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Topic : State of India’s Informal Economy
GS-3 Mains : Economy
Challenge: India’s informal sector faces difficulties as per Annual Survey of Unincorporated Enterprises (ASUSE) data.
Formal vs Informal Sector:
- Formal Sector: Written contracts, defined labour conditions (e.g., MSMEs).
- Informal Sector: Unincorporated enterprises (own-account or partnership) including MSMEs, household units with hired workers.
Informal Sector in India:
- Contributes to over 50% of GDP despite having 85% of informal labour.
- Plays a vital role in job creation, especially for semi-skilled and unskilled workers.
Challenges Faced by Informal Sector:
- Impact of Demonetisation (2016), GST rollout (2017), and COVID-19 pandemic (2020). (Source: National Sample Survey Office (NSSO))
- Shift towards capital-intensive manufacturing impacting labour-intensive jobs.
- Decrease in employment despite rising number of enterprises. (Source: ASUSE) – Indicates a shift to self-owned units with lower quality jobs.
- Impact on women’s workforce participation: Women make up a significant portion but face lower wages, income volatility, and lack of social safety nets. (Source: Periodic Labour Force Survey) – Female labour force participation fell to 21.2% in March 2021.
- Low wages and exploitation: No written contracts, paid leave, or minimum wage adherence. Long working hours are common.
- Lack of social security: No healthcare, pensions, or unemployment insurance. Workers are vulnerable to economic shocks and health crises.
- Tax evasion: Informal firms often dodge taxes by hiding income and expenses.
- Lack of formal data for policymaking: Makes it difficult for the government to formulate effective policies.
Way Forward:
- Comprehensive data collection on the informal economy as part of the National Data System for informed policy decisions.
- Transparent grievance redressal mechanism for informal workers.
- Enforce equal pay for equal work (Directive Principle of State Policy, Article 39(d)) to bridge the gender pay gap, especially for women farm labourers.
Conclusion:
- The plight of low-income and semi-skilled workers necessitates urgent action.
- A structural shift towards formalisation is crucial to ensure equitable opportunities and sustainable livelihoods for all, considering 85% of India’s workforce is informal.
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