Unorganised Sector

The Unorganised Sector refers to that segment of the economy which operates outside the framework of formal labour laws, taxation systems, and institutional regulation. It is characterised by small-scale operations, informal employment arrangements, lack of job security, and absence of social benefits. The workers in this sector often face irregular wages, poor working conditions, and limited access to legal protection or welfare schemes.
In India, the unorganised sector plays a crucial role in generating employment and supporting livelihoods, especially in rural and semi-urban areas, though it remains one of the most vulnerable and least protected sections of the economy.

Definition

According to the National Commission for Enterprises in the Unorganised Sector (NCEUS, 2007), the unorganised sector comprises:

“All unincorporated private enterprises owned by individuals or households engaged in the sale and production of goods and services operated on a proprietary or partnership basis and employing less than ten workers.”

Thus, the unorganised sector includes all economic activities that are not covered under formal registration, taxation, or social security laws.

Characteristics of the Unorganised Sector

1. Small-Scale Operations:
   • Activities are conducted with limited capital and minimal infrastructure.
2. Informal Employment:
   • Workers are hired without written contracts or social security benefits.
3. Lack of Regulation:
   • Enterprises operate outside the purview of labour, industrial, and taxation laws.
4. Low Productivity:
   • Dependence on manual labour and outdated technology results in low output per worker.
5. Irregular Wages and Incomes:
   • Earnings fluctuate due to seasonal demand, market changes, and absence of standard pay structures.
6. Absence of Social Security:
   • Workers have little or no access to benefits like provident fund, pension, health insurance, or paid leave.
7. Vulnerability and Insecurity:
   • Employment is unstable, with frequent layoffs, long hours, and unsafe working conditions.
8. Use of Family Labour:
   • Many units rely on unpaid or family-based labour instead of hired workers.
9. Limited Access to Credit and Technology:
   • Informal enterprises find it difficult to obtain bank loans or adopt modern production techniques.

Composition of the Unorganised Sector

The unorganised sector covers a wide range of activities in both rural and urban areas:
1. Rural Unorganised Sector:

• Agriculture, animal husbandry, forestry, fisheries, handicrafts, and small-scale agro-industries.

2. Urban Unorganised Sector:

• Street vending, construction, domestic work, rickshaw pulling, tailoring, repair shops, waste collection, and micro-trading.

3. Informal Enterprises:

• Small retail shops, artisans, self-employed individuals, and family-owned businesses.

4. Home-Based and Casual Labour:

• Workers engaged in piece-rate, daily wage, or contractual work without permanent employment.

Size and Importance of the Unorganised Sector in India

• The unorganised sector constitutes around 85–90% of India’s total workforce.
• It contributes nearly 50% of India’s Gross Domestic Product (GDP), especially through agriculture and small-scale industries.
• It serves as a safety net for rural and semi-skilled workers, absorbing labour not employed in the organised sector.
• Plays a vital role in local economic development and self-employment generation.

Despite its contribution, the unorganised sector remains highly fragmented and lacks institutional protection, making it vulnerable to economic shocks.

Problems and Challenges Faced by the Unorganised Sector

1. Low and Unstable Income:
   • Workers earn low wages and face seasonal unemployment.
2. Lack of Job Security:
   • Employment is temporary, casual, or daily-wage-based with no contractual protection.
3. Poor Working Conditions:
   • Long hours, unsafe environments, and absence of welfare facilities are common.
4. Absence of Legal Protection:
   • Most workers are outside the coverage of labour laws and social security schemes.
5. Limited Access to Finance:
   • Dependence on informal credit sources leads to indebtedness.
6. Skill Deficiency:
   • Lack of training opportunities reduces productivity and job mobility.
7. Gender Disparities:
   • Women workers face wage discrimination and double burden of household and economic work.
8. Vulnerability to Exploitation:
   • Informal labour contractors often exploit workers due to weak regulation.
9. Impact of Economic Disruptions:
   • Events like the COVID-19 pandemic and demonetisation severely affected unorganised workers due to lack of social safety nets.

Government Measures and Welfare Initiatives

The Government of India has implemented several schemes and policies to support and formalise the unorganised sector:

1. Unorganised Workers’ Social Security Act, 2008:
   • Provides a framework for social security and welfare of unorganised workers covering health, life insurance, and old-age benefits.
2. National Commission for Enterprises in the Unorganised Sector (NCEUS):
   • Set up in 2004 to recommend policies for improving income security and working conditions of unorganised workers.
3. Pradhan Mantri Shram Yogi Maan-dhan (PM-SYM):
   • Pension scheme providing ₹3,000 per month after the age of 60 for workers in the unorganised sector.
4. Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY):
   • Low-cost insurance schemes covering life and accident risks.
5. e-Shram Portal (2021):
   • A national database for unorganised workers to facilitate access to social security benefits.
6. Deendayal Antyodaya Yojana – National Urban and Rural Livelihood Missions (DAY-NULM and DAY-NRLM):
   • Focus on skill development, self-employment, and financial inclusion of informal workers.
7. MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act):
   • Provides 100 days of guaranteed wage employment annually to rural households.
8. Skill India Mission:
   • Offers vocational training to enhance employability among unorganised workers.

Strategies for Strengthening the Unorganised Sector

• Formalisation of Employment: Linking informal workers to digital identity, banking, and pension systems.
• Access to Credit: Expanding microfinance, cooperative banks, and credit guarantee schemes.
• Skill Development: Providing affordable vocational and entrepreneurship training.
• Social Security Expansion: Ensuring universal coverage of health, pension, and insurance benefits.
• Labour Law Simplification: Streamlining regulations to include informal workers within protective frameworks.
• Technology Adoption: Introducing digital tools for market access, record-keeping, and e-commerce participation.
• Promotion of Collectives and Cooperatives: Empowering informal workers through self-help groups and cooperatives.

Significance of the Unorganised Sector

• Employment Generation: Provides livelihoods to the majority of India’s working population.
• Economic Contribution: Supports industrial supply chains, construction, and services sectors.
• Inclusive Growth: Enables participation of marginalised groups such as women, migrants, and rural poor.
• Flexibility: Allows quick adaptation to changing market needs and local demands.
• Cultural Continuity: Sustains traditional crafts and occupations within local communities.

Conclusion

The Unorganised Sector forms the backbone of India’s economy by providing employment and supporting rural and urban livelihoods. However, it is marked by insecurity, low productivity, and lack of social protection.