Daily Hot Topic
Topic : India’s Informal Sector Recovery
GS-3 Mains : Economy
Revision Notes
Context:
The National Sample Survey Office (NSSO) survey brings promising news: India’s massive informal non-agricultural sector, severely impacted by the pandemic’s second wave, is on a gradual recovery path. This sector is crucial for the nation’s economic well-being.
Informal Sector’s Significance:
- Economic Engine: It fuels economic activity by providing a platform for small businesses and self-employed individuals. From street vendors to repair shops, the informal sector caters to diverse needs.
- Livelihood Lifeline: An estimated 85% of India’s workforce finds employment in this sector, making it a primary source of income for millions.
- GDP Contributor: Despite its informality, the sector significantly contributes to India’s GDP, exceeding 50% according to some estimates.
- Safety Net: Informal work provides a safety net for many households, particularly in rural areas or during economic downturns. It offers flexible employment opportunities in sectors like construction and domestic work.
Understanding the NSSO:
The National Sample Survey Office (NSSO) plays a vital role in understanding India’s socio-economic landscape. They conduct large-scale sample surveys across various domains, including:
- Household surveys: These surveys gather data on demographics, income, expenditure, and employment from a representative sample of households across India.
- Annual Survey of Industries (ASI): This survey focuses on the formal manufacturing sector, providing insights into its size, production, and employment.
- Price Surveys: The NSSO also collects data on rural and urban prices, which is crucial for calculating inflation and other economic indicators.
- Crop Statistics: They collaborate with state agencies to improve the accuracy of crop area estimation and yield data.
Key Findings of the NSSO Survey:
The recent NSSO survey highlights positive trends in the informal sector:
- Post-Pandemic Rebound: The sector witnessed a 6% increase in the number of informal firms and an 8% rise in employment during the second half of 2022-23 compared to the same period in the previous year.
- Financial Improvement: The Gross Value Added (GVA) of the informal sector, a measure of its economic output, grew by 9.83% at current prices between October 2022 and March 2023 compared to the entire financial year 2021-22.
- Job Creation: Notably, there was a significant increase in jobs within the informal sector, particularly in the “other services” and manufacturing sectors. Estimates suggest that by 2022-23, there were approximately 65 million informal enterprises employing a workforce of around 110 million.
Challenges Persist:
Despite the recovery, the informal sector faces significant challenges:
- Lack of Contracts and Social Security: The NSSO data reveals that nearly 80% of informal workers lack written employment contracts, leaving them vulnerable in disputes. Additionally, 72% lack access to social security benefits like pensions or unemployment insurance. This limited access to social safety nets makes them more susceptible to economic hardship.
- Tax Evasion: Due to the informal nature of the sector, many businesses operate outside the tax framework. This can lead to a loss of revenue for the government, hindering its ability to invest in social programs and infrastructure development.
- Data Limitations: The lack of comprehensive formal data on the informal sector makes it challenging for the government to formulate effective policies that support its growth and address its specific needs.
Government Initiatives:
Recognizing the informal sector’s importance, the government has implemented various initiatives to promote its growth and eventual formalization:
- Skill Development Programs: Initiatives like the National Rural Livelihoods Mission (NRLM) and Skill India Mission aim to enhance the skills and employability of informal workers, allowing them to command better wages and improve their socio-economic status.
- Financial Inclusion: Schemes like Jan Dhan Yojana have facilitated greater access to banking services for individuals operating in the informal sector. This enables them to save money, receive government benefits electronically, and potentially access credit for business expansion.
- Social Safety Nets: Programs like Pradhan Mantri Garib Kalyan Yojana (PMGKY) provide temporary relief to vulnerable sections of society during emergencies, acting as a safety net during economic downturns.
- Infrastructure and Technology: Investing in infrastructure development, facilitating technology adoption within the informal sector, and simplifying regulatory frameworks can further empower informal businesses and promote their sustainable growth.
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