Context: An overview of strategies needed to drive formalization of India’s vast informal sector.
About informal sector
Size: Consists Of casual workers and self-employed persons, accounting for 80% of the workforce and 50% of the GVA in India.
Challenges:
Informal enterprises are small in size and deploy very little fixed capital.
Majority of informal enterprises are semi-permanent in nature and with low margins of profit.
Sub-optimal and wages are low, mainly driven by low levels of labour productivity.
High levels of corruption:
On one hand, corruption prepares the breeding ground for informal enterprises, and, on the other hand, it effectively curtails any scope of their transition into viable economic entities.
This vicious life cycle of labour-dystocia and severely stunted growth of informal sector enterprises is the crux of pervasive and persistent informality.
Increasing concentration of workers in low productive jobs: Micro enterprises constitute more than 90% of total enterprises in the total formal and informal sector.
Supply shocks: On backdrop of Covid-19 pandemic.
Way forward
Incremental processes: Facilitating the natural progression of enterprises from informal to formal.
Policies to deter factors behind the creation of new informal enterprises:
Correct incentive regime: That promotes voluntary dwarfism in the informal sector.
Effective use of technology: E.g.
Shram Suvidha Portal - Transparent and accountable one-stop-shop for compliance with labour laws.
The Startup India Mission nudges the enterprise eco-system towards formalization.
Expand the concept of portability: Portability of benefits (welfare measures for workers and incentives for enterprises) imparts agility and dynamism to informal enterprises.
Migrate to optimum industrial locations: Facilitating up-gradation of competitiveness through effective forward and backward linkages.
Leveraging Skill India Mission: According to the Ministry of Skill Development and Entrepreneurship’s Annual Report 2018- 19, India needs 614 million workers, about 15% of them in construction and real estate alone.
Under PMKVY 2.0, National Skill Development Corporation (NSDC) has trained 7.3 million persons by December 2019.