What are Formal Sector?

All Public Sector Establishments


All private sector establishments having 10 workers or more

are called

Formal Sector



What is Informal Sector?

All establishments

other than

Formal Sector


Workers working in it

are called Informal Sector

Example - Owner of small enterprises, farmers, labourers etc

Classification of Establishments - Teachoo.JPG

Type of Business - Teachoo.JPG

What is included in Formal and Informal Sectors - Teachoo.JPG


Which Sector employs more labour - Formal or Informal?

Informal Sector

Informal Sector employs 94% of total workforce

Only 6% are employed in formal sector


How is the gender vise distribution of Formal and Informal Sector?


Comparison of - Male vs Female in Formal and Informal Sectors - Teachoo.JPG




Key points

Majority of workforce is male (both in formal as well as informal sector)

However, share of women is higher in informal sector rather than formal sector



Write a Short Note on Formal Sector Employment

Important Points about Formal Sector

Who collects Data on employment in formal sector?

It is Collected by

Ministry of Labour of Central Govt


Various Employment exchanges in India


Who is major employer in formal sector?

Government is main Employer

Many people work in Govt Departments as well as Govt Companies (Public Sector Enterprises)

In 2012, out of 30 million formal sector employees, 18 million employees worked in formal sector


What is benefit of working in formal sector?

People working in formal sector get social security benefits like PF, ESI etc

Peole receive Retirement benefits like PF, Gratuity

They also get regular income and job security

Advantages of Formal Sector over Informal Sector - Teachoo.JPG

What are problems being faced in Informal Sector?

Employees do not have regular income

They do not get protection or regulation from govt.

Technology used in informal sector is outdated

Informal Sector enterprises do not maintain any accounts


What Steps govt have taken to promote informal sector?

Govt has taken steps of:

Modernisation of Informal Sector Enterprises

(By encouraging use of new technology)


Provision of Social Security measures to Informal Sector

(Getting them Registered for PF/ESI Schemes)

Steps Taken by Govt - Teachoo.JPG

What is PF?

PF is a scheme where

Some amt is contributed by Employer

Some amt is contributed by Employee

Total Amt with Interest is Received by Employee on Retirement/ Death etc

It is compulsory if no of employees are more than 20

What is PF - Teachoo.JPG

What is ESI?

It means Employee State Insurance

It is like an insurance for free treatment of employees if they fall sick

Here also,Some amt is contributed by employee and some by employer

It is compulsory if no of employees are more than 10

What is ESI - Teachoo.JPG


NCERT Questions


An establishement with four hired workers is known as ____ (formal/informal) sector establishment.

View Answer



Is it necessary to generate employment in the formal sector rather than in the informal sector?


View Answer



How will you know whether a worker is working in the informal sector?

View Answer


Other Books


What do you mean by formal and informal sector?

Discuss the conditions of workers in each of these sector.

View Answer
  1. Class 12 NCERT
  2. Indian Economic Development

About the Author

CA Maninder Singh's photo - Expert in Practical Accounts, Taxation and Efiling
CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 10 years. He also provides Accounts Tax GST Training in Delhi and Pune.