Informal Sector in India – Urban Workforce Challenges and Concerns

Informal Sector Latest News

• Recent worker protests in Noida have highlighted growing vulnerabilities in India’s urban informal workforce.

Informal Sector in India: Definition and Scope

• The informal sector refers to economic activities that operate outside formal regulatory and institutional frameworks. 
• It includes self-employed workers, daily wage labourers, small vendors, and unregistered enterprises.
• These workers lack job security, written contracts, and social protection, making them highly vulnerable to economic shocks.

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Size and Economic Significance

• The informal sector employs nearly 90% of India’s workforce, making it the dominant source of livelihood.
• Even in urban areas, formal salaried jobs remain limited, and a large share of workers depend on informal employment.
• Despite its scale, the sector remains under-recognised due to a lack of formal data and institutional coverage.

Key Issues in the Informal Sector

• Employment is largely unstable and low-paying, with no long-term security.
• There is limited access to social security, including health insurance and pensions.
• Workers also suffer from low bargaining power, particularly in urban labour markets.
• Additionally, financial exclusion forces many workers to rely on informal credit systems, leading to debt cycles.

Government Initiatives

• The government has introduced several measures to support informal workers.
• The Code on Social Security, 2020, aims to extend benefits to unorganised workers.
• The e-Shram portal seeks to create a national database for better policy targeting.
• Schemes like PM SVANidhi provide credit support to street vendors.
• However, coverage gaps and implementation challenges persist.

News Summary: Challenges of India’s Urban Informal Workforce

• Recent protests by workers in Noida reflect the increasing precariousness of urban labour. 
• Shift in Urban Economic Structure
  • Urban centres have undergone a transformation from industrial production hubs to spaces of survival-oriented activities.
  • The decline of formal industries, such as textile mills in cities like Mumbai and Ahmedabad, has reduced organised employment. This has led to fragmented labour markets dominated by informal work. 
• Urbanisation of Survival Economy
  • Cities are increasingly focused on social reproduction activities such as housing, food, and basic services rather than industrial output.
  • This shift has made urban life more about survival, especially for informal workers managing daily necessities. 
• Poor Living Conditions and Housing Stress
  • A significant portion of the urban poor live in slums and informal settlements. Around 40% reside in such areas, often lacking sanitation and legal protection. 
  • Workers spend a large share of their income on rent, sometimes up to half their earnings. Many settlements are located in hazard-prone areas, increasing vulnerability. 
• Impact of Policy and Economic Reforms
  • Economic reforms influenced by liberalisation have shifted the state’s role from a service provider to a facilitator of markets.
  • This has led to the privatisation of essential services like water and electricity, increasing costs for informal workers. 
  • Urban policies have also promoted gentrification and eviction, reducing access to affordable housing. 
• Financial Vulnerability and Debt
  • Due to a lack of collateral, informal workers often depend on local moneylenders instead of formal banking systems.
  • This results in chronic indebtedness and financial instability. 
• Need for Inclusive Urban Governance
  • There is a growing need to integrate informal workers into governance structures.
  • Initiatives such as workers’ councils can help improve participation and representation in urban decision-making. 

Source: TH