Formalisation of Indian Economy – UPSC GS3

What is the size of India’s informal economy?
As per NSC (National Statistical Commission)  estimate done in 2018 suggests the size of the informal economy at 52%.
How the size of informal economy can be measured?
  • e-Shram initiative: GoI is making earnest efforts to bring such unorganised employment into the formal stream by incorporating MSMEs through the GST portal. It also recently launched the e-Shram initiative that is creating a comprehensive database of unorganised employment in India.
  • Digital footprints: the consumption of the informal sector can be captured through digital footprints. For instance, an informal wage-earner’s trace in the economy may be captured by the shampoo-sachet or glucose biscuit she may be purchasing. Likewise, a small entity may be a seller in an online platform and accepting UPI-based payments.
What are the signs that indicate an increase in formalization of the economy?
  • Provident-fund enrolments have steadily risen amid a job scarcity, a chunk of these could be due to payrolls going formal.
  • Extra bounce seen lately in collections of GST.
  • Increase in UPI transactions: In October, transactions done via the Unified Payments Interface (UPI) hit a record 4 billion, worth over $100 billion.
  • The EPFO portal shows that around 2.25 lakh business units have been formalised since that data has been made online.
  • The total number of outstanding KCCs (Kisan Credit Cards) is currently at 6.5 crore. The credit offtake per KCC translates into agri-credit formalisation of Rs 4.6 lakh crore.
What are the issues that still remain?
  • As a proportion of gross domestic product, cash in circulation has risen above its level before demonetization.
  • The extent of formalization still lacks a sound estimate based on widespread survey or research.
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