Shrinking of Informal sector in 2020-21

Shrinking of Informal sector in 2020-21

Part of: Prelims and GS III – Economy

Context According to the SBI in a research report, there has been a greater shift towards formalisation of the economy.

• The share of the informal sector in overall economic activity has reduced sharply in 2020-21 even as informal workers continue to bear the brunt of the pandemic’s adverse effects.
• The informal sector consists of “own-account” or unorganised enterprises employing hired workers, with the highest share of such unorganised activity being in agriculture where holdings are small and fragmented.

Key takeaways 

• The share of the informal economy may have shrunk to about 20% of the economic output from about 52% in 2017-18.
  • It has been termed as positive development amid the pandemic.
• Besides, an IMF policy paper earlier this year estimated that the share of India’s informal economy in the Gross Value Added (GVA) was at 53.9% in 2011-12 and improved only marginally to 52.4% in 2017-18.
• As per a National Sample Survey (NSS) of 2014, around 93% of the workforce earned their livelihoods as informal workers.