Class 12 Indian Economic Development Notes · CBSE

Informalisation of Indian Workforce

Organised and unorganised sectors, informalisation of the workforce, reasons for falling employment in the organised sector, and casualisation of workers. CBSE Class 12 IED notes

Notes

Formal vs Informal Sector — Definitions

Since Independence, the main objective of Indian planning has been to raise the standard of living of the people by providing jobs and job security. Industrialisation was expected to pull surplus workers from agriculture into industry with a better standard of living. But even after 70 years of planned development, more than half of the Indian workforce still depends on agriculture, and the quality of employment has deteriorated — some workers do not get maternity benefits, provident funds, gratuity or pensions even after 10-20 years of work.

⭐ Informalisation of Workforce

Informalisation of Workforce refers to a situation whereby the proportion of workforce in the informal sector to total workforce increases.

Formal / Organised Sector

All public enterprises and private establishments that employ 10 or more hired workers are formal sector establishments. Workers in them are formal sector workers.

✓Enjoy social security benefits and earn more — better bargaining power for higher wages.
✓Protected by the government through labour laws.
✓Can form Trade Unions to protect their interests.
✓Example: an engineer at TCS with provident fund, health insurance and a union-backed job contract.

Informal / Unorganised Sector

94%

Includes all private enterprises that hire less than 10 workers — farmers, agricultural labourers, owners of small enterprises, and non-farm casual wage labourers like construction and headload workers.

✗No regular income — generally low paid with lesser job security.
✗No protection or regulation from the government; risk of dismissal without compensation.
✗Hired when market conditions are favourable, fired during slowdowns — during Covid-19, millions of informal workers lost their jobs overnight.
✗Workers live in slums, often squatters; sector uses outdated technology and keeps no accounts.
✗Male workers account for 70% of the informal workforce.

Picture it: your neighbour who works at a bank with a monthly salary slip and PF is formal. The maid who cleans your house, the helper at the kirana store, the roadside tyre-repair wala — no contract, no PF, no notice period — they are all informal. The second group is 94% of India’s workforce.

Formal vs Informal — Comparison

Side by side, the two worlds of work look like this:

Formal vs Informal Sector Workers
Aspect	Formal Sector Workers	Informal Sector Workers
Meaning	Workers who work in the Organised Sector.	Workers who work in the Unorganised Sector.
Social Security Benefits	Entitled to provident fund, gratuity, pension, etc.	Not entitled to social security benefits.
Labour Laws	Economic interests protected through labour laws.	No such labour laws exist for them.
Trade Unions	Can form trade unions to protect interests.	No such trade unions exist.
Earnings	Earn more than informal sector workers.	Earn less than formal sector workers.
Share in Work Force	Just 6% (approx.) of the total workforce.	Approx. 94% of the total workforce.

Distribution of Workforce — Data Deep Dive

As the economy grows, more and more workers should become formal sector workers and the share of the informal sector should shrink. The situation in India is very discouraging.

30 Million

workers in the formal sector — 24M men (80%), 6M women (20%).

443 Million

workers in the informal sector — 310M men (70%), 133M women (30%).

Only 6% formal vs 94% informal

Realising the Importance of the Informal Sector

India has witnessed an unprecedented shift of the workforce from the formal to the informal sector. The main reason is the decline in job opportunities in the formal sector (both public and private). With the efforts of the International Labour Organisation (ILO), the Indian government has initiated the modernisation of informal sector enterprises and the provision of social security measures to informal sector workers.

Scale it down: in a colony of 100 workers, only 6 have a contract and PF. The other 94 — your domestic help, the dabbawala, the vegetable vendor — run the economy without a safety net. When the market dips, they are the first to be let go.

Reasons for Fall in Employment in the Organised Sector

Why is the organised sector — which should be the engine of good jobs — barely creating any? Reveal the four reasons one by one.

So what?

Whenever you hear about a government selling a stake in a PSU (disinvestment) or a company installing automation, think of this page: fewer formal jobs → more workers pushed into the informal sector → higher informalisation. It is a chain reaction that affects the job you will apply for after Class 12.