Question

Distinguish between formal and informal sector with suitable examples.

Hint:

Formal sector means all public units and private units with 10 or more hired workers. Informal sector means private units with fewer than 10 hired workers and no job security.

Answer 1

Step 1: Understand the question:
The Indian economy is divided into the formal and informal sector on the basis of the size of the establishment and the benefits workers get.
We must state a difference between the two and give an example of each. The 3 marks are split between the formal sector part and the informal sector part.

Step 2: Formal sector:
It includes all public sector establishments and those private sector establishments that employ 10 hired workers or more.
Workers get regular income and are entitled to social security benefits such as pension and provident fund.
Example: a government hospital.

Step 3: Informal sector:
It includes private sector establishments that employ less than 10 hired workers.
Workers often lack job security and regular income. They can be dismissed without any compensation.
Example: a grocery shop employing two workers.

Step 4: Summary table:

Basis	Formal sector	Informal sector
Establishments	All public sector establishments and private establishments with 10 or more hired workers	Private establishments with less than 10 hired workers
Income and benefits	Regular income and social security benefits	Irregular income, no social security
Job security	Secure job	Can be dismissed without any compensation
Example	A government hospital	A grocery shop employing two workers

Final Answer:
The formal sector has 10 or more hired workers or is in the public sector, with regular income and benefits (government hospital). The informal sector has fewer than 10 hired workers, with no job security (grocery shop with two workers).