India: Informal Economy and Social Security

Introduction

The informal sector in India, is notoriously characterised by a lack of social security nets for its workers. It is alarming that 109.6 million, approximately 75% of the workforce, is employed in the informal side of the non-agriculture economy. When considering agriculture, this number leaps to 90% of the workforce. Within the informal sector, gig economy employed 7.7 million workers in 2020-21 and is projected to employ 23.5 million (2.35 crore) workers by 2029-30. Given this anticipated growth of the gig economy, one can only expect a boom in the informal sector in the near future unless sufficient steps are undertaken to formalise and regulate it. 

Workers in the informal sector, who contribute 45% of the country’s GDP, are devoid of social security plans enabling exploitation in the sector, this condition of the sector was lay bare during the COVID-19 pandemic when thousands of workers, mainly working in the informal sector walked across states, due to lockdowns. It not only highlighted the vulnerability of informal sector workers but also the volatility within it. Showcasing the complexity of administering policy in the informal sector, it highlighted the lack of government initiatives. This lack can be attributed to gaps in data on the informal sector causing hindrance in scheme implementation and limiting their penetration among workers. Recurring strikes by informal workforce citing sudden pay cuts and exploitation across different online platforms over the years have also borne testament to the realities faced by informal and contractual workers in the country.    

Employer Obligations and Limitations 

The greater question then is who should take onus for ensuring the overall welfare of informal workers? Is it the government’s responsibility, or does it fall upon employers?  

To answer this, we can begin by understanding the financial resilience of employers. While bigger platforms and corporations utilising gig workers might be able to afford budgets for public-private interventions such as the recent transaction-based pension scheme to aid workers, the MSME and agricultural sector lack that resilience. In 2020, the MSME sector was invariably affected by the pandemic, with revenues for half of these enterprises declining by 25%, and about two-thirds (67%) having to cease all operations temporarily for three months or more. Another survey by the All India Manufacturers’ Association (AIMO) revealed that a third of self-employed and small and medium businesses saw no grounds for recovery and were on the verge of winding up—notably, 99% of these enterprises are micro-enterprises.    

This paints a clear picture of widespread vulnerability and the dearth of financial resilience in the sector. Consequently, most enterprises in the sector might not find themselves equipped to provide social security to their workers, creating the need for government intervention.     

Existing Social Security Programmes 

To address social security efficiently, the government, as part of the new labour codes in 2020, introduced the Social Security Code(SSC,2020) , which has been a breakthrough for gig and platform workers, as the bill extends the existing provisions to the gig workers and platform workers. Prior to this, the Unorganised Workers’ Social Security Act, 2008 (UWSSA), was the governing Act, but it did not include platform or gig workers within its ambit. The code has also further categorised workers for effective identification and delivery of schemes.   

There are several central schemes currently working to realise the purpose of SSC,2020. These include the Pradhan Mantri Jivan Jyoti Bima Yojana (PMJJBY), a yearly renewable life insurance cover offering a ₹2 lakh coverage, the Pradhan Mantri Suraksha Bima Yojana (PMSBY) offering the same coverage for accidental death or disability, the Pradhan Mantri Matru Vandana Yojana (PMMVY) providing direct cash transfers of ₹5000 for maternity assistance, the Pradhan Mantri Jan-Aarogya Yojana (PMJAY) covering enrolled families with health insurance of ₹5 lakh and pension schemes such as the Atal Pension Yojana and Pradhan Mantri Shram Yogi Maandhan Yojana aiming to provide financial support and security nets.    

The E-Shram Vision   

A petition in the Supreme Court highlighting the lack of comprehensive data on informal sector workers in India led to another groundbreaking step in policy implementation. In 2021, the Supreme Court directed the Ministry of Labour and Employment (MoL&E) to launch the e-Shram database for unorganised workers. This portal, integrated with the National Career Services (NCS) portal, Pradhan Mantri Shram Yogi Maandhan (PM-SYM), and 12 other centrally sponsored schemes has since enrolled 290 million workers. Yet, the vision of this portal–ensuring social security for informal workers is far from accomplished. Despite its potential, it has been reduced to merely a database rather than a tool for effective implementation.   

Challenges in Scheme Delivery for India’s Informal Sector:  Discussing the Path Forward 

Policy changes to ensure feasible social security nets for informal sector can undertake a multifaceted approach since the range of employees vary from gig and platform workers to farm workers and workers in MSMEs. This sector also has a vast age diversity which must be taken into considerations while taking policy decisions around it.   

Identification and access: One major hurdle in e-Shram’s efficient implementation arises from its dependency on Aadhaar-linked mobile numbers. Many workers who lack personal phone numbers or share a mobile device with family members face issues registering and accessing benefits, thus, simplifying and authenticating the process for linking Aadhaar with phone numbers will address these issues and provide seamless access to the benefits of social security.   

Scheme awareness leveraging CSCs and AI: Common Service Centres (CSCs), which are already integral in enrolling workers on e-Shram portal, can also be actively utilised to raise awareness about available social security benefits that a particular worker is eligible for since most workers have little knowledge about eligibility criterion resulting in low enrolment rates. AI can also be leveraged to analyse workers’ credentials against the criteria for each scheme, allowing more workers to receive the most relevant benefits to which they are entitled.   

Potential of public-private partnership: The union budget 2025 introduced a transaction-based pension scheme, taking lead from this initiative the government can explore the possibility of employer-government contribution for gig workers since the bigger platforms that employ them can afford budgets to extend such benefits.   

Using Inclusive and revised age eligibility criteria: Changing age limits in certain schemes would help more workers take advantage of the government scheme services. For instance, e-Shram registrations are open for workers between the ages of 16-59, but as informal sector workers usually lack retirement plans, they are often prompted to work beyond the age of 59. This effectively excludes them—a highly vulnerable group—from the ambit of benefits that e-Shram has to offer.  While the Pradhan Mantri Suraksha Bima Yojana (PMSBY) extends enrolment up to 70 years, other schemes must also do so to increase their efficacy. Similarly, another scheme whose benefits are limited due to poorly considered age criteria is the Pradhan Mantri Jan Arogya Yojana (PMJAY) under which, while senior citizens aged 70 and above are covered irrespective of income or socio-economic status, those below 70 must meet specific criteria based on the Socio-Economic Caste Census (SECC). However, the SECC data, being based on 2011 figures, is outdated and fails to reflect current socio-economic realities. This is particularly concerning in a country where the average life expectancy is 69.7 years for men and 72 years for women, as people need access to affordable healthcare at younger ages too. 
The Pradhan Mantri Matru Vandana Yojana offers its benefits only to women older than 19. While this seems reasonable, the scheme again runs the risk of excluding young mothers—a highly vulnerable group–from its coverage. Hence, a mindful reconsideration of these criteria will increasingly be beneficial to workers.   

Conclusion   

With these focused policy interventions, the government can lay a more comprehensive and inclusive social security framework. As the informal sector continues to be a crucial part of the economy, these measures would serve as an important lifeline to informal workers and ensure that they are not left stranded in an economy dependent on their input.