India’s economic growth has been remarkable, yet behind impressive GDP growth lies a persistent challenge: the widespread unpaid labor crisis. This crisis, which is deeply rooted in the prevalence of informal employment, stifles productivity, increases inequality, and hinders the country’s progress toward inclusive growth. Formal staffing, by offering structured employment, social security and skill development, offers an important solution to this widespread issue.
The scale of informality in India is staggering. About 85% of the country’s workforce works in the informal sector, with about 91% of the workforce engaged in informal or unincorporated jobs. This huge section of the labor force lacks basic protections like provident fund, health insurance and job security, and is largely excluded from the scope of formal economic benefits. The implications are serious: While this workforce contributes more than half of India’s GDP, the individuals within it often find themselves in low-productivity, low-wage jobs with long periods of downtime. Workers are economically active but legally invisible. PLFS data confirms that unpaid family labor has increased, while overall employment figures appear to be improving.
The fiscal cost is equally significant. Unpaid and informal workers contribute to GDP through labor but do not withdraw anything from the social protection infrastructure that funds formal employment. This creates a vicious cycle – the more workers are trapped in the unpaid system, the thinner the EPFO/ESIC contribution base, the weaker the welfare structure, and the greater the fiscal burden on the state through direct welfare transfers. The productivity gap between formal and informal workers is significant. Formal industrial workers generate annual gross value added (GVA) of approximately ₹11.9 lakh, while informal workers produce only ₹1.4 lakh, eight times the difference. This inequality not only limits income growth but also hinders overall economic inclusion.
The Indian Staffing Federation’s annual report records approximately 7.3 million workers through temporary and flexi staffing companies, 7.5 million through facility management firms and over 20.5 million workers through security services companies – which together form the backbone of organized, compliant employment outside the traditional large-scale industry. Each of these workers has a legal employer, receives minimum wages or above, and contributes to EPFO ​​and ESIC. The average salary within flexi staffing is ₹Rs 22,000 per month – clearly above the minimum wage limit.
The formal staffing industry offers a solid way to address this crisis. Staffing firms have the ability to facilitate the transition of workers from the informal to the formal sector, providing access to social security benefits, worker protections, and more stable employment. This formalization is not merely a bureaucratic change; It is a fundamental improvement in the quality of employment that empowers individuals and strengthens the economy.
One important aspect where formal staffing can make a significant impact is in bridging the skills gap. India is grappling with a significant mismatch between the skills of its workforce and the demands of the labor market. Lakhs of job opportunities remain vacant while many job seekers remain unemployed. Only a small portion (4.69%) of India’s workforce has undergone formal training, unlike developed countries where this figure is much higher. Formal staffing agencies can play a vital role by providing training, upskilling and placement services, connecting individuals with the emerging needs of various industries, including the fast-growing IT/ITeS sector.
The impact of formal staffing extends to important sectors such as manufacturing, logistics and retail. By providing a flexible and skilled workforce, these companies can help these industries adapt to changing production demands and absorb workers more effectively. This is especially important for micro, small and medium enterprises (MSMEs), where high compliance costs often push employers towards informal recruitment despite issues such as high attrition and skill mismatch. Reducing the Goods and Services Tax (GST) on staffing services, as proposed by the Indian Staffing Federation, could significantly encourage formal recruitment, making it more affordable for MSMEs and expanding social security coverage.
The growth path of the sector validates its role as a formalization engine. Fresh job creation in the flexi staffing industry grew 12.3% year-on-year in FY2015, with the total flexi workforce employed by ISF members increasing from 220,000 to 1.9 million – driven by the FMCG, e-commerce, manufacturing, healthcare, retail, logistics, banking and energy sectors. Over the past seven years, seven crore people tracked by EPFO ​​have moved towards more secure, formal jobs – a transition in which the staffing industry has been a key mediator.
The staffing industry is the only form of formal employment that is seeing double-digit growth year-on-year. Yet its penetration is only 1.1% of the employable workforce of 505 million. This gap is not a market failure – it is a policy failure. High GST on manpower outsourcing services, regulatory ambiguity around key employer liabilities, and inadequate skills pipeline currently strain the sector’s capacity to absorb workers trapped in unpaid arrangements.
The burden of household responsibilities and lack of formal opportunities lead many women to engage in unpaid care work or informal employment. By providing formal jobs with potential support structures such as security and dormitories for workers, formal staffing can help transform rising female labor participation into stable, respectable employment.
The scale of the current crisis is staggering. The number of women engaged in unpaid family work in agriculture alone increased from 23.6 million to 59.1 million between 2017-18 and 2024-25 – an increase of almost 150% in eight years. Nearly half of all women working in agriculture today are unpaid family workers, and in states like Bihar and Uttar Pradesh, more than half of all women workers in agriculture are not fully paid. In rural India, 87% of unpaid household enterprise women workers are concentrated in agriculture and allied sectors – the most fragile, weather-dependent and subsistence-driven sector of the economy.
The contradiction is stark. India’s female labor force participation rate rose by nearly 5 percentage points – from 37% in 2022-23 to 41.7% in 2023-24, the highest increase in four years – but this increase was largely driven by self-employment, which does not indicate consistent or well-paid work. In both rural and urban areas, the proportion of women in salaried jobs and casual labor has declined, while self-employment has increased. Without quality pay, rising participation numbers are a statistical mirage.
The current reliance on surplus informal labor also enables related trends such as the exploitation of gig workers, contingent and informal workers. These individuals, who are often vital to public services and economic activity, often face precarious employment situations due to a lack of living wages and social security. Formalizing these roles, whenever possible and appropriate, will ensure that fundamental labor rights, fair wages and social protection extend to these vital sectors of the workforce.
India’s demographic dividend represents a huge opportunity, but it risks becoming a liability if the workforce remains stuck in low-productivity, informal employment. Economic growth without equitable wage growth leads to inequality and social unrest. Therefore, advanced skilling initiatives, coupled with improved productivity and wage transparency, is not only a strategic economic choice but a national imperative for India to achieve inclusive and sustainable growth, increase its overall productivity and ensure equitable distribution of its economic prosperity.
India cannot formalize its workforce through welfare transfers alone. Plan coverage does not replace wages. A domestic worker working in the unorganized format does not need a beneficiary card – she needs a legal employment relationship, a provident fund account and a salary slip. Large-scale formal staffing is the only institutional mechanism that provides all three simultaneously.
The policy agenda is clear: reducing friction for staffing firms operating in Tier 2 and Tier 3 markets, rationalizing GST on manpower outsourcing, and embedding staffing as a recognized channel under skills and employment schemes. The unpaid labor crisis is real. The solution already exists. It just needs to be allowed to work fruitfully towards nation-building (developed India).
(Views expressed are personal)
This article is written by Suchita Dutta, Executive Director, Indian Staffing Federation (ISF).
