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Informal Sector

Informal Sector:

Signalling a greater shift towards formalisation of the economy, the share of the large informal sector in overall economic activity dipped sharply in 2020-21 even as informal workers continue to bear the brunt of the pandemic’s adverse effects, the SBI said in a research report.

  • The share of the informal economy may have shrunk to no more than 20% of the economic output from about 52% in 2017-18.
  • There are wide variations in the formalisation levels in different sectors but the SBI estimated that the informal economy is possibly at a maximum of 15% to 20% of formal GDP in 2020-21.
  • The SBI projections suggest that the informal agriculture sector has shrunk from 97.1% of the sector’s GVA in 2017-18 to just 70%-75% in 2020-21, driven by the increased penetration of credit through Kisan credit cards. Real estate has also seen a significant dip in informal activity from 52.8% in 2017-18 to 20%-25% last year.
  • The report estimated that about ₹1.2 lakh crore of cash usage has been formalised since the COVID-19 pandemic.
  • Formal agriculture credit flows have grown ₹4.6 lakh crore between 2017-18 and 2020-21, with digital payments for petrol and diesel rising around ₹1 lakh crore in the same period.
  • The informal sector consists of “own-account” or unorganised enterprises employing hired workers, with the highest share of such unorganised activity being in agriculture where holdings are small and fragmented.
  • As per a National Sample Survey (NSS) of 2014, around 93% of the workforce earned their livelihoods as informal workers.
  • An IMF policy paper earlier this year estimated that the share of India’s informal economy in the Gross Value Added (GVA) was at 53.9% in 2011-12 and improved only marginally to 52.4% in 2017-18.

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