Informal activities are pervasive and persistent economic features of most developing economies, contributing significantly to employment, production and income generation. It embraces a wide range of operational units and activities with high rates of turn-over and considerable mobility, thus differing from formal sector in technology, economy of scale and use of labour-intensive processes for producing goods and services. It consists of small-scale, self-employed activities, typically at a low level of organisation and technology.

Nepal has high rates of unemployment, underemployment and poverty. The informal economy accounts for bulk of the jobs (around 96 per cent of labour force) and has huge income generation potential because of the relative ease of entry and low requirements of education, skills, technology and capital. These activities are growing in urban areas with the help of the rural labour force. People of low income groups are particularly involved in informal activities like small-scale and micro-level production and distribution of goods and services. Most of them enter the sector not out of choice but out of need.

Earnings of informal groups differ according to job categories. Some people in informal economy earn even more than those in formal economy. A recent study conducted in Kathmandu shows that some of the street vendors who sell fancy clothes earn over Rs 50,000 per month in peak season, while other street vendors struggle to make their ends meet. However, the well-off need not pay tax as their businesses are not registered. Hence an effective mechanism is needed to monitor, support and gradually link informal activities to formal sector.

Similarly, there is no proper management system in place, neither at government nor at municipal level for informal workers and enterprises. For example, street vendors are increasing day by day in Kathmandu, causing congestions, traffic jams and litter. The government should designate special zones for street vendors.

The workers in the informal economy are poor, excluded and vulnerable. Most of them do not enjoy property rights, which deprive them of access to both capital and credit. Particularly, women suffer more than men. Nearly 83 per cent of female population does not own any productive and valuable assets such as land, houses and livestock. The informal economy is rather growing with the help of child labour also. Hence women, child workers, bonded labourers, rural migrants, urban dwellers and old workers are especially vulnerable to exploitation in informal economy in the form of wages and working conditions, which are not determined through any labour laws. The workers have difficulty accessing legal and judicial systems and have limited or no access to public infrastructure and benefits.

There is a great potential for expanding the informal activities and generating additional employment. Since the size of the informal economy is growing and contributing significantly to the national economy, the government needs to make the informal economy productive through proper use of technology, training and credit availability. Similarly, it should ensure minimum wages, extend social protection, promote efficient work environment, develop work culture and minimise exploitative labour practices.