Unorganised sector

Also called: Informal sector · Topic: Employment, Unemployment and Informalisation · NCERT: Class 10, Ch 2 "Sectors of the Indian Economy"; Class 10, Ch 4 "Globalisation and the Indian Economy"; Class 11, Ch 6 "Employment: Growth, Informalisation and Other Issues"; Class 12, Ch 2 "National Income Accounting"

Meaning

The unorganised sector (also called the informal sector) is made up of small, scattered units. Most are not registered with the government, and labour laws do not reach them in practice. Jobs here are low-paid and irregular, and workers get no social security.

• Class 11 rule: every establishment that is not in the public sector and has fewer than 10 hired workers is informal.
• NCEUS (2007): the unorganised sector is unincorporated proprietary or partnership enterprises with fewer than ten workers.

It matters because most Indian workers are here. In 2019-20 only about 11% of workers were formal, so about 89% were informal.

Formula: formal share (%) = (formal workers ÷ total workers) × 100

Explanation

Three ways to draw the line

• (a) Class 11: size and ownership
• The organised sector includes all public-sector establishments, whatever their size, plus private establishments with 10 or more hired workers.
• Only hired workers count. Unpaid family helpers are not counted towards the 10.

• The unorganised sector is everything else:

  • farmers and farm labourers;
  • owners of small enterprises and their workers;
  • the self-employed with no hired help;
  • non-farm casual workers (people hired by the day or by the task, with no fixed employer), such as construction and head-load workers.

• (b) Class 10: registration and law

• An organised enterprise is registered with the government and must follow labour laws. NCERT names the Factories Act, the Minimum Wages Act, the Payment of Gratuity Act and the Shops and Establishments Acts.

• An unorganised enterprise stays outside these rules.

• (c) NCEUS (Arjun Sengupta, 2007): type of enterprise

• Unincorporated means not registered as a company.
• Proprietary means one owner. Partnership means two or more owners.
• The unit must have fewer than ten workers.

Worked example: the 10-hired-worker test

Case	Sector	Why
Hotel with 7 hired + 3 family workers	Informal	Only 7 are hired
Textile shop with 9 workers	Informal	Fewer than 10
Construction firm with exactly 10 workers	Formal	The rule is "10 or more"
Clerk in the electricity office	Formal	Public sector counts at any size
Cycle-rickshaw puller	Informal	Self-employed, no hired help

Formal share, 2019-20: 59 million formal workers out of 535 million workers.

• 59 ÷ 535 × 100 ≈ 11% formal
• So about 89% of workers were informal.

Working conditions: Kanta (organised) vs Kamal (unorganised)

Feature	Organised	Unorganised
Job security	Cannot be asked to leave without a reason	Can be dismissed at any time, with no compensation
Hours	Fixed; overtime (extra pay for extra hours) is paid	Long hours; no overtime pay
Leave	Paid leave and paid holidays	No pay for days not worked
Appointment letter	Yes	No
Benefits	Provident fund, medical allowance, gratuity, pension	Nothing beyond wages

• Other features of the unorganised sector (Class 11):
• no regular income and no government protection;
• outdated technology and no accounts kept;

• many workers live in slums as squatters (people living on land they do not own, with no legal right to it).

• Why informal workers have little voice:

• They are spread across many small units, or they work for many employers.
• So it is hard to form a trade union (an organisation of workers that bargains with employers).
• Without a union they cannot use collective bargaining (workers negotiating as a group over wages and conditions).

What makes it grow or shrink

• Growth after the early-1990s reforms:
• The government cut public-sector hiring.
• Firms used more contract labour.

• Economists link these changes to a fall in formal-sector employment.

• The gig economy:

• Gig workers earn outside the usual employer-employee relationship.

• NITI Aayog estimates over 1 crore gig workers in 2024-25, rising to 2.35 crore by 2029-30 [4].

• Policy shift since the late 1970s:

• Formal jobs were not growing, so countries including India began to focus on informal enterprises.
• With ILO-led efforts, the government started to modernise informal enterprises and extend social security to their workers.

In India

• Scale:
• 2012 (Box 6.1): about 30 million formal workers, of whom about 18 million were in the public sector. So the government is the largest formal employer. Women were about one-sixth of formal workers. The data came from the Ministry of Labour, through employment exchanges.

• 2019-20: 59 million formal workers out of 535 million in total, which is about 11%.

• Labour market, PLFS 2023-24 (July 2023-June 2024; usual status, age 15+) [5]:

• LFPR (share of people working or looking for work): 60.1%
• WPR (share of people who are employed): 58.2%

• UR (share of the labour force without work): 3.2%, down from 6.0% in 2017-18

• Four Labour Codes, in force from 21 November 2025, replaced 29 central labour laws [2][3]:

• Code on Wages, 2019 (notified 8 August 2019): minimum wages now cover all workers. The old Minimum Wages Act covered only about 30% of workers. The Centre will set a statutory floor wage, and no state can fix its minimum wage below it [2].
• Code on Social Security, 2020 (notified 29 September 2020): it merged nine laws, including the Payment of Gratuity Act, 1972 and the Unorganised Workers' Social Security Act, 2008 [4]. It is the first law to define "gig worker", "platform worker" and "aggregator" (the company that runs the app) [2][4].
• Every worker must get an appointment letter stating the job, wage and social security benefits [2][3].

• Contract workers: the principal employer (the firm that uses them) must give them health and social security benefits [3].

• Funding social security for gig workers:

• Aggregators pay 1-2% of annual turnover, capped at 5% of what they pay to gig and platform workers [2].
• Example: turnover is ₹1,000 crore and payments to workers are ₹40 crore. 1% of turnover is ₹10 crore, but the cap is 5% × ₹40 crore = ₹2 crore. So the aggregator pays ₹2 crore.

• The money goes to a Social Security Fund [2][4]. A National Social Security Board looks after the welfare of gig and platform workers [4].

• ESIC (Employees' State Insurance Corporation, which runs health insurance for workers):

• It now applies across India. The old "notified areas" limit has been removed [2].

• Units with fewer than 10 employees can join voluntarily if employers and employees both agree [2].

• e-Shram portal [4]:

• Launched on 26 August 2021 to build the National Database of Unorganised Workers (NDUW).
• Each worker gets a Universal Account Number (UAN) on self-declaration (their own statement, with no employer proof needed).
• Over 30.98 crore workers had registered by 3 August 2025, including 3.37 lakh platform workers. The top states were Uttar Pradesh (8.39 crore), Bihar (3.00 crore) and West Bengal (2.64 crore).
• Union Budget 2025-26 promised platform workers e-Shram registration, identity cards and AB-PMJAY health cover of ₹5 lakh per family per year. As of August 2025, this cover had not yet been launched [4].

Don't confuse with

• Informal employment: the informal sector describes the enterprise (its size, registration and type). Informal employment describes the job. The ILO calls a job informal when formal arrangements do not cover it, or do not fully cover it, by law or in practice [6]. So a temporary computer operator in a state government office works in a formal establishment but has informal employment.
• Organised sector: this includes all public-sector units at any size. Size matters only for private units, which need 10 or more hired workers to count as organised.
• Unemployment: unorganised workers are employed. Their problem is poor-quality work, not the lack of work. PLFS 2023-24 shows unemployment at only 3.2% [5], while most jobs remain informal.
• Class 11 rule vs NCEUS rule: Class 11 counts hired workers and makes the public sector formal at any size. NCEUS looks at enterprise type: unincorporated proprietary or partnership units with fewer than ten workers.

Prelims Hooks

• Class 11 rule: formal = all public-sector establishments + private establishments with 10 or more hired workers. A hotel with 7 hired + 3 family workers is informal. A firm with exactly 10 workers is formal.
• NCEUS (Arjun Sengupta, 2007): unorganised sector = unincorporated proprietary or partnership enterprises with fewer than 10 workers.
• Formal share: 59 ÷ 535 million ≈ 11% in 2019-20. In 2012 there were about 30 million formal workers, about 18 million of them in the public sector.
• Code on Social Security, 2020 is the first law to define "gig worker", "platform worker" and "aggregator". The aggregator levy is 1-2% of turnover, capped at 5% of payments to these workers [2][4].
• e-Shram: launched 26 August 2021; UAN given on self-declaration; 30.98 crore registrations as of 3 August 2025 [4].
• Trap: the old Minimum Wages Act covered only about 30% of workers. The Code on Wages makes minimum wages universal. The Labour Codes came into force on 21 November 2025 [2][3].

Mains Points

• Growth without decent work:
• Formal jobs were only about 11% of all jobs in 2019-20, and firms hire more contract labour.
• So rising GDP has not brought a matching rise in decent work (work with fair pay, job security and social protection).

• Formalisation (registration, written contracts, PF/ESIC) helps in three ways: it raises productivity, it brings more firms into the tax net, and it makes workers less exposed to shocks.

• Labour Codes (2025) as a trade-off:

• For workers: universal minimum wages, appointment letters, gratuity after one year for fixed-term workers, and social security for gig workers [2][3].
• The concern: easier fixed-term hiring and simpler compliance may favour employers.

• The real test: how well states write their rules and enforce them.

• From registration to real coverage:

• e-Shram's 30.98 crore records and the UAN let benefits follow migrant workers from state to state [4].
• The gap: a worker who is registered is not yet covered. The AB-PMJAY cover for platform workers had not been launched as of August 2025 [4].
• The aggregator levy asks platforms to pay even though they are not traditional employers. This matches the ILO social protection floor idea of combining contributory schemes (workers or employers pay in) with non-contributory schemes (the government pays) [6].

Related concepts

• Organised sector
• Job security
• Overtime
• Paid leave
• Provident fund
• Gratuity
• Pension
• Social security
• Trade unions
• Collective bargaining

Read more

• Organised and unorganised sectors: definitions, conditions and social security