- Competitive Pressure: Informal sector competes with formal sector due to low wages.
- Labor Laws: Strict labor laws for formal enterprises incentivize subcontracting to informal sector.
- Lack of Employment Opportunities: Formal sector does not create enough jobs.
- Low Productivity: Informal units lack financial resources, technical expertise, professional management.
- Compliance Burden: Many informal firms lack digital literacy, increasing operating costs for compliance.
- Tax Evasion: Informal sector operates outside the tax net.