Why does so much manufacturing employment sit outside formal arrangements, and what does that mean for workers?

A formal manufacturing job comes with a defined set of protections. The worker has a written contract, which establishes wages, working conditions, and the terms under which employment can end. The employer contributes to the Employees’ Provident Fund, building a retirement corpus that the worker cannot easily access until they leave employment. The worker is covered under the Employees’ State Insurance Act, which provides medical care, paid sick leave, and maternity benefits. Dismissal requires notice and severance under the Industrial Disputes Act. These protections are not merely legal formalities. For a worker without savings, they represent the difference between a medical emergency being manageable and being catastrophic.

Informal employment provides none of this. The worker has no written contract, no provident fund, no insurance coverage, and no legal remedy against dismissal without cause. Since informal workers cannot document their income, they also struggle to access formal credit, paying higher interest rates to informal moneylenders when they need to borrow. And because informal employment is not captured in official data, these workers have no statistical visibility, making it harder for them to organise or for policymakers to account for their interests.

The scale of informal manufacturing employment in India makes this more than an individual hardship. Between 70 and 80% of manufacturing workers are informally employed. The formal sector’s social security architecture, built around ESIC and EPFO, therefore reaches only a minority of the people it was designed to protect. The ILO’s India Employment Report 2024 noted that youth employment, in particular, is concentrated in informal arrangements with low pay and poor conditions, not because young workers prefer this, but because the formal sector is not generating jobs at the required rate.

There is a deeper irony here. The regulations that make formal employment expensive for firms are, in intent, designed to protect workers. In practice, they price formal employment out of reach for most workers, pushing the majority into arrangements where no protection applies. The question is not whether workers deserve protection. It is whether the current system delivers it to the workers who need it most.