Informal sector share shrinks to 20% from 52% in FY2018: SBI Ecowrap

The State Bank of India Research’s latest Ecowrap report stated that in three years the share of the informal economy might have shrunk to 20 per cent currently from 52 per cent in FY2018. The SBI Ecowrap report stated that while all the sectors of the economy felt the impact of the pandemic, the impact was felt more by the informal sector.

“Our starting point is an assumption that the shrinkage in the economy post pandemic is mostly informal and hence the loss in output across sectors gives us a measure of the informal sector. By making this assumption, we ensure that the size of the informal economy is still overstated as the shrinkage in economy also consists of formal. This ensures that our estimate is at least free from any downward bias in measurement. Employing this methodology and rigorous data validation, this article estimates that currently the informal economy is possibly at max 15-20% of formal GDP,” it stated. The report added that it is difficult to measure the exact amount of formalisation in the agriculture sector as a huge chunk of labour has reverse-migrated.

The government has made many efforts to formalise the informal sector in the last few years, the report stated. EPFO payroll is one of the sources to analyse the extent of formalisation. As many as 36.6 lakh jobs have been formalised since August 2021, the report stated, based on data from EPFO. “Next is the E-Shram portal, which is the first-ever national database of unorganised workers. 5.3 crore unorganised workers (Oct 27/ and counting) have registered in the first two months after its launch, with 62% of workers belonging to the age-group of 18-40 years and 92.0% registered workers having monthly income of less than Rs 10,000,” it stated.

Of the 5.3 crore registered workers, 80 per cent of 4.2 crore have bank accounts but only 25 per cent of them or 1.1 crore workers have Aadhaar-linked bank accounts. “The E-Shram is a big step towards the formalisation of employment as our calculation indicates that till date the rate of formalisation of unorganised labour due to E-Shram is around 15% / Rs 6.4 lakh crore / 3% of GDP in just 2 months,” stated SBI.

The usage of KCC cards also indicates Rs 4.6 lakh crore formalisation only through the KCC route in agriculture. As much as 68.9 crore insurance and pension accounts have been opened across several schemes for the unorganised as well as the organised.

“Formalisation of an economy is always better from a policy perspective. Our estimates show that 11.4 crore tax paying households, 8.5% of the total population contributes to Rs 75 lakh crore or 65% of the private final consumption expenditure and cross subsidises 91.5% of the population. Hence it is important and ethical that even as we formalise, we must support honest tax paying households through a better designed tax structure, particularly indirect taxes on items like fuel!,” it stated.

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