Informal economy down from 52% to 15-20% in 2020-21: SBI report

Ground Report | New Delhi: Informal economy down; The share of the informal sector in the Indian economy has declined to 15 to 20 percent in 2020-21, from 52.4 percent in 2017-18. According to a study by SBI Research, the share of the informal sector has declined due to digitization and rapid expansion of the gig economy.

Soumya Kanti Ghosh, the group chief economic advisor at State Bank of India, said, "Currently, the contribution of the informal economy to gross value addition is likely to be maximum 15 to 20 percent." It was at 53.9 percent in 2011-12.

The exercise of formalizing the economy was started during 2011-12 to 2017-18 but this exercise gained momentum from 2017-18 to 2020-21. The study showed that since 2016 the acceleration in digitization and the emergence of the gig economy has led to a rapid increase in the share of the formal sector.

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The study referred to the statement of the International Monetary Fund (IMF) which said that the adoption of the Goods and Services Tax (GST) in India, promotion of digitization, and demonetization have accelerated the formalization of the economy. It advised the government that even as the economy is formalised, it is important to have a direct tax on fuel and a better tax structure to help honest taxpayers. 

The study estimates that 114 million taxpayer households, or 8.5 percent of the total population, with few exceptions, contributed Rs 75 lakh crore or 65 percent to private final consumption expenditure and covered 91.5 percent of the population's subsidy during FY21.

The report said that over the years, the government has made several attempts to formalize the same. One of the sources to analyze the extent of formality is the monthly EPFO ​​Payroll Report which provides data on establishments sending the first ECR (Electronic Invoice-cum-Return) in a particular month.

"Based on this data, we estimate that around 36.6 lakh jobs have been formalized by August 2021," the SBI report said. Then there is the e-shram portal, India's first national database of unorganized workers, on which 5.7 crore workers have registered till 30 October. Sixty-two percent of the workers are in the 18-40 age group, and 92 percent have a monthly income of less than Rs 10,000, it said.

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As per the SBI report, agriculture sector workers have 55 percent registration, followed by the construction sector (13 percent). Of the 5.7 crore registered workers, 81.2 percent - or 4.6 crore - have bank accounts, but only 24 percent of them (1.1 crore workers) have Aadhaar-linked bank accounts.

“E-labor is a major step towards formalization of employment as our calculations indicate that till date the rate of formalization of unorganized labor due to e-labour is around 17 percent or Rs 6.8 lakh crore or 3 percent of GDP. Is. 2 months,” the report said.

The report said, “In agriculture also, the use of KCC cards has increased significantly and we estimate that Rs 4.6 lakh crore will be formalized through the KCC route alone, banking more marginalized farmers through such use. coming within the scope of the area."

According to SBI Research, the largest share of the unorganized sector is in the agriculture sector. Agriculture has been made formal by about 22 to 27 percent by increasing the coverage of Kisan Credit Card from FY 2018. Informal share in agriculture is still 70 to 75 percent from 97.1 percent in FY2018 and 96.8 percent in FY12.

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According to the study, the Kisan Credit Card has been estimated to come into the formal sector to the tune of Rs 4.6 lakh crore. The share of the informal sector in all sectors of the economy has declined.

According to the report, the informal size of the business, hotel, transport, communication, and broadcasting sectors, which employ about 17 crore households as per the 2011 Census, is 40 percent. The informal sector is about 34 percent in construction and about 16 percent in public administration. The manufacturing sector has an informal component of about 20 percent.

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