Explain why informalisation of employment continues to be high in India despite sustained economic growth. Discuss at least three structural reasons, providing examples where possible.
Answer
Informalisation persists because (i) a large share of the workforce is employed in low‑skill agriculture and services that lack formal contracts; (ii) rigid labour laws and high compliance costs discourage firms from formalising; and (iii) limited access to credit and technology keeps many enterprises small and informal. These factors together sustain a high informal employment share.
Step-by-step solution
- State the first structural reason: dominance of low‑skill, labour‑intensive activities such as agriculture and street vending, which are inherently informal.
- Give an example, e.g., a majority of agricultural workers lack written contracts.
- State the second reason: stringent labour regulations (e.g., Industrial Disputes Act) increase the cost of hiring formal workers, prompting firms to stay informal.
- Provide an example such as small garment units avoiding registration to escape Provident Fund obligations.
- State the third reason: lack of access to formal credit and technology forces enterprises to remain small, making formalisation unattractive.
- Illustrate with a micro‑enterprise that relies on informal loans from money‑lenders.
- Conclude by linking these three reasons to the persistence of high informal employment.
Common mistake: Mentioning only two reasons or giving generic statements without linking to structural factors.
Concept tested: Reasons for persistent informalisation
Published · How this solution was prepared and checked
← All Employment Growth Informalisation and Other Issues questions