How do you view the growth of informal sector in India?

Historical Context and Drivers of Growth

The growth of the informal sector is deeply rooted in India’s development trajectory. Post-independence, the emphasis on a regulated, formal sector often overlooked the needs of a large, agrarian population. Land reforms were incomplete, and industrialization didn’t generate enough formal employment opportunities. This led to a ‘push’ factor, forcing people into informal activities for survival. Furthermore, the ‘pull’ factors, such as lower barriers to entry, reduced compliance costs, and flexibility, attracted entrepreneurs and workers to the informal sector.

Characteristics of the Indian Informal Sector

• Small Scale Operations: Predominantly micro and small enterprises with limited capital and technology.
• Lack of Formalization: Absence of registration, licensing, and adherence to labor laws.
• Vulnerability of Workers: Low wages, job insecurity, lack of social security benefits (health insurance, pensions, etc.).
• Heterogeneity: Includes a wide range of activities – street vending, construction, domestic work, agriculture, manufacturing, etc.
• Geographical Concentration: Often concentrated in urban slums and rural areas with limited infrastructure.

Socio-Economic Implications

Positive Impacts

• Employment Generation: Provides livelihood to a vast majority of the population, particularly the vulnerable sections.
• Economic Resilience: Acts as a buffer during economic downturns, absorbing surplus labor.
• Entrepreneurship: Fosters self-employment and small-scale entrepreneurship.
• Supply of Goods and Services: Provides affordable goods and services to low-income households.

Negative Impacts

• Exploitation of Labor: Workers are often subjected to poor working conditions and low wages.
• Revenue Loss for the Government: Lack of tax compliance leads to significant revenue losses.
• Hindrance to Formal Sector Growth: Unfair competition from the informal sector can stifle the growth of formal enterprises.
• Social Inequality: Perpetuates social inequalities and vulnerability.

Government Initiatives and Challenges

The government has launched several initiatives to address the challenges of the informal sector. The Pradhan Mantri Shram Yogi Maan-dhan (PMSYM) scheme (2019) provides a minimum assured pension to workers in the unorganized sector. The e-Shram portal (2021) aims to create a national database of unorganized workers to facilitate access to social security benefits. However, challenges remain in extending social security coverage, improving working conditions, and promoting formalization. The Code on Social Security, 2020 aims to consolidate and simplify labor laws, but its implementation faces hurdles.

The Impact of Globalization and Technological Change

Globalization and technological advancements have had a mixed impact on the informal sector. While they have created new opportunities in some areas (e.g., online platforms for gig workers), they have also led to increased competition and job displacement in others. The rise of the ‘gig economy’ presents both opportunities and challenges, requiring new regulatory frameworks to protect the rights of platform workers.

Sector	Formalization Challenges	Potential Solutions
Agriculture	Small landholdings, lack of access to credit and technology	Strengthening farmer producer organizations, promoting contract farming, providing access to irrigation and market linkages
Construction	Seasonal employment, lack of skill development	Skill development programs, providing access to affordable housing, ensuring safe working conditions
Manufacturing	Compliance costs, lack of infrastructure	Simplifying regulations, providing access to finance, improving infrastructure