The high incidence of informality in all its forms has multiple adverse consequences for workers, enterprises, and societies and is, in particular, a major challenge for the realization of decent work for all and sustainable and inclusive development.’

Rafael Diez de Medina, Director of ILO’s Department of Statistics.

The ILO feels that a shift to the formal economy is a pre-requisite to ‘decent work’- which is ‘opportunities for work that is productive and delivers a fair income, security in the workplace and social protection for families, better prospects for personal development and social integration […]and equality of opportunity and treatment for men and women.’[i]

For the first time the Economic Survey[ii] (2018) has given a definition for informal and formal work, some elements being:

  • whether a worker has a formal contract and receives social security
  • whether a worker is a regular/salaried worker (versus self-employed or casual)
  • whether the firm pays taxes

An ILO report[iii] states that 81% of employment in India is in the informal sector, placing the share of informal workforce in India’s total workforce the highest in five South Asian countries, alongside Nepal.

So why should it be a cause for concern if a country has a high informal workforce and low ‘decent work’?

Untapped Economic Opportunity

The Economic Survey (2018) reveals that the ‘hardcore’ formal sector in India is made up of a mere 0.6% of firms, representing 38% of total turnover, 87% of exports, and 63% of GST liability. At the other end of the spectrum, 87% of firms with a total turnover of 21% are purely informal- outside the remit of taxation and any social security.[iv]

Informality in the workforce is a key marker of socio-economic development. India has a preponderance of casual workers in its workforce made up of low skilled or unskilled workers such as marginal farmers, artisans and craftsmen (carpenters, weavers, potters, tappers, blacksmiths, etc.) NSSO (2011-12)[v] states that over 90% of employment in the agricultural sector and close to 70% in the non-agricultural sector falls under the informal category.

Low educational and skills attainment among India’s informal workforce are major obstacles to productivity and empowerment, and to economic output. The significance of the informal sector is ever so often overlooked in national agendas for skill building and job creation.

TVET in the Informal Sector

Technical and Vocational Education and Training (TVET) is often geared towards the formal sector. Most informal workers learn on the job in a casual setting where a worker moves from one trade to another picking up low-level skills along the way as a means to get any work to survive rather than a steady progression of skills in a specific trade. Informal workers therefore require a complete shift in skilling approaches compared to their formal counterparts. Training and skill building here first means empowerment and then employment which is closely linked to the ideation of ‘decent work’.[vi] For governments and policy makers training schemes or approaches to tackle informality will need to go far beyond the tapered definitions of ‘TVET’ to encompass the socio-economic conditions of the informal populace.

Which brings us to how should training and skill building for the informal sector be designed? In the formal workforce the focus is primarily to build one key skill to enable the individual to become a master tradesman in a specific sector albeit with transferable skills to other related sectors. Consequently, medium to long-term training and apprenticeship programmes are valuable in this context. The premise of most skill building in the formal sector is a minimum educational attainment (Grade 10 upwards) followed by a targeted training programme with a view to long-term employment post training or apprenticeship.

Conversely, it is often much more complicated in the informal sector which cannot be addressed by a standard training package. The skill building package to approach informality in the workforce needs to begin on an assumption of near total illiteracy and encompass elements such as self-help groups, availability of micro-finance, and access to market  

With the first step being empowerment, the strategy requires building multiple skills in workers in a more generalised way, through short-term quick to productivity courses which will first become a way to escape poverty and become a means of livelihood, and then allow workers to widen their skill base and build understanding of local markets and eventually go up the value chain to reach larger markets. Essentially, the shift pattern in the training should usually go from survival-based to a worker’s ability to participate in the formal workforce.

As informal workers typically congregate in groups the skill building framework should be highly inclusive with co-learning amongst members of the same cohort whilst building vital linkages and contacts with broader markets and the supply This means fostering local skilling hubs around a particular skilling scheme to empower and uplift an entire community or generation of local youth towards ‘decent work’. Once the basic empowerment element is taken care of comes the next stage of skills progression through a systematic training process which will lead to better jobs.

The key here is capacity building towards sustainability, rather than mere skills training, where individuals ultimately make the shift from insecure jobs to those with security, benefits and longevity. Skill building to shift an informal workforce to the formal economy entails a three-way link between training for empowerment, local groups and access to

Barriers to Informality Shift

Informal or casual workers typically pick up skills in an unstructured manner and when this becomes the norm it forms a hard mindset where on one hand employers engaging informal workers are happy to continue paying low wages for low skills, and workers themselves get accustomed to such practices. Productivity, quality of work, job security etc. take a hit, and tackling this mindset becomes an important consideration when designing skill building and vocational programmes for the informal workforce. Addressing such deep-rooted mindsets takes time and effort and should become a continuous process in all skilling activities to eventually see a shift.

Another major obstacle is a serious lack of mapping of skills, aspirations, local opportunities, recognition of prior learning and other skill development indicators in the informal workforce which makes it extremely daunting when national skill building exercises try to integrate informal workers’ skills development into national qualification systems.  Ideally any skilling activity should be based on a pre-existing comprehensive map of emerging occupations, skills required, seasonal changes, local market conditions etc. The establishment of such maps should become a priority for governments and policy makers to bridge the severe skills-jobs mismatch- a problem not unique to the informal workforce.  

One suggestion is a comprehensive Labour Management Information System which can be of benefit to industry, job seekers and governments alike[vii] to formulate effective interventions around a more realistic picture of the informal sector and its multi-faceted nature.

Without such data, efforts will continue to remain for the large part disjointed and non-productive with the jobs-skills mismatch conundrum unceasing in a vicious circle.

Due Recognition

The need of the hour is to acknowledge the informal sector as a source of skills development in its own right. From there, starts the process of developing strategies matched to capacity building specifically for the informal sector, different from those applied to the formal sector. This is also tied to recognising the contribution and economic potential of micro and small enterprises (MSE), the largest employers of informal workers, and making systematic investments in resources to increase productivity in MSEs by skilling its workers.


[i] The ILO’s Decent Work Agenda

[ii] Economic Survey 2017-18, Ministry of Finance, GoI

[iii] Women and Men in the Informal Economy – A Statistical Picture (Third edition), ILO

[iv] Economic Survey for the First Time Estimates Size of Formal and Informal Sector in India, Jan 29 2018, News18

[v] National Sample Survey Office, Informal Sector and Conditions of Employment, NSS 68th Round, (2011-2012), Ministry of Statistics and Programme Implementation

[vi] Informal Economy -Training and Skill Formation for Decent Work in the Informal Sector: Case Studies from South India, ILO, Amit Mishra

[vii] Skill Development in India- Need, Challenges and Ways Forward, Vandana Saini, April 2015