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According to the ILO, the informal sector can be characterized as a range of economic units which are mainly owned and operated by individuals and employ one or more employees on a continuous basis. Informal sector includes farmers, agricultural labourers, owners of small enterprises and people working in those enterprises and also the self-employed who do not have any hired workers.

 State of Informal economy in India:

  • While the informal sector produces almost half of the country’s GDP, more than 90% of the overall workforce is employed in the informal economy.According to e-Shram portal, over 94% of the informal sector workers enrolled on the e-Shram platform earn less than Rs 10,000 per month.Agriculture ranks first, accounting for 11% of all enrolments, followed by domestic and household employees and construction workers.

  •  Challenges faced by Informal sector:
  • Inadequate safety and health standards: Most industries, especially mining, have inadequate safety and health standards. Environmental hazards are evident in the case of the informal sector.Irregularities in Minimum Wages: Most of the studies on conditions of employment in the unorganised sector have examined the wage levels and earnings of workers are identified that the daily wages are below the minimum rate of wages.Long Hours of work: Long hours work in the unorganised sector beyond the labour and regulatory norms are common in India. The long working hours have a severe repercussion on the social and family life of labourers in general and women labourers in particular.Poverty and Indebtedness: Workers in the unorganised sector had a much higher incidence of poverty than their counterparts in the organised sector. Due to low level of income and uncertain employment in the unorganised sector make the workers unable to meet their basic necessities and other social and other cultural responsibilities.Non-Applicability of Social Security Measures: There are many times when a worker cannot be economically active. For instance, due to biological circumstances such as sickness or old age, on account of personal calamities such as an accident or unemployment. There are no social security measures to provide risks coverage and ensure maintenance of basic living standards at times of crises such as unemployment or health issues.

  •  Steps taken by the government for the informal sector:
  • Directive principles: The legal initiatives like the Employees State Insurance Act (1948), the Minimum Wages Act (1948), the Coal Mines Provident Funds Act (1948), The Employees Provident Fund Act (1952), the Maternity Benefit Act (1961) and the Contract Labour Act (1970) etc. are important for labour welfare.National Commission for Enterprises in the Unorganised Sector: India is perhaps the first country to set up, a commission named National Commission for Enterprises in the Unorganised Sector (NCEUS) in 2004 to study the problems and challenges being faced by the informal economy.Poverty related development schemes: The Government of India initiated several poverty related development schemes which indirectly benefited the urban informal sector since independence.Schemes like the Nehru Rozgar Yojana, MGNREGA and the Swarna Jayanti Shahri Rozgar Yojana were launched to provide support to the poor who constitute bulk of the informal sector.Social security: To provide social security benefits, the Parliament enacted the Unorgnaised Workers’ Social Security Act, 2008.The government has also launched Atal Pension Yojana, Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana, Rashtriya Swasthya Bima Yojana etc.Skill development: To take care of the need for skills of workers in the informal economy, the government has started various programs such as the Skill India Mission, Pradhan Mantri Kaushal Vikas Yojana, Deen Dayal Upadhyay Grameen Kaushal Yojana, recognition of prior learning etc.

  •  Way forward:
  • Overhauling labour laws: Labour, as well as tax policies, are key to improving the business environment. Labour regulations have to allow for more flexible work arrangements. Moreover, the right to associate freely should be vigorously protected.Preventing occupational hazards: Innovative means to prevent occupational accidents and diseases and environmental hazards need to be developed through cost-effective and sustainable measures at the work-site level to allow for capacity-building within the informal sector itself.Health protection: The extension of occupational health care to workers in the informal sector should be promoted incorporating occupational health into public health care services at district and local levels.

  •  India’s informal sector is the backbone of the economy. Improving the conditions of workers in the informal sector assumes significance from the perspective of inclusive growth. Keeping in mind the low incomes of informal works, the Government should take steps to prescribe minimum wages for the informal sector.


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