Consultant at the Centre for Responsible Business
From Shadows to Structure: Rethinking the Informal Economy
How addressing informal economy can help in achieving SDGs
An informal economy by definition refers to all economic activities by workers that would add economic value if covered by law or regulated by governments. This includes a variety of work such as street vendors, domestic helpers, agricultural labourers, and gig economy participants, among others. International Labour Organisation (ILO) estimates that, of the 60 percent of world’s employable-aged people, about 2 billion workers have worked in the informal sector at some point of time . In South Asian countries, the informal economy provides 70-90% of the total employment, highlighting its significance.
Discussing the informal economy is essential not only because it employs a large number of people in emerging economies but also because of the profound implications it has on the human development of workers. Most informal workers are young and semi-skilled, vulnerable with almost absent safety parameters at their workplace, and have limited access to financial support either through family members or money lenders. Women workers are likely to be employed in the sector’s lowest-paying categories.
Informal workers, owing to their precarious status, are often subjects of exploitation in various sectors. The vulnerability of the informal economy was most pronounced during the Covid-19 pandemic – think of the once-famed dabbawalas of Mumbai. Since most informal economic units fly under the radar, they are also not subject to the laws that regulate workplace safety and conditions. Without legal recourse at their disposal, informal workers are vulnerable to human rights concerns, including discrimination against gender, status of migration, and caste, among others.
A high prevalence of informal economy, especially in emerging South Asian economies, is seen as an obstacle to Sustainable Development and thus addressing this is important and urgent. Informal economy exists as a response to the market forces in an economy and there is no one-size-fits-all solution. Transitioning to formality is a long-term process that would require a multi-faceted approach involving multiple stakeholders, here are some recommendations that could work for South Asia:
- Research and Development: Since informal economy is created in response to market forces, it makes a logical argument to study these forces for the reasons of informality and develop policies to be inclusive of the outliers Access to Social Protection: While some attempts are made, there is an overall need in the region to create systems which make social protection accessible to all workers
- Access to Social Protection: While some attempts are made, there is an overall need in the region to create systems which make social protection accessible to all workers
- Access to Social Finance: Innovative ways of finance would have to be looked at, including microfinance as the informal workers would have no access to collaterals. Models of micro credit can be looked at with the example of Grameen Bank
- Access to Education and Skill Development: Improving access to education and skill development would pull out a lot of Informal workers as most informal workers have low education and skills
- Access to Effective Grievance Redressal Mechanisms: Ensuring accessible and efficient grievance redressal mechanisms will ensure platform for the workers to submit grievances and seek redressals, which ultimately promotes trust in the systems
The structural transformation of the informal sector in India will not only aid in formalisation of a vulnerable sector but also align with the broader goals and vision of the SDGs, which focus on addressing inequality, gender disparity, and injustice. Key reforms – such as expanding social protection, enabling access to finance, education, and skills, and ensuring effective grievance mechanisms – will foster the participation and involvement of a larger workforce, furthering the potential of a sustainable and equitable future for all.
“NOTE: The views expressed here are those of the authors and do not necessarily represent or reflect the views of CRB.”
