Informal is normal 

Informal is normal 

Context:  

• After a year of demonetisation in India it is time that the informal sector is given the much need attention.
• It is to be understood that both the formal and informal sector move in parallel lines for the betterment of the country’s economy.

What is  the meaning of demonetization?

• Demonetization is the act of stripping a currency unit of its status as legal tender.

It occurs whenever there is a change of national currency.
Purpose:

• Demonetization is necessary whenever there is a change of national currency.
• The old unit of currency must be retired and replaced with a new currency unit.
• The move is also taken to curb the menace of black money, fake notes and corruption by reducing the amount of cash available in the system.

In the context of India:

• On November 8, 2016 Prime Minister announced that Rs 500 and Rs 1000 denomination notes will become invalid.
• The government introduced new notes of Rs 2,000 and Rs 500 .

What are the impacts of demonetisation on the informal sector of India?

• Decline in growth of economy: The recent estimates show that the Indian economy grew at only 6.1% in the fourth quarter of 2016-17 compared to the expected 7.1%.
• Gross value added growth at basic prices also declined from 6.7% in the third quarter to 5.6% in the fourth quarter and is much lower than 8.7% in the fourth quarter of 2015-16.
• Labour: Demonetisation has hurt the informal economy and triggered a rush for distress labour under job guarantee scheme (MGNREGA).
• Restriction on cattle market: The cattle market restrictions are especially damaging to farmers, as it will lower the price of their livestock and make its sale difficult.
• The ban will also adversely affect the livelihood of millions of people working in beef and leather industry.
• Misconception: The government see the informal and the formal sector as two clearly distinct groups.
• As a result, many of their arguments are based on a hidden assumption that the informal sector is not involved in the market exchanges with the formal sector.
• When the decline in sales and prices spreads from the informal sector to the formal one, the financial situation of the country is effected as a whole.

What are the measures to be taken?  

• There is a need to strengthen government schools and health facilities.
• This could disproportionately benefit poor and low-income children and families who likely operate in the informal economy.
• There should be focus on improving productivity of informal enterprises by creating awareness of good business practices and prevailing market conditions.
• Reducing the threat of coercive government regulation and action can also help informal workers earn a living without constant harassment of police and inspectors.