Informal sector shrinks to 15-20% from 52% three years ago: SBI report

With the roll-out of GST, demonetisation, and accelerated digitisation in the country, the share of the informal sector in the Indian economy shrunk to 15-20 percent in 2020-21 from 52.4 percent three years ago, said a report.

According to a report by the economic research department of State Bank of India (SBI), at least Rs 13 lakh crore was formalised over the last few years through various channels.

The pace of formalisation of the economy was slow between 2011-12 and 2017-18, but picked up pace between 2017-18 and 2020-21. This is because a number of measures taken since 2016 accelerated digitisation of the economy and rapidly expanded the gig economy. Formalisation in the last few years happened at a "possibly much faster” rate than that of most other nations, the report said.

The extent of formalisation can be seen through the monthly Employees' Provident Fund (EPF) payroll report that provides data on companies remitting electronic challan-cum-returns (ECR) every month.

“Based on this data, we estimate almost 36.6 lakh jobs have been formalised till August 2021,” the SBI report said.

The study also showed that the rate of formalisation due to the e-Shram portal, a national database of unorganised workers, was 17 percent, or Rs 6.8 lakh crore, till date. The e-Shram portal, launched on August 26, had 5.7 crore registered workers until October 30. About 62 percent of these workers fell in the 18-40 age group and 92 percent earned a monthly income of less than Rs 10,000, the report said.

Agriculture had the highest share of the unorganised sector as farm holdings are small and fragmented. At present, the informal share in agriculture was about 70-75 percent as against 97.1 per cent in FY18 and 96.8 percent in FY12, the report said.

According to the report, the informal component in the construction sector was around 34 percent and around 16 percent in public administration. The informal sector in manufacturing was around 20 percent.

The informal sector was hard hit by COVID-19 and is still struggling to return to pre-pandemic levels, the SBI report said.

A few economic analysts disagreed with SBI’s assessment of the informal sector. “While there has been a rise in formalisation, the informal sector has definitely not halved,” a top analyst with a global financial firm was quoted as saying by the Indian Express, adding that high levels of formalisation would have pushed up tax-to-GDP ratio significantly, which has not happened.

Madan Sabnavis, Chief Economist at CARE Ratings, said 40-45 percent of the economy would still be informal if the structure of the economy in terms of output was taken into account, the Indian Express report added.