Lesson eLearning

Explain three economic impacts—both positive and negative—of the growth of the informal sector in India. Illustrate each impact with a suitable example.

medium 5 marks Class 10 · Economics · Sectors of the Indian Economy
Answer
Informal sector creates jobs and entrepreneurship, boosts flexibility and innovation, but leads to low productivity, tax loss and lack of social security.

Step-by-step solution

  1. Identify a positive impact: employment generation. Example – street vendors and daily‑wage labour provide livelihoods to millions.
  2. Identify another positive impact: flexibility and entrepreneurship. Example – small home‑based units producing handicrafts can adapt quickly to market demand.
  3. Identify a negative impact: low productivity and tax evasion. Example – unregistered workshops often use outdated technology and do not pay taxes, reducing government revenue.
  4. Identify a further negative impact: absence of social security. Example – informal workers lack health insurance, pension, and job security, making them vulnerable during crises.
  5. Summarize the three impacts, showing the mixed nature of the informal sector’s contribution to the economy.
Common mistake: Mentioning only the positive aspects and ignoring the associated disadvantages.

Concept tested: Impacts of informal sector

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