Informal Economy

Informal economy in India is faced with many challenges despite its significant contribution to the economy

Informal economy accounts for more than half of the $1.8tn Indian economy and employs about 90% of the total workforce. At about 55% of the GDP, the share of informal economy in India is second largest after that in sub-Saharan Africa. Most of the emerging economies have this number at about 20%.

Even though the informal economy forms such a significant part of the country’s growth, government has little data on it and it is not so well understood. Informal economy includes that part of the economy that is no regulated by the government, does not pay taxes and conducts most transactions in cash. It is responsible for providing employment to significant part of the population that is not covered by the formal sector. It is typically managed by households and small, family owned or proprietary businesses that hire workers off-the-books. Most common examples of informal workers include domestic help, drivers, guards, or even construction and factory workers in bigger businesses. The workers in this sector are usually poor, although there are

Theoretically it is believed that informality is bad and usually declines with high economic growth, but the same has not been seen in India; despite years of rapid economic growth, the share of informal sector in India has not declined in India. There are many reforms needed for enterprises and workers to move from informal to formal sector, some of them being access to infrastructure, technology, skill building, etc. along with labor reforms and access to credit at reasonable rates. Only with this shift, they will be able to pay for their social security in the long run. It is time government comes up with major policy reforms to address these issues and support the