According to the recent SBI study, the share of the large informal sector in overall economic activities shrank rapidly in the year 2020-21 even though the informal workers have faced all the misery caused by the pandemic. In the year 2017-18, the economic output of this informal sector was 52% as compared to 20% in the year 2020-21.
There are huge variations among the levels of formalisation in different sectors, but as per SBI, it is estimated that the informal economy can hover around the range of 15% to 20% of formal GDP in the year 2020-21
On the other hand, as per the recent policy paper issued by IMF, it estimated that the share of India’s informal economy in the Gross Value Added (GVA) was at 53.9% in the year 2011-12, which was marginally reduced to 52.4% during the period 2017-18.
The informal sector contributes the most to the growth of the country. According to National Sample Survey conducted by National Sample Survey Organization (NSSO) in the year 2014, around 93% of the total workforce earned their livelihood as informal workers
Agriculture takes a hit
The SBI projections suggest that informal agriculture has shrunk from 97.1% of the sector in the period 2017-18 to 70-75% in the year 2020-21. The reason behind this drop is stated to be the increased beneficiaries from the Kisan Credit Cards.
Similarly, the construction sector, which employed a large number of workers, witnessed a massive drop and it almost reduced to half, i.e., 35-40%. It is the reason why there were large scale migration from the urban metropolitan areas to their respective states when the nationwide lockdown was imposed in India to combat the pandemic last year.
Amidst all the news, the report also brought some positive outcomes observed during this period. As per the estimate, about Rs 1.2 lakh crore of cash usage has been formalised since the outbreak of the Covid-19 pandemic
The sector of agriculture has also seen a rise as the formal agricultural credit flows have grown Rs 4.6 lakh crore between the period of 2017-18 to 2020-21 while digital payments for diesel and petrol rose around Rs 1 lakh crore in the corresponding period.
What is the informal sector?
As per ILO, the informal sector can be characterised by a range of economic units which are mainly owned, operated and maintained by individuals, and they usually employ one or more employees on a continuous basis. These units are usually engaged in the production of goods or services with the prime objective of generating employment and incomes for such persons.
This sector includes agricultural labourers, farmers, owners of small enterprises and people working in such enterprises and also the self-employed enterprises who do not have any hired workers.
The informal sector in India still accounts for more than 80 per cent of non-agricultural employment, even though the country has undergone high levels of economic growth during the past three decades.
These units usually operate at a low level of organisation, on a small scale with little or no division between labour and capital as factors of production. Labour relations in general, where they exist, are mostly based on casual employment, personal or kinship. Instead of contractual arrangements with formal guarantees, these are mostly based on social relations.