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News: SBI Research study claimed that there is greater formalisation of the economy
According to a recent State Bank of India (SBI) Research report, the informal economy in India has been shrinking since 2018.
The report claims that the share of the informal sector is just 15-20% in 2021 compared to 52.4% in 2018.
According to the report, Formalisation, has taken place through the gross value-added (GVA) route, consumption through increased digital payments, and the employment route.
However, the report’s claim is unfounded.
What is the definition for informal enterprises?
According to ILO, informal enterprises are defined as,
Household enterprises not constituted as separate legal entities independently of the households or household members that own them, and for which no complete accounts are available and those without social security.
Why the report’s claim is unfounded?
Firstly, The SBI study adopts multiple definitions of formality (digitisation, registration in GST, cashless payments), which are not used by anyone.
Secondly, The SBI study confuses the shrinking of the informal sector’s share of the GDP due to demonetisation and COVID-19’s impact on the economy with formalisation.
Thirdly, the formal sector has been treated as a homogenous entity in the study. In reality, there are various layers within the formal sector. Not all workers engaged in the formal sector are ‘formal’. There has been large-scale informalisation of the formal sector over the last three decades through contractualisation and outsourcing of labour. As a result, the proportion of non-permanent, casual and contract workers increased in the organised sector from 1999-00 to 2011-12.
Fourthly, registration under miscellaneous laws does not imply that they have become formal. For instance, registration under acts like local municipal acts or tax laws does not indicate formalisation.
Read more here:
– High cost of India’s illusive quest for formalization
– An estimate of a big formal shift that stretches credulity too far
– Big claims of rapid economic formalization are suspect
Source: This post is based on the article “India’s informal economy has not shrunk” published in The Hindu on 1st Dec 2021.
