MEDS 042: Block-4 (Unit 01) – Informal Sector: An Overview

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 UNIT 1: INFORMAL SECTOR – AN OVERVIEW

1.1 Introduction

The informal sector plays a vital role in urban and rural economies, especially in developing countries like India. It comprises small-scale, unregulated, and unregistered economic activities that provide livelihood to millions. Despite its critical role in employment and service delivery, it often remains outside the purview of legal and social protections.

1.2 Informal Sector – Concept, Meaning and Characteristics

Concept and Meaning

The informal sector includes all unregistered, unincorporated enterprises that operate without formal contracts, social security, or labor laws.

Key Characteristics:

·         Lack of formal contracts or legal recognition

·         Ease of entry and low capital investment

·         Small-scale operations, often family-run

·         No access to formal credit or insurance

·         Absence of formal employee benefits (e.g., leave, healthcare)

·         Often cash-based transactions with no tax compliance

1.3 Contribution of Informal Sector to Income and Employment

The informal sector is the backbone of India’s urban and rural economy:

·         Employment Generation: Over 90% of India’s workforce is employed in the informal sector, including street vendors, domestic workers, construction laborers, rickshaw pullers, and small artisans.

·         Income Source: Provides livelihoods to economically vulnerable groups lacking formal education or skill certification.

·         Urban Services: Supports essential services—transport, waste recycling, vending, repair services.

·         Flexibility: Provides employment during times of economic crisis or migration from rural areas.

1.4 Problems of Informal Sector

Despite its benefits, the informal sector faces multiple systemic challenges:

·         Job Insecurity: No job stability or protection against layoffs

·         Low Wages: Minimal earnings with no minimum wage enforcement

·         Lack of Social Security: Absence of pension, insurance, maternity benefits

·         Poor Working Conditions: Hazardous work environments, long hours

·         No Legal Protection: Vulnerability to exploitation by contractors or employers

·         Limited Access to Credit: High reliance on informal moneylenders

·         Lack of Skills Training: Workers lack access to technical or vocational skills

1.5 Programmes and Policies for Informal Sector and Its Workers

Several government initiatives aim to uplift the informal workforce:

·         PM Street Vendor’s AtmaNirbhar Nidhi (PM SVANidhi): Microcredit to street vendors

·         Unorganised Workers Social Security Act, 2008: Framework for welfare schemes

·         e-Shram Portal: Centralised database for unorganised workers

·         Skill India Mission: Provides vocational and skill training

·         National Urban Livelihoods Mission (NULM): Promotes self-employment and SHGs

·         Atal Pension Yojana (APY) and Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY): Social security schemes

1.6 Recommendations of NCEUS to Strengthen the Unorganised Sector

The National Commission for Enterprises in the Unorganised Sector (NCEUS) proposed several key measures:

·         Legal Framework: Enactment of laws to protect informal workers’ rights

·         Universal Social Security: Health, maternity, pension, and accident insurance

·         Microfinance and Credit Access: Support through SHGs and cooperative banks

·         Skill Development: Establish vocational training centres

·         Promotion of Cluster-Based Development: Support to informal industry hubs

·         Inclusive Urban Planning: Recognition and integration of informal activities in city plans

·         Labour Law Reforms: To cover informal and gig workers under labour protections

1.7 Let Us Sum Up

The informal sector is an indispensable part of the Indian economy. It absorbs surplus labor, supports low-income communities, and sustains vital urban services. However, it remains excluded from formal safety nets. Policy interventions, backed by NCEUS recommendations, are essential to empower informal workers and formalise the benefits they deserve without jeopardising their employment opportunities.

1.8 Keywords

  • Informal Sector: Unregulated and unregistered economic activities lacking legal and social protection.
  • Unorganised Workers: Laborers not covered under formal employment contracts or labor laws.
  • Street Vendors: Informal retailers operating on streets or public spaces.
  • Social Security: Protection against economic risks like illness, unemployment, and old age.
  • NCEUS: National Commission for Enterprises in the Unorganised Sector, which advises on informal economy reforms.
  • e-Shram: National database for unorganised workers to enable welfare delivery.
  • Microcredit: Small loans offered without collateral, often to self-employed or informal workers.
  • Skill India: Government initiative for enhancing employable skills.
  • NULM: Urban scheme promoting livelihoods, self-help groups, and entrepreneurship.
  • Job Insecurity: The risk of sudden job loss or lack of steady employment, common in informal work.

 

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