informal sector

The informal sector, also known as the underground economy, refers to economic activities that are not reported to the government for tax or regulatory purposes. This can include both legal activities, such as unreported self-employment income or bartering, and illegal activities like drug dealing or smuggling.1

This sector often emerges when high taxes, strict regulations, or price controls interfere with market exchanges. Participants engage in informal work for various reasons, including avoiding government fees, supplementing income, or lacking the skills or documentation for formal employment. While some view the informal sector as a threat to social welfare due to lost tax revenue and lack of worker protections, others see it as a source of income and flexibility. In India, a significant portion of the workforce operates in the informal sector, and initiatives like the e-Shram portal aim to extend social security benefits to these workers.12