THE REAL STORY OF THE SHRINKING INFORMAL SECTOR OF INDIA - Jaisveen Kaur Kohli

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After the strike of nationwide lockdown due to the COVID-19 pandemic, the Indian Informal sector is facing the consequences of another paradoxical situation that has been driving its decline in the economy. The Informal Sector has been struggling since the implementation of demonetization and GST in 2016 and 2018, respectively, it is now also said to be impacted by the digitisation and expansion of the gig economy. 

What is the story about?

According to a report released by the State Bank of India, the contribution of the Informal Sector to the GDP of India has experienced a drastic reduction from 52 per cent in 2017-18 to merely 15-20 per cent in 2020-21. These shifts from the unorganised to the organised sectors have been caused by two key variables. The formalisation of the firm takes precedence over the formalisation of the informal labour force. While in the former case, firms are merely transitioning from the informal to the formal sector of the economy, in the latter case, the formalisation of the firm and/or the formalisation of an existing formal enterprise's informal workforce could be the result.

The Real Situation of the Informal Sector

The introduction of the E-Shram portal and Kisan Credit Cards have been contributing to the formalisation of the sector with an income of 13 lakh crores, now, being reported under the formal sector of the economy. While this might suggest an achievement from the outside, there are no reports on the corresponding improvement of the informal sector in terms of wages, insurance or standard of living of the labour. According to the data on the E-Shram portal, approximately, 92 per cent of the registered labour earn a monthly income of less than Rs 10,000. In addition to this, the Labour Bureau has reported that the wages of the non-agriculture workers experienced a decrease of 0.4 per cent per year. Owing to all this data, the conditions of the informal sector, and the Indian Economy, seem to be suffering, rather than improving. With the omission of the definition of the informal sector, it might be concluded that the ambiguity posed by the term ‘informal economy’ is adding to the uncertainty on the improvement of the economic conditions. Another factor driving this formalisation has been the shift of the self-employed workers to the daily or casual labours in the formal sector of the economy. It is also important to note that since it is difficult to calculate the income of the informal sector at a mass level, the contribution to GDP is most likely to be an estimated figure. 

Conclusion

Hence, the report released by SBI claims that the decline of the Informal Sector might be misleading in terms of the real situation of the unorganized labourers. The shrunk informal sector might result in the superficial removal of these workers from the radar of welfare. Thus, SBI’s report might be painting a bright picture in the minds of the readers which, in reality, might not be this colourful. A deeper analysis of the report and the claims made by SBI might bring out some concrete evidence in determining where the Indian Informal Sector is heading. 




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