Informal workers are bearing the brunt of the adverse effects of the pandemic, says SBI report
SBI said in a research report that the share of the large informal sector in overall economic activity declined sharply in 2020-21, indicating a greater shift towards formalizing the economy, while informal workers were expected to face the adverse effects of the pandemic. Have to bear the brunt.
Concluding that the share of the informal economy cannot exceed 20% of economic output from around 52% in 2017-18, SBI Group chief economic advisor Soumya Kanti Ghosh termed it as “positive growth” amid the pandemic.
There are wide variations in the level of formality across sectors but SBI estimates that the informal economy is likely to account for a maximum of 15% to 20% of the formal GDP in 2020-21, with at least ₹13 lakh crore coming into the formal economy. . through various channels in recent years.
An IMF policy paper earlier this year estimated that India’s informal economy’s share of gross value added (GVA) stood at 53.9% in 2011-12 and rose marginally to 52.4 per cent in 2017-18 . According to the 2014 National Sample Survey, about 93% of the workforce earned their livelihood as informal workers.
The informal sector includes “self-account” or unorganized enterprises that employ hired workers, with the highest share of such unorganized activity occurring in agriculture where holdings are small and fragmented.
The informal agriculture sector shrinks
SBI estimates show that the informal agriculture sector has declined from 97.1% of the sector’s GVA in 2017-18 to only 70%-75% in 2020-21, driven by increased credit penetration through Kisan Credit Cards. Is. Real estate has also witnessed a significant decline in informal activity from 52.8% in 2017-18 to 20%-25% last year.
The report estimates that around ₹1.2 lakh crore cash usage has been formalized since the COVID-19 pandemic. Formal farm credit flow has increased by ₹4.6 lakh crore between 2017-18 and 2020-21, with digital payments for petrol and diesel increasing by nearly ₹1 lakh crore in the same period.
“Although the pandemic has had a huge devastating impact on all sectors of the economy, its impact has been felt more by the informal sector. While the formal sector is now back to its pre-pandemic levels, the informal sector is still bearing the brunt,” the report asserted, stressing that its estimates are based on the assumption that “the post-pandemic shrinkage is mostly informal”.
Mr Ghosh said, “For India, post-2016, a slew of measures to accelerate digitization of the economy, the emergence of the gig economy has facilitated higher formalization of the economy – possibly much faster than in other countries. ”
“Since 2017-18, a lot has changed in the landscape of the economy. The IMF has also noted that the formalization of the economy has increased since the adoption of GST, there has been an increase in digitization and demonetisation.
‘Review fuel taxes’
Estimating that 572 million people are now part of the formal economy, the report said: “If we take each family supporting a family of 5, we get 114 million which is proportional to the number of taxpayers in the economy.” Adjusting for the consumption of people below the poverty line, these 114 million tax paying households – 8.5% of the population – contribute 65% of private final consumption expenditure.
Reconsidering the higher fuel taxes in this context, SBI’s top economist said: “We believe that the government should ensure that the current tax structure is compatible with this tax paying population which is 8.5 per cent, but 91.5 per cent. Cross subsidizes % of the population. To that extent, the existing tax structure, especially indirect taxes on fuel, should not be consumption negative.”
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