Harnessing the Potential of the Informal Economy

An ailing informal sector is of great concern for the Indian economy as the sector provides employment to a very substantial segment of people in the country. As per a recent estimate, 90 per cent of India’s workforce is engaged in the unorganised sector which contributes around 50 per cent of the country’s GDP. India has approximately 109.6 million workers in the unorganised sector at present, which is much lower than the number of workers employed in the sector in the past. Nearly a decade ago, the number of employees in the informal sector was as high as 111.3 million as per a survey conducted by the National Statistical Office (NSO). But since then the sector has been affected by various factors such as demonetisation, GST and the Covid pandemic. As a result, the number of employees in this sector has gone down considerably. The process of recovery from such setbacks is alarmingly slow as is evident from the fact that the sector has only managed to employ 11.7 million people in between October 2022 to September 2023. Renewed efforts are necessary to bring the sector out of its present slump as its weakening may cause irreparable damage to the country’s economy.

The importance of the informal sector in the Indian economy can be as ascertained by the fact that among India’s total workforce, only 9.7 per cent or 47.5 million people are employed in the organised sector. The organised sector is one that is regulated by the government and employees get at least one social benefit such as pension and health insurance. On the contrary, there are approximately 65-70 million unorganised businesses in India, which on average employ two to three persons per unit. Thus, the said sector absorbs more people than the organised sector and helps the country keep the rate of unemployment under control. What is worrying is that because of external setbacks the sector has suffered in recent times, more than 10 million such units have been closed, leaving almost 30 million skilled, unskilled and semi-skilled persons in the country jobless.

Under these precarious circumstances, the government has an important role to play in ensuring the revival of the informal sector in the country. On its part, the government should enforce a new set of rules to facilitate more units to come up. At the same time, terms and conditions to get loans from financial institutions including nationalised banks should be made relatively easy for small entrepreneurs to get them interested in making investments. Moreover, SOPs like tax benefits among others can also be offered to this sector. In addition, making modern technologies available to the sector must also be a priority for the government as it will largely improve the productivity of businesses belonging to the informal sector. With the country opting for a liberal economic system, it is unlikely that many more public sector businesses  will be set up in the future. Thus, we must prioritise and harness the potential of the informal sector to push forward India’s economic growth.