Casualisation, informalisation and formalisation

Detail

1. Casualisation of the workforce

• Casualisation means workers move out of self-employment or regular salaried jobs and into casual wage work.
• Casual wage work is daily or short-term work, paid by the day or by the task. There is no promise of work tomorrow.

• This makes casual workers highly vulnerable. They have no fixed income, no job security and usually no social security.

• The three statuses of workers (NSSO/PLFS classification):

• Self-employed: the worker runs their own farm or business, for example a farmer or a shopkeeper.
• Regular wage/salaried: the worker gets a salary on a regular basis from one employer.

• Casual wage labour: the worker is paid a daily or periodic wage for work that is not regular.

• Formula: share of casual workers (%) = (casual workers ÷ total workers) × 100.

• Worked example: an economy has 100 crore workers and 20 crore of them are casual. The casual share = 20 ÷ 100 × 100 = 20%.

• NCERT's outdated framing:

• Class 11 says people have moved into casual work "over the last five decades".
• But its own Table 6.3 shows the casual share peaking at 31.8% in 1993-94.
• The same table shows it falling to 19.9% by 2023-24.

• So the trend has reversed since the 1990s. For the exam, quote the data, not the old sentence.

• Income is not the same as security. Class 11 asks two questions:

• A marginal farmer (a farmer with less than 1 hectare of land) becomes a full-time labourer. Is the farmer happier?
• A permanent pharma worker becomes a daily-wage labourer. Is that worker happier, even if daily earnings rise?
• The answer NCERT points to: a higher daily wage does not make up for losing a steady income, an asset (land) or job security.

2. Informalisation

• Informalisation means the quality of jobs gets worse. More and more workers end up without social security.

• Social security is protection from society or the employer against old age, sickness, maternity, injury or job loss. As per the ILO, it guarantees access to health care and income security, and it is a basic human right [2].

• What informal workers lose:

• Workers go 10-20 years without maternity benefit, PF (Provident Fund, a savings fund paid into by both employer and employee), gratuity (a lump sum paid when a worker leaves after long service) or a pension.

• Private-sector pay is lower than public-sector pay for the same work.

• What planners expected, and what happened:

• Planners expected that as the economy grew, the informal share would shrink. Workers would move into factories and offices.
• That did not happen. About 89% of workers were informal in 2019-20.
• Official update: India has more than 50 crore workers, and almost 90% of them are in the unorganised sector (2025) [2].

3. Box 6.2: Informalisation in Ahmedabad (a case study)

Source: Jhabvala, Sudarshan and Unni (eds), Informal Economy at Centre Stage, 2003.

• The mills (before):
• Over 60 textile mills employed 1,50,000 workers.
• Workers had secure jobs and a living wage (a wage high enough to meet a family's basic needs with dignity, which is more than the minimum wage).
• They had health and old-age cover.

• They had a strong union, which also ran welfare activities.

• The closures:

• Mills across India began closing in the early 1980s.

• Mumbai's mills closed fast. Ahmedabad's closures stretched over about 10 years.

• The job losses:

• Over 80,000 permanent and 50,000 non-permanent workers lost their jobs.

• They were pushed into the informal sector.

• The social fallout:

• recession and communal riots;
• alcoholism and suicides;
• children withdrawn from school and sent to work;

• a whole class pushed from the middle class into poverty.

• The shift in the home: the "balance of power" inside the family changed.

• The unemployed mill worker now peels garlic.

• His wife earns the money by rolling beedis.

• Lesson: informalisation is not only about lower income. It breaks families, communities and social peace.

4. Informalisation of the organised sector (Class 10)

• Organised sector: enterprises that are registered with the government, follow rules such as the Factories Act, and give regular jobs with fixed terms.
• Unorganised sector: small, scattered units, mostly outside government control. Jobs there are low-paid and not regular.
• How organised firms go informal:
• Organised firms operate as unorganised units to evade taxes and labour laws.
• Organised-sector jobs have been lost since the 1990s.

• Those workers moved into low-paid unorganised work.

• Contract labour:

• These workers are hired through a contractor to work for a principal employer (the firm where the work is actually done).
• They get lower wages and little job security.

• The Contract Labour (Regulation and Abolition) Act, 1970 is now part of the OSH Code. The Occupational Safety, Health and Working Conditions Code, 2020 merges 13 laws [2].

• Outsourcing (§6.10):

• Big firms outsource work as piece-rate jobs (pay per piece made, not per day) to very small firms or to homes.

• The big firm saves on wages and does not have to give social security.

• Social discrimination in the labour market (Class 10):

• Most workers from SC, ST and backward communities are in the unorganised sector.
• Their work is already irregular and low-paid. On top of that, they also face social discrimination.

5. Enterprise vs job: two ways to measure informality

Basis	Concept	Definition	Source
Enterprise	Informal sector	Small, unincorporated (not a company), unregistered enterprises, mainly owned by households	ILO 15th ICLS, 1993
Job	Informal employment	Jobs with no written contract, paid leave or social security, whether the employer is formal or informal	ILO 17th ICLS, 2003; NCEUS

• ICLS is the International Conference of Labour Statisticians. It is organised by the ILO and sets global rules for labour statistics.
• 17th ICLS definition (2003): informal employment is "all remunerative work (both self-employment and wage employment) that is not registered, regulated or protected by existing legal or regulatory frameworks". It also includes unpaid work done in an income-producing enterprise [4].
• The shift in 2003: the 15th ICLS looked at the production unit. The 17th ICLS looked at the job [4].
• Example: a temporary computer operator in a government office.
• The employer (the government) is formal.

• The job has no contract and no social security, so the job is informal.

• NCEUS: the National Commission for Enterprises in the Unorganised Sector (Arjun Sengupta Commission). It adopted the job-based view for India.

• Scale: informal employment is about 90% of India's workforce.
• Formula: share of informal employment (%) = (informal jobs in both the formal and informal sectors ÷ total employment) × 100.
• Worked example: there are 100 workers.
  • 80 work in the informal sector, and all of these jobs are informal.
  • 20 work in formal firms, but 10 of those have no contract or PF.
  • Informal employment = (80 + 10) ÷ 100 × 100 = 90%.
  • The informal sector's share of employment is only 80%. This gap is a common exam trap.

6. Formal employment and formalisation

• Formal employment: a job with a written contract plus social security (PF, pension, health cover).
• Formalisation of the economy: enterprises and workers moving into the registered, taxed and regulated economy.
• What drives formalisation:
• GST registration:
  • a firm must register under GST to claim input tax credit (a set-off for the tax it already paid on its inputs);
  • buyers prefer registered suppliers;
  • so small firms get pulled into the tax net.
• Digital payments leave a record of each sale, so turnover becomes visible.
• Udyam registration of MSMEs (micro, small and medium enterprises) is a free, online registration that gives the firm access to schemes and credit.
• EPFO/ESIC enrolment:
  • EPFO (Employees' Provident Fund Organisation) runs PF and pension;
  • ESIC (Employees' State Insurance Corporation) gives medical care and cash benefits during sickness.

• e-Shram registration of unorganised workers:

  • e-Shram is a national database of unorganised workers, launched in 2021 [2];
  • each worker gets a Universal Account Number (UAN), on a self-declaration basis [3];
  • registrations passed 30.95 crore by 22 July 2025 [3];
  • women made up 53.77% of enrollees (June 2025) [2];
  • the e-Shram "One-Stop-Solution" was launched on 21 October 2024. It links workers to many social security schemes [3].

• Legal push: the Code on Social Security, 2020 merges 9 laws. 29 labour laws were combined into 4 Labour Codes [2]. The Code:

• opens ESIC to workers of all sectors, including the unorganised sector, and to gig and platform workers [2];
• removes the minimum service rule for gratuity for fixed-term employees. They get the same social security as permanent staff [2];
• creates a social security fund for the unorganised sector [2];

• makes employers with more than 20 workers report vacancies online [2].

• Coverage outcome:

• India's social protection coverage rose from 19% (2015) to 64.3% (2025), which is 94.3 crore people covered by at least one benefit. This figure is recorded on the ILO's ILOSTAT database [2].

• Caveat: "coverage" counts anyone covered by at least one cash-based, legally backed scheme. That is not the same as a formal job with a contract [2].

• Voluntary schemes for informal workers:

• PM-SYM gives a pension of ₹3,000 a month after age 60. It had 51.35 lakh members (May 2025) [2].
• Atal Pension Yojana had 7.25 crore subscribers (December 2024) [2].

7. The EPFO payroll debate

• EPFO payroll data (net new members) is used as a proxy (an indirect measure) for formal jobs.

• Net addition in 2024-25: 1.29 crore [2].

• Why it is debated: a new EPFO member may be one of two things.

• A new job: a person who was not working before now has a formal job.

• An old job, formalised: the person already had this job, and the employer has only now registered it with EPFO.

• Other problems with the number:

• Workers who change jobs and get a new account can be double-counted.

• Firms that newly cross the size threshold for EPFO add many members at once.

• Worked example: 100 lakh new EPFO members join in a year.

• 40 lakh already had these jobs before, and their employers only registered them this year.

• So new job creation is at most 60 lakh, while formalisation is 40 lakh.

• Takeaway: a rise in EPFO rolls is good news for job quality. It does not prove that job quantity went up by the same amount.

8. Decent work (ILO)

• Decent work: productive work with fair income, security at the workplace, social protection, rights at work and social dialogue, in conditions of freedom and dignity.
• Four pillars: employment creation, rights at work, social protection and social dialogue. The ILO calls them "inseparable, interrelated and mutually supportive" [4].
• It is part of SDG 8: "Decent work and economic growth".
• Link to this section:
• casualisation weakens employment security;
• informalisation removes social protection;
• the loss of unions (as in Ahmedabad) removes social dialogue.

9. The trade-off in formalisation

• Benefits of formalisation:
• social security;
• access to bank credit;
• legal rights;
• bargaining power for workers;

• a wider tax base for the government.

• Costs of formalisation:

• compliance costs (money and time spent on registration, GST returns, PF and ESIC contributions, inspections);

• small firms may not be able to bear these costs.

• The risk:

• if rules are too costly, small firms may stay small on purpose (below thresholds), close down, or hide workers;

• this is the same "organised firms acting as unorganised units" problem from Class 10.

• The policy answer so far:

• simpler codes (the 4 Labour Codes) [2];
• voluntary and state-subsidised schemes;
• digital registration (e-Shram, Udyam).

Prelims Hooks

• Informal sector = defined by the enterprise (ILO 15th ICLS, 1993). Informal employment = defined by the job (ILO 17th ICLS, 2003).
• A temporary computer operator in a government office, with no contract or PF, is in informal employment even though the employer is formal.
• Casual share of workers peaked at 31.8% (1993-94) and fell to 19.9% (2023-24). The statement "casualisation has risen steadily for five decades" is false.
• About 89% of workers were informal in 2019-20.
• e-Shram (launched 2021) gives unorganised workers a UAN on self-declaration. It passed 30.95 crore registrations (July 2025) [2][3].
• Code on Social Security, 2020 merges 9 laws. The OSH Code merges 13 laws, including the Contract Labour Act, 1970. In all, 29 laws were merged into 4 codes [2].
• Four pillars of decent work: employment, rights at work, social protection, social dialogue. Decent work is linked to SDG 8 [4].
• Social protection coverage: 19% (2015) → 64.3% (2025), as recorded by the ILO (ILOSTAT) [2].
• Box 6.2 (Ahmedabad): 60+ mills, 1,50,000 workers. 80,000 permanent + 50,000 non-permanent workers lost their jobs after closures that began in the early 1980s.
• EPFO net additions (1.29 crore in 2024-25) are a debated proxy. They mix new jobs with the formalisation of old jobs [2].

Mains Points

• Growth without formal jobs:
• Planners expected informality to shrink as the economy grew. Yet about 89-90% of workers are still informal (2019-20; 2025) [2].

• So growth has not turned into decent work. Use this in answers on jobless growth, weak manufacturing and the dual labour market (GS-III).

• Casualisation reversed, but security did not improve:

• The casual share fell from 31.8% (1993-94) to 19.9% (2023-24).
• But informality stayed near 90%, because even many "regular" and self-employed jobs lack contracts and social security.

• Answers should separate the status of work from the quality of work.

• Formalisation: carrots vs sticks:

• GST, digital payments, Udyam, EPFO/ESIC and e-Shram pull firms and workers into the formal net.
• Social protection coverage rose to 64.3% (2025) [2].
• But compliance costs can push MSMEs to hide workers or stay small.
• Payroll data cannot cleanly tell job creation from job registration.

• A balanced answer should suggest simple thresholds, state-paid contributions for poor workers, and portability through the UAN.

• The social cost of informalisation (GS-I/GS-II link):

• The Ahmedabad mill closures led to poverty, child labour, riots, suicides and a shift in gender roles at home.
• Add Class 10's point that SC/ST and backward communities are concentrated in the unorganised sector.
• Together these show that labour reforms (the 4 Codes) are also a social justice issue.