The Digital Bridge: Reimagining India's Informal Economy in the Age of AI

The upcomingIndia AI Impact Summit offers an opportunity to reflect on the implications of AI for India’s informal labour force. According to the International Labour Organisation, informal labour makes up nearly 90 percent of India’s total labour force, and contributes nearly 45 percent to the national GDP. However, India’s informal workforce faces several  challenges, such as low wages, job insecurity and inadequate access to structured training opportunities. AI can play a critical role in their empowerment and foster inclusive development, in line with the government’s vision for a Viksit Bharat by 2047.

From Invisibility to Identity: The Formalization of Labor

Currently, India’s informal sector is characterised by information asymmetry that fragments labour markets. For instance, a carpenter with a decade of experience in a rural district may be unable to access customers in nearby cities due to limited awareness of market opportunities and the absence of formal proof of his work. Alternatively, lenders may lack credible data to assess street vendors' creditworthiness. Due to a lack of verifiable credit history, millions of informal workers are trapped in subsistence cycles and depend on exploitative local intermediaries.

AI-driven platforms alter this dynamic by enabling hyper-local precision matching, considerably reducing the search cost for work. Illustratively, the Ministry of Labour and Employment recentlyannounced the rollout of AI-enabled chatbots on the e-Shram portal to assist workers with registration and resume preparation, improving their ability to access suitable employment opportunities. Over time, such AI-powered matching systems may help India transition toward a structured labour ecosystem, where workers can access regulated working conditions rather than remaining trapped in volatile, task-based work.

Moreover, sustained interactions on AI-driven platforms generate verifiable work histories, as each transaction, completed job, and customer rating contributes to a worker’s digital professional footprint. This in turn enables financial institutions to extend credit, insurance, and social security based on demonstrated work records rather than collateral. With NITI Aayog projecting India's gig workforce to expand to 23.5 million by 2030, AI's role in structuring this labor pool is not merely an efficiency upgrade but a necessary evolution for social security and economic stability.

AI as a Catalyst for Upskilling: Beyond Augmentation

Additionally, AI has the potential to bridge longstanding knowledge gaps and dismantle structural barriers to upskilling. For example, Bare Craft, which is an AI-enabled platform launched in 2020,leverages AI to match rural artisans in India with buyers based on craft type and location. By 2024, the platform had onboarded over 5,500 artisans across the country, spanning crafts such as chikankari embroidery and block printing. The platform has reportedly increased revenues for artisans and SMEs by around 10 per cent, enabled 82 per cent of participating artisans to access new markets, and helped 23 per cent of them establish new businesses, while also improving efficiencies in raw material procurement and logistics.

Additionally, as the NITI Aayog hasobserved, AI may be used to address capability gaps in informal sectors like agriculture. Illustratively, a 2024 study by the Esya Centre found that AI can enhance agricultural productivity by helping farmers use their resources more efficiently, providing them with insights on improving soil health, and assisting with pest and insect management, among other things. Along similar lines, large language models trained on diverse Indian languages may be used to enable construction workers to learn safety protocols through voice-bots in native dialects, bypassing traditional literacy requirements entirely. AI may also be used to improve planning and scheduling in construction activity, by identifying processes that are likely to result in injuries or accidents for construction workers.

Beyond workplace learning, AI-powered platforms create personalized skilling pathways tailored to informal workers' unique needs and flexible schedules. These adaptive systems track progress in real time, adjusting content difficulty and providing instant feedback functions previously requiring expensive human trainers. Further, vocational training platforms powered by AI analytics identify skill gaps in specific geographic clusters, enabling targeted interventions. For example, An AI system analyzing labor market data in handicrafts and toy manufacturing corridors can recommend high-demand skills for artisans, ensuring training investments yield measurable employment outcomes. This data-driven approach replaces one-size-fits-all training with precision skilling.

Converging for the Future

The India AI Impact Summit 2026 represents a watershed moment where policymakers, industry leaders, and civil society converge to measure progress, not just economic metrics, but human impact: lives touched, livelihoods improved, and digital divide reduction. By leveraging AI to formalise the informal, upskill the unskilled, and democratize technology access, India writes a new global template proving that technology, guided by compassionate governance, can be the greatest leveller of our times.

By Shweta Venkatesan, Fellow, and Aaqib Qayoom, Junior Fellow, Esya Centre

(Disclaimer: The views and opinions expressed in this article are solely those of the author and do not reflect the views of CyberMedia or its affiliates.)