Informal Sector | Sociology Optional for UPSC (Notes) PDF Download

Composition of the Informal Sector in India

• The urban poor in most Indian cities rely on the informal sector for their survival. Poverty and a lack of decent employment opportunities in rural areas and smaller towns push many people to migrate to cities in search of work and livelihood. These migrants often possess low skills and lack the education required for better-paying jobs in the formal sector. Additionally, the number of permanent, protected jobs in the formal sector is diminishing. As a result, even those with the necessary skills struggle to find suitable employment. For these individuals, work in the informal sector becomes the only means of survival.
• Street vending is a common livelihood option for the urban poor as it requires minimal financial investment and low skill levels, although the income generated is also low. A significant portion of street vendors in urban areas consists of low-skilled migrants who have moved to larger cities from rural areas or small towns in search of employment. Other employment opportunities for illiterate or semi-literate migrants include working in small factories or workshops that rely heavily on physical labor due to low levels of technology, as well as casual day laborers on construction sites or other locations.
• There is also a segment of the urban population that has transitioned to the informal sector after being part of the formal sector. These individuals or their spouses were once employed in better-paying jobs in textile mills in Mumbai and Ahmedabad or engineering firms in the formal sector. For example, a study conducted by the Self-Employed Women’s Association (SEWA) in Ahmedabad found that around half of the retrenched textile workers have become street vendors. Thus, the urban informal sector encompasses a wide range of occupations, although incomes are low and social security is virtually non-existent.
  

Types of Workers in the Informal Sector

Reasons for Using Temporary and Casual Labor

• Companies prefer to employ temporary and casual labor to avoid increasing the number of permanent workers. When a worker becomes permanent, the employer is obligated to provide benefits such as provident fund contributions, gratuity payments upon retirement, medical leave and facilities in case of illness, and pension after retirement. Moreover, permanent workers cannot be easily terminated; dismissing a permanent employee involves a lengthy legal process. In contrast, temporary and casual workers do not receive these benefits and can be removed from their positions at any time.
• A book published in 1993, which includes case studies from eight different industries, highlights that in certain industries, casual and contract labor comprises more than half of the total workforce.
• The description provided above outlines certain aspects of the informal sector. The overwhelming majority of India’s workforce is employed in the informal sector, with over 90% of work across agriculture, industry, and services taking place in the unorganized or informal sector. Workers in the formal sector do not enjoy most of the protections afforded to formal sector employees. Their jobs are insecure, as many labor laws do not apply to them. Although labor laws in India are intended to protect all industrial workers, there are built-in exclusions that leave large segments of the labor force unprotected.
• For instance, the Factories Act is the primary law regulating work in industries, and other laws such as the Employee State Insurance Act, Workmen’s Compensation Act, and Provident and Pension Act apply only to establishments covered by the Factories Act. This Act is applicable only to manufacturing units employing a minimum of 10 workers using power or 20 workers not using power. As a result, many industrial workers in small industries lack legal protections in their jobs.

Sociological Aspect of Informal Sector

• The terms “unorganized” and “informal” are often used synonymously. However, “informal” specifically refers to enterprises not governed by any legal framework, such as registration under company law. While it is logical that an informal enterprise will employ informal unorganized labor, it is essential to note that formal enterprises also have unorganized employees. In fact, there is an increasing trend of informalizing employment relationships within the formal sector.
• Examples of this trend include using contract workers for tasks such as running canteens or performing housekeeping and gardening, hiring teachers on an hourly basis, and outsourcing jobs like data entry. These examples highlight the complex nature of employment in both unorganized informal and organized formal sectors. Regardless of the legal status of the enterprise or employment relations, workers in this section are among the most disadvantaged in India.
• Over the past 50 years, two national labor commissions, along with various international and national commissions, committees, and conferences, have documented the socio-economic conditions of workers in the unorganized sector in India. The most recent of these is the National Commission for Enterprises in the Unorganized Sector (NCEUS), also known as the Arjun Sen Gupta Committee, which submitted its report to the Government of India in 2006.
• The committee’s report estimated that there are over 340 million workers in the unorganized sector in India, contributing around 60 to 70 percent of the national economic output. Approximately 280 million work in the rural sector, with an estimated 220 million in agriculture. Around 60 million are in urban areas, and women constitute 110 to 120 million of the workforce, with around 80 million engaged in agriculture. The report further estimates that over 92% of the country’s working population is employed in the unorganized sector, with the majority of women workers also in this sector.

Despite their large numbers and significant contributions to the national economy, unorganized sector workers are among the poorest segments of the population. Therefore, it is crucial to take urgent steps to improve their conditions.

Issues Faced by Unorganized Sector Workers

• Regulation of working conditions
• Provisioning for situations where they are unable to work, such as old age and disability
• Measures to help them cope with insecurities such as major illnesses and the risk of losing employment at will, for which they have no legal remedy
• Unorganized work is characterized by low wages, often insufficient to meet minimum living standards.
• Workers face long working hours and hazardous working conditions.
• There is a lack of basic services such as first aid, drinking water, and sanitation at the worksite.
• Various occupations exemplifying these conditions include agricultural labor, construction workers, and brick-kiln workers.
• Workers in service industries such as transport, courier services, and hospitality also face similar issues.
• A significant section of workers is employed in home-based work, using their own premises for piece-rated work.
• This includes traditional crafts, handloom weaving, and modern industries such as electronics.
• A survey by the All India Democratic Women’s Association (AIDWA) in 1989 identified over 150 occupations where women engaged in home-based work.
• Examples of home-based work include making flower garlands, folding paper for the book printing industry, and weaving plastic seats.
• On average, unorganized sector workers earn no more than Rs. 30-50 per day.
• Some workers may appear to earn more, but their work is often seasonal and total earnings may not be substantial.
• To earn more, workers put in longer hours and work harder, especially self-employed individuals.
• Parents often rely on their children to supplement earnings, contributing to child labor prevalence.
• Women receive low and unequal wages, and sexual harassment is common but unspoken.
• There are no paid leave and maternity benefits for workers in the unorganized sector.
• The use of cheap labor in the informal sector generates significant profits for employers.
• Workers face exploitation due to a lack of collective bargaining power and state regulation.
• Living in extreme poverty, most unorganized sector workers barely manage to subsist.
• There is no possibility of saving for times when they are unable to work.
• Hazardous working conditions lead to accidents and disabilities, disastrous for households lacking alternative income sources.
• There is also no provision for old age security, such as pensions.
• The demand for pensions among domestic workers organized into a union by AIDWA highlighted their insecurity.
• The absence of savings means there is no safety net during emergencies.
• Rising costs of private healthcare have contributed to the indebtedness of households in the unorganized sector.
• Providing insurance, especially health insurance, is an urgent necessity for these workers.

Understanding the Informal Sector in India

The informal sector in India is a significant part of the economy, and it plays a crucial role in providing employment and income opportunities for a large number of people. Here are some key points about the informal sector:

Characteristics of the Informal Sector

• Low Skill Levels: Workers in the informal sector typically have low levels of education and skills. As a result, they are engaged in jobs that require minimal technology. In contrast, workers in the formal sector usually possess higher skills and have better positions in the labor market.
• Easy Entry: Entering the informal sector is relatively easier compared to the formal sector. Any able-bodied person, regardless of their skills, can become a day laborer or a street vendor with minimal investment. This allows the informal sector to absorb more workers who may not be qualified for formal jobs or lack the capital to start a business.
• Low-Paid Employment: Jobs in the informal sector often come with low wages due to the low skill requirements and easy entry. Many workers in this sector earn wages that are below the sustenance level, which can drive other family members, including children, to join the workforce to make ends meet.
• Immigrant Labor: The informal sector is largely composed of immigrant workers, many of whom come to urban areas from rural regions in search of livelihood opportunities. This immigrant status is a defining characteristic of the informal sector.

Production Units and Employment Patterns

• Informal sector units are involved in producing goods and services with the primary goal of generating employment and income for the individuals involved.
• These units typically operate at a low level of organization, with little or no distinction between labor and capital as factors of production. They often function on a small scale.
• Labour relations, when they exist, are mostly based on casual employment, kinship, or personal relationships rather than formal contracts with guarantees.
• Production units in the informal sector are not legally separate entities from the households that own them. There are no complete sets of accounts to distinguish the production activities of these units from the other activities of their owners.
• Owners of production units in the informal sector bear the financial risk and are personally liable for any debts or obligations incurred during the production process.
• Expenditures for production are often indistinguishable from household expenditures.
• For statistical purposes, the informal sector is considered a group of production units that are part of the household sector, known as household enterprises or unincorporated enterprises owned by households.

Employment Types

• In developed countries, the majority of the workforce is in regular salaried employment. In contrast, over 50% of India's population is self-employed, with only about 14% in regular salaried jobs and approximately 30% in casual labor.

Social Implications of a Small Organized Sector

• The small size of the organized sector in India has several social implications:
• Limited Exposure to Large Firms: Most Indians work in small-scale workplaces, where personal relationships play a significant role in employment decisions. This contrasts with large organizations where recruitment is more transparent, and there are established mechanisms for complaints and redressal.
• Insecure Jobs with Benefits: Few Indians have access to secure jobs with benefits, and those who do often work for the government. Government jobs are highly sought after because they offer stability and benefits. Government employment has also helped transcend boundaries of caste, religion, and region.
• Lack of Union Membership: Since very few people in the informal sector are members of unions, they lack experience in collectively advocating for better wages and working conditions. Although the government has laws to monitor conditions in the unorganized sector, enforcement is often lax, leaving workers vulnerable to the whims of employers or contractors.

Relevance of the Informal Sector

• The informal sector is vital for providing income-earning opportunities for a large number of workers in India. It plays a crucial role in employment, contributing significantly to the National Domestic Product, savings, and capital formation.
• Given that the majority of the Indian workforce is illiterate and poorly trained, the informal sector is essential for providing employment to such individuals.

Conclusion

• The Indian economy is undergoing a process of economic reforms and liberalization, leading to mergers, integrations, and technological upgrades to enhance competitiveness in the international market.
• During this process, inefficient units may either perish or merge with more efficient ones. There is a pressing need to focus on the interests of workers by providing training, skill upgrades, and other measures to help them find new employment avenues or improve productivity in existing jobs.
• The formal sector has been unable to accommodate the entire workforce, making the informal sector a crucial provider of employment for subsistence and survival. Moving forward, the unorganized sector is expected to expand, necessitating strengthening and activation to serve as a vehicle for employment and social development.