When you type "is the informal economy legal" into Google, the first autocompleted result is "is the informal economy criminal." So, let's get things straight. The informal economy is not a criminal enterprise.
Consider the market's fruit and vegetable shops, the hawkers selling your fried peanuts at traffic signals, and the construction workers building the home next door. Nothing they do is against the law. They're all part of the economy, struggling to make ends meet. They all contribute to the Gross Domestic Product (GDP). In reality, the International Labor Organization (ILO) estimates that the informal sector employs approximately 60% of the world's adult workforce. They don't have contracts, paid vacations, health insurance, or social security.
However, there is another issue here – one that reveals itself at a macro level. How can the informal economy be effectively measured? Particularly when no one, including government agencies, seems to understand what the informal economy involves. The fact is that we can't. Because right now all we have are some reasonable guesses, not the most precise. So, if you read tales like India's informal sector accounting for up to 50% of GDP, be aware that they may not be totally accurate. As a result, anybody predicting the magnitude of the informal GDP must proceed with caution.
With everything out of the way, let's get to the point - the SBI Research team's conclusion that India's informal sector has dropped from around 50% to 20%. The team now feels that the gig economy is a major force behind formalisation. Uber and Zomato, for example, have driven a substantial number of unorganised workers into the official sector. And, although that seems to be a fair assumption, are these individuals really members of the organised labour force?
Consider this: these folks are still without social security (for instance, access to Employee Provident Fund). Experts will tell you that this is a crucial quality that distinguishes individuals who work in the formal economy from those who do not. While the government is expected to establish rules in the future to provide a greater safety net for gig economy employees, there is a lot of space for interpretation until then.
Then there's the reality that the SBI used data from a pandemic year to get at the notorious "15 percent –20 percent" statistic. That the majority of their forecasts are predicated on the reality that the informal sector took a beating last year. And that's a concern for a variety of reasons. Pramit Bhattacharya, a data journalist, observes — "The second flaw in SBI's study is that it makes a claim about a fundamental transition in the economy based on an unusual reference point (the pandemic year). Consider a drought that wipes away half of India's agricultural production and jobs. This will reduce the percentage of agricultural employment in the economy, but it will return the next year when the agriculture sector recovers. It would be ludicrous to say that the Indian economy's structure has altered simply after the drought. Similarly, claiming that the informal sector has vanished merely because many informal businesses closed during the epidemic is absurd."
Even the technique they used to calculate the informal economy's proportion has been called into question. "While there is considerable
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