proceeds on its journey to achieving sustainable economic growth by 2047.
Who constitutes the Informal Workforce?
According to the Annual Survey of Unincorporated Sector Enterprises (ASUSE) informal workers are those without access to paid leave or social security benefits such as provident funds and health insurance. The ‘Women in Informal Employment: Globalizing and Organizing’ (WIEGO) network defines informal economies as those consisting of unregulated jobs and enterprises, excluding illicit activities.
The 40-50% contribution of Informal work to India’s GDP, is notably higher than the global average of 35% in low and middle-income countries and 15% in advanced economies. According to the International Labour Organization (ILO), 82% of India’s female workforce is employed in the informal sector, highlighting it as an important source of livelihood for women. Additionally, women in informal employment are 2.7 times more likely to work from home compared to their male counterparts. With respect to registered informal workers on the e-Shram portal, Uttar Pradesh ranks highest with 8.36 crore registrations, followed by Bihar with 2.96 crore and West Bengal with 2.63 crore.
Sectoral Overview of Informal Employment
India’s diverse workforce is spread across traditional and emerging sectors, each playing a pivotal role in the nation’s economy. Agriculture remains the backbone of rural livelihoods, employing nearly 20 crore Indians, yet its low GDP contribution underscores systemic inefficiencies. The construction industry supports millions, but challenges like wage compliance persist. In manufacturing, the rise of automation and contractual work is reshaping labor dynamics. Meanwhile, the rapidly expanding gig economy is transforming employment landscapes, driven by platform-based industries like IT, retail, and logistics. Together, these sectors illustrate India’s evolving economic fabric and workforce trends.
1. Agriculture
Accounting for 97-98% of its workforce as informal, agriculture employs nearly 20 crore Indians and contributes 40% of the total workforce. Despite its dominance, the sector’s GDP contribution is only 15%, highlighting inefficiencies and underemployment.
2. Construction
The construction industry employs approximately 71 million workers, with 83% being casual laborers. Over 50% of these workers are concentrated in six states. However, minimum wage compliance remains a significant issue across 15 of 20 states.
3. Manufacturing
Manufacturing employs the highest number of formal workers but is witnessing a rising trend in part-time and contractual employment. The push towards automation and electric vehicle manufacturing has driven this shift, enabling cost reduction while improving productivity.
4. Gig Economy
India’s gig workforce is expected to grow from 7 million in 2021 to 23.5 million by 2030, comprising 4.1% of the total workforce. Sectors such as IT, retail, and logistics dominate gig employment, with platform economies significantly reshaping these industries.
Challenges Facing the Informal Workforce
India’s informal workforce faces significant challenges that hinder its growth and stability. A critical concern is the lack of social security, with most informal workers excluded from benefits like healthcare, retirement savings, and paid leave. This leaves gig and contractual workers particularly vulnerable to financial and health crises. The rapid pace of digital transformation further exacerbates the issue, as many workers lack the skills needed to adapt to evolving job roles, widening the skill gap.
Economic disparities also persist, with women making up a substantial portion of the informal workforce but facing wage gaps, limited access to secure workspaces, and restricted opportunities for advancement. Compounding these issues is a regulatory void, as informal workers remain largely outside the purview of national labor laws, income taxation frameworks, and employment guarantees, perpetuating their job insecurity and economic precarity. Addressing these challenges requires robust policy interventions and inclusive reforms to uplift and protect this vital segment of the workforce.
Strategies for Formalization
Formalizing the informal workforce does not imply converting all workers into full-time employees. Instead, it involves creating systems that ensure parity in benefits and protections while retaining workforce flexibility.
1. Policy Interventions
- Introduce health benefits, retirement savings schemes, and mandatory leave policies for gig and informal workers.
- Ensure minimum wage compliance across all states.
2. Public-Private Partnerships
- Collaborate with private enterprises to implement welfare schemes in sectors like construction and manufacturing.
- Facilitate government-led initiatives in agriculture to improve income stability.
3. Skill Development
- Upskill workers in emerging technologies to bridge the talent gap.
- Introduce vocational training programs tailored to sector-specific needs.
4. Technological Integration
- Leverage digital platforms like e-Shram for workforce registration and benefit disbursement.
- Encourage gig platforms to adopt transparent and fair remuneration policies.
A Path Towards Inclusive Economic Growth
India’s informal workforce represents both a challenge and an opportunity. As sectors like agriculture, manufacturing, and the gig economy evolve, the focus must remain on enhancing the quality of informal employment. Ensuring access to social security, fair pay, and skill development will not only safeguard workers but also strengthen India’s economic resilience.
By adopting a collaborative approach involving policymakers, businesses, and academia, India can unlock the true potential of its informal workforce and pave the way for inclusive growth. Achieving this balance will be crucial as the nation aspires to become a global economic powerhouse by 2047. Economist John Maynard Keynes aptly stated, “The engine of economic progress lies in unlocking the productivity of every individual.” Empowering India’s informal workforce is not just an economic necessity but a cornerstone to building a prosperous and equitable future.
