Informal sector, child labour
The Informal Sector
The informal sector has emerged as a crucial component of economies worldwide, particularly in developing countries like India, where it provides employment and livelihood to a significant portion of the population. Over time, scholars and institutions have attempted to define and conceptualize this sector, highlighting its complex nature and varied characteristics.
Definitions and Conceptualizations
Several key definitions provide insight into the informal sector:
Peattie and Davies describe the informal sector as encompassing economic activities undertaken by urban workers without formal employment contracts, social security, or labor law protections. This underscores the precarious nature of work in this sector, where formal recognition and worker rights are often absent.
The International Labour Organisation (ILO) defines an informal enterprise as one that operates with minimal workers, employs simple tools, and functions outside the ambit of labor laws and regulations. This highlights the small-scale and often unregulated character of informal enterprises.
Narul Amin expands this definition to include any economic enterprises and employment forms that lack governmental protection or regulation, especially concerning social security and worker rights.
Kanpe Ronald Hope conceptualizes the informal sector as the "subterranean sector," alternatively called the shadow, underground, or parallel economy. This sector is integral to the development processes of many developing nations, even though it remains hidden from official statistics and regulation.
Nick Devas and Carde Rakodi focus on the informal sector as comprising small-scale, unenumerated, and occasionally illegal economic activities.
Kulshretha emphasizes the role of self-employed workers, often supported by their families, engaged in informal trades like street vending and small-scale trading, which lack formal structures but are labor-intensive and critical to urban economies.
Causes for the Growth of the Informal Sector
The expansion of the informal sector is influenced by a mix of economic, social, and political factors that interact in complex ways:
Economic Factors
Capitalist economies, driven by the imperative to maximize profits, have contributed significantly to the informalization of labor. Employers prefer informal workers as they are not subject to the costs associated with formal employment such as minimum wages, social security, and labor protections. The transition from Fordism—characterized by mass production in centralized factories—to post-Fordism—marked by flexible production across dispersed sites—has further propelled informal labor. This shift allows companies to adopt labor practices that emphasize flexibility, including the use of temporary and informal workers to meet market demands efficiently.
Moreover, liberalization and intensified competition at both domestic and global levels pressure firms to cut costs, often resulting in the casualization of labor and expansion of the informal workforce. The informal sector also maintains a symbiotic relationship with the formal sector by supplying inputs at lower costs while relying on the formal sector for product distribution and marketing.
Social Factors
Globalization, particularly through the operations of multinational corporations (MNCs), has spread capitalist labor relations worldwide, often leading to the exploitation of cheap informal labor in developing countries. Additionally, unforeseen calamities and pandemics like COVID-19 disrupt formal employment systems, forcing many workers to resort to informal economic activities to sustain themselves.
Interestingly, the choice to work informally differs across contexts. In developing countries, informal work is usually a forced survival strategy, while in some developed economies, workers may voluntarily engage in informal work to avoid rigid bureaucratic formalities or as part of a preferred lifestyle, as acknowledged by the ILO.
Political Factors
Historical political conditions such as imperialism have left a lasting impact on labor structures. Colonial powers developed formalized labor systems in their own countries while maintaining informal and exploitative labor regimes in colonies to keep wages low and maximize profits. This legacy continues to influence the labor market dynamics in many post-colonial developing countries, including India, where informal labor predominates.
Characteristics of the Informal Sector
The informal sector in India is marked by distinct features that differentiate it sharply from the formal sector:
Excessive Seasonality and Prevalence of Casual Employment:
Employment in the informal sector is highly seasonal and casual. Workers are often hired for specific periods, especially linked to agricultural or festival seasons, resulting in temporary, unstable jobs. A significant proportion of workers are engaged on casual or contractual terms, lacking job security and excluded from social security benefits such as health insurance, pensions, or paid leave.Lack of Rights and Social Security:
Informal workers typically do not enjoy legal protections guaranteed in the formal sector, including minimum wage laws, welfare benefits, or occupational safety regulations. Rights like maternity leave, pension schemes, and health benefits are largely inaccessible to them.Scattered and Fragmented Workplaces:
Unlike the centralized nature of formal workplaces, informal employment is dispersed across small, fragmented locations—home-based work, street vending, and scattered workshops. These workplaces lack formal organizational structures or regulatory oversight.Flexible Working Hours:
Informal work usually involves flexible and irregular hours, often without fixed schedules. Although flexibility can appear beneficial, it commonly results in extended working hours without overtime compensation or job security.Informal Employer-Employee Relationship:
The sector operates without formal contracts; employer-employee relations are based on informal agreements, creating a fragile employment relationship with no guarantees of stability.Indebtedness and Bondage:
Many informal workers are trapped in cycles of debt and financial dependence, sometimes leading to bonded labor or exploitation by employers.Exploitation and Neglect:
Informal workers are subject to low wages, poor working conditions, and lack of protection. Trade unions often overlook them, focusing instead on formal sector employees, which exacerbates their vulnerability.Lack of Legal Protection:
Operating outside the formal regulatory framework, informal workers have limited access to legal recourse, social security, or labor rights enforcement.
Significance of the Informal Sector
Despite its challenges, the informal sector plays a vital role in India’s economy:
Efficiency for Businesses:
The informal sector allows businesses to reduce costs by avoiding bureaucratic procedures, labor laws, and social security obligations, facilitating faster and more flexible production.Contribution to GDP:
Studies, such as those by Dipankar Gupta, estimate that the informal sector contributes over 36% of India’s GDP, underlining its substantial economic importance.Employment Generation:
Approximately 92.4% of India’s workforce is engaged in informal employment. This sector absorbs large numbers of workers, especially those unable to find jobs in the formal economy.Women’s Empowerment:
The informal sector provides critical employment opportunities for women, especially in agriculture, textiles, and domestic work, contributing to their economic independence and social upliftment.Flexibility and Autonomy:
Informal employment offers freedom regarding work location and timing, appealing to freelancers and gig workers who prefer flexible schedules.Diversity of Work:
Informal workers often engage in multiple jobs or skill areas, reflecting adaptability and diversity in the sector.Reduced Compliance Burdens:
For employers, hiring informal workers minimizes regulatory and compliance costs, which can be significant in the formal sector.
Status of Informal Sector Employment in India (2017-18)
In 2017-18, the unorganized sector accounted for 83% of India’s workforce, with only 17% employed in the organized sector.
Even within the organized sector, about 9.8% were informally employed, such as contract or outsourced workers.
Between 2017 and 2018, informal sector employment grew by 3.6 percentage points, outpacing the 0.9 percentage point increase in formal employment, reflecting the growing reliance on informal labor.
Way Forward: Formalization and Empowerment of Informal Sector Workers
Improving the conditions and security of informal workers requires multifaceted strategies:
Bringing Informal Workers Under Social Security:
Extending social protection schemes—such as the Employee Provident Fund (EPF), health insurance, and pension benefits—to informal workers can provide financial security and reduce vulnerability.Skills Upgradation:
Vocational training programs like the Pradhan Mantri Kaushal Vikas Yojana (PMKVY) can enhance the skills of informal workers, improving their productivity and enabling transitions to formal or better-paying jobs.Microfinance and Easy Credit Access:
Facilitating access to microfinance and affordable credit helps informal workers and small businesses grow and formalize their operations, reducing dependency and fostering entrepreneurship.Government Regulation and Enforcement:
Strengthening labor laws and ensuring their enforcement can protect informal workers from exploitation, arbitrary dismissal, and unsafe working conditions.Mobilization into Interest Groups and Trade Unions:
Encouraging informal workers to organize into unions or associations, such as SEWA (Self-Employed Women’s Association), can improve their collective bargaining power and access to social protections.Employment-Intensive Investments:
The government should promote projects that generate formal employment and offer subsidized financial assistance to facilitate the shift of workers from informal to formal sectors.
Child Labour in India: A Critical Overview
Child labour remains a significant social and economic issue in India, impeding children’s rights and development. According to the International Labour Organization (ILO), child labour encompasses work that harms a child’s physical, mental, social, or moral well-being. It also includes work that interferes with a child’s education by forcing them to either miss school or juggle work alongside schooling, thereby hampering their learning and growth.
Extent and Nature of Child Labour
India has a large number of child labourers, with ILO estimates reporting about 10.1 million children aged 5 to 17 engaged in labour as of 2020. However, child rights activist Kailash Satyarthi estimates this figure to be much higher, at around 32 million, including children working in domestic settings. A significant proportion—69%—of these child labourers are girls, while 80% belong to marginalized groups such as Dalits, Tribals, Backward Castes, and Muslims.
Sector-wise, the majority of child labourers are found in agriculture, followed by the service sector and industries like beedi, bangle, and fireworks manufacturing, where cheap and flexible labour is highly sought after. The age distribution shows 8.4 million children aged 5 to 14 involved in labour, with an additional 1.7 million in the 15 to 17 age group. Geographically, child labour is predominantly rural, with 9.2 million children engaged in such work in rural India compared to 0.9 million in urban areas. Boys slightly outnumber girls in child labour participation, with 5.6 million boys and 4.5 million girls involved.
Factors Contributing to Child Labour
Poverty remains the root cause driving children into labour, as many impoverished families rely on their children’s income to meet basic needs. Nobel laureate Jean Dreze highlights the strong correlation between poverty and child labour. Furthermore, lack of access to quality education, especially in rural and marginalized communities, increases children’s vulnerability. Social and cultural norms in some communities also normalize child labour, viewing it as a way to build skills or contribute to family survival.
Weak enforcement of existing laws against child labour exacerbates the problem, allowing employers to exploit children without facing severe penalties. The demand for cheap, flexible labour in informal and hazardous industries like fireworks, bangles, and beedi production fuels the persistence of child labour. Additionally, migration and displacement due to conflict or disasters leave many children unprotected, exposing them to exploitative labour conditions.
Impact of COVID-19
The COVID-19 pandemic has worsened the child labour situation in India. Economic hardships forced many families to push their children into work to compensate for lost income, deepening the cycle of poverty and exploitation.
Way Forward: Addressing Child Labour
Combatting child labour requires a multipronged approach. Stronger enforcement of labour laws is essential, ensuring that violators are penalized and children are protected. Improving access to free, quality education, particularly in rural areas, can help break the vicious cycle by offering children alternatives to work.
Awareness campaigns targeting parents, communities, and employers can shift cultural attitudes that tolerate child labour. Social protection schemes aimed at supporting poor families economically can reduce the financial compulsion that drives children into work. Collaboration with NGOs, such as Kailash Satyarthi’s Bachpan Bachao Andolan, can amplify efforts to rescue children and mobilize communities against child labour.
Sociological Perspectives
Karl Marx viewed child labour as an inherent consequence of capitalist exploitation, where children serve as cheap labourers, reflecting broader systemic inequalities. Arlie Hochschild highlighted how child labour often supports unpaid care work globally, urging more recognition and regulation of such labor. Indian economist Utsa Patnaik emphasized the economic demand for cheap labour as a fundamental driver sustaining child labour.
Legal Framework
India has several laws and policies addressing child labour, including the National Policy on Children (2013), National Labour Policy, and the Child and Adolescent Labour (Prohibition and Regulation) Act, 1986. Article 24 of the Indian Constitution prohibits the employment of children below 14 years in hazardous industries. The National Commission for Protection of Child Rights (NCPCR) and international instruments like the UN Convention on the Rights of the Child further reinforce protections. NGOs play a critical role in advocacy and rescue operations.