Mains Daily Question
Feb. 5, 2024
Q3 - “On India's path to become the Third largest economy in the world by 2027, increasing Informalisation of the Labour force acts as a major roadblock”. In this context, discuss the issue of Informalisation of the Indian economy and provide suggestive measures.( 10M/150W)
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Approach to the Answer: The Question raises the issues of “Informalisation” of the Indian economy and its adverse impacts which can hinder India's economic aspiration to become the World's third largest economy by 2027. Thus, one shall highlight the issues of Informalisation & its impact on the Indian economy. Towards the end, steps taken by the Government of India (GOI) for formalization of the economy & further suggestive measures can also be included. Introduction: In Introduction, one can take any of the two following approach:
Body: As the directive is to “discuss” the issue of “Informalisation” of the Indian economy; the question can ideally be divided into 3 sections: Section 1: In this section, the Reasons for the Informalisation of Indian economy & its adverse impact on India's growth prospects can be highlighted Section 2: In this section, one can suggest various measures taken by the Government of India to curb “Informalisation” & provide social security measures to the workers Section 3: Towards the concluding part, any suggestive measures from various committees or reports can be written to provide innovative solutions to the problem Conclusion: one can conclude by highlighting the need of Formalisation of Indian Economy to enhance labor productivity and create consumer demand to further propel the GDP growth. |
Answer: As per Periodic Labour Force Survey (PLFS), all the private enterprises that hire less than 10 employees and do not offer any kind of social security, come under the Informal or Unorganized sector category. In India, 90% of total labor force (435.66 million) contributing around 50% of the total GDP formulation forms part of the Informal economy.
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Additional information, you can use in your answer Status of Informalisation of the Indian Economy as per E-Shram Portal:
Reasons for increasing Informalisation of the Indian economy:
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“Informalisation” of the Workforce: Roadblock to India's economic aspirations:
- Poor capital augmentation: Most firms in Informal sector are “Micro” in size (where the investment in Plant & Machinery does not exceed ₹1 crore & turnover does not exceed ₹5 crore) thus deploy little capital for production
- Such small scale of production leads to substandard & unbranded quality of products with less demand in Global market. Eg- Adibas, Pooma shoes etc
- Poor integration with GVC: Low level marketing of products & limited quality leads to poor integration of these products in Global Value Chains (GVC) thus narrowing down the market for the products
- Lack of access to formal credit: These small informal firms have less access to cheap, reliable & long term credit by the Mega-Banks
- Global competition: Under India's “Open economy” policy after LPG reforms of 1991, these small informal firms faces stiff global competition from cheap & quality products being imported from China, Bangladesh & Vietnam
- Eg - Exports from Bangladesh to India has been increased by 42% in FY 2023-24
- Gender Disparity: Women which constitute more than half of Informal economy, receive least social security benefits such as Maternity leave and are involved into “lower paying” jobs
- Lack of “Formal” jobs also hinders women's participation in the workforce. Eg- As per PLFS 2019-21, female labor force participation rate dropped to 21% in 2021 compared to 33% in 2013-14.
- Socio-economic Exploitation of Labor: The workers involved in Informal sector in jobs such as Ragpicking, contract workers, platform workers etc faces several issues violating their rights under Article 21 (Right to dignified life) such as:
- Long working hours, low payment & difficult working conditions
- Low job security & job satisfaction
- Inadequate social security regulation
- Prevalence of Child & forced labor
- Governance bottlenecks: The Code on Wages 2019 which aims to provide “living” wages to workers is limited in its scope and efficacy.
- Eg- State Governments can refuse to include any job under Minimum wages criteria as “Labor” falls under State List in the 7th schedule
Thus, Informalisation of the Indian economy not only leads to the Shortfall of revenue for the Government of India but also dents the “Demographic Dividend” which is integral to India's aim of becoming “Viksit Bharat” or Developed country by 2047.
Steps taken by the GOI for “Formalisation of Indian Economy”:
- Prime Minister’s Employment Generation Programme (PMEGP): To create opportunities for self employment & micro enterprises with over 7 lakh micro enterprises assisted in becoming economically viable
- Lakhpati Didi scheme: To enable Women to start Micro-enterprises in rural areas under assistance of Self Help Groups (SHGs). Eg- Work of Kudumbashree in Kerala.
- Atmanirbhar Bharat initiative: To provide impetus on “Domestic manufacturing” thus boosting formal sector employment
- Labour Codes 2020: To provide social security benefits to the Informal sector including “Gig workers” or platform workers. Eg- Delivery personnel of Swiggy, Zomato etc
- E-Shram portal: To create National database for Unorganized sector workers for optimum regulation and extension of social security benefits
- PM-SVANIDHI: To provide affordable loans to Street vendors & people involved in goods & services like textile, artisan products, laundry services etc
Way forward: Steps that can be taken:
- Creation of Rural jobs: Decentralization of Industrial activity & development of rural areas to decrease pressure on “Urban jobs”.
- Skilling of the workers: Under National Skill Mission & Kaushal Vikas Yojana (KVY) to make workforce ready for demands of technology driven Industry 4.0
- Diversification of jobs: Creation of Job opportunities in “sunrise” sectors such as Rooftop power generation & manufacturing of solar power modules under Suryodaya Yojana launched in Budget 2024-25
- Emphasis on Labor intensive sectors: As per Swaminathan Commission Report 2006, GOI shall put impetus on labor intensive sectors & improve functioning of labor market
- Extending scope of Governance: Provisioning of disability cover, maternity benefits and educational schemes for children under Unorganised Workers Act 2008
- Strengthening of Workers Unions: Eg - Indian Federation of App based Transport Workers (IFAT)
To achieve the target of becoming the “Third largest” economy of the world, structural transformation of the workforce away from the Informal sector to Modern industries and Formal services is imperative to optimize labor productivity & create subsequent demand in the Indian economy.
