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Informalisation of Indian Workforce

Last Updated : 06 Apr, 2023
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Since Independence, Indian Planning focused on providing better jobs to the people in order to increase their living standards. Even after giving surplus job opportunities, more than 50 percent of the Indian workforce is still dependent on agriculture to earn their livelihood. People tend to incline toward the agricultural sector because of many reasons, such as the deterioration of employment quality like not getting proper gratuity, pension, maternity benefits, low salaries, etc. 

What is Informalisation of Workforce?

The informalisation of the Workforce refers to a situation where the workforce in the informal sector increases to the total workforce of the country. According to the composition of the workforce in India, it has been divided into two categories; Formal or Organised Sector and Informal or Unorganised Sector. The Formal Sector consists of jobs that have specific working hours and fixed wages; whereas, the Informal sector is where the workers or employees don’t have fixed working hours and wages. 

Formal/Organised Sector

All the public and private sector enterprises that employ 10 or more hired workers come under the category of Formal/Organised Sector.

1. The formal or organised sector consists of all the companies or enterprises where the employees have regular and guaranteed work and wages.

2. The formal sector has certain rules and regulations and works by following formal procedures. 

3. In India, the employees of central and state governments, banks, railways, and so on can be called organised sector workers.

4. The workers are provided with the right to form a ‘Trade Union’ in order to protect their rights and interests. 

5. Regardless of having so many benefits, it constitutes only 6% of the total workforce in India. 

6. The workers working in the formal or organised sectors are known as Formal Sector Workers. 

7. The workers of a formal sector enjoy social security benefits and earn more than the workers of an informal sector. 

Informal/Unorganised Sector

All the private enterprises that hire less than 10 employees come under the Informal/Unorganised Sector category.

1. The unorganised sector consists of activities that focus on the primary production of goods and services and the generation of employment and income on a small-scale basis. 

2. People who work as ragpickers, moneylenders, brokers, etc., are considered a part of the informal or unorganised sector.

3. In this sector, there is no guarantee of a fixed job or wages and no fixed working hours.

4. The workers in this sector don’t have any such rules or regulations, and they use outdated technologies.

5. This sector constitutes around 94% of the total workforce in India.

6. The workers working in the formal or organised sectors are known as Informal Sector Workers. This sector also includes workers who work for more than one employer, like construction workers.

7. The employment opportunities in this sector depend on the market conditions, i.e., when there is a favourable market condition, the employers hire the workers, and when there is a slowdown in the economy, these workers are fired.

Formal Sector v/s Informal Sector Workforce

There is a huge difference between the workforces of the formal and informal sectors. Some of these are:


Formal Sector

Informal Sector


The formal sector comprises businesses and economic activities that are under the supervision of the government.  The informal sector consists of workers and enterprises that do not come under the regulation of the government. 

Social Security Benefits

The employees working in this sector are entitled to Social Security Benefits.  Unlike the formal sector, the employees in this sector are not entitled to Social Security Benefits. 


The pay scale of the formal sector is high as compared to the informal sector.  This sector has a comparatively low pay scale.


The employees in this sector enjoy job security and fixed working hours. No such job security or fixed hours are available to the employees in this sector.

Tax Benefits

The enterprises in this sector are licensed and are liable to pay taxes to the government.  The enterprises in this sector are not liable to pay taxes to the government.


All public and private sector enterprises that employ more than 10 people are considered to fall under the formal sector.  All the enterprises that employ less than 10 people are considered to fall under the informal sector.

Trade Unions

The workers in the formal sector have a right to form Trade Unions to protect their interests. Workers in this sector have no such right of forming a Trade Union.

Distribution of Workforce in Formal and Informal Sectors

As a country’s economy grows, it is essential that more and more workers become formal sector workers and the percentage of workers engaged in the informal sector should decrease. But, India’s situation with respect to the distribution of workforce in formal and informal sector is discouraging. 

Distribution of Workforce in Formal and Informal Sector in India (2011-12)

      Category       Number of Workers (in Millions)      
   Male     Female    Total
   Formal Sector            24            6        30
  Informal Sector      310          133       443

Although the formal sector has much more benefits and security, as compared to the informal sector, people in India tend to rely more on the informal sector to earn their livelihood. India has a Total Employment of around 473 Million out of which 443 Million (94%) people are in the informal sector, while only 30 Million (6%) people are in the formal sector.

Out of the total employed population in the Formal Sector, there are around 24 Million, i.e., 80% Males, and only 6 Million, i.e., 20% Females. While in Informal Sector, the total working population constitutes 310 Million, i.e., 70% Males, and around 133 Million, i.e., 30% Females.

Considering the above data, it is clear that informal employment constitutes more than three-fourths of the workforce in India. Over time, this proportion has remained high, irrespective of how informal employment is defined and measured. 

Importance of the Informal Sector

  1. In India, the informal sector is considered the backbone of the Indian economy as it employs more than 90 percent of the total labour force and makes a contribution of around 50 percent of the total GDP formulation.
  2. Out of the total 435.66 Million employed in the informal sector, half of the population works in the agricultural sector, and live in rural areas, while the other half are in the non-agricultural sector. 
  3. Along with employing a large population, the informal sector also employs around 94% of the country’s female workforce. Considering the employment generated by the informal sector, women account for a greater employment level than men in India.
  4. The formal sector depends on the informal sector for the production of goods and services such as raw materials and supplies, transportation, repair, etc. These raw materials are required by enterprises in the formal sector to carry out their working process.
  5. The informal sector helps in the establishment of small-scale industries, which would not exist without the help of this sector due to the tough competition from the formal sector.

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