Shrinking Informal Sector – UPSC GS3

  • State Bank of India’s(SBI) economic research department has released the Ecowrap Report.
  • Report says that India’s informal sector is shrinking sharply.
What are the key findings of the Ecowrap Report?
  • Formalisation of Economy : India’s informal economy has reduced by around 15-20% of the formal GDP in 2020-21, compared to 52% in 2017-18. This signals a greater shift towards the formalisation of the economy.
  • Reasons for the formalisation: Adoption of GST, Enhanced digitalisation and Demonetisation.
  • Impact of Pandemic on Informal Sector : Around 93% of India’s workforce is part of the informal economy (NSSO 2014). Hence, the impact of the pandemic was felt more by the informal sector. Moreover, while the formal sector is now back to pre-pandemic levels, the informal sector continues to struggle.
Note: Informal Sector consists of “own-account” or unorganised enterprises employing hired workers. The highest share of the informal sector is in agriculture, where holdings of small and fragmented farmers are highest.
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