Transition from the Informal to the Formal Economy: The Need for a Multi-faceted Approach

The recent international attention paid to the formalization of the informal economy finds reflection in ILO Recommendation No. 204 concerning the transition from the informal to the formal economy and the Sustainable Development Goals (Target 8.3). There is great diversity within the categories of the informal sector, informal employment, and informal economy in India. This paper examines the category of the ‘informal economy’ as understood in international instruments as well as in international statistics and maps these onto legal categories recognized within Indian law. The categories of ‘employed’, ‘engaged’, and ‘work arrangement’ used in Indian laws, and their interpretation by the courts, are useful to understand the links between the concepts of work, employment, and livelihoods. The paper also focuses on the diversity of the informal economy, focusing on wage employment, self-employment, including the diverse forms of own-account work and contributing (unpaid) family labour. The categorization of gig and platform workers as own-account or waged workers continues to pose a normative challenge. The regulatory responses for formalization of each segmented category of informal workers and informal enterprises cannot be uniform, and neither do they need to be linked to any particular domain of the law. Moving beyond the extension of social security coverage as the key vehicle for formalization, the paper suggests various entry points through which law and policy can improve conditions of work and protect the livelihood of those in the informal economy as measures to achieve formalization.