Day 15 – Q 2. The formal sector alone can’t meet the demand for employment. Do you agree? What are the challenges with the informal economy when it comes to employment generation? (10 Marks)

2. The formal sector alone can’t meet the demand for employment. Do you agree? What are the challenges with the informal economy when it comes to employment generation? (10 Marks)

केवल औपचारिक क्षेत्र ही रोजगार की मांग को पूरा नहीं कर सकता। क्या आप सहमत हैं? जब रोजगार सृजन की बात आती है तो अनौपचारिक अर्थव्यवस्था के साथ क्या चुनौतियाँ होती हैं?

Approach

Students are expected to write about the background of Indian workforce in introduction. Highlight how formal sector is driver the growth but it will be informal sector to spur Indian growth. Write challenges of informal economy for creation of employment. 

Introduction

In developing countries like India, as per ILO large share of the population typically depends upon the informal economy. The economic growth and development in general and livelihood and wages in particular of the vast majority of workers in India crucially depend on the economic viability of the informal sectors. 

Body

• Formal sector are likely to be an important near term driver of growth. India’s global market share of services has continued to rise, revealing a growing comparative advantage. 
• With the pandemic likely to provide a renewed thrust to off-shoring of formal sector in India must stand ready to grab the opportunity, from both a regulatory and supply perspective.
• According to Periodic Labour Force Survey – Over 90 percent of workers in India are informal workers. Therefore informal sector will be vital to India’s growth prospects over the next decade.
• It is time to use the opportunity that the informal sector provides to strengthen and support it. This is not only essential for economic growth but the only way for growth with jobs.

Challenges in the Informal Economy for generation of employment:

• Issues of Exclusion: While on paper, the draft rules envisage wider coverage through the inclusion of informal sector and gig workers, at present the draft rules apply to manufacturing firms with over 299 workers. This leaves 71 per cent of manufacturing companies out of its purview.
• Burden of Administrative Processes: The draft rules mandate the registration of all workers (with Aadhaar cards) on the Shram Suvidha Portal to be able to receive any form of social security benefit. Failure to register (Aadhar –driven exclusion or lack of adequate knowledge about process) will make then ineligible for the benefits. Also, migrant workers face the challenge of mandatary updating information on the online portal at regular intervals.
• Ambiguity on applicability of benefits: It is unclear if a migrant worker with an Aadhaar card registered in her/his home state of Bihar be eligible for social security benefits in Gujarat where she/he is currently employed.
• No-Right Based Framework: The Code does not emphasize social security as a right, nor does it make reference to its provision as stipulated by the Constitution. In addition, it does not stipulate any appropriate grievance redressal mechanism which will leave millions of workers vulnerable without clear social protections.

Wayforward

• Upgrade the skills of those who are already in the informal sector with government support through easier access to credit, technology and availability of markets.
• A social security architecture to be provided by the government for informal sector workers. 
• Less of regulation and more of support as against the government policy of more regulation and no support. 
• Any attempt to regulate and bring the informal sector into the tax network will only add to costs without increasing productivity. 
• Creating an eco-system to improve competitiveness and boost exports more broadly will be vital to India’s growth prospects over the next decade.