Informalisation Of Indian Workforce

One of the objectives of development planning in India, since India’s independence, has been to provide decent livelihood to its people. It has been envisaged that the industrialisation strategy would bring surplus workers from agriculture to industry with better standard of living as in developed countries. But even after 60 years of planned development, three-fifth of Indian workforce depends on farming as the major source of livelihood.

Economists argue that, over the years, the quality of employment has been deteriorating. Even after working for more than 10-20 years, why do some workers not get maternity benefit, provident fund, gratuity and pension? Why does a person working in the private sector get a lower salary as compared to another person doing the same work but in the public sector?

Only a small section of Indian workforce is getting regular income. The government, through its labour laws, protects them in various ways. This section of the workforce forms trade unions, bargains with employers for better wages and other social security measures.

Who are they? To know this we classify workforce into two categories : workers in formal and informal sectors, which are also referred to as organised and unorganised sectors.

  • All the public sector establishments and those private sector establishments which employ 10 hired workers or more are called formal sector establishments and those who work in such establishments are formal sector workers.
  • All other enterprises and workers working in those enterprises form the informal sector. Thus, informal sector includes millions of farmers, agricultural labourers, owners of small enterprises and people working in those enterprises as also the self-employed who do not have any hired workers.


Formal Sector Employment

The information relating to employment in the formal sector is collected by the Union Ministry of Labour through employment exchanges located in different parts of the country. Do you know who is the major employer in the formal sector in India? In 2001, out of about 28 million formal sector workers, about 20 million workers were employed by the public sector. Here also men form the majority, as women constitute only about one-sixth of the formal sector workforce. Economists point out that the reform process initiated in the early 1990s resulted in a decline in the number of workers employed in the formal sector. What do you think?


Those who are working in the formal sector enjoy social security benefits. They earn more than those in the informal sector. Developmental planning envisaged that as the economy grows, more and more workers would become formal sector workers and the proportion of workers engaged in the informal sector would dwindle. But what has happened in India? Look at the following chart which gives the distribution of workforce in formal and informal sectors.


During 1999-2000, India had about a 400 million strong workforce.

  • There are about 28 million workers in the formal sector. About seven per cent (28/400×100)!
  • Out of 28 million formal sector workers, only 4.8 million, that is, only 17 per cent (4.8/28×100) are women.
  • The rest 93 per cent are in the informal sector.
  • In the informal sector, male workers account for 69 per cent of the workforce.

Since the late 1970s, many developing countries, including India, started paying attention to enterprises and workers in the informal sector as employment in the formal sector is not growing. Workers and enterprises in the informal sector do not get regular income; they do not have any protection or regulation from the government. Workers are dismissed without any compensation. Technology used in the informal sector enterprises is outdated; they also do not maintain any accounts. Workers of this sector live in slums and are squatters. Of late, owing to the efforts of the International Labour Organisation (ILO), the Indian government has initiated the modernisation of informal sector enterprises and provision of social security measures to informal sector workers.


Informalisation in Ahmedabad

Ahmedabad is a prosperous city with its wealth based on the produce of more than 60 textile mills with a labour force of 1,50,000 workers employed in them.

These workers had, over the course of the century, acquired a certain degree of income security. They had secure jobs with a living wage; they were covered by social security schemes protecting their health and old age. They had a strong trade union which not only represented them in disputes but also ran activities for the welfare of workers and their families.

In the early 1980s, textile mills all over the country began to close down. In some places, such as Mumbai, the mills closed rapidly. In Ahmedabad, the process of closure was long drawn out and spread over 10 years.

Over this period, approximately over 80,000 permanent workers and over 50,000 non-permanent workers lost their jobs and were driven to the informal sector. The city experienced an economic recession and public disturbances, especially communal riots. A whole class of workers was thrown back from the middle class into the informal sector, into poverty. There was widespread alcoholism and suicides, children were withdrawn from school and sent to work.

Source: Renana Jhabvala, Ratna M. Sudarshan and Jeemol Unni (Ed.) Informal Economy at Centre Stage: New Structures of Employment, Sage Publications, New Delhi, 2003, pp.265.


Bibliography : NCERT – Indian Economic Development


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