There is a positive sign in the informal economy getting formalized. In 2020-2021, there has been a large shrink in the informal economy in India. While 2017-18 was 52 per cent, the informal economy has now shrunk to 15-20 per cent of the total economic output, The Indian Express quoted an SBI report as saying. Earlier reports had revealed how approximately 13 lakh crore comes from different channels added to the formal economy. It is a positive indication that all the digitization moves of the Centre getting a green signal.
The informal economy includes the economic activities, workers, and all such jobs that the state government is not regulated or protected. It is the self-employed sector of the society that earns daily under unprotected laws. In short, this sector is not on paper but somewhere that covers some part of the economy. In India informal economy was maximum, and now it has been reduced from 52 per cent to 15-20 per cent and added to the formal sector.
What Brings Such A Drastic Shrink In The Informal Economy?
After demonetization, there were so many other measures too taken by the government. One such boon in the formal economy is digitization! People shift towards all digital transactions, resulting in a faster formalization rate than any other nation.
In the last few years, under the e-Shram scheme, a portal for registering unorganized workers approx 5.7 workers have been registered under this scheme, and ECR (Electronic Challan cum Return) a payroll report every month. All these measures are the reasons behind such a significant fall, the report said.
Why The Formal Economy Is A Must In Developed Countries?
The most developed nation, the US has an informal economy constituting 9 per cent of the total GDP. Comparing it to our nation, there is a long run to go, but as India is a developing nation achieving a shrink of 15-20 per cent in the informal economy is also an achievement.
As per the National Sample Survey 2014, 93 per cent of the workforce work under informal sectors in India. But the E-Shram scheme somewhere played a significant role in this.
During the COVID-19 lockdown, many people lost jobs while many workers migrated. Some entrepreneurs were facing cash flow issues, and also, workers under informal economy were out of clues and migrated along with their families.
There is a large share of small and medium enterprises in the informal economy they usually don't have stable employment and mom wage benefits. But after lockdown, digitization proved to be a boon because all these firms require external funds to regrow, which they obtain from banks or other official intermediaries. This needs on paper reports, and all the assets need to be displayed. This is the biggest reason behind such an informal boot economy.