Formalization of Indian Economy
What is Formalization?
This is subject to laws related to manufacturing and income tax.
It includes firms providing some kind of social security to their employees
It means bringing companies under the regulatory regime of government
Share of the informal sector in India
Informal enterprises include unincorporated small or unregistered enterprises
Also includes informal workers in the formal sector
90.6% of India’s workforce was informally employed
Informal employment increased as workers who lose formal jobs during the COVID
As per Periodic Labour Force Survey, 2017-18:
Advantages of formalisation
More funds for social spending
Reduce black money
Scale and productivity
Labour welfare
Increased tax returns
Growth and development
Issues with formalisation
Red-Tapism
Cost of compliance
Skill requirement
Regulatory burden
Loss of jobs
Impact of COVID-19 on Informal Sector
Failure of self-reliant package of government
Social disturbances
Poor farmers entered unorganized sector
Three-fold increase in urban-unemployment rate
Migrant workers entered into web of insecure jobs
Way forward
Skilling the labour
Social security
Simpler regulatory framework
Reducing decent work deficit
Labour intensive growth
Steps taken by Govt.
Labour Laws reforms
Changes in EPFO and ESI
GST and Demonitization