The Big Picture - Formalising Informal Economy

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A vast majority of India's workforce is informally employed - those who work outside of formal establishments, in un-incorporated private enterprises and mostly without any social security benefit. A new research now finds that Modi 1.0's reforms and policies have managed to push ahead with the greater formalisation of the country's workforce. More than seven million jobs have been formalised between 2015 and 2018, a study commissioned by the Indian Staffing Federation stated. The policies that contributed to formalisation include the introduction of the Goods and Services Tax, demonetisation, EPF reforms, Skill India initiatives, Fixed Term Contract Reform, as well as the Maternity Benefit reform. These reforms could contribute to even more of India's workforce transitioning to the formal, going ahead. The study, projects, that about 11 million more jobs will move to the formal sector between 2018 and 2021. Of the seven million jobs that shifted to formal sector in 2015-18, EPF reforms contributed 18.16 per cent, ESIC 17.68 per cent, GST 15.32 per cent, Skill India initiatives 13.10 per cent, demonitisation 12.35 per cent, maternity reforms 11.83 per cent, and Fixed Term Contract 11.56 per cent. On this edition of the big picture we will take a closer look at the informal sector.

Guest - Aman Agarwal, Director, Indian Institute of Finance
Ajay Dua, Former Secretary, Ministry of Commerce & Industry
Yatish Rajawat, Senior Journalist

Anchor - Frank Rausan Pereira

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* India’s 84% of estimated 500 million workforce is in the informal sector.
* Recent report by the Indian Staffing Federation states that more than 7 million jobs has been formalised between 2015 and 2018 and it also projects 11 million more jobs will move to the formal sector between 2018 and 2021.

Factors of formalisation:

* EPF reforms and ESIC
* Introduction of GST - to reap the benefit of Input tax credit, individual entrepreneur and company needs to register under GST.
* Skill India initiative
* Demonetization
* Maternity benefit reform
* Fixed term contract reform
* Flexible contract system

Challenges:

* Temporary workers in manufacturing industries -> less liability on employer’s shoulder.

Measures taken:

* Reduction in employer and employee share towards ESIC contribution.
* Startup India, MUDRA
* Recent tax rebate for below 5 lac/annum earners -> more people may file ITR -> Formalisation.
* Recent Govt initiatives of sharing the employer’s share towards EPF contribution -> More recruitment -> Formalisation.

Benefit of formalisation for the individual:

* Legally enforceable job contract
* Social security benefits such as insurance and pension etc.
* Remuneration, allowances and entitlement to loans
* Paid leaves
* Maternity benefits
* Job security -> improve productivity.

Benefit of formalisation for the country:

* India’s actual GDP is much higher than the calculated GDP -> Formalisation of economy helps in addressing this gap.
* More formal workforce -> better management.

Way forward:

* Labour reforms should empower the employer in employing more regular labourers rather than looking for contractual labourers.
* Tax incentives for the employers if they opt for formalisation of labourers.
* Govt needs to focus on and provide incentives for investment based on the job creation both directly and indirectly rather than the volume of investment.
* Reskilling and upskilling of labourers in informal society in tandem with changing technology.
- E.g: Momentum of electric vehicles in automobile industry, Shifting trend of consumerism from brick and mortar to e-commerce.
* Formalisation of agriculture and farmers is need of the hour.
* More financial inclusion and make use of Aadhar data for improving the formalisation of the economy.
* Credit flow to boost-up investment and scaling-up of MUDRA scheme are the keys to formalising informal economy.

RameshKumaralteram

Superb anchoring by Frank as always.I watch most of the episodes of The Big Picture, Desh Deshantar and India's World.I have seen Frank growing from a "not so knowledgeable about issues person" to a person asking relevant and important questions on Foreign Policy, Economic Policy, Politics, New laws being introduced, Judiciary and many more areas of Indian System.
Keep up the good work Frank.Your contribution might not be Revered like many other so called journalists such as anjana om kashyap, ravish kumar, rajdeep sardesai, but your work clearly outclasses all of them.

janukickass

Excellent program by Frank. Proints raised by Prof Aman Agarwal from Indian Institute of Finance were pertinent and critically important

indianinstituteoffinanceii

Formalising Informal Economy
Key Highlights :-
- In India with almost 135 Crore population large part of it still remains unemployed and most of the jobs lags social security.
- According to Indian Staffing Federation now more formalisation of sectors have bee started.
- 11 Million more jobs will move to Formal sector in 2018 from 7 million jobs.
- This shift in formal jobs have taken place largely due to many government reforms such as GST, Skill India, Maternal Reforms and many more.
- Government has lowered the threshold limit of EPF to Rs 15, 000 so that more number of people are covered under scheme.
- ESIC have reduced from 4% to 3.2% which now ensure that more of income earned belongs to employee only.
- "Legally Enforceable Job Contract" should be enacte by the government to give assurance and social security to employee.
- GDP of the nation grows when more number of people getting employed and government receives both direct and indirect taxes.
- The start-up framework which the government introduce have benefitted largely.
- In the interim budget that people with income of Rs 5 lakh need not to pay income tax covered a huge population of country as most of people fall in this slab.
- Now the people can file income tax return which would benefit them in getting loans from the banks.
- Due to GST the transaction which were outside the system have now incorporated them in the system.
- GST, Demonitization had different intention but these alao helped in nutching the behavior of sectors.
- Startups mostly generate white collar jobs in thw field of technology like online shopping mart. These have affected the small shopkeeper. Instead the government should try to manage this Startups. A home delivery startup would also benefit the shopkeeper.
- "Contract Labour" is growing at much faster rate which provides 180 days job guarantee.
- Capital investment and Labour linkage is broken. Most of the investment is used in buying land and setting up the factory and a small amount is left to spend on Labour.
- Skilling of labour takes place at entry level and not at middle level. Example the combustion engine is now been replaced by electric engine so the local mechanic also needs to be impart qith the knowledge of such technology.

Way Forward :-
- Assured terms of employment need to be provided to people so that they have a job and social security.
- Agriculture the largest informal sector need to looked and reforms need to be brought in this sector.
- Aadhar can be the greatest helping aid to government to know its human workforce and it is till not shown any sign of action by government.
- Skills need to be moved beyond age group and Credit flow also needs to be segmented.
This are the measures which will bring a huge formalising of informal sector.

rishabhbansal

Everything about this program is top notch except one 'the viewership'.Myself being a supporter of the government of India I would definitely like to see some steps being taken up to increase the viewership.The foremost goal of digital media is to provide knowledge of our current world to the people who need it especially when the channel is so good.It can be the best.If someone is taking notice please act.

utkarshverma