Is Indian Economy Formalised – Burning Issues – Free PDF Download

The News

First things First…

• India has a large informal economy with around 93% of its total workforce earning their livelihoods as informal workers according to NSSO 2014.
• Please note that the pandemic has led to huge devastating impact on all the sectors of the economy, the impact has been felt more by the informal sector.
• While, the formal sector is now back to its pre-pandemic level, the informal sector still continues to bear the brunt.

First things First…

• However, there has been a positive development in the Indian economy amidst the pandemic.
• Owing pandemic led reasons and various efforts of the Government, there has been an increase in the formalisation of the economy.
• According to SBI research based on specific examples, at least Rs 13 lakh crore has come under the formal economy through various channels since 2018.

Formalization of Economy

Formalization of Economy

Formalization of Economy

Formalization of Economy

Formalization of Economy

But Why?

• A combination of demonetisation and implementation of GST set the pace for cashless transactions in business and reduced the cash intensity of the economy. These reforms triggered a process of transformation of the economy from cash to formal finance.
• Although these laid the foundations, it was the Covid-19 pandemic that provided a further opportunity to accelerate the process of digitalisation. Formalisation got a boost during this time through greater proliferation of digital transactions.
• Apart from this, government initiatives like e-Shram, EPFO etc have also contributed to trend of formalization.

The Other Side

• It is true that total workers registered with EPF and unorganised workers registered at e-Shram portal is going up. But still, from the report, two large sectors, Agriculture and MSMEs are out.
• In case of high levels of formalization of economy, the tax-to-GDP ratio would have gone up significantly.
  • However, it has only gone up from around 16.5 per cent to 17.5 per cent only.

The Other Side

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