Informal Economy

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Informal Economy
Informal Economy

Informal Economy is not a new concept. It was recognized way back by great economists like Adam Smith, Marshall and Karl Max.

The informal economy consists of activities that have market value but are not included while calculating tax revenue and Gross Domestic Product of the economy. According to International Labor Organization, about 2 billion workers or 60% of world’s employed population age 15 and older spend at least part of their time in informal sector.

A pertinent point to note here is that as the economy keeps growing, the percentage of this economy keeps decreasing because more and more employed workforce get engaged in corporate and formal sectors.

Often employment in informal sector is associated with lower scale of sustainable development. It is so because the development cannot be sustained and stay for long if half of the workforce is still unable to get benefits of growth. Informal work is also associated with low-payments, gender inequality, no social welfare and lack of any support during pandemics like Covid-19.

Many ways are prescribed to reduce number of employees in this sector such as policies to enhance financial inclusion, increasing incentives on formalization, improvement in quality of education, providing vocational skill trainings and better implementation of progressive taxation.

Many entrepreneurs choose to proceed in business without any formal registrations such as MSME, Shops & Establishment or GST with an aim to avoid the compliance burden. Proper awareness programs should be conducted to make them understand the benefits of such registrations which are way more than the compliance burden.

Non-filing of Income Tax Returns and accepting only cash payments are also ways to avoid formal structure.

Few examples of people working in informal sector are street vendors, waste pickers, roadside haircut saloons, babysitters, ladies making bamboo products in villages, children selling tissue papers, pens, water bottles on the roadside and roadside ice-cream vendors.

There may be many disadvantages of working in this sector but one thing is very clear that this sector is also an integral part of our economy. Also, some work, reported or not is always better than no work at all. It gives them employment, which will ultimately lead to country’s growth from the ground level.

Moreover, increasing Unified Payment Interface (UPI) transactions has given them some recognition and at least few of their transactions are also being counted in National Income.

Hence, goods and services are delivered in this economy also but the only issue is it is not yet incorporated in macro economy fully, towards which we are moving through internet and online transactions.

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