India’s informal economy has shrunk to around 15-20 per cent of the formal GDP as against 52 per cent three years ago following the adoption of GST, enhanced digitalisation, and demonetisation, a report by the State Bank of India’s (SBI) economic research department has said.
At least Rs 13 lakh crore has come into the formal economy through various channels over the last few years, including the recent scheme on the e-Shram portal, according to SBI Ecowrap.
Since 2016, a plethora of measures, which accelerated the digitisation of the economy and the emergence of the gig economy, have facilitated higher formalisation at rates that are possibly much faster than that of most other nations, the SBI report said.
Over the last couple of years, the government has made many efforts for formalisation, the report said. One of the sources to analyse the extent of formalisation is the monthly EPFO payroll report which provides data on establishments remitting first ECR (Electronic Challan-cum-Return) in a particular month, it said.
“Based on this data we estimate almost 36.6 lakh jobs have been formalised till August 2021,” the SBI report said.
Then there is the e-Shram portal, India’s first national database of unorganised workers, on which 5.7 crore workers have registered until October 30. Sixty-two per cent of workers are in the 18-40 age group, and 92 per cent have a monthly income of less than Rs 10,000, it said.
State-wise data show that the top four states accounted for 72 per cent of total registrations, with West Bengal on top followed by Odisha and Uttar Pradesh.
According to the SBI report, workers from the agriculture sector account for 55 per cent of registration, followed by the construction sector (13 per cent).
Of the 5.7 crore registered workers, 81.2 per cent — or 4.6 crore — have bank accounts, but only 24 per cent of them (1.1 crore workers) have Aadhaar-linked bank accounts.
“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 17 per cent or Rs 6.8 lakh crore or 3 per cent of GDP in just 2 months,” the report said.
“Even in agriculture, the usage of KCC cards has increased significantly and we estimate Rs 4.6 lakh crore formalisation only through KCC route, with more marginalized farmers coming under the banking sector ambit through such usage,” the report said.
However, not everyone is reading the numbers this way. Madan Sabnavis, chief economist at Care Ratings, said the extent of formalisation in the economy will depend on the way it is defined.
“If I am looking at the total workers registered with EPF and unorganised workers registered at e-Shram portal then it would seem to be going up. However, if I see it from a GDP calculation perspective, it will be different,” Sabnavis…
Read More: In three years, informal economy down to 15-20% from 52%, says SBI report