The COVID-19 pandemic accelerated digitalization in India. This paved way for the formalization of the Indian economy.
The share of the informal sector was 52.4 per cent in 2018. It has reduced to 15-20 per cent in 2021.
The demonetization that happened in November 2016 has forced digitalization in the country. This led to the emergence of a gig economy and has eased the formalization of the economy. The rate of transition was higher compared to that of other nations.
The informal sector earlier made up 93 per cent of India’s workforce. The note ban, introduction of GST and the COVID-19 pandemic were consecutive blows for the sector.
Through various initiatives and schemes, about 13 lakh crore of the informal sector came under the formal sector. The recent one was the E-Shram portal.
The 2011 Census pinned the hold of the informal sector in trade, hotels, transport, communication and broadcasting at 40 per cent.
Construction was pinned at 34 per cent. Public administration was pinned at 16 per cent. Manufacturing was pinned at 20 per cent.
100 per cent formalization was predicted in the finance and services sector.
After the pandemic, the formal finance sector became bigger by 10 per cent. The formalized utility services became bigger by 1 per cent.
From FY18, almost 36.6 lakh jobs have been formalized till July 2021. The formalization rate of 2021 will be more than that of 2020, but less than that of 2019. The pandemic shrieked the economy badly.
The KCC credit has been formalizing the agriculture sector since FY18. Now the informal agriculture sector is only 70-75 per cent.
Since the E-Shram portal was launched in August, 5.7 crore unorganized workers enrolled in it. E-Shram portal is a significant initiative towards the formalization of the economy.
Another thing that initiated the formalization of unorganized workers may be the boom of startups.
The middlemen who are used to transparency will be reluctant to adjust to new reforms in technology. However, the startups can persuade them to embrace these.
The informal workers were mostly hit by the pandemic. Formalization helps a lot in such adverse times.
But care must be taken to ensure a smooth transition from informal to formal.
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