Generally, all enterprises which are either registered or come under the purview of any one of the acts like the Indian Factories Act 1948, Mines and Minerals (Regulation and Development) Act, 1957, the Company Law, the Central/State Sales Tax Acts, the Shops and Establishment Acts of the State governments, are defined as part of the organized sector. Also included are all government companies, departmental enterprises and public sector corporations.

"Similarly, forestry, irrigation works, plantations, recognised educational institutions, and hospitals which are registered as non-profit making bodies are also classified as organised sector. All unincorporated enterprises and household industries which are not regulated by any acts of the above-mentioned type and which do not maintain any annual reports presenting the profit and the loss and balance sheets are classified as unorganized" 

A partnership firm may, thus, be grouped under the "organised sector" if it was covered any of the statutes mentioned and if it maintained annual accounts. Otherwise it would be classified under the "unorganised sector". Thus, non-corporate enterprises can figure under either of the two (organised and unorganised) sectors in the national income classification.

From the point of view of mode of production or economic activity, the distinguishing features of the informal sector are as follows:

• Low level of organisation; small in scale usually employing fewer than ten workers and often from the immediate family;
• Heterogeneity in activities;
• Easier entry and exit than in the formal sector;
• Usually minimal capital investment; little or no division between labour and capital;
• Mostly labour intensive work, requiring low-level skills; there is usually no formal training as workers learn on the job;
• Labour relations based on casual employment and or social relationships as opposed to formal contracts; employer and employee relationship is often unwritten and informal with little or no rights;
• Due to their isolation and invisibility, workers in the informal sector are often largely unaware of their rights, cannot organise them and have little negotiating power with their employers and intermediaries (ILO 2000).

Role of unorganised sector in indian economy

The unorganised sector has a crucial role in our economy in terms of employment and its contribution to the National Domestic Product, savings and capital formation. More than 82 percent of the workforce in India is employed in the unorganised sector, as noted by the International Labour Union in its India Labour Market Update of 2016. This report serves as the main source of data for the workforce in the unorganised sector.

Further, the Industry wise distribution of employment in the unorganised sector in India can be seen in the table below by Confederation of Indian Industry’s (CII) report called “An Analysis of the Informal Labour Market in India” for 2011-2012

Gross Value Added and the Unorganised Sector in India

The Gross Value Added (GVA) is considered as an important determiner when it comes to the economical contribution of the unorganised sector towards the country. GVA can be explained as the value of services and goods produced in a place, sector or industry. Both GVA and GDP are utilised to measure the output of a country, hence both are vital in each other’s calculation. In simple terms the calculation of GDP and GVA can be understood in the equation below;

GVA (+) Taxes on products (-) Subsidies on products = GDP

GVA is the total of all revenues from final sales and subsidies, which are primarily the income to any business.

The National Statistics Commission in their 2012 report of the Committee on Unorganised Sector Statistic highlighted the importance of unorganised workforce in influencing the country’s Gross Value Added (GVA) percentage.

The table below shows the amount of Gross Value Added (GVA) by the unorganised sector for Year 2004-2005 as recorded by National Commission for Enterprises in the Unorganised Sector’s (NCEUS) (in Rs.Ten million)

Sources of Finance

It is believed that the unorganized manufacturing sector of industries is starved of capital and since they fail to get access to the organized sources of finance, they borrow from the unorganized credit market often at high interest rates. It is felt that there is urgent need for the state to intervene in order to raise their capital. In response to this demand the state has become quiet active over the past few decades in promoting institutional finances for this unorganized sector. Public and private commercial banks and central and state level term lending institutions, cooperative societies etc. are directed/ encouraged by the state to provide loans to the unorganized manufacturers at low interest rates. Over the years, the share of these institutional sources in total outstanding loans of the unorganized manufacturing sector has increased steadily.

The informal financial sources generally include funds available from the family or moneylenders who operate outside the legal and policy framework of banks. Apart from this, the chit fund is another form of credit source operated by groups of people for mutual benefit; but this approach has its own limitations. Credit in the informal system is usually available on tap. The loans are granted mostly without collateral and lengthy documentation formalities as the lender depends mainly on the personal knowledge of, and contact with, the borrower. However, over the years, a few NGOs have engaged themselves in activities related to community mobilisation for savings and credit-related operations targeted at some groups in the rural sector.

Conclusion

The non-corporate forms of organisations are major players in such activities as manufacturing, construction, transport, trade, hotels and restaurants, and business and personal services. Terming them as "un-organised" is inappropriate as they are well-organised from the economic and organisational point of view. They are not the residual segment of the economy. They are very much part of the "formal" system of laws/rules/regulations. Hence, we will use the term of Uninc (unincorporated) or sometimes non-corporate sector.