Artificial Intelligence and India’s Informal Labour Markets: Persistence, Inequality, and Policy Blind Spots

Abstract

Artificial Intelligence (AI) is changing labour markets worldwide, yet little knowledge is available for economies with persistently high informal dominance. This study in the context of expanding artificial intelligence (AI), focusing on structural persistence, inequality, and policy blind spots investigates the informal labour market of India. The paper analyses gender disparities, wage dynamics, and employment structures alongside India's changing AI strategy using secondary data from the Periodic Labour Force Survey (2017–18 to 2023–24).

The findings are reflection of the structural nature of the existing parallel labour markets by demonstrating the persistence of informality, with urban areas continuously above 50% and rural regions surpassing 87%. Wage inequalities persist, with formal workers earning almost twice as much as informal workers, while female-to-male wage ratios in self-employment declined sharply from 59.6 percent to 34.3 percent over the period, highlighting increasing gendered vulnerabilities. A review of India's AI plans, from AI for All (2018) to AI for Viksit Bharat (2025), suggests that policy remains skewed towards the formal sector, providing only a passing mention of gig workers while largely excluding the larger informal workforce. The findings suggest that AI has a high probability of exacerbating inequality instead of reducing it in the absence of concerted actions in skills, digital access, and social protection. This paper concludes that a fundamental policy shift is necessary to explicitly include informal workers in India's AI agenda to prevent the widening of existing inequalities.