Why Centre must prioritise informal jobs alongside formal ones

The Centre is surely right in incentivising job creation in the formal sector, particularly manufacturing, which produces best quality jobs (high-productive and high-paying).

There is also a sound case for doing the same for the informal sector, too, which produces low-productive and low-paying jobs but accounts for 90 per cent of the total jobs and contributes 50 per cent to the GDP.

Though this is a historic trend, the overwhelming dominance of informal jobs means that sustaining productivity and redistributing income would continue to be challenging.

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It must, however, be kept in mind that reaching out to the informal sector or informal workers is not at all easy. Past governments have found it daunting, too, but giving up is not an option. Before looking at those challenges and possibilities of addressing them, here is a look at the job trends in the respective areas.

Falling formal, rising informal jobs

The Periodic Labour Force Survey (PLFS) doesn’t classify jobs in formal and informal terms; rather, it classifies them into ‘regular wage/salaried’, ‘self-employed’ and ‘casual’. Conventional wisdom dictates that ‘regular wage/salaried’ be considered as formal jobs and the latter two informal jobs, but since over 50 per cent of ‘regular wage/salaried’ don’t have any social security cover (per PLFS), the respective shares of formal and informal jobs need to be recalculated.

Using the ILO’s definition of informal workers as ones who don’t have social security, India’s informal jobs work out to be around 90 per cent and rising (see graph), and that of formal jobs falling. That is exactly what the ILO’s 2024 report also says: “around 90 per cent of workers are informal workers”. An OECD study of 2024 says the global average of informal jobs is 60 per cent, and in low-income countries, 90 per cent.

That even the best quality jobs, ‘regular wage/salaried’, remain low-paying is clear from the analysis of the PLFS data by the Economic Survey of 2024-25. It showed ‘real’ monthly earnings for ‘regular wage/salaried’ averaged ₹11,858 for men and ₹8,855 for women in 2023-24 – sharply falling from ₹12,665 and ₹10,116, respectively, in 2017-18. This is way below the Centre’s statutory minimum wages for industrial workers at ₹31,950 a month for “highly skilled” and ₹29,430 a month for “skilled/clerical” workers. The wages of ‘self-employed’ and ‘casual’ are too low to count.

Another cause of concern is the fall in formal jobs. The EPF-registered jobs have fallen from FY19 (since when full fiscal data is available) – both in “new subscribers” and “net payroll” (see graph).

This is a double whammy for the economy.

Job creation strategy flawed

This also means, neither the Centre’s push to create formal jobs nor schemes to provide social security cover for informal workers is working. Yet, the Centre continues to rely on its old policies.

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On July 1, 2025, the Centre launched another EPF-linked cash handout scheme for companies, the Employment Linked Incentive (ELI) Scheme, with an outlay of ₹99,446 crore. This follows the other two such schemes, PMRPY (2018-2022) and ABRY (2020-2024). The falling EPF jobs in FY24 and FY25 also point to the obvious flaw in this approach: once the EPF subsidy ends, formal jobs disappear, a fate that may await the ELI.

The fall in formal jobs also means that the PLI schemes for 14 manufacturing sectors (beginning in 2021), which promised to generate 6 million new formal jobs in five years, haven’t worked either.

No support for informal workers

The Centre hasn’t launched any new social security scheme for informal workers in the past few years.

It’s Code on Wages 2019 and Code on Social Security 2020, promising universal statutory minimum wages and social security cover, respectively, remain on paper. What is worse, India opposed an ILO convention for platform workers – informal jobs in the formal sector.

KN Umesh, national secretary of trade union CITU, who attended this ILO plenary held in Geneva from June 2 to 13, told The Federal that India voted against the convention, stating that it didn’t need it or recommendations for standard setting; instead, it sought a general discussion on the subject. However, since a majority voted for it, the subject would be taken up at the next plenary for adoption, Umesh said. More about platform workers (gig workers) later.

Challenges and possibilities

Informal sector, by its very nature, presents a big challenge for any government. Though the Centre’s relentless push for formal sector jobs isn’t entirely unjustified, there is a need to take a fresh look at the policies and strategies to address the precarity of informal workers.

The Federal spoke with economists about these issues.

Pronab Sen, chairman of the Standing Committee on Statistics during 2019-2024, says there is “very little you can do in the informal sector” because the government “can’t reach” it. Fixing statutory minimum wages for them may be “conceptually good” but mean “nothing to them because the bulk of informal workers are self-employed”. For the record, ‘self-employed’ accounted for 58.4 per cent of workers and ‘casual’ another 19.8 per cent in 2023-24 (78 per cent outside ‘regular wage/salaried’ category).

As for social security, he says, though “it will mean a lot,” it wouldn’t solve the employment problem and “not necessarily improve productivity”. He argues, job incentives would work only for MSMEs, which generate a bulk of jobs and train youth. “You should focus on units with potential to hire”, pointing out that the apprenticeship scheme (NAPS, 2016) didn’t work in the past, and the ELI wouldn’t either, because companies would hire for a “short time” to avail the incentive.

Level playing field for all

Sudipto Mundle, chairman of the Centre for Development Studies, also thinks incentives are better for the formal sector; the past governments, too, had found it daunting to reach out to the informal sector. His suggestion is to provide “a level-playing field” to all job-intensive sectors, including the manufacturing sector’s construction, textile, food processing, etc. and also the services sector, which generates trade surplus, which the PLI has ignored too. He argues for extending the PLI and ELI to these sectors. These, he says, are short-term measures. For the medium term, he suggests skilling to be driven by the private sector, “not government officials because they don’t know where the shoe pinches”.

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Jayan Jose Thomas, labour economist at IIT-Delhi, however, sees more concrete measures aimed at bettering the conditions of informal workers. He says, India needs “corporate discipline” and “labour regulation” to make companies “accountable” for their workers, as against leaving them entirely at the mercy of contractors that make them “invisible and extremely vulnerable to exploitation”.

He says governments, be it at the Centre or state, “can’t abdicate the responsibility for wages and social security” for informal workers, particularly migrant workers who form the bulk of the industrial workforce. This should be easy to do now, he adds, because corporate profits are up. On their part, governments should take care of migrant workers and their families by providing free education, healthcare and regular PDS supply.

That is not all.

Legislative shield for workers

India’s gig economy, including quick commerce platforms, is growing rapidly, sucking youth into extremely low-paying jobs with little social security cover. These are typically informal workers employed by big companies – Indian unicorns and MNCs alike.

The Fairwork India’s 2024 report showed, only two of the 11 firms it studied (Amazon Flex, bigbasket, BluSmart, Flipkart, Ola, Porter, Swiggy, Uber, Urban Company, Zepto and Zomato) gave “local minimum wage after costs,” but none gave “local living wage after costs,” and none recognised gig workers’ collective bargaining power or right to unionise.

The Centre has failed them by not fulfilling its promise to offer suitable social security cover in collaboration with industry for the past four years, even if only as tokenism. The US and Europe have taken the legislative route to ensure rights and protections for gig workers by redefining their relations with employers (as against “independent contractors” or “partners”).

Ironically, the NITI Aayog’s 2022 report “India’s Booming Gig and Platform Economy Perspectives and Recommendations on the Future of Work” elaborated on such developments in advanced economies, but instead of recommending a similar course for India, it merely endorsed the scheme-based reliefs.

‘Self-destructive’ practices

It was partly this rising gig work, along with rising contractual hirings (“creeping informalisation”) and stagnated wages amid historic corporate profits that riled Chief Economic Advisor V Anantha Nageswaran so much that, in December 2024, he warned India Inc against its “self-destructive” practices.

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What lends urgency is the following.

In 2012, the informal sector accounted for over 90 per cent of jobs and about 50 per cent of GDP, per MoSPI. That remains virtually unchanged with its job share at 89.5 per cent in 2023-24 (PLFS) and GDP share at about 45 per cent in FY23, per MoSPI. Another official data shows, informal job share is rising alarmingly in the non-farm unincorporated sector – from 88 per cent in 2021-22 to 93 per cent in 2022-23 to 94 per cent in 2023-24 (ASUSE).

These data call for immediate measures, the finer details of which will emerge through wider consultations and debates.