“Tracing the Growth of India’s Informal Sector: From Origins to Present”

Picture the bustling streets of Mumbai in the 1950s-rickshaw pullers weaving through traffic, street vendors calling out their wares, and small workshops humming with activity. These scenes weren’t just colorful backdrops to city life; they represented a vast economic reality that researchers were only beginning to understand. Today, nearly four-fifths of urban workers in India remain informally employed, making the informal sector not a marginal phenomenon but the backbone of the nation’s economy. But how did we arrive here? The story of India’s informal sector is one of adaptation, survival, and profound transformation.

When cities first took notice: The early recognition of informal labor 🔗

For decades, India’s informal workers remained invisible to policymakers and researchers alike. The focus stayed firmly on large factories, textile mills, and organized industries-the formal economy that seemed to embody progress and modernization. But reality painted a different picture.

In the mid-20th century, researchers began documenting patterns that had long existed in plain sight. Cities like Mumbai, Delhi, and Chennai were magnets for workers seeking better lives, yet formal employment opportunities remained scarce. What researchers discovered was a parallel economy-a world where street vendors, small-scale manufacturers, and casual laborers formed the economic backbone of urban centers.

Mumbai became a focal point for understanding this phenomenon. The city’s informal sector wasn’t separate from its formal economy but deeply interconnected with it. Street vendors provided essential goods, small workshops supplied components to larger factories, and casual laborers filled gaps that formal employment couldn’t address. Similarly, Delhi’s informal sector reflected its role as a commercial hub, with diverse activities ranging from handicrafts to construction work.

The academic awakening 🔗

The term “informal sector” itself emerged from the work of anthropologist Keith Hart, who studied urban employment patterns in Ghana during the 1970s. His insights traveled across continents, helping researchers understand similar patterns in India. Early studies highlighted a crucial insight: the informal sector wasn’t a temporary phenomenon waiting to disappear as the economy modernized. Instead, it was providing employment and income to those systematically excluded from formal job markets.

These pioneering researchers noted that informal work encompassed everything from street vending to home-based manufacturing. Workers operated without written contracts, social security benefits, or legal protections-yet they sustained entire families and communities through their labor.

Growing in the shadows: Why informality expanded 🔗

If India’s post-independence vision promised prosperity and formal employment for all, why did the informal sector grow instead of shrinking? The answer lies in the limited absorption capacity of the formal economy and the push-pull factors that shaped labor markets.

Think of it this way: imagine a city where ten thousand people arrive each year seeking work, but formal industries only create two thousand new jobs. Where do the remaining eight thousand go? They don’t simply return home. Instead, they create opportunities for themselves-selling goods on streets, offering services, working in small workshops, or laboring in construction. This pattern repeated across Indian cities for decades.

The forces driving informal growth 🔗

Several interconnected factors fueled the expansion of informal work. Rural-urban migration brought workers to cities in search of better opportunities, but formal employment couldn’t keep pace. Unable to find stable jobs with contracts and benefits, migrants engaged in whatever work they could find to survive.

Technological changes and economic shifts also played roles. The rise of subcontracting allowed formal businesses to reduce costs by outsourcing work to informal workshops and home-based workers. This arrangement benefited employers who could avoid labor regulations and social security obligations while maintaining production flexibility.

Yet this growth came with profound vulnerabilities. Informal workers faced exploitation, with little recourse for unfair treatment. They lacked job security, health benefits, or retirement provisions. A day without work meant a day without income, and illness or injury could push families into debt cycles from which escape seemed impossible.

From mill floors to street corners: Ahmedabad’s transformation 🔗

Perhaps no city illustrates the shift from formality to informality more dramatically than Ahmedabad. Once known as the “Manchester of India” for its thriving textile mills, the city underwent a transformation that Dutch anthropologist Jan Breman documented in groundbreaking detail.

During the 1970s and early 1980s, Ahmedabad’s textile mills employed over 150,000 workers in relatively stable, formal jobs. These positions offered regular wages, some degree of job security, and the dignity of recognized employment. Workers could support families, plan for the future, and participate in union activities that gave them a collective voice.

The great unraveling 🔗

Then came the closures. Beginning in 1980, mill after mill shut down. Sometimes owners simply disappeared, leaving workers to discover locked gates when they arrived for their shifts. By 1997, not a single textile mill remained operational in Ahmedabad, and the sites became abandoned lots or open sewers.

Breman’s research revealed what happened to these displaced workers. Those fortunate enough found work in power-loom enterprises, but under dramatically worse conditions-working longer hours for less than half their previous wages. Others attempted to become self-employed as street vendors, rickshaw drivers, or repair workers, but many lacked the capital to start even these small enterprises.

For Muslim and Dalit workers, the situation proved even more dire. The social networks that might have helped them find new opportunities were weakest for these marginalized communities. Many found only occasional casual work as construction laborers or security guards, while others, particularly those suffering from occupational diseases after decades in the mills, found no work at all.

Beyond economics: The social cost 🔗

Breman’s work illuminated something deeper than economic hardship. The loss of formal employment destroyed not just jobs but the social fabric that held communities together. Workers who once shared common cause across religious and caste lines found themselves competing for scarce resources at the bottom of the urban economy. Religious and caste identities, which had receded in importance within the mills, suddenly became primary sources of protection and solidarity.

This fragmentation had tragic consequences. The 2002 communal riots in Gujarat, which saw horrific violence against Muslim communities, cannot be separated from the economic disintegration that preceded it. When workers lose their collective identity as workers, other identities-religious, caste-based, linguistic-rush in to fill the void, sometimes with devastating results.

The broader pattern: Informalization across India 🔗

Ahmedabad’s story was not unique. Similar processes unfolded in Kolkata, where jute mills closed, and in other industrial centers across India. Researchers identified two main pathways through which formal work became informal.

First, the spatial setting of work transformed. Through subcontracting, work that once happened in factories with some labor protections moved to small workshops and homes. Home-based workers became a substantial part of the urban informal economy, particularly women who combined domestic responsibilities with paid labor.

Second, even workers who remained in factories faced increasing casualization. Employers replaced permanent workers with those on temporary contracts, eroding the security and benefits that formal employment once provided. Mill owners reduced permanently employed workforces by not replacing retired workers or substituting them with casual contract workers.

Historical echoes 🔗

Remarkably, these contemporary processes had historical precedents. In colonial-era Indian factories, labor intermediaries called jobbers, sardars, and kanganies controlled hiring and discipline. They straddled the boundaries between workplace and neighborhood, wielding power to hire and fire while undermining workers’ ability to organize collectively. Contemporary labor contractors and subcontracting systems echo these earlier arrangements, suggesting that informalization wasn’t entirely new but rather a resurgence of older patterns of labor control.

Living realities in the informal economy today 🔗

What does informal work actually look like in contemporary India? The diversity is staggering. Street vendors selling everything from vegetables to mobile phone accessories work without licenses or fixed locations, constantly negotiating with municipal authorities and police. Construction workers migrate seasonally, living in temporary settlements near building sites. Domestic workers labor in private homes with no written contracts or regulated hours. Home-based garment workers stitch clothing for export markets while caring for children.

These workers share common vulnerabilities: income insecurity, lack of social protection, and exposure to exploitation. Yet they also demonstrate remarkable resilience and adaptability. In neighborhoods like Mumbai’s Dharavi, informal leather workshops serve as subcontractors for formal companies, creating a globalized informal sector where cost savings from avoiding labor protections get passed on to organized sector outlets.

The gender dimension 🔗

Women experience informal work differently than men. They predominate in the lowest-paid segments-domestic work, home-based manufacturing, and street vending of perishable goods. They face additional challenges of balancing unpaid domestic labor with paid informal work, and often lack the mobility and social networks that might provide better opportunities. The intersection of gender, caste, and economic marginalization creates particularly acute vulnerabilities for women in the informal sector.

Understanding the implications 🔗

The history of India’s informal sector challenges several common misconceptions. First, it’s not marginal or disappearing-it’s growing and deeply integrated with formal and global economies. Second, it’s not primarily about entrepreneurial self-employment-much of it involves exploitative labor relations disguised as self-employment or subcontracting. Third, it’s not separate from formal labor markets but intimately connected through supply chains, seasonal movements of workers, and the informalization of formal employment.

This history matters because it shapes present realities and future possibilities. The informal sector employs the vast majority of Indian workers, yet they remain largely excluded from labor protections, social security, and political representation. Understanding how this situation developed-through colonial labor practices, post-independence development strategies that reached only minorities of workers, and neoliberal policies that eroded formal employment-is essential for imagining alternatives.

What do you think? How can societies create economic security for informal workers without destroying the flexibility and accessibility that makes informal work a survival strategy for millions? What lessons from India’s experience might apply to growing informal sectors in other countries?

References

1. https://ebooks.inflibnet.ac.in/socp07/chapter/106
2. https://izajold.springeropen.com/articles/10.1186/2193-9020-3-9
3. https://isreview.org/issue/106/informal-economy-and-indias-working-class