e-Commerce: The New Boom

The State of India’s Informal Economy    

Explained | Economics | Mains Paper 3: Indian Economy
Note4Students

From UPSC perspective, the following things are important :

Prelims level: About NSSO

Mains level: Key highlight of recent survey by NSSO

Why in the news? 

The NSSO’s 2021-22 and 2022-23 survey outcomes reveal effects of significant economic shocks due to demonetisation, GST implementation, and the COVID-19 pandemic on India’s economy.

About NSSO: 

  • The NSSO is India’s premier agency for conducting large-scale nationwide sample surveys on socio-economic aspects that collects data on employment, consumption, health, education, and other areas to provide essential inputs for policy and planning.
  • The NSSO was merged with the Central Statistical Office in 2019 to form the National Statistical Office.

Key highlight as per the recent survey by NSSO   

  • Impact of Economic Shocks: The surveys reflect the aftermath of major economic events such as demonetisation (November 2016), the rollout of GST (July 2017), and the COVID-19 pandemic (starting March 2020).
  • Employment Trends: There has been a noticeable decline in employment within the informal sector over the past seven years, with around 16.45 lakh jobs lost.
  • Sectoral Dynamics: The unincorporated manufacturing sector saw a significant contraction, with the number of enterprises declining by 9.3% from 19.7 million in 2015-16 to 17.82 million in 2022-23.

What are unincorporated enterprises?  

  • Unincorporated enterprises are informal businesses not legally registered as companies.
  • They include MSMEs, household units, own-account enterprises, and partnerships, operating outside formal regulatory frameworks but contributing significantly to employment and economic activity.

Why are these survey results important and what do they represent?  

  • Timely Insights: These survey results offer current data crucial for understanding the evolving role of the informal sector in job creation, particularly during economic slowdowns when formal sector employment may decline.
  • Impact Assessment: They provide a detailed analysis of how significant economic events like demonetisation, GST implementation, and the COVID-19 lockdowns have affected the informal sector, highlighting vulnerabilities and resilience.
  • Policy Relevance: The findings inform policymaking aimed at supporting and regulating the informal sector, ensuring that measures address its unique challenges and contributions to overall economic stability and inclusivity.

What has been the pattern of ‘Informal Employment’ across states?

  • The data shows a mixed pattern across states, with 16 out of 34 states/UTs recording a decline in informal sector workers in 2022-23 compared to 2015-16.
  • Around 63 lakh informal enterprises shut down due to GST between 2015-16 and 2022-23, resulting in a loss of about 1.6 crore jobs.
  • The number of informal enterprises plunged from 50.32 lakh with 85.6 lakh workers in April-June 2021 at the peak of the COVID-19 second wave, to 1.91 crore firms with 3.12 crore employees in January-March 2022.

Way Forward: 

  • The government should provide targeted support and incentives to help informal enterprises adapt to the post-GST and post-pandemic environment.
  • Policymakers should aim to facilitate a gradual transition of informal enterprises to the formal sector.

Mains PYQ: 

Q How globalization has led to the reduction of employment in the formal sector of the Indian economy? Is increased informalization detrimental to the development of the country? (UPSC IAS/2016)

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