Bridging the Gap: Formalization and Social Security for Informal Sector Workers

As of 2024, it is estimated that over 90% of India’s workforce is employed in the informal sector, which includes small-scale agriculture, construction, domestic work, and retail trade. This sector encompasses over 400 million workers, making it the largest in the world in terms of informal labor.

India’s informal sector is vast, employing a significant portion of the workforce, yet these workers often lack access to social security benefits such as health insurance, pensions, and other welfare programs. To address these challenges, the Ministry of Labour & Employment, in collaboration with the Employees’ State Insurance Corporation (ESIC) and the International Social Security Association (ISSA), hosted a two-day international seminar on “Formalization and Social Security Coverage for Workers in the Informal Sector: Challenges and Innovations” in New Delhi on January 20-21, 2025. This seminar brought together over 150 policymakers, social security administrators, and experts from the Asia-Pacific region to share insights, strategies, and solutions on extending social protection to the informal workforce.

The Informal Sector in India: A Vital Workforce with Unmet Social Security Needs

India’s informal sector plays a pivotal role in the nation’s economy, contributing significantly to employment and economic output. As of 2024, it is estimated that over 90% of India’s workforce is employed in the informal sector, which includes small-scale agriculture, construction, domestic work, and retail trade. This sector encompasses over 400 million workers, making it the largest in the world in terms of informal labor. Despite its size, workers in this sector often face precarious working conditions, low wages, lack of job security, and limited access to healthcare, social security, and pensions. The informal sector is characterized by unregulated employment, with workers typically not covered by labor laws or social protection schemes, leaving them vulnerable to economic shocks and lacking financial stability.

The Government of India has recognized the need to formalize this sector and extend social security coverage to informal workers. According to the International Labour Organization (ILO) report in 2024, India’s social protection coverage for informal workers increased from 24.4% to 48.8% in the last five years. This increase is attributed to landmark initiatives like the e-Shram portal, which registered over 280 million informal workers as of 2025, providing them with access to government welfare schemes. Despite these strides, challenges remain, such as low digital literacy and access issues in rural areas. However, India is making progress with initiatives like the Employment Linked Incentive (ELI) Scheme, the National Career Service portal, and labor law reforms, aiming to increase formal sector jobs and improve the welfare of informal workers.

Challenges in Formalization and Social Security Coverage

India’s informal sector is characterized by informal contracts, unregistered employment, and a lack of organized oversight. As a result, workers in this sector face significant vulnerabilities, including low wages, lack of job security, and limited access to essential services such as healthcare, maternity benefits, and pensions. Despite India’s impressive economic growth, the challenge remains to provide social security to the majority of the workforce working in the informal economy.

Key challenges discussed at the seminar included:

• Lack of Awareness: Informal workers often remain unaware of their rights and the social security schemes available to them.
• Administrative Barriers: The complex and fragmented delivery of social security benefits makes it difficult for informal workers to access them.
• Digital Divide: Many informal workers, especially those in rural areas, lack access to technology and the internet, which hinders their ability to enroll in social security schemes.
• Gender Inequality: Women workers, who make up a significant portion of the informal sector, face additional barriers such as gender-based discrimination and limited access to social protection.

Innovations and Solutions

Despite these challenges, several innovative solutions were presented during the seminar to ensure better social security coverage for informal workers:

1. Digital Solutions: The use of digital platforms, such as India’s e-Shram portal, was highlighted as a game-changer. The portal helps register informal workers and provides them with access to various social security schemes, making it easier for them to claim benefits.
2. Incentives for Formalization: Governments can incentivize informal businesses to formalize by providing financial and regulatory incentives. These may include tax benefits or access to easier credit, which can motivate businesses to transition into the formal sector, thereby extending social security coverage to more workers.
3. Targeted Outreach and Awareness Campaigns: Governments can use technology to bridge the awareness gap by conducting awareness campaigns through mobile apps, SMS, and social media. These initiatives can educate workers about their rights and available benefits.
4. Gender-Sensitive Approaches: Promoting gender equality in the social security system was a major theme. Specific policies that address the unique needs of women workers, such as maternity benefits and access to health insurance, were emphasized.
5. International Cooperation and Best Practices: The seminar featured discussions on global best practices and strategies for improving social protection for informal workers. Countries like Germany, Brazil, and South Korea shared their experiences in extending social security benefits to the informal sector, providing valuable lessons for India.
6. Measurement of Progress: The seminar stressed the importance of data collection to accurately measure the progress of social security coverage. The collaboration between the International Labour Organization (ILO) and India’s Ministry of Labour to pool data from over 34 social protection schemes is a critical step in improving the accuracy of reporting and enhancing coverage.

India’s Progress and Landmark Initiatives

India has made significant strides in improving social security coverage for its informal workers. Some of the key initiatives highlighted at the seminar include:

• e-Shram Portal: A national database for unorganized workers, facilitating access to social security schemes.
• National Career Service Portal: Connecting job seekers with employment opportunities and facilitating skills training.
• Employment Linked Incentive (ELI) Scheme: Aimed at providing incentives to industries for the employment of unorganized workers.
• Labour Reforms: A comprehensive overhaul of labour laws to simplify and streamline the process for workers and employers, promoting the formalization of the workforce.

Moreover, India’s Targeted Public Distribution System (TPDS), which provides food security to over 800 million people, has been acknowledged by the ILO as one of the world’s largest legally binding social assistance schemes.

The Importance of Formalization and Social Security in Viksit Bharat

As India progresses towards the vision of a Viksit Bharat (Developed India) by 2047, the formalization of the informal sector and the extension of social security to all workers will play a crucial role. A well-established social security system ensures that all citizens, regardless of their employment status, have access to healthcare, financial security, and social welfare.

1. Inclusive Growth: Extending social protection to informal workers fosters inclusive growth by ensuring that the benefits of economic progress reach all sections of society, especially the marginalized and vulnerable.
2. Empowerment: Providing social security benefits, particularly to women workers, promotes gender equality and empowers women economically and socially.
3. Economic Stability: A formalized workforce with access to social security benefits is more likely to be productive and resilient, contributing to overall economic stability and development.
4. Reduced Poverty: Social security schemes such as health insurance, pensions, and welfare benefits provide a safety net for workers, reducing poverty and improving their standard of living.

In conclusion, the seminar on formalization and social security coverage for informal workers serves as a significant milestone in India’s journey toward becoming a Viksit Bharat. By ensuring that all workers, including those in the informal sector, are covered by social security schemes, India can build a more resilient, inclusive, and equitable society. The innovations discussed at the seminar, combined with India’s ongoing efforts, will pave the way for a brighter, more secure future for all workers, contributing to the nation’s overall development.