Why was the INFORMALISATION in India ? What were the reasons for more number ofworkers engaged in the informal sector ?

Informalisation of workforce refers to a situation where there is a continuous decline in the percentage of workforce in the formal sector along with simultaneous rise in the informal sector’s workforce. With the process of growth and development, it is expected that the percentage of the formal workers rises in the total workforce while that of the informal workers falls. However, India witnessed a reversal of this trend. In the post-reform period, the estimates revealed that in India approximately93% of the workers were engaged in the informal sector and only 7% were engaged in the formal sector.

The following are the two main reasons why India saw a rise in the number of people working in the Informal Sector.

(i) Economic Reforms

As a consequence of the strategy for development adopted by India since 1991, India witnessed a fall in the employment in the formal sector. Key elements included in the Economic reforms were 'Liberalisation, Privatisation and Globalisation'. It is said that these reforms of 1991 which transformed India from a 'Socialist' to a 'Market' economy increased the extent of informalisation.

(ii) MNCs

Under the reform process, MNCs played an important role in India’s economic growth. However, they favoured the employment of only the educated and specialised workforce. These MNCs relied on the modern and efficient technology rather than labour for the production of goods and services. As a result, the employment in the formal sector remained low and that in the informal sector increased.