- Informal Sector Dominance: India’s informal sector employs 93% of the workforce.
- Recent Growth: In 2023-24, the sector saw:
- 12.84% increase in establishments.
- 10.01% rise in workforce.
- 16.52% growth in Gross Value Added (GVA).
Current Status of Formalisation
- Definition: Formalisation means bringing informal economic activities under government regulation.
- GDP Contribution: Formal sector’s share in GDP has risen to 56%.
- Taxpayer Growth: Number of individual taxpayers increased from 51 million (2013) to 90 million (2022).
- EPFO Registrations: Over 6.91 crore members joined EPFO between September 2017 and July 2024, with significant new registrations.
Key Issues Hindering Formalisation
- Micro and Small Enterprises: Dominated by micro-units that see little value in formalisation due to compliance costs.
- Rigid Labour Laws: New codes not fully implemented; fear of compliance discourages hiring.
- Infrastructure Gaps: Lack of basic services in rural areas prevents transition to formal operations.
- Exclusionary Employment Schemes: Current schemes often require prior formal registration, excluding many informal workers.
- Gender Barriers: Women face challenges in accessing formal jobs and ownership opportunities.
Measures to Enhance Formalisation
- Rationalise Compliance: Simplify regulatory thresholds for micro enterprises to ease formalisation.
- Expand ELI Schemes: Restructure Employment-Linked Incentive schemes to include informal employers.
- Cluster-Based Approach: Implement region-specific packages to support informal hubs in various sectors.
- Gender-Sensitive Strategies: Create tailored support for female-led enterprises to enhance inclusion.
- Incentivise Digital Adoption: Encourage digital payments and bookkeeping among informal businesses.
- Strengthen Infrastructure: Invest in rural digital infrastructure and services to facilitate onboarding to formal platforms.
- Public Procurement Reforms: Reserve government contracts for registered informal enterprises transitioning to formal status.
- Leverage Labour Codes: Implement labour codes uniformly to encourage scalable formalisation.
Way Forward
- Need for Balanced Approach: Simplifying compliance and leveraging technology can drive sustainable growth. Strengthening last-mile connectivity and financial incentives is vital for integrating informal workers into the formal economy.