• UGI USER
  • Oct 28, 2023
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Informal Workforce

Q. The sheer size of the informal workforce poses a challenge to the Indian economy, critically evaluate the reasons and how India can tread on the path formalization of the Indian workforce?

Structure of Answer

Introduction

  • Explain meaning of informal workforce
  • Can mention reports like Oxfam India

Body

  • Mention reasons for large size of informal workforce
  • Measures for Formalization of Indian Economy
  • Mention government of India intiatives

Conclusion

  • Mention India’s informal sector significantly hinders the economy, leading to an annual loss of over US$200 billion in tax revenue and productivity, as per the World Bank.

 Informal workforce comprises individuals engaged in unregulated, often low-paying, and unprotected jobs, such as street vendors, domestic workers, or daily laborers. Oxfam India reports that over 86% of India’s workforce is employed in the informal sector, posing considerable economic challenges.

Factors Contributing to Informal Economy in India

  • Employment Opportunities: Limited formal job opportunities lead many to engage in informal work for livelihood.
  • Low Skill Requirements: requires minimal skills, making it accessible to a wide range of workers.
  • Lack of Social Protection: Absence of formal job benefits like insurance and pensions drives people towards informal labor.
  • Informal Family Businesses: Many small family-run businesses operate informally to avoid taxes and regulations.
  • Urbanization and Informal Sector: Rapid urbanization leads to a surge in informal employment in cities.
  • Regulatory Barriers: formalization is hampered by stringent laws and licensing requirements.

Measures for Formalization of Indian Economy

  • Financial Inclusion Initiatives: Pradhan Mantri Jan Dhan Yojana (PMJDY) has successfully integrated unbanked individuals into the formal banking system, encouraging savings and financial security.
  • Labor Market Reforms: Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) provides guaranteed wage employment, reducing poverty and facilitating the shift from informal to formal rural work.
  • Skill Development Programs: Skill India, including Pradhan Mantri Kaushal Vikas Yojana (PMKVY), enhances employability through skill development and vocational training.
  • Promoting Entrepreneurship: Startup India fosters entrepreneurship and formal business creation, stimulating job growth and economic development.
  • Tax Reform and Compliance: Goods and Services Tax (GST) simplifies the tax system, discouraging tax evasion and promoting formal business practices.

India’s informal sector significantly hinders the economy, leading to an annual loss of over US$200 billion in tax revenue and productivity, as per the World Bank. Formalizing this vast workforce promises substantial economic growth, fostering a more resilient and inclusive foundation for India’s future.