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Current Affairs


Date : Jan 31, 2022

Description :

Based on a News Article published in the ‘The Hindu’


Useful for UPSC CSE Prelims and Mains (GS Paper I & III)




  • In developing countries like India, the informal economy employs a considerable portion of the population.


The Informal Economy's Key Points:


  • The informal economy refers to businesses that are not registered and do not provide employees with social security benefits.
  • It is defined as a group of economic entities that are mostly owned and operated by individuals and employ one or more people on a regular basis.
  • Farmers, agricultural labourers, small business owners and employees, as well as self-employed individuals who do not employ others, are all included.
  • The unorganised sector, in addition to unincorporated proprietary or partnership enterprises, includes cooperative societies, trusts, private and limited companies, according to the National Accounts Statistics (NAS).
  • As a result, the unorganised sector might be regarded a subset of the informal sector.


Periodic Labour Force Survey:


  • The Periodic Labour Force Survey estimates that over 90% of workers in India are unregistered. Those employed in rural areas outnumber those employed in metropolitan areas by a wide margin.
  • This is due to the fact that farm and agricultural activities employ a high number of informal employees.
  • Manufacturing, trade, hotel and restaurant management, construction; transportation; storage and communications; and finance, business, and real estate are the main industries in urban areas.






The Difference Between the Formal and Informal Economy:


  • The formal economy consists of the following elements:


  • Has a written agreement with the employer.
  • Work conditions and job responsibilities are pre-defined.
  • Receives a guaranteed and decent set compensation, as well as bonuses and incentives.
  • Has a set amount of work time.
  • Is a member of a well-organized group of people who operate in the same environment and are aware of their legal and social rights.


Informal sector of the economy:


  • Employers do not have a formal contract with the employees.
  • There are no consistent working conditions.
  • Is paid in a sporadic and inconsistent manner.
  • Has no set working hours and lives on a shoestring budget.
  • Is not covered by any type of social security system and has little understanding of the importance of social and economic protection.


Protecting the Informal Workforce:


  • The majority of India's employment is believed to be 450 million informal workers, accounting for 90 percent of the country's total labour, with 5-10 million new workers added each year.
  • Job Loss as a Result of the Pandemic: According to Oxfam's most recent worldwide study, 75 percent of the 122 million people who lost their work in 2020 did so in the informal sector.
  • The Covid-19 pandemic experience demonstrates the necessity for social protection, as the informal sector's vulnerabilities were even more apparent as the country was put on lockdown.
  • Furthermore, the GDP is anticipated to decrease by 7.7% in the current fiscal year 2020-21. As a result, there is a pressing need to resurrect the economy by creating jobs.
  • Workers' Security: There should be three sorts of security for each worker:
  • Wage Security: The new Payment of Wages (Amendment) Act of 2017 mandates that every worker in India be paid a set of minimum wages.
  • Job Security: In a globalised market, workers should have job security, which means it should be simple to hire and fire them.
  • Social Security: People should be able to care for themselves in the event of a medical emergency, death, or advanced age.




  • Challenges in the Workplace: When it comes to splitting the huge workforce between the rural and urban segments, while the rural sector employs a large number of people, the informal sector in the city poses a greater issue.
  • Working hours are long, pay is low, and working conditions are terrible.
  • Job insecurity, excessive turnover, and low job satisfaction are all factors.
  • Regulation of social security is insufficient.
  • Rights are difficult to exercise.
  • Child and forced labour, as well as discrimination based on a variety of characteristics.
  • Jobs that are vulnerable, underpaid, and undervalued.
  • Productivity: The informal sector primarily consists of micro, small, and family businesses that are not as large as companies like Reliance. They are not able to benefit from economies of scale.
  • Inability to Raise Tax Revenue: Because the informal economy's firms are not directly regulated, they frequently evade paying one or more taxes by concealing their earnings and costs from the legal system. This presents a problem for the government because a large portion of the economy stays untaxed.
  • Lack of Control and Surveillance: The government continues to ignore the informal sector.
  • Furthermore, there are no official statistics available that reflect the true health of the economy, making it difficult for the government to formulate policies affecting the informal sector in particular, as well as the entire economy.
  • Low-quality Products: Despite the fact that the informal sector employs more than 75% of India's workforce, the value added per employee is quite low. This suggests that a significant amount of our human capital is being underutilised.


Recent Government Initiatives:


  • Atmanirbhar Bharat Abhiyan:


  • With an economic stimulus package costing Rs 20 lakh crores, the 'Atmanirbhar Bharat Abhiyan (or Self-reliant India Mission)' aims to reduce import dependence by focusing on substitution while enhancing safety compliance and quality goods to achieve worldwide market dominance.
  • Workers are now the worst affected in a pandemic-like situation, thanks to new labour rules established by parliament to address the informal urban portion of the informal economy, i.e. the gig economy.
  • E-Shram Site: The Ministry of Labour and Employment has created the eSHRAM portal to create a National Database of Unorganized Workers (NDUW) in order to maximise their employability and provide them with the benefits of social security systems.
  • It's the first national database of unorganised workers, such as migrant labourers, construction workers, gig and platform workers, and so on.


  • The only government portal for MSME registration is the Udyam Portal (Udyam):


  • This portal is maintained by the Ministry of Micro, Small and Medium Enterprises.
  • It explains the registration procedure in detail and phases, making it simple for anyone to complete.
  • It offers free registration and eliminates the need for paper.
  • Pradhan Shram Mantri Mantri Shram Mantri Shram Mantri Sh Yogi Maan-dhan: I'm Yogi Maan-dhan, and I'm


  • The Ministry of Labour and Employment administers PM-SYM, which is implemented through the Life Insurance Corporation of India and Community Service Centers (CSCs).
  • Around 42 crore workers in the country's unorganised sector are expected to profit from this scheme.
  • The Parliament established three labour codes — on industrial relations, occupational safety, health, and working conditions, and social security — with the goal of simplifying the country's ancient labour rules and boosting economic activity without jeopardising workers' benefits.


  • Pradhan Mantri Street Vendor's Atma Nirbhar Nidhi (PM SVANidhi): The Ministry of Housing and Urban Affairs (MoHUA) has introduced the Pradhan Mantri Street Vendor's Atma Nirbhar Nidhi (PM SVANidhi) to provide street merchants with cheap loans.
  • Vendors, hawkers, thelewale, and others working in textiles, clothes, artisan products, barbers shops, laundry services, and other associated goods and services in various regions would benefit from the scheme.


  • Deendayal Antyodaya Yojana (Deendayal Antyodaya Yojana) is a scheme that The Urban Ministry of Housing and Poverty Alleviation is implementing the National Urban Livelihoods Mission, which was begun in 2014.
  • Its goal is to improve the lives of urban disadvantaged people by providing them with more sustainable livelihood possibilities through skill development.
  • One Nation, One Ration Card: The Indian government launched the One Nation, One Ration Card programme (ONORC). ONORC lets a ration card holder to access his food entitlements from any location in India, regardless of where the ration card is registered.


  • MGNREGA: MGNREGA is one of the world's largest work-guarantee programmes.
  • The scheme's main goal is to provide 100 days of employment to adult members of every rural household willing to conduct unskilled manual labour related to public works in each fiscal year.
  • Unlike previous employment guarantee systems, the act employs a rights-based framework to address the causes of persistent poverty.


Next Steps:


  • Taking Care of Migrant Workers: The total number of vulnerable migrant workers ranged from 115 million to 140 million, according to the Institute of Human Development Report.
  • As a result, it is critical that the proposed rules explicitly explain how their application would be applied to the migratory informal sector.
  • MSME Strengthening: MSMEs employ about 40% of the unemployed in the United States. As a result, it is logical that the strengthening of MSME will contribute to economic recovery, job creation, and economic formalisation.
  • Skilling in the Context of CSR Expenditure: Large corporations should contribute to the skilling of persons in the unorganised sector as part of their CSR (Corporate Social Responsibility) spending.
  • They will not be accommodated in the formal sector unless they are trained and educated, and efforts to formalise will end in unemployment.
  • Simpler regulatory framework: The informal sector can only move to the formal sector if it is relieved of the weight of regulatory compliance and given sufficient time to acclimate to the modern, digitised formal system.
  • Recognizing the Unseen Workforce: Domestic workers need a national strategy that recognises their rights and promotes better working circumstances as soon as possible.
  • Investing in social security systems such as the Atal Pension Yojna and the Prime Minister's Pension Scheme Rashtriya Swasthya Bima Yojana, Jeevan Jyoti Yojana Aam Aadmi, Bima Yojana Bima Yojana can assist workers improve their situation.
  • The inclusion of Universal Basic Income in the 2016-17 Economic Survey is a step in the right direction.
  • Financial Assistance: Providing financial assistance to small-scale enterprises to help them stand on their own is an important step toward bringing them into the organised sector.
  • MUDRA loans and Start-up India are two programmes that are assisting the youth in carving out a place in the organised sector.




  • The informal economy is both a widespread phenomena and a difficult notion to grasp. It is used by a large number of people in both the formal and informal sectors.
  • In an informal economy, the government's first priority for developing a social security network should be the social security of the workers.
  • The factors for determining the minimum wage need include the basic necessities of living a normal life, such as food, clothing, shelter, hygiene, and education.
  • Three areas of security must be prioritised: job security, pay security, and social security.


Tags : economy of India, informal sector

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