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Informal Sector /Unorganised sector

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In Indian official statistical documentation there is no mention of informal sector. It is also not being used by the National Accounts Statistics (NAS). In fact, NAS uses organized and unorganized sector. However, informal/unorganized sector has a predominant place in the Indian economy in terms of its contribution to the GDP and employment. The predominant role of this sector can hardly be ignored as the NSS survey report on “Informal Sector and Conditions of Employment in India, 2004-05” shows that out of the total workers, nearly 82 per cent in the rural areas and 72 per cent in the urban areas were engaged in the informal sector. The Government realizing criticality of the development of this sector established the National Commission for Enterprises in the Unorganized Sector (NCEUS) in 2004 as an advisory body. The aim of the Committee is to bring about improvement in the productivity and generation of large scale employment opportunities on a sustainable basis, particularly in the rural areas. NCEUS has estimated that in 2005 there were 423 million informal workers in India of which 395 million belonged to the informal sector. The remaining 28 million were informal workers in the formal sector.

In the survey conducted by NSSO, NSSO defines the informal sector enterprises comprise of all unincorporated proprietary and partnership enterprises. However, National Accounts Statistics (NAS) defines the unorganised sector in addition to the unincorporated proprieties or partnership enterprises, includes enterprises run by cooperative societies, trust, private and limited companies. The informal sector can therefore, be considered as a sub-set of the unorganised sector.

However, in a detailed report titled Report on Definitional and Statistical Issues Relating to the Informal Economy was submitted in 2008 in which the Commission has recommended that the Informal Sector be defined as “The unorganized sector consists of all unincorporated private enterprises owned by individuals or households engaged in the sale and production of goods and services operated on a proprietary or partnership basis and with less than ten total workers”.

The unorganised sector refers to those enterprises whose activities or collection of data is not regulated under any legal provision or do not maintain any regular accounts. For instance, the units that are not registered under the Factories Act, 1948 form the unorganised composition of the manufacturing sector. Organised sector is the sector which comprises enterprises regarding which statistics are available from the budget documents or reports etc.

The issue of defining the concept of ‘informal economy’ has remained debatable over the years. It has been extensively discussed since the beginning of the 1970s - Keith Hart (1971) referred to informal income opportunities for the urban poor in Ghana and the ILO report on Kenya (1972) defined the informal sector by the characteristics of the economic units. From early days of the concept, discussions on adopting the definition by the characteristics of the job or by the characteristics of the establishment have created different views on this issue. The Fifteenth International Conference of Labour Statisticians held in January 1993 at Geneva adopted a Resolution on informal sector statistics which was subsequently endorsed by the UN Statistical Commission in February, 1993.

The Seventeenth International Conference of Labour Statisticians held in 2003 discussed the concept of ‘informal employment’ and provided guidelines for an ‘expanded’ definition of the concept. But it should be clear that this new concept of ‘informal employment’ is not intended to replace the concept of ‘informal sector’. As a matter of fact, the ‘informal sector’, as a part of ‘informal employment’ will allow to highlight this part of informal employment which is generated by the formal sector in its attempt to cut labour costs for achieving more competitiveness in the globalisation process.

The importance of the sector is evident from the fact that more than 50% of the GDP comes from this sector. Different estimates have been arrived at following different methodologies. For instance according to CSO; the share of unorganized sector has been varying between 57-60% since 1993-94. Whereas, according to the Kolli & Hazra study, it is the share of unorgainsed sector in NDP is 58.5%, of which 47.7% is informal in the year 2001-02. Though a very large labour force is engaged in this sector, they earn comparatively low wage and do not have any social security. In this regard, NCEUS has submitted a scheme for a universal social security cover called National Minimum Social Security to all eligible workers over a period of five years.


  2. Rajiv Sharma and Sunita Chitkara, Paper No. 6, Expert Group on Informal Sector Statistics (Delhi Group), “Informal Sector in the Indian System of National Accounts”, CSO.

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