Employers who do not give social security to their employees are considered part of the informal sector. It is defined as a group of economic entities that are mostly owned and run by individuals and employ one or more people on a regular basis.

Farmers, agricultural labourers, small business owners and employees, as well as self-employed individuals who do not employ others, are all included.

Effect

The three major structural changes in the Indian economy, — demonetisation, introduction of Goods & Services Tax and pandemic and the related lockdown on the informal sector in the economy.

• A disproportionately larger number of employment were generated in rural India after demonetisation. The reality is not as rosy as it appears, since earnings in rural India are 2.5 times lower than in urban India. As a result, during the next few years, total pay levels and GDP fell.

• Workers in the informal sector suffered significantly more than their official sector peers during the nationwide shutdown in 2020. There were heartbreaking reports of displaced informal labourers attempting to return to their rural communities due to a lack of a safety net.

• The goods and services tax (GST) has brought more informal sector businesses into the tax net and will continue to drive the economy toward formalisation.

Initiatives taken

• Atmanirbhar Bharat Abhiyan
• E-Shram Portal
• The Parliament passed three labour codes — on industrial relations; occupational safety, health and working conditions; and social security
• Deendayal Antyodaya Yojana National Urban Livelihoods Mission
• Pradhan Mantri Shram Yogi Maan-dhan

Way forward

• Taking Care of Migrant Workers: The overall number of vulnerable migrant workers ranged from 115 million to 140 million, according to the Institute of Human Development Report. As a result, it is critical that the proposed regulations explicitly specify how their application would affect the migratory informal labour.
• Recognizing Invisible Labor: As soon as possible, a national strategy for domestic workers should be implemented to recognise their rights and improve working conditions.
• Investing in social security programmes like as the Atal Pension Yojana, PM Jeevan Jyoti Yojana, and Rashtriya Swasthya Yojana. Aam Aadmi, Bima Yojana Bima Yojana can assist employees better their situation. The inclusion of Universal Basic Income in the 2016-17 Economic Survey is a step in the right direction.
• Large corporate entities should also take responsibility for skilling workers in the unorganised sectors as part of their CSR (Corporate Social Responsibility) investment. They will not be accommodated in the formal sector unless they are trained and educated, and efforts to formalise will end in unemployment.
• Simpler regulatory framework: The informal sector can only move to the formal sector if it is relieved of the weight of regulatory compliance and given sufficient time to acclimate to the contemporary, digitised formal system.
• MSME Strengthening: MSMEs employ about 40 percent of the informal workforce. As a result, it is logical that the development of MSME would contribute to economic recovery, job creation, and economic formalisation.

https://www.thehindubusinessline.com/opinion/informal-sector-the-perception-and-the-data/article65407343.ece

How to structure

1. Give a brief intro about Indian economy
2. Give the 3 major structural changes
3. Analyse the impact on informal sector with examples
4. Suggest further measures
5. Conclude