India Economy

Why India Needs to Focus on its Informal Sector

81% of all employed persons in India make a living by working in the informal sector
Why India Needs to Focus on its Informal Sector
Image credit: Komar | Shutterstock.com
Entrepreneur Staff
Senior Correspondent, Entrepreneur India
3 min read

You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

Away from the tussle of the laws and regulations, the Indian informal sector has found a comfortable grey area for itself. Since times immemorial, the informal sector in India has been thriving on its own. Despite the government's measures to bring a structure to the economy with policies like GST, the informal sector has continued to grow.

In a latest report done by the International labour organization, 81% of all employed persons in India make a living by working in the informal sector, with only 6.5% in the formal sector and 0.8% in the household sector. India's stand is worse than its neighbouring countries Pakistan, Sri Lanka and Bangladesh

Entrepreneur India takes a look at why and how the government needs to turn its focus on the Indian informal sector

To Measure Growth

For the Indian government, to measure the real growth of the Indian economy, it is necessary to put an umbrella over the informal sector and dig deep into the irregularities present there. According to recent reports, the Modi government is looking at mapping the informal sector. Only if the sector is tapped, will the government be able to capitalize on the market growth or do a real assessment of the sector's employment opportunities.

Digitization - A Step in the Right Direction?

The informal sector in India has for long been under the ire because of its cash-driven transactions which are often not accounted for. The sector often has a negative precedent because of the untaxed and unregulated processes, which also lead to under the table transactions.

With the digitization drive, the Indian government is pushing for even the informal sector to be regularized. Once digitized, this sector which has long been dealing with papers and forms (which also go missing all the time), will have a transparent order in place. This will in fact help the government to tap the sector and bring the transactions undertaken here within its records. Demonetization too was a step in this direction to hold the sector accountable for its thousands of cash-based transactions.

Alliance for Informal Sector

While the corporations have bodies that don't just represent them at a central level but also regulate laws to keep an order, the informal sector has been devoid of such regulatory bodies. The vastness of the sector has made it impossible so far to encapsulate all of them under a body which doesn't just regulate them but also looks into the needs of the sector.

However, this has also been a reason for the growth of the informal sector. Away from the chains of labour laws and bodies, the informal sector has managed to squeeze itself within different sectors also offering employment opportunities to millions.

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