Informal economy of South Asia

The economies of South Asia—including India, Pakistan, Bangladesh, Nepal, and Sri Lanka—are significantly shaped by informal workers, smallholder farmers, micro-entrepreneurs, and other non-institutional actors. These individuals often operate outside formal regulatory and institutional systems, yet their contributions sustain vital sectors like agriculture, construction, retail, and services.

Smallholder farmer in Nepal using traditional oxen to plough the field.

Role in Agriculture and Food Security

A significant proportion of South Asia’s workforce is engaged in agriculture, particularly in rural areas of India, Pakistan, and Bangladesh. Smallholder farmers — typically managing less than 2 hectares of land — are responsible for producing a large share of staple food crops. Despite facing challenges such as climate change, land degradation, water scarcity, and volatile market conditions, these farmers remain central to national food security strategies.

Urban Informal Workforce

Urban centers across South Asia rely on a large informal labor force that includes rickshaw drivers, domestic workers, street vendors, construction workers, waste pickers, and small shopkeepers. According to the International Labour Organization, informal employment accounts for more than 80% of total non-agricultural employment in countries such as India, Bangladesh, and Nepal. The World Bank also confirms that more than 80% of workers in South Asia are informally employed, with over 90% of micro and small enterprises operating outside formal structures.

Street vendor selling palm fruit in Dhaka, Bangladesh — a key part of the informal urban economy.

Women's Contributions and Gender Disparities

Women across South Asia contribute significantly to both formal and informal sectors. Many are involved in home-based work such as textile weaving, embroidery, food processing, and handicrafts, in addition to unpaid care work and agriculture. Despite their economic contributions, women face systemic barriers including wage gaps, lower financial access, and limited legal protections.

Artisan weaving a silk sari by hand in Tamil Nadu — an example of women’s home‑based economic activity.

Microentrepreneurship and Innovation

Micro-entrepreneurs and small business owners across South Asia are fostering innovation in sectors such as mobile technology, digital payments, e-commerce, and renewable energy. From informal tailoring shops to rural mobile charging services, these small-scale businesses adapt to local challenges and provide employment. The World Bank notes that access to microfinance, digital tools, and training programs has been instrumental in enabling inclusive economic participation.

A street fruit vendor in South Asia—an example of micro‑entrepreneurship.

Informality, Peacebuilding, and Stability

Economic participation at the grassroots level contributes not only to livelihoods but also to broader social and political stability. Informal employment offers vital income streams that reduce economic desperation. The World Bank highlights that informal workers were among the hardest hit by COVID-19 disruptions, reinforcing the need for stronger support systems.

Schoolgirls in Pakistan — education as a foundation for empowerment and stability.

Policy Implications and Social Protection

The predominance of informality in South Asia presents both economic opportunities and structural challenges. While informal workers and enterprises contribute substantially to GDP and employment, they often lack legal status, labor protections, and access to finance.

In response, the World Bank and development agencies advocate for "progressive universalism"—a strategy of expanding social protection to cover informal workers gradually, starting with the most vulnerable. They also recommend tailoring formalization policies to local realities instead of relying on rigid regulatory enforcement.

See also

• Informal economy
• Microfinance
• Rural development
• Peacebuilding

External links

• World Bank Data for South Asia
• Hidden Potential – World Bank report
• Social Protection in South Asia – World Bank
• Beaten or Broken? – World Bank PDF