By Anoushka Saxena, Siddhi Goyal & Aneesh K A
India must acknowledge that while the informal sector can continue to operate with its inherent flexibility, the individuals within it deserve stability, protection, and recognition.
As a new day dawns in urban India, the streets come alive with vendors setting up stalls, auto drivers readying for passengers, domestic workers heading to households, construction and handicraft labourers making their way to work, and gig workers navigating their morning deliveries. These ‘informal’ workers comprise 79.2 per cent of the total urban workforce. Despite this visibility in numbers, they are much hidden from the point of view of employment and social security.
Unlike formal sector employees who enjoy social security benefits, workers in the informal sector remain without safeguards for their health and old age. They are acutely vulnerable to economic shocks, often receive wages that do not reflect the intensity of their labor, and endure levels of oppression and injustice that are beyond the comprehension of the average urban consumer who routinely engages their services.
However, from the viewpoint of the government, this unorganized sector is getting much more structured such that it is now contributing 45% to the GDP (National Accounts Statistics, 2022-23), provides 90% of the employment (WIEGO, 2020), supports the management and cost-effective requirements of the formal sector, encourages small industries, and most importantly, creates sustenance for the urban poor stuck in a cycle of poverty. Considering this vast proportion that goes in and out of the sector, it is essential to work on the upliftment and formalization, which does not hamper the workers' working ability but also does not threaten their lives by large.
The government initiatives aimed at addressing the informality cover legal recognition, financial inclusion and the extension of social security to informal workers. The Street Vendors Act 2014 includes the provision of Certificates of Vending (CoV) to street vendors to establish regulatory orders for such vending operations. Under the E-Shram Portal launched in 2021, registering 300 million workers signifies the government’s dedication to promoting financial inclusion and framing a National Database of Unorganized Workers (NDUW) for enhanced targeted benefits.
The PM-SVANidhi Scheme since 2020 has disbursed 5.641 million loans, including collateral-free options, and offers second-term, third-term, and cashback incentives for digital transactions. Under social security, the PM Shram Yogi Maan-dhan, since its introduction in 2019, has enrolled 4.6 million workers above 60 years of age for a monthly pension of ₹3,000 while matching contributions on a 50:50 basis. The PM Mudra Yojana facilitated the disbursement of ₹448.91 billion (Shishu category), ₹245.75 billion (Kishore category), and ₹191.20 billion (Tarun category) since 2015.
Alongside this, the Atal Pension Yojana and Aam Aadmi Bima Yojana provide pensions to 70 million workers and life insurance coverage of ₹75,000. The Ayushman Bharat (PMJAY) is a comprehensive scheme benefitting 500 million individuals and serves as a critical safety net for health-related emergencies, covering five crore hospital treatments. ILO’s assertion that India’s Social Protection coverage doubled from 24.4% to 48.8% in its World Social Protection Report 2025-26 is indeed an indicator of the considerable amount that has been done by the government and well-recognized internationally to address the issues of the unorganized sector in India.
However, India has much to learn from nations, both developed and developing when it comes to their dealings with the informal sector. South Korea made pensions compulsory for all workers, including those in the informal sector. To ensure this, the E-Shram and PM-SYM should be made mandatory at the time of giving subsidies to ensure coverage and formalization. Another moderation can be made to the Street Vendors Act inspired by Colombia’s Vendor Integration Plan to access designated vending zones, usually with high foot count with proper infrastructure, waste disposal, security and sanitation.
A revolutionary inspiration for formal-informal partnership comes from Germany’s Dual Training System, where students and informal workers receive education and certified working experience simultaneously. This helps them into a smooth transition to the formal sector. This approach can be used to enhance the Skill India Mission in a way that recognizes informal work experience of a specified time period and can be translated into formal skill certifications without additional training.
Tax incentives can be given to companies that hire informal workers as apprentices and help them upskill to bridge the skill gap. Brazil’s ‘Minha Casa Minha Vida’ (Affordable Housing for Informal Workers), which provides affordable rental housing to reduce homelessness, can be used to expand the PM Awas Yojana to provide rental and co-own housing to groups of informal workers known as worker housing cooperatives. Government subsidies in house constructions and employer-provided housing can be additional steps.
A deeper overview of the policies of other countries compared to those of India reveals that India has begun the process of upliftment and formalization in most aspects, including legal recognition, financial support and social security. However, major implementational challenges and the incomprehensiveness of policies make the initial efforts seem significantly inefficient.
Challenges to implementation include lack of awareness, bureaucratic hurdles, lack of reach to targeted groups and barriers to access by vulnerable groups like women and migrants. All the policies are scattered and must be included under one umbrella to make them comprehensive and effective. The lack of real-time data on activities in the informal sector also accounts for a structural issue. With the advent of artificial intelligence and the age of digitalization, it is easier to navigate policy effectiveness and reach target groups. Financial technology also helps businesses scale. A step towards basic financial and digital literacy, along with upskilling, will go a long way to cover up for the implementation challenges and help informal workers complement the government in its effort to improve the situation of the unorganized sector.
The objective of regulating the unorganized sector should not be to forcibly assimilate it into the formal economy or to alter its organic nature, but rather to secure the social and economic well-being of its workers. These livelihoods- often perceived as casual- are, in reality, marked by persistence, resilience, and complexity, and thus demand comprehensive legal and institutional safeguards.
Much like international best practices, India must acknowledge that while the informal sector can continue to operate with its inherent flexibility, the individuals within it deserve stability, protection, and recognition. The aim, therefore, is not transformation of form but transformation of conditions.
The urban informal sector forms the backbone of India’s urban economy, yet its workers remain excluded from the essential rights and protections that define decent work- social security, fair remuneration, and voice in institutional mechanisms. As the country advances toward ambitious urban development and economic modernization, the invisibilization of informal labor emerges as a critical challenge to both equity and sustainability. A forward-looking policy framework must treat the informal sector not as an exception to be corrected but as an integral, structurally embedded element of the economy. This necessitates a multidimensional strategy encompassing legal recognition, inclusive urban governance, and participatory planning, thereby ensuring that the rights, dignity, and contributions of informal workers are not just acknowledged but upheld.
(Anoushka Saxena and Siddhi Goyal are Graduate students, and Aneesh K A is an Assistant Professor. They are from the Department of Economics of CHRIST University, Delhi-NCR campus)
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The views expressed are not necessarily those of The South Asian Times
