Social Security for Informal Sector Workers in India

Walk through any bustling Indian city, and you see the economy in motion. You see the construction worker skillfully laying bricks, the street vendor artfully arranging vegetables, and the gig worker rushing to deliver a food order. These individuals are the lifeblood of our economy. Yet, the vast majority of them operate in a world of profound uncertainty, known as the informal sector. While they build our homes and feed our cities, they often lack the most basic protections: a pension, health insurance, or any form of a social safety net. This gap is arguably one of the single greatest policy challenges India faces today.

For decades, providing comprehensive social security to this massive, unorganized workforce has been a top priority for governments. The challenge has only grown. Following India’s economic reforms in the 1990s, the economy opened up, but instead of a large-scale shift to formal, salaried jobs, there was a surge in workers being absorbed into the informal sector. This makes the question of their protection not just a moral one, but an urgent economic one.

The sheer scale of India’s informal economy 🔗

To grasp the challenge, we first need to understand the scale. We aren’t talking about a niche group. Depending on the definition, the informal sector employs nearly 90% of India’s workforce. This is over 400 million people. This sector is incredibly diverse, ranging from small-scale farmers and agricultural labourers to urban street vendors, domestic workers, rickshaw pullers, and, more recently, the millions engaged in the platform or “gig” economy.

The post-reform boom in sectors like construction, services, and manufacturing didn’t always create stable, permanent jobs. Instead, to remain competitive and flexible, many companies turned to outsourcing, subcontracting, and hiring temporary or contract labour. This created jobs, yes, but these jobs existed outside the traditional social security framework. They came without provident fund (PF) contributions, employee state insurance (ESI), or the job security that a “formal” job implies. This trend has continued, making the informal workforce the persistent, dominant feature of India’s labour market.

What ‘informal’ really means for a worker 🔗

What does it actually mean to be an “informal” worker? Let’s consider a scenario in a busy industrial area or a large market, like the case studies done in places such as Shivajinagar. The entire ecosystem runs on a different set of rules.

A worker’s “contract” is often just an oral agreement. There’s no appointment letter, no fixed salary, and, crucially, no fixed employer-employee relationship. A construction labourer might work for one contractor today and another tomorrow. A domestic worker might serve multiple households, none of whom see themselves as a formal “employer.”

The reality of precariousness 🔗

This structure has direct, daily consequences. Social security benefits are almost non-existent. Surveys and studies from various worker clusters have painted a stark picture: often, only a tiny fraction, sometimes as low as 12-14%, of these workers report receiving any form of social security like a pension or provident fund. This means:

• No sick pay: If you get sick and can’t work, you don’t get paid.
• No paid leave: There are no “annual leaves” or “casual leaves.”
• No maternity benefits: For women workers, pregnancy often means a complete loss of income.
• No retirement savings: There is no concept of a pension, forcing people to work well into old age.
• No safety net: A single medical emergency, a bad accident, or an economic shock (like the COVID-19 pandemic) can push an entire family into destitution.

This is the day-to-day precariousness that defines informal work. It’s a life lived on the edge, where there is no buffer for shocks.

The academic view: a long-recognized design gap 🔗

This problem is not new. For decades, scholars and economists have been pointing out this fundamental flaw in our system. Researchers like Ginneken, S. Guhan, and S. Mahendra Dev have produced seminal work highlighting the massive gap in social security coverage for the unorganized sector.

Their core argument is that India’s social security model was built for a different kind of economy-an organized, industrial one with large factories and clear employer-employee relationships. Schemes like the Employees’ Provident Fund (EPF) and the Employees’ State Insurance (ESI) are “contributory” systems. They require a formal employer to be identifiable, to register the employee, and to make matching financial contributions. This model, by its very design, excludes the 90% who don’t have such a formal relationship. The challenge, as these scholars pointed out, is to design a system that doesn’t depend on a formal “employer” but instead links benefits directly to the “worker” or “citizen.”

The central tug-of-war: flexibility vs. security 🔗

This brings us to the core policy challenge, which is a powerful tug-of-war between two competing, and valid, demands: labour market flexibility and worker security.

The demand for flexibility 🔗

On one side, employers and industry associations argue that to compete in a globalized world, they need labour market flexibility. This means being able to hire workers for short-term projects, scale their workforce up or down based on demand, and manage costs. They argue that rigid laws, like those that make it difficult to terminate employment or that mandate high social security contributions, make them uncompetitive. For them, contract labour is not a tool of exploitation but a necessary tool for agility and survival. They believe that excessive regulation will only push more of the economy “underground” or stifle job creation altogether.

The demand for security 🔗

On the other side, trade unions and worker-rights groups paint a very different picture. They see the rise of contract labour as a direct assault on worker rights. They demand the abolition of the contract labour system, equal pay for equal work (for contract and permanent workers), and the “regularisation” of jobs. They argue that “flexibility” has become a code word for exploitation, allowing companies to profit while denying workers their basic rights to a stable livelihood, a living wage, and a dignified retirement. For them, the answer is not to weaken labour laws but to strengthen them and extend their coverage to all workers.

This is the central bind for policymakers. How do you create a system that allows businesses to be agile and competitive, without compromising the basic livelihood security and human rights of the workers who power those businesses?

Can policy bridge the gap? India’s current approach 🔗

For years, government attempts to solve this were fragmented. The Unorganised Workers’ Social Security Act of 2008 was a significant step, but its implementation was weak and state-dependent, leading to limited on-the-ground impact. The system remained splintered. However, the last few years have seen a massive new push, driven by technology.

The e-Shram portal: a digital first step 🔗

The most significant recent development is the launch of the e-Shram portal. This is the government’s ambitious attempt to create a comprehensive national database of all unorganized workers. The idea is simple but powerful: to register every informal worker in the country, link them to their Aadhaar number, and provide them with a unique e-Shram card. As of early 2024, over 290 million workers have been registered.

This database is intended to be the delivery mechanism for all future social security. By having a central registry, the government aims to:

• Provide a portable identity: A worker’s benefits are linked to them, not their job. If a construction worker from Bihar moves to Kerala for work, their social security “account” moves with them.
• Deliver benefits directly: It allows for Direct Benefit Transfer (DBT) of funds, pensions, or insurance claims, cutting out intermediaries.
• Link existing schemes: It serves as a single platform to access schemes like the Pradhan Mantri Shram Yogi Maan-dhan (a pension scheme), Pradhan Mantri Jeevan Jyoti Bima Yojana (life insurance), and Pradhan Mantri Suraksha Bima Yojana (accident insurance).

The new labour codes and the gig economy 🔗

Alongside this, the new Social Security Code (2020) aims to consolidate dozens of old laws and, for the first time, legally recognize “gig workers” and “platform workers” as a distinct category. The code proposes setting up a social security fund for these workers, to which aggregators (like food delivery or ride-hailing apps) would have to contribute.

This is a direct attempt to tackle the modern iteration of the informal economy. As reports from bodies like NITI Aayog highlight, the gig economy is growing rapidly, and these workers exist in a grey area, often classified as “partners” rather than “employees,” leaving them without any protections.

The remaining challenges are still immense 🔗

While these are promising steps, the challenge is far from solved. Registration on a portal is not the same as receiving social security.

1. Funding: This is the biggest question. Who pays for this massive social security net? Most schemes are “co-contributory,” meaning the worker has to pay a small premium, which the government matches. But for a worker earning a subsistence wage, even 50 or 100 rupees a month can be a barrier. How will the fund for gig workers be financed? What percentage will platforms contribute? These are billion-dollar questions.
2. Awareness and Access: How do you reach the most vulnerable workers who may not be digitally literate or may not even have a bank account? Creating awareness and ensuring last-mile delivery remains a huge administrative hurdle.
3. Complexity:** The lives of informal workers are complex. Their income is erratic. A worker may be a farm labourer for half the year and a construction worker for the other half. A system needs to be flexible enough to accommodate this, allowing them to pay premiums when they have income and not penalizing them when they don’t.