Sluggish job creation in informal sector is cause for concern

As the sector cranks up again, government intervention is important to make it more productive.
The image is used for representational purposes only.
The image is used for representational purposes only.Express illustrations

India’s informal sector—the non-corporatised micro, small and medium enterprises (MSMEs) – is at the very heart of the country’s pulsating economy. More importantly, it provides the bulk of the country’s jobs. It is therefore significant that this sector added only 11.7 million workers in the October 2022-September 2023 period after the pandemic, taking the sector’s total count to 109.6 million.

What is worrisome is that the employment level is still below the pre-pandemic count, as the National Statistical Office’s survey of ‘unincorporated sector enterprises’ revealed. The previous round of the survey, conducted between July 2015 and June 2016, showed 111.3 million workers employed by this sector.

Considering 90 percent of India’s workforce are employed in the informal sector, either self-employed or in small units, and it produces 50 percent of the country’s GDP, the sluggish growth is not good news. It must be remembered that workers in formal employment (defined by the ILO as jobs that provide at least one social benefit like pension), account for only 9.7 percent of India’s workforce, or 47.5 million.

The importance of the informal sector can be gauged from the fact there are 65-70 million MSMEs employing 2-3 persons per unit. This huge job-creating sector has suffered a series of shocks in recent years. Demonetisation, GST and finally the pandemic took a toll—as many as 10 million of these units were forced to shut, rendering 25-30 million workers jobless.

As the sector cranks up again, government intervention is important to make it more productive. The Union government’s target of generating 50 million fresh jobs by 2025 will remain on paper if we fail to tackle the current challenges. There should be two points of focus. First, a simple and flexible regulatory scheme that makes setting up and working a production unit easy. Small entrepreneurs need to be rid of the fear of an authoritarian compliance regime.

Second, easy access to bank credit where the collateral of a running enterprise should suffice. Large-scale formal employment is still a distant dream in India. Much of the country continues to function in the large grey area between organised enterprise and the law of the jungle. Till we see a revolution in the use of technology and investment, we will have to find ways of generating jobs in the informal sector.

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